Offer 2
Stages in the Common Law Contract Making Process 2
Invitation to treat: 2
Communication of Offer: 2
Rewards: 2
Tenders / Bids / Auctions: 2
Acceptance 3
Communication of Acceptance: 3
Termination of Offer 3
Revocation: 3
Other forms of Rejection (by offeree) or Revocation (by offerror): 3
Lapse of Time: 4
Certainty of Terms 4
Vagueness: 4
Incomplete Terms: 4
Agreement to Agree: 4
Negotiation in Good Faith: 4
Intention to Create Legal Relations 5
Family & Commercial Relationships: 5
Sealed Documents: 5
Enforcement of Promises 5
Charitable Subscriptions/Mutual Promises: 5
Consideration 5
Forbearance of a Legal Claim: 6
Pre-Existing Legal Duty: 6
Contract Modification: 6
Promissory Estoppel & Waivers 6
General Rules of Promissory Estoppel: 7
Sword or Shield? 7
General Rules of Waiver: 7
Privity of Contracts 8
General Rules: 8
Avoidance of the Contractual Box: 8
Employee Liability: 8
Contingent Agreements 9
Types of Conditions: 9
Waiver of Condition: 9
Damages: 10
Representation & Terms 10
Legal Significance of Statements Made During Formation of Contract: 10
Analytical Approaches: 11
Rescission: 11
Limitations of Rescission: 11
Innocent Misrepresentation: 11
Warranties: 12
Distinguishing Between Innocent Misrepresentations & Warranties: 12
Concurrent Liability in Contract & Tort: Negligent Misrepresentation: 13
Parol Evidence Rule: 13
Classification of Terms (Warranties & Conditions): 15
Policy Considerations 15
Bargain Theory: Offer & Acceptance: 15
Enforcement of Promises: 15
Role of Legal Formalities in K Law: 15
Contract Modification: 16
Remedies 16
1
OFFER
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
INVITATION TO TREAT:


A statement of willingness to entertain an offer; invitation to others to make an offer; often
a prelude to a K.
General Rule: Giving a mere price quote or placing goods on shelf for sale or publishing
advertisement is not an offer but an invitation to treat: Pharmaceutical Society v. Boots.
EXCEPTIONS:


Need to take into consideration the intention of the parties, their conduct and the
surrounding circumstances to determine whether price quote or ad is offer instead of
invitation to treat: Canadian Dyers Association, Goldthorpe
A promise to world at large to give something in return for performance of some action is
not invitation to treat, but a unilateral offer: Carbolic Smoke Ball Co.
COMMUNICATION OF OFFER:

An offer must be explicitly and intentionally communicated in order to be valid: Blair.
REWARDS:



Notices for rewards constitute a unilateral offer. Whoever has knowledge of the offer and
fulfills the stated requirements gets the reward regardless of motive: Williams v. Carwardine
Exception: if don’t act on reliance of offer (are not aware of offer or give no regard to offer)
then not entitled to reward: Clarke
Where someone promises to fulfill the unilateral offer, it becomes a bilateral contract (e.g.
You offer to pay $500 for finding Echo. I promise to find Echo. This leads to a binding
obligation to find Echo, where if I fail, you can sue for breach of contract.)
TENDERS / BIDS / AUCTIONS:


invitation to treat can specify the type of offer (bid) required; e.g. whether fixed price or
auction bids: Harvela Investments
in a formal tendering process, call for tenders is not just an invitation to treat but an offer
(to accept tenders); submission of valid tender is acceptance of this offer (contract A); the
2


tender that is chosen is then basis for forming actual contract to do work (contract B); Ron
Engineering, MJB Enterprises
if submitted tender is not valid (i.e. it does meet terms stated or implied in call for tenders)
then it does not result in a contract (contract A): MJB Enterprises
In auction, auctioneer is making invitation to treat; those who are bidding are making offer;
invitation or offer can be revoked before hammer is hit.
ACCEPTANCE
COMMUNICATION OF ACCEPTANCE:





Acceptance must be communicated to offeror (silence is not valid acceptance): Felthouse
However, acceptance can be implied based on conduct/circumstances: (Smith v. Hughes)
Recipient rule: acceptance is effective when received by the offeror (true for all
instantaneous communication; e.g. phone, telex): Brinkbon
The offeror determines (expressly or implied) the method of communication of the
acceptance: Eliason v. Henshaw
If an offeror has not insisted on one mode of acceptance, an acceptance communicated to
the offeror by same mode or any mode which is no less advantageous to the offeror will
conclude the contract: Manchester Diocesan Council
EXCEPTIONS:



Unilateral offers do not require communication of acceptance (acceptance is based on
performance): Carbolic Smoke Ball Co
Mailbox rule: acceptance still needs to be communicated but is effective when it is delivered
to post office, not when received (true for non-instantaneous communications; e.g. mail,
courier, telegraph): Household Fire & Carriage Accident Insurance
Exceptions to mailbox rule: does not apply if it leads to absurdity or inconvenience; does
not apply if the offer explicitly states that the acceptance must reach the offeror: Holwell
Securities
TERMINATION OF OFFER
REVOCATION:



An open offer can be revoked any time before offer is accepted. The revocation of an offer
takes effect when it is communicated to offeree and mailbox rule does not apply: Byrne.
Acceptance of offer by one party amounts to revocation of offer to all other parties; offer is
dead and revocation does not have to be directly communicated: Dickinson v. Dodds
o An offer can be firm if transformed into an option contract, e.g. $1 to keep offer open.
General rule for unilateral contracts used to be that offeror could revoke the offer any time
before performance completed. Now the rule is that a unilateral K cannot be revoked once
performance has begun: Errington; Ayerswood Development
OTHER FORMS OF REJECTION (BY OFFEREE) OR REVOCATION (BY OFFERROR):


Explicit rejection or silence
Counter-offer (terminates original offer)
3



If offeror dies then offer dies with him/her; cannot accept after death
Time lapse (explicitly stated or “reasonable” time): Barrick v Clark
If offeree does not comply with terms of offer (mode of communication): Eliason v. Henshaw
LAPSE OF TIME:


An offer that is expressly stated to last for a fixed time cannot be accepted after that time.
An offer that contains no express provision limiting its duration terminates after lapse of a
‘reasonable time’; determination of reasonable time is based on conditions and conduct
within each case: Barrick v. Clark
CERTAINTY OF TERMS
VAGUENESS:

if terms are so vague and uncertain as to be unenforceable then contract is no good, but if
can give terms meaning based on intent of parties then contract binding under those
meanings: CAE Industries Ltd
INCOMPLETE TERMS:


General rule is that all essential terms (party, property, price) have to be settled on to
conclude a valid contract; a bare agreement to agree is not binding: May v. Butcher
However, where possible courts will try to save contract by giving reasonable meaning to
vague terms; this meaning must be based on some benchmark, formula or mechanism
provided in the contract: Hillas and Co.
o Exception: the actions and intention of parties can be enough to enforce a K that is
missing an essential term such as price, if there is a provision that, e.g. “is to be
agreed by the parties… from time to time”: Classique Coaches
AGREEMENT TO AGREE:


Generally, an agreement to agree is not enforceable.
General rule is it is not sufficient for essential term to be ‘negotiated in good faith’ since this
mechanism is too subjective: Mannpar Enterprises
o exception is if formula is provided then can possibly imply mechanism of good faith
to enforce contract: Empress Towers
NEGOTIATION IN GOOD FAITH:

No duty to negotiate in good faith in Canadian contracts due to adversarial position of the
parties (Walford v. Miles) and uncertainty (Wellington City Council).
o Result: 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.
o However, express/implied term of K may indicate need good faith (Empress Towers)
4
INTENTION TO CREATE LEGAL RELATIONS
FAMILY & COMMERCIAL RELATIONSHIPS:




An agreement will not constitute a binding contract unless it is one which can reasonably be
regarded as having been made in contemplation of legal consequences.
There is a strong presumption in social and family agreements that they are not intended to
be legally binding unless they are expressly specified otherwise: Balfour
o However, in certain cases where it looks more like a business arrangement (e.g.
parents have a basement suite), it may be enforceable: Padavatton
There is a strong presumption in commercial agreements that they are intended to be
legally binding unless they are expressly specified otherwise: Rose and Frank Co. v. JR
Crompton and Bros. Ltd (Where they decided to not be legally bound)
Consider all factors; intent, certainty, consideration and sophistication of parties,
reasonable person test, to decide legality of agreement; e.g. comfort letters known by
businesses not to be binding: Leigh Instruments
SEALED DOCUMENTS:


Sealed documents are enforceable regardless of consideration; it is a non-bargain promise.
Intention must be to create binding legal relationships: was the application of the seal a
conscious and deliberate act? The formality of seals is important (requires a physical seal,
"signed, sealed and delivered"): Royal Bank v. Kiska
ENFORCEMENT OF PROMISES
CHARITABLE SUBSCRIPTIONS/MUTUAL PROMISES:



Common law is very reluctant to enforce gift promises due to lack of consideration:
Dalhousie College; Branford General Hospital Foundation
o Statute of Frauds in other jurisdictions make public good promises enforceable.
However, mutual promises ARE consideration: Wood v. Lucy
Past consideration is not good consideration, a promise in the present for something done
in the past does not lead to contractual obligations in the future: (Eastwood v. Kenyon)
o Exception: does not apply if the past consideration was done at request of the
promissor (request > performance > promise): Lampleigh v. Brathwait
CONSIDERATION
GENERAL RULES:




A consideration of some legal and economical value is required.(unless contract is formally
made under seal, e.g. deed): Thomas v. Thomas
Consideration must be sufficient but not necessarily adequate (must have some economic
value, but doesn’t need to be a realistic price for the promise it buys): Thomas v. Thomas
If there is evidence of duress (coercion) or fraud (misrepresentation with intent to induce
action) or undue influence, then is not good consideration: Pao On
Consideration must move from the promisee; can be a benefit given to the promisor or a
detriment or loss from the promisee: Thomas v. Thomas
5

Consideration must be ‘fresh’: i.e. it may be executory (future promise) or executed at time
of contract (present act or forbearance) but must not be in past (except for certain
exceptions – see previous section and Pau On)
FORBEARANCE OF A LEGAL CLAIM:

If there is honest and serious intention to sue, forbearance or settlement (two forms of
compromise) can be valuable consideration at common law.
o Exception: forbearance is not binding consideration in cases where the threatened
claim is invalid (e.g. no foundation/ chance of success or conceals facts): B. v. Arkin
PRE-EXISTING LEGAL DUTY:



Public Duty: No consideration for promising to perform a public good.
A promise to perform, or performance of a pre-existing duty to a third party can be valid
consideration: Pau On v. Lau Yiu Long
o Past performance is good consideration if: 1) The act of the promise was done at the
promisor’s request; 2) the parties understood that the act was to be remunerated by
a payment or the conferment of some other benefit; 3) The payment, or conferment
of benefit must have been legally enforceable had it been made in advance.
A promise to perform a duty already required by the promissor is not good consideration;
there must be new consideration (Stilk v. Myrick [promise to pay sailors more not binding])
CONTRACT MODIFICATION:




A modification to a contract is invalid unless supported by new consideration or if original
contract is rescinded: Gilbert Steel
Pre-existing legal duty owed to the promisor may be a valid consideration for a subsequent
promise if the promisor derives practical benefit from the agreement and if not given under
economic duress: Roffey Bros
o Post-K modifications may be enforced if not procured under economic duress
(doctrinal change): Greater Fredericton Airport Authority Inc v. Nav Canada
Agreement to accept lesser sum in satisfaction for whole amount is not good consideration:
Foakes v. Beer. Even if there is a benefit to the one accepting less: Re SelectMove Ltd.
o Agreement to take less is enforceable if expressly accepted: s.43 Law & Equity Act
Forms of payment other than cash can be ‘new’ consideration for agreements to repay debts,
including cheques: Foot v. Rawlings
PROMISSORY ESTOPPEL & WAIVERS


Modern concept of promissory estoppel established by House of Lords in Metro Railway
Lord Denning developed the modern law of promissory estoppel in High Trees House
indicating that the following elements are required to found a promissory estoppel
(referring to Hughes):
o A clear and unequivocal promise or representation as to future conduct which
indicates that the promisor will not enforce all his rights under the existing
contract with the promisee.
o Which the promisee relies on and which it would be unconscionable or
inequitable for the promisor to revert and insist upon his full contractual rights.
6
GENERAL RULES OF PROMISSORY ESTOPPEL:
1. Existing legal relationship between the parties at the time the statement on which the
estoppel is founded was made: Combe v. Combe
2. Promise - there must be a clear promise or representation made by the party, by words or
by conduct, against whom the estoppel is raised, establishing her or his intent to be bound
by what she or he has said: John Burrows Ltd. v. Subsurface Surveys
 But note that intention can be inferred from reasonable reliance by promisee (Owen
Sound Public Library Board v. Mial Developments Ltd)
3. Reliance - there must have been reliance, by the party raising the estoppel, upon the
statement or conduct of the party against whom the estoppel is raised: Societe Italo-Belge
4. Detriment/Alteration of Positions - The reliance above must have resulted in some form of
prejudice or detriment to the applicant: Societe Italo-Belge v. Palm and Vegetable Oils
5. Inequitable to go Back - Estoppel only enforced if it would be inequitable and
unconscionable for promisor to go back on promise: D & C Builders
6. Must come with clean hands - "He who comes into equity must come with clean hands,"
agreement to take less must be voluntary and not made under duress: D & C Builders
7. Suspensive / Extinctive – Estoppel/waiver can be temporary or permanent suspension of
rights of promisor; can revive rights with reasonable notice if equitable to do so: Lord
Denning in W.J. Alan & Co. v. El Nasr Export & Import (where they did not give reason. notice)
and Petridis v. Shabinsky (reiterate if waiver is relied on, need notice to retract waiver)
SWORD OR SHIELD?




Promissory estoppel cannot be used to create new causes of action where none existed
before (must sue under breach of contract, or some such). It only prevents a party from
insisting on its strict legal rights, when it would be unjust, having regard to the dealings
between the parties: Combe v. Combe
Action can be a waiver of a strict right rather than a variation of the contract (e.g. extension
beyond stated notice period of negotiation for rental agreement): Petridis v. Shabinsky
Can still be used by the plaintiff to enforce a promise that protects them (e.g. force
recognition of an agreement to pay $1000 to drop a lawsuit for $3787): Robichaud v. Caisse
Can be used as a sword if the party that reneges on their promise knew that the other party
was relying on the reneger's actions to their detriment: Waltons Stores (Interstate) Ltd.
o Can be used despite no existing legal relationship if there is a reasonable
presumption or expectation of a legal relationship: Waltons Stores v. Maher
o If no expectation of legal relationship, cannot use Prom. Estop.: M.(N.) v. A.(A.T.)
GENERAL RULES OF WAIVER:



Denning; “The principal of waiver is simply this: if one party by his conduct, leads another
to believe that the strict rights arising under the contract will not be insisted on, intending
that the other should act on that belief and he does act on it, then the first party will not
afterwards be allowed to insist on the strict legal rights when it would be inequitable for
him to do so.”: W.J. Alan & Co. v. El Nasr Export & Import Co
Must have (1) a full knowledge of rights, and (2) an unequivocal and conscious intention to
abandon them; Saskatchewan River Bungalows Ltd v. Maritime Life Assurance
Can retract waiver and revive waived rights if not inequitable and give reasonable notice:
Petridis v. Shabinsky (not enough notice)
7
PRIVITY OF CONTRACTS
GENERAL RULES:

A K can neither confer rights nor impose obligations on a third party; as well, the third party
cannot enforce a K, even where purpose of the contract is to convey a benefit to the third p.
o Exception by legislation: Insurance Act
o Because no consideration flowing from third party (Tweddle v. Atkinson)
o Other rationales: Third party could prevent modification, since 3p rights could be
seen as having crystalized; Economic rationales (encouragement of market based
concepts supp nascent capitalism; self reliance; minimize liability)
AVOIDANCE OF THE CONTRACTUAL BOX:



Categorize third party as a beneficiary under trust. In contract between A & B, B is the
trustee who holds property for C's beneficial interest. C can then enforce the terms of the
trust directly against B and third parties with whom B has contracted.
Categorize the third party as an assignee under assignment. A has contract with B; B assigns
contractual right to C; C can enforce contract against A (e.g. buying debt at a discount, which
is confirmed as a legally possible under the Law & Equity Act, s.36(1)).
Categorize B as a contracting agent for C, the third party. Principal (C) gives the Agent (B)
authority to act on their (C's) behalf.
EMPLOYEE LIABILITY:




There are often limitation or exclusion clauses which limit liability in a contract. The
enforceability is only for those parties who are mentioned in the limitation clause.
1. The negotiating parties must have intended the third party to benefit from the
contract: Edgeworth Construction Ltd.
2. Contracting party must also be contracting as agent for the third party.
3. The party that acted as agent for the 3P must have had authority to do so.
4. There must be consideration moving from the 3P to the non-agent party. In
Greenwood v. Beattie (Canadian Tire fire) no consideration flowing from the
employees who caused the party to the plaintiff landlord.
 Problems of Greenwood: Formalistic; failure to consider consequences of
judgement (unfair surprise, distributive justice); disrupts risk allocation;
inefficient (employees need to insure too=double insurance).
London Drugs v. Kuehne & Nagel relaxes the above where the employees are necessary to
the action that included the exclusion clause (In Greenwood, employees not necessary to
performance of the agreement to lease the space in the mall).
Based on London Drugs, employees can benefit, provided:
1. Limitation of liability must expressly or impliedly extend benefit to employee.
2. The employee is acting in the course of their employment and providing the very
services provided in the contract when the loss occurs.
Continued problems:
1. Employer may have no insurance/no limitation clause. Employee only obtains 3P
benefits if employer has protected itself.
2. Even if insurance/limitation clause, employer might not ensure that it extends to
employees.
3. Employer may not decide to insure employees.
8

Fraser River Pile & Dredge Ltd. v. Can-Dive Services: Third party can benefit from exclusion
clause if it meets the above test, even if not an employee (barge owner/charterer scenario)
CONTINGENT AGREEMENTS
TYPES OF CONDITIONS:





Condition Precedent: A condition that must be satisfied before a contract arises; not really a
contractual condition, but an offer/acceptance that is subject to a condition (contingent con.)
o You agree to buy my Vespa, subject to your liking the color. Like an agreement to
agree; too much uncertainty/ambiguity - so no contract yet.
o Where the conditions are too illussory/ambiguous, the courts will not impose a
contractual relationship on the parties: Wiebe v. Bobsien
True Condition Precedent: Contract is concluded, but obligations are suspended until the
condition (outside of the parties' discretion) occurs.
o You agree to buy my Vespa if Dean Fortin is elected as Mayor of Victoria. In this case,
you can sue me if I sell the Vespa before the election ONLY if Dean Fortin is elected.
o Where condition is precise enough (e.g. subject to a specific event occurring on/by a
specific date), a contract arises.
Condition Precedent for One Party: e.g. Contract for sale of Vespa subject to the oil being
changed and the engine being tuned up within two weeks.
o Court will imply terms that owner/seller is required to exercise reasonable/good
faith efforts to have these things done: Dynamic Transport Ltd v. O.K. Detailing Ltd.
o 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.
o 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.
o Obligations to do something in order to satisfy a condition are sometimes described
as subsidiary conditions.
Condition Subsequent: A condition that discharges parties from contractual obligations.
1. You agree to buy my Vespa. If the engine malfunctions within two months, you can
return the Vespa to me for a full refund.
Implied Conditions under the Sale of Goods Act:
1. Good corresponds with the description
2. Good is reasonably fit for the purpose
3. Good is of merchantable quality
4. Good will be durable for a reasonable period of time
WAIVER OF CONDITION:

Tortured jurisprudence distinguishing two types of conditions, depending on interpretation:
1. Non-waivable true condition precedent (reliance on a third party): Turney v. Zhilka
2. An ordinary condition precedent, which may be waived.
 Barnett v. Harrisson established that whether the benefit of the condition for
one/two parties and whether it is severable from the contract is not
important; the ruling in Turney should be upheld because the two parties
entered the legal relationship with the intent of the condition being binding.
9

Law & Equity Act, s.54: A party can waive the condition, even if dependant on actions of a
third party if:
1. The condition precedent benefits only that party to the contract;
2. The contract is capable of being performed without fulfillment of the condition
precedent;
3. Where a time is stipulated for fulfillment of the condition precedent, the waiver is
made before that time, OR where the time is not stipulated, but the waiver is made
within a reasonable time.
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 Developments Ltd.
o Defendant did not use reasonable efforts as agreed upon to register subdivision
plans because lots had increased in value since contract formation (wanted to get
out of the contract to get more money). C.A. found no reasonable chance of
registration, so only awarded nominal damages.
REPRESENTATION & TERMS
LEGAL SIGNIFICANCE OF STATEMENTS MADE DURING FORMATION OF 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
(Representation
elevated to a term of K)
Expectation damages
Reasonable expectation
Condition
(Goes to root of K)
Repudiation and expectation damages
Reasonable expectation
Intermediate or
Innominate or term
(Hong Kong Fir)
Damages or repudiation depending
on whether the result of the breach
goes to the root of the contract
Reasonable expectation
10
ANALYTICAL APPROACHES:




Doctrinal: The legal test
Policy approach: Protect reliance & reasonable expectations of one party & avoid 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.
RESCISSION:

Rescission is an equitable remedy to set aside a contract because of a defect in its formation.
o Distinguished from Repudiate/terminate which parties do. Courts rescind.
LIMITATIONS OF RESCISSION:



In real estate, execution of K bars rescission; must request rescission before K executed:
Redican v. Nesbitt. However, Ennis v. Klassen which involved a car indicates that rescission
will continue to be available for "a reasonable period of time for the purchaser to determine
whether representations are true."
Promisee must be able to give back what they got from promisor (restitutio in integrum).
Note: The court will be less ready to pull a transaction to pieces if the defendant is innocent,
compared to a case of fraud where the court protects against unjust enrichment: Kupchak
INNOCENT MISREPRESENTATION:







Erroneous, false statement, but speaker did not know it was false (might think it true)
Policy: which to enforce? Caveat Emptor OR Unjust Enrichment?
Remedy limited to rescission; cannot get damages for innocent misrepresentation. No relief
possible if rescission is no longer possible. Once performance is complete, you're stuck with
it, unless something seriously wrong (breach of a condition).
After a reasonable period of time, rescission is not possible, but may be able to claim
damages if the representation is a condition of the K: Leaf v. International Galleries
Requirements:
o Must be a representation of fact that turns out to be false;
o Must be a material matter (i.e. an important matter);
o Must induce the making of contract/be relied upon (but this is presumed): Redgrave
o Innocent party did not know correct facts.
When there is a disparity of knowledge and one party knows the facts best, this will very
often involve a statement of material fact, even if they think it is opinion: Smith v. House
Property Corp. Distinguished from a situation where both parties know the facts equally.
Generally, parties are not required to disclose material facts. Silence is not misrepresentat.
o Exceptions: Half-truths; Active concealment; Changing circumstances that affect
truth of an earlier statement; Contracts uberrima fides (utmost good faith);
Contracts arising out of fiduciary relationships.
o Sometimes failure to disclose results in an innocent misrepresentation & rescission:
Bank of British Columbia v. Wren Developments Ltd.
 Difficult to reconcile with general rule of no duty to disclose. Better viewed
as based on the doctrine of mistake?
11
Obiter in 978011 Ontario Ltd. v. Cornell Engineering Co. suggests that a duty
to disclose should be enforced like in USA when considering:
 Past dealings in which reliance is an accepted feature of dealing.
 Explicit assumption of one party having advisory responsibilities.
 Relevant position of parties regarding access to information and
understanding of the possible demands of the deal.
 The manner in which the parties were brought together.
 Whether trust and confidence was knowingly reposed by eitherparty.
Court can reward monetary compensation if rescission impossible because something was
sold due to rescission being an equitable remedy: Kupchak v. Dayson Holdings


WARRANTIES:



A promise that parties intend to be binding and breach gives rise to (expectation) damages.
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: Dick Bentley Production Ltd. v Harold Smith (Motors) Ltd.
o The intention of parties relies on interpretation of the facts: Heilbut, Symons & Co
o Difficulty because this is essentially same requirements as for misrepresentation.
Sale of Goods Act s.15(4): Once the good has been accepted, condition can only be treated as
a warranty after a reasonable period of time if there is a term of the contract, express or
implied, that repudiation is possible within that reasonable time.
DISTINGUISHING BETWEEN INNOCENT MISREPRESENTATIONS & 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:
o How specific or vague is the statement?
o 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?
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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?
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).
CONCURRENT LIABILITY IN CONTRACT & TORT: NEGLIGENT MISREPRESENTATION:
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Elements of Negligent Misrepresentation Tort:
o Special duty relationship between speaker (provides info, advice, etc.) and receiver.
o Representations are false
o Provided negligently - did not meet the standard of care
o Reasonable reliance, resulting in damage.
Traditional reluctance to recognize tort in commercial contexts because:
o Arena of contract.
o Risks should be allocated by contract (policy: individual self-reliance).
o Floodgates concerns regarding economic loss (words are different from acts,
endless plaintiffs for an endless amount of time because words last forever).
o Economic, not physical loss.
Newer cases indicate that an action can be made for both the tort and breach of contract:
o SCC indicates that there are unjustified differences between the two: Checo
o K may limit the scope of tort duty or waive right to sue in tort, but contractual
limitations must be done in clear terms and are subject to other K law doctrines, e.g.
mistake, fraud, unconscionability: BG Checo International Ltd v. BC Hydro.
o Plaintiff can pursue whichever avenue is better for them, or both.
o Damages: Tort=Reliance; Contract=Expectation.
PAROL EVIDENCE RULE:
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Involves conflicts between written K and extrinsic evidence (oral, written, electronic, etc.)
Prototypically oral rep. conflicts w/ written K or excluded by an "entire agreement" clause.
o Signature rule in L'Estrange states that signed K is binding, including entire
agreement clause. Common law accords high degree of deference to written K.
Where the oral guarantee contradicts the written K, guarantee is inadmissible: Hawrish v.
BMO; Bauer v. BMO. If it does not contradict written K, may be admissible: Hawrish.
Policy reasons: Administrative/abjudicative ease; Prevent faud/perjury; Enhance
certainty/predictability; Efficacy of commercial documents; Prevent unfair surprise;
Control agents/employees.
Exceptions to inadmissibility of the evidence:
o The written agreement is not the whole contract.
o Interpretation: Extrinsic evidence can be introduced to clear up an
ambiguity in the contract.
o Invalidity: Extrinsic evidence can be introduced to show that the contract
is invalid because of lack of intention, consideration or capacity
o Misrepresentation: Extrinsic evidence can be introduced to show there
was a misrepresentation that was innocent, negligent or fraudulent.
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Mistake: Extrinsic evidence can be introduced to show that there was some
mistake as to the nature or effect of the agreement.
o Rectification: Extrinsic evidence can be introduced to correct an
error/mistake in putting the agreement in writing.
o Condition precedent: Extrinsic evidence can be introduced to show that
there was a condition precedent to the agreement taking effect.
o Collateral Contract/Warranty/Agreement: Extrinsic evidence can be
introduced to show that there was a separate agreement along with the
written agreement.
o Unconscionability: Extrinsic evidence can be introduced to show that the
transaction was brought about through unconscionable means.
o Modifications and discharge: Extrinsic evidence can be introduced to
show that the contract has been modified or terminated.
o Equitable remedy: Extrinsic evidence can be introduced in support of a claim for
an equitable remedy.
When still inadmissible?
o Provide evidence of subjective intentions of the parties
o Collateral agreement that contradicts the written agreement: Hawrish
Reformulation of the provision in Gallen v. Allstate Grain (buckwheat umbrella case):
o Anderson J.: exclusion clause will be construed narrowly so that words do not defeat
an express promise or warranty given extrinsically (in this case, only goes to yield)
o Lambert J.: Oral representation that adds, subtracts or varies the written K is okay
as long as it does not contradict.
o Parol evidence rule recast as a presumption: If the oral rep. was a warranty, then it
is admissible and should be interpreted together with the written K. If not
contradictory, does not follow Hawrish. If it is contradictory, Hawrish rule applies,
unless it is clear on the evidence that the oral warranty was intended to prevail.
Strength of Presumption
Varies depending upon the circumstances.
------------------ Presumption in favor written K strengthening ----------
Adds a term
Varies
Contradict
Look at totality of evidence to determine if oral promise induced plaintiff into the contract.
If so, oral promise overrides written K: J. Evans & Son (Portsmouth) Ltd v. Merzario
o Exclusion clause will not override a specific representation that induced the making
of the agreement unless it can be shown that the effect of the exclusion clause was
brought home to the party losing rights: Zippy Print
o Factors to consider:
 Intent, reliance, reasonable expectations, unfair surprise
 Nature of change/conflict: how serious is the contradiction/conflict?
 Nature of document: Intended to be whole agreement? Clarity of wording?
Read by both parties (knowledge of contents)?
 Bargaining Relationship: Power; Standard form contract; part relations;
evidence of sharp practice; legal advice obtained?
 Nature of representation: quality & credibility of evidence; clarity and
specificity; significance?
Business Practices & Consumer Protection Act: Cannot limit evidence of the understanding
of the parties in a personal, family or household (normal consumer) transaction.
o
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CLASSIFICATION OF TERMS (WARRANTIES & CONDITIONS):
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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 distinguishes between warranties and conditions in K undertakings:
o Warranty: Those collateral to the main purpose of the parties as expressed in the
contract.
o Condition: Those which were mutually dependent, so that the non-performance by
one party of such an undertaking excused the other party from performance.
o Result: The resulting event flowing from the breach that relives the other party from
performance. If the contract is frustrated, both parties are relieved of their duties.
Can only repudiate if impossible to fulfill the contract (delay is not enough; in this
case, could have not paid while in repair and extended the K) (Hong Kong Fir).
Innominate/Intermediate Terms: If the parties wish a term (condition) of a K to be so
fundamental that the breach leads to repudiation, they must do so expressly.
o The use of the word "condition" in the K may not be enough; if not expressly stated
it leads to repudiation, a breach of the "condition" may be governed by the
termination clause (Wickman Machine Tool Sales Ltd.)
POLICY CONSIDERATIONS
BARGAIN THEORY: OFFER & ACCEPTANCE:
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Balance the need to enforce promises (reasonable expectations) and the avoidance of surprising
parties with unanticipated liabilities (unfair surprise). Ks are looked at from an objective
perspective by the courts (Felthouse).
Unilateral Ks: protect offeree's reliance on the offer if they have started completion.
General: Business efficacy, fairness, reliance, reasonable expectations, commercial certainty,
unfair surprise, individual self-reliance, unjust enrichment,
ENFORCEMENT OF PROMISES:
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Reasonable Expectations ........................................................... Unfair Surprise
o Factors: Evidence, Deliberation, Unjust Enrichment, Reliance, Facilitate private
ordering/utility of exchange.
Term in K "price to be agreed in writing from time to time" binding: If we didn't enforce
leads to less flexibility, problem of reliance, unjust enrichment.
Agreement to negotiate NOT enforceable because: too uncertain, no remedy inconsistent
with right to pursue self-interest.
Past consideration: Benefit was voluntarily conferred; no legal obligation of reciprocation.
o Lack of deliberation, lack of reliance, no unjust enrichment (benefit not asked for,
gratuitously provided), distinguish moral/legal obligations, concern re: fraud.
 Reflects values of individualism/positivism (K law is for commerce)
Promissory Estoppel: Detrimental reliance, unjust enrichment
ROLE OF LEGAL FORMALITIES IN K LAW:
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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. (Prof. Fuller)
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CONTRACT MODIFICATION:
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Doctrinal Issue: K modification not enforceable unless there's fresh consideration.
o Reasons to enforce modification: party autonomy, reliance, reasonable expectations,
business efficacy.
o Reasons to not enforce: Exploitation, ransom, (economic) duress.
Agreement to take less: unenforceable if procured under economic duress; equitable
remedy must be come into "with clean hands": D&C Builders.
o Arbitrary distinction since promise to accept less is binding (High Trees) but a
promise to pay more is binding (Gilbert Steel): no real difference.
Retracting waiver of strict rights: injustice to relying party w/out proper warning: El Nasr
o If no detriment, no protection: Societe Italo-Belge
REMEDIES
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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
Calculation
Restitution
Prevent unjust
enrichment to Δ
Benefit to Δ
Corrective
Diff. between $ paid and
actual $ worth of the item.
Reliance
Prevent harm to π
Loss to π
Restorative
Expectation
Secure benefit to π Expected π
benefit
Put back in position
before transaction took
place. Restore status quo.
Put in position would
have been in if there had
been no breach.
Distributive
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