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Table of Contents

CHAPTER II. FORMATION OF THE AGREEMENT: OFFER AND ACCEPTANCE 15 3


1. INTRODUCTION 15 3
2. OFFER AND INVITATION TO TREAT 18 4
3. COMMUNICATION OF OFFER 45 8
4. ACCEPTANCE 52 8
5. COMMUNICATION OF ACCEPTANCE 79 12
6. TERMINATION OF OFFER 95 16
(A) REVOCATION 95 16
(B) LAPSE 102 18

CHAPTER III. FORMATION OF THE AGREEMENT: CERTAINTY OF TERMS 19


1. INTRODUCTION 109 19
2. VAGUENESS 112 19
3. INCOMPLETE TERMS 117 20
5. ANTICIPATION OF FORMALIZATION 149 28
2. EXCHANGE AND BARGAINS 160 30
1. INTRODUCTION 157 33
2. EXCHANGE AND BARGAINS 160 34
3. PAST CONSIDERATION 170 36
4. CONSIDERATION MUST BE OF VALUE IN THE EYES OF THE LAW 173 37
5. BONA FIDE COMPROMISES OF DISPUTED CLAIMS 175 37
6. PRE EXISTING LEGAL DUTY 178 39
(A) INTRODUCTION 178 39
(B) PUBLIC DUTY 178 39
(C) DUTY OWED TO A THIRD PARTY 179 39
(D) DUTY OWED TO THE PROMISOR 182 40
(I) PROMISES TO PAY OR PROVIDE MORE 182 40
7. PROMISES TO ACCEPT LESS 198 44
(A) ACCORD AND SATISFACTION 198 45
(B) STATUTE 206 48
8. PROMISSORY ESTOPPEL AND WAIVER 207 48
(A) THE NATURE OF THE REPRESENTATION 211 52
(B) THE EQUITIES 214 53
(C) THE NOTICE 217 55
(D) THE RELIANCE 223 55
(E) SWORD OR SHIELD? 56
9. INTENTION TO CREATE LEGAL RELATIONS 249 60
(A) INTRODUCTION 249 60
(B) FAMILY ARRANGEMENTS 250 60
(C) COMMERCIAL ARRANGEMENTS 62
10. FORMALITY: PROMISES UNDER SEAL 258 62
11. FORMALITY: THE REQUIREMENT OF WRITING 261 63
A.WHY DO CERTAIN KINDS OF CONTRACTS HAVE TO BE REDUCED TO WRITING OR EVIDENCED BY WRITING? 63
B. RATIONALES FOR THE WRITING REQUIREMENT 63
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C. WHAT KINDS OF CONTRACTS HAVE TO BE REDUCED TO WRITING OR EVIDENCED BY WRITING? 63
D. WHAT COUNTS AS "SOME MEMORANDUM OR NOTE 65
E. WHAT IS THE EFFECT OF NON-COMPLIANCE WITH THE S/F? 65
F. WHAT IS PART PERFORMANCE? 65

CHAPTER V. PRIVITY OF CONTRACT 68


1. INTRODUCTION 68
2. THE HISTORY OF THE DOCTRINE OF PRIVITY AND THIRD PARTY BENEFICIARIES 287 68
3. WAYS IN WHICH A THIRD PARTY MAY ACQUIRE THE BENEFIT 293 70
(A) STATUTE 293 70
(B) SPECIFIC PERFORMANCE 295 70
(C) TRUST 72
(D) AGENCY 302 72
(E ) EMPLOYMENT 310 74
(F) SUBROGATION 322 76

CHAPTER VI. CONTINGENT AGREEMENTS 329 77


1. INTRODUCTION 329 77
2. INTENTION, CERTAINTY, AND CONSIDERATION 332 79
3. RECIPROCAL SUBSIDIARY OBLIGATIONS 343 80
(A) REMEDIES FOR BREACH OF SUBSIDIARY OBLIGATION 347 81
4. UNILATERAL WAIVER 351 82

CHAPTER VII. REPRESENTATIONS AND TERMS: CLASSIFICATIONS AND CONSEQUENCES 85


2. MISREPRESENTATION AND RESCISSION 85
3. REPRESENTATIONS AND TERMS 93
3. STATUTORY REFORM 96
5. CONCURRENT LIABILITY IN CONTRACT AND TORT 97
6. PAROL EVIDENCE (NO CASES) 99
7. CLASSIFICATION OF TERMS (RIGHT SIDE OF BOARD) 99
8. THE PRINCIPLE OF GOOD FAITH AND THE DUTY OF HONEST PERFORMANCE 103

CHAPTER VIII. STANDARD FORM CONTRACTS AND EXCLUSION CLAUSES 467 103
1. INTRODUCTION 467 103
2. IMPLIED TERMS 468 104
3. JUDICIAL CONTROL OF STANDARD FORM CONTRACTS AND EXCLUSION CLAUSES 105
(A) INTRODUCTION 105
(B) INCORPORATION 484 105
(I) UNSIGNED DOCUMENT 484 105
(II) SIGNED DOCUMENTS 498 105
(C) STRICT CONSTRUCTION 509 107
(D) FUNDAMENTAL BREACH 512 108
(E) FUNDAMENTAL BREACH/UNCONSCIONABILITY POST-HUNTER 531 109

DAMAGES 113

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Terms:
Acceptance a final and unqualified expression of assent to the terms of an offer (per Treitel).
In unilateral contracts: acceptance is achieved by fully performing the required act or forbearance. There is generally no
need for the offeree to give advance notice of acceptance to offeror.

Bilateral contract a bilateral contract is an agreement constituted by an exchange of promises.


When the contracting parties are bound to fulfil obligations reciprocally toward the other. The contract is formed by the
exchange of promises in which the promise of one party is consideration supporting the promise of the other

Contract a promise that is enforceable in the courtroom; Courts enforce mutual agreement freely consented to by each
party of the contract

Consensus ad idem An agreement of parties to the same thing; a meeting of minds.

Invitation to treat an expression of willingness to do business. The party “does not make an offer but invites the other
party to do so” (per Treitel). (Leading case Boots)

Mirror Image Rule The acceptance must precisely match the terms of the offer

Offer “an expression of willingness to contract on specified terms, made with the intention that it is to become binding
as soon as it is accepted by the person to whom it is addressed” (per Treitel). McCamus: quotation of price doesn't
constitute offer. Actions following offer can indicate acceptance (Canadian Dyers Association Ltd v Burton)

Unilateral contract "one in which one party makes an express engagement or undertakes a performance, without
receiving in return any express engagement or promise of performance from the other. Neither party is bound until the
promisee accepts the offer by performing the proposed act. It consists of a promise for an act, the acceptance consisting
of the performance of the act requested, rather than the promise to perform it.” Unilateral contracts are very rare.
McMacmus: a promise in exchange for an act; that the offeror is prepared to be bound by certain promises if the offeree
performs a stipulated act and performance will stipulate acceptance (Leading case Carlill v Carbolic Smoke Ball Co)

CHAPTER II. FORMATION OF THE AGREEMENT: OFFER AND ACCEPTANCE 15


Offer; Acceptance; Unilateral contract; bilateral contract; Nudum partum; Mirror Image Rule; Invitation to treat;
Consensus ad idem; Consideration;

1. Introduction 15
Components of Contract
· Agreement: composed of offer to enter into contract and acceptance of that offer

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o Offer: expression of willingness to contract on certain terms made with intention that shall be binding as
soon as accepted by person whom is addressed

o Acceptance: is final and unqualified expression of assent to the terms of offer

· Promises - contained in agreement are known as terms. The informing idea behind a contract is that there has been
a meeting of minds.

· Mutual Consideration - makes a promise enforceable. If someone promises to give you a $100 GC this is an
unsupported promise-> no mutual consideration, thus not enforceable.

Ex: Cause of Action: -> Breach of Contract (Entered into contract to buy a $10 textbook from 3rd year then 3rd year said
he got a better offer and wants more money) – ask for damages

Contracts Must be:

- Deliberate: both parties must want to enter into a contractual relationship. “Intention to create legal relations”

- Voluntary: entered into of their own volition, willing and not forced

- Between 2 or more competent persons: Note: Oral Contract enforceable (with exceptions like Land)

2. Offer and Invitation to Treat 18


INTENTION IS OBJECTIVELY ASSESSED (TEST)
Would a reasonable person, in analyzing the words and actions of the parties, conclude that on balance of probabilities a contract was made, that
there was an intention to be bound by the terms of the offer?

Canadian Dyers Association Ltd v Burton (Invitation to Treat) **Intention & Subsequent Conduct important.

Facts: PL: Canadian Dryers (offeree) purchaser DF: Burton (offeror) vendor
● PL wrote to DF “With reference to purchasing property (25 Hanna Ave) kindly state your lowest price. Invitation to
Treat – PL inviting DF to make an offer
● DF: “Re house 25 Hanna. The lowest cash price I would care to sell is $1650…I would have sold before…but did not
for obvious reasons.” Quotation of a price and a manifestation to sell at that price through wording of “I would have
sold before.”
● PL: We would be pleased to have your Very lowest price for 25 Hanna Ave. Perhaps we could get closer together
than before. Rejection of offer, rejection of offer kills the offer & can no longer be accepted unless revived.
● DF wrote: Last price was the lowest price willing to accept, and if it were to any buyer the price would be higher.
Critical moment in case – Looks like renewal of offer, readiness to sell.
● PL sent cheque for $500. (Offered treated as accepted). Asked for draft of deed to be prepared.
● Solicitor sent draft of deed and said would be ready to close on Nov 1st.
● DF solicitor wrote that there was no contract and returned cheque for $500.

Issue: Is there offer and acceptance resulting in a contract? (Revival of counter-offer by DF?)

Results: Judge looked at Subsequent conduct of DF – Accepting $500 cheque, preparing draft deed, and expressing interest
to close on Nov 1st. The conduct of DF gives support that the DF intended to enter into a contract for sale.
● If Language ambiguous turn to conduct of DF. Correspondences viewed as an offer and subsequent acceptance by
preparing draft deed and expressing interest to close on 1st.

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Comments: Stronger view is that courts should not consider subsequent behaviour.
Encourages a rule that someone through mischief could reconstitute what happened in past to their benefit.
PL wants equitable remedy of “specific performance” - fulfillment of the property. Must prove to the court that damages
would not be adequate. If you can show that the property is unique, difficult to replicate in the market specific performance
could be awarded.

Retail Sales: The Display of Goods (Boots)


Boots establishes: General rule that a display of price-marked goods in a store window/on a store shelf is not an offer to
sell at that price but an invitation to treat.

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) LTD (Offer to treat, retail display of products)

Facts: PL: Pharmaceutical Society of Great Britain and DF: Boots


Boots runs a self-service pharmacy .Two customers purchased drugs under the Poisons Act, 1922 from Pharmaceutical
Society of Great Britain. In every sale the pharmacist supervised and scrutinized the transaction at the cash desk and has the
authority to decline a transaction. The customers were not aware of this.

Issue Is self-serve pharmacy acceptable under the supervision of a registered pharmacist, in accordance with 18(1)a)(iii) of
the Pharmacy and Poisons Act 1933. (If the contract is made before reaching the till then we have breach of legislation)

Results: The contract is not completed at the shelf (invitation to treat) but at the cash desk where the pharmacist has final
authority. Given that the pharmacist has final say and is able to deny the “poison” to any person for any reason then yes, it
is in accordance with Pharm. & Poison Act. Appeal Dismissed.

Comments:
In Alberta we have the Human Rights Act and s4 stipulates private vendors cannot deny or discriminate with regards to
goods or services customarily available to the public.
Counter example: Women takes matched clothes and removes tags from pants. Cashier presumes clothes are set and
charges only for top but sells top/pant set. ABCA held that defendant was not guilty of theft but fraud based on Boots since
the cashier accepted the offer.

An advertisement can constitute a unilateral contract, which can be accepted by fulfilling the conditions of the contract;
no formal acceptance required. Advertisements of bilateral contracts are typically not held to be offers since further
bargaining is contemplated.

Carlill v Carbolic Smoke Ball Co (Unilateral & Bilateral Contracts)

Facts: PL: Carlill (Purchaser,Resp.,Offeree) DF: Carbolic (Seller, Appel.,Offeror)


DF advertised in newspaper that 100L will be given to someone who uses the product and contracts a disease. PL bought
product (used based on instructions) and contracted a disease. PL was granted the 100L, but D appealed.

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Issues: Does the Ad constitute a unilateral contract (with who)? How does one interpret vague terms?

Results: Appeal dismissed. The contract was valid, and P is entitled to 100L.
● Vagueness to persons intended with whom to contract, only apply to those people who use smoke ball after Ad
issued.
● Vagueness as to how long immunity: Immunity is to last during use of ball – not unlimited period of time. PL caught
flu during flu season (reasonable period of time)
● Ad states that 1000L is lodged in bank for purpose of pay out. Intention is that if conditions were satisfied, since it
would be understood by the public as an offer to be acted upon. If one makes extravagant promises, there is no
reason why he should not be bound by them.
● DF claims cannot contract with world. Judge says it is an offer to become liable once conditions are met. Contract
may be with world, but DF liable only to limited portion of pop who follows conditions. Says this is not like an
invitation to treat like stating you have books to sell (where both sides can negotiate)
● Unilateral contracts - don’t have to communicate acceptance to offeror. Acceptance occurs at time performance of
the condition occurs. Do not necessarily require notice.
● Consideration – the mere inconvenience of PL using smoke ball counts as consideration

Comments: During time of “Fraudster” making extravagant claims to public so court wanted to hold them accountable.
Consider the Pepsi Co. action. PL claims that ad is an offer for a unilateral contract and relies on the Carbonic Smoke Ball
Case. The court held that a reasonable person would not have construed the ad as a reality

Goldthorpe v Logan 30

Goldthorpe v Logan (Court deemed “Contract” Unilateral; AD=Invitation to Treat; Bilateral)

Facts: Goldthorpe: PL (appellant) Logan: DF (respondent)


- Goldthorpe got Electrolysis hair removal of face relying on Ad by Logan. Ad stated “results were guaranteed”. Goldthorpe
submitted to number of treatments but results unsatisfactory. Hairs continued to grow & DF did not remedy condition.

Issues: Is there a contract btw Goldthorpe & Logan?

Results: Goldthorpe accepted “unilateral” contract by undergoing treatment. O’Byrne “Bilateral” Getting treatment and
“paying for services” = acceptance & consideration.
Goldthorpe was persuaded by AD, guaranteed results and DF did not make any stipulations or exemptions to exclude
anyone and as such is bound by that offer. Unlimited/absolute promises deemed as an enforceable promise.

Comments: Damages $113.25:The $100(expectation damages) + $13.25(restitution) is double compensation The $13.25
would have already been included in the $100, essentially rec’d the $13.25 twice.

R v Ron Engineering & Construction (Eastern) Ltd. 33

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R v Ron Engineering & Construction Ltd (Contract A/Contract B)

Facts: - DF submit tender & gave $150K deposit. Tenders closed at 3:00pm. Employee who filed tender notice that tender
was $632K lower than next closest tender. DF sent Telex (after bid submitted) saying submitted tender with error of
$750,058 b/c forgot to include labour force amount. So bid should have actually been $3.5M. Due to error they want to
withdraw tender.” Contract A – acceptance occurs when submitted and closing date surpasses. No acceptance at this point
of Contract B, Contract B has to be signed and agreed to after acceptance of bid.
- In subsequent correspondence and proceedings contractor maintain that it had not withdrawn its tender, but that it was
incapable of being accepted. Law of mistake and enrolment.

Issues: Whether a binding contract had been entered into by way of unilateral contract; would the contractor be entitled to
withdraw the tender?

Results: “ Unilateral” contract formed by submitting tender – thus bid irrevocable outside T&C’s. Both parties thus obligated
to perform in contract. Wrong Contract A=bilateral.
- Deposit is clear – required to ensure performance of contract. Only recoverable under certain conditions not met & was
subject to forfeiture under another term of contract.

Comments: OLD LAW: A promise is enforceable if it is paid for… A promise not to revoke before closing=Gratuitous, owner
not giving anything return for consideration (only to consider offer). If wanted to make “firm offer” binding – then it would
mean every single offer that says “I won’t revoke” is technically binding. There would be not difference btw revocable and
irrevocable offers. NEW LAW: Invitation to tender/tenderer call=offer of Contract A. The Contract A contains rule governing
the bidding process. Typically Contract A provides for irrevocability of bids and forfeiture of deposit should selected
tendered not proceed with Contract B. Submission of tender = acceptance of Contract A and as irrevocable offer to enter
into Contract B. Contract B contains the terms of the main contract.

R v Ron Engineering & Construction (Eastern) Ltd. 561 - Law of mistake doesn’t really exist.
MJB Enterprises Ltd v Defence Construction (1951) Ltd. 36

Ratio: Court will imply terms when necessary. Privilege clauses won’t overrule implied terms. If the privilege clause is so
extensive contract A becomes void.

MJB Enterprises Ltd v Defence Construction (Implied Terms & Privilege Clause)

Facts: MJB submitted a tender in the context of a privilege clause which stated:
“the lowest or any tender shall not necessarily be accepted.” Defense awarded the tender to the lowest bid by Sorochan
BUT Sorochan’s bid was a compliant bid. MJB’s bid was the lowest compliant bid.

Issue: Can Defense rely on its privilege clause as a defence to MJB’s action?

Results: Presumed intentions that court implied “that bids submitted would comply” although yes owner does not have to
take any bid but if they are going to take a bid it must comply. **Implied terms must have a certain aspect of obviousness to
it.

Comments: Breach Contract A = expectation damages, MJB wants the profit they expected to make on the bid had the

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contract have been performed.Court – on “balance of probabilities” court sure that Owner was going award bid and choose
a tender, therefore DON’T discount for contingency b/c had they not have chosen SORO’s bid, they would have “Likely”
chosen the next best bid, MJB.

3. Communication of Offer 45

4. Acceptance 52

Livingstone v Evans (reviving initial offer)

Facts: Evans, DF, offer to sell land for $1800. Livingstone replied “Send lowest cash price. Will give 1600 cash.”. DF replied
“Cannot reduce price” revival of offer. PL immediately after wrote accepting for $1800.

Issue: Is there a contract? Is the DF’s statement “Cannot reduce price” a revival of the first offer or an implicit rejection

Results: Binding contract for the sale of the land to which PL is entitled to specific performance.

Comments: Notwithstanding the rejection of the $1600 counteroffer, the initial offeror signals an interest in continuing the
negotiations with the offeree, it may be held that the offer’s conduct has the effect of reviving the initial offer by stating
cannot reduce price.

Battle of the Forms

Last shot/performance doctrine: Every new form, with new terms, is a counteroffer (“mirror image” rule). When conduct
follows that can be considered to constitute acceptance an agreement is formed based on the terms of the last form
utilized. The terms of the party who “fires” the last document before performance prevails.

Cons:

1. Last shot ignores Mirror-image rule (forms exactly match = contract) the parties don’t have an agreement until
performance yet parties might construe that they have a binding agreement (i.e. buyer awaits his purchase
unaware the seller is not performing)
2. It is arbitrary that the terms of the last form stands
3. The virtue of certainty is “attained by ignoring reality and mechanically rendering formalistic decisions.” Among
other matters, the rule also promotes what he calls silly gamesmanship (where people just send forms back and
forth and back and forth).

Butler Machine Tool Co v Ex Cell O Corp. (1979) Court of Appeal London Wales (Battle of the forms

Facts: Seller (Butler Machine) provided quotation for machine with terms (including price variation clause & “terms prevail
over any terms and conditions in the buyer’s order”) (offer). Buyer submits order form with own terms (excluding a price
variation clause) with a tear-off form that invites sellers “to accept this offer” as per new terms and condition which cannot
be “unqualified assent” therefore counter offer. Seller's return the slip with a cover letter stating acceptance “in accordance

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with seller’s quotation”

Issue: Which terms are included in the contract?


In this case First Blow = sellers favor; Last Shot = buyers favor

Results: The documents must be considered as a whole “terms constructed together”. Together, it is clear the contract was
formed on the on the buyer’s terms and the cover-letter reference to “quotation” was referencing the quoted price not the
quoted terms from the seller’s quotation.

Comments: - Criticism – the judge should interpret based upon what the parties intended not what judge thinks should
have happened. Another result is determining contract is “ad idom” – not in agreement or do not have consensus – and as
result there is not contract.
Lord Denning proposes the Last Shot test is out-of-date and proposes new tests:
1. First blow: party who offers terms first prevails unless the other side draws material changes in their terms to the
attention of that first party.
2. Shots fired on both sides:
“The terms and conditions of both parties are to be construed together. If they can be reconciled so as to give a harmonious
result, all well and good. If the differences are irreconcilable, so that they are mutually contradictory, then the conflicting
terms may have to be scrapped and replaced by a reasonable implication.”
Cited in Tywood but not fully adopted by Canadian Courts.

Tywood Industries Ltd v St Anne Nackawic Pulp & Paper Co Ltd 56

Facts: DF (St Anne-Nackawick, buyer); PL (Tywood Industries, seller)


1. DF send a "A Request for Quotation" to PL listing the T&C’s (none of which dealt with arbitration)
2. PL replied with a quote containing 12 T&C’s incl. "No modification of the above Conditions of Sale shall be effected by our
receipt or acknowledgment of a PO containing additional or different conditions.”
3. Revised proposal was submitted by plaintiff with 12 terms
4. Two purchase orders from DF (rec’d separately) with T&C’s
Term: 19. This contract shall be governed by the construed according to the laws of the Province of New Brunsuwick. Any
controversy arising out of or relating to this Order, or the breach thereof, shall be settled by arbitration in Fredericton in
accordance with the Arbitration Act of the Province of new Brunsuwick
5. Tywood did not sign order but goods were delivered.

Issue: Is the arbitration clause contained in two purchase orders issued by the DF buyer enforceable?

Decision: Arbitration clause is not enforceable as the judge does NOT rely on the last shot test. DF did not bring the new
arbitration clause to the attention of the PL and it seems neither party considered any terms other than those found on the
face of both documents.

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Comments: Themes of Denning’s third theory from Butler are expressed. Case does not follow the mirror image & last shot
fired tests. Court considers the reasonable implications of the terms.

ProCD v Matthew Zeidenberg and Silken Mountain Web Services Inc

Facts: ProCD (PL) and Zeidenbergy (DF).


PL has compiled information from >3000 telephone directories into a computer database and sells software product with
shrinkwrap software with terms inside. DF has made money by disregarding the license and selling the database online at a
lower cost than the CD/disk.

Issue: Are the terms of the license binding which are not known at time of purchase? (i.e. when contract is formed).

Ratio: Shrinkwrap terms binding b/c unreasonable to put infinite text on box, also electronic purchases makes boxes
irrelevant.
Clickwrap licences are reasonable offer and clicking “I accept” constitutes acceptance.

Reasons: Injunction in favor ProCD granted.


Shrinkwrap: Many examples of binding contracts where the terms aren’t fully disclosed at time of contract formation (i.e.
warranty, ticket sales).
Clickwrap: The terms within the licensing agreement are reasonable and DF agreed to these terms every time software
utilized (appeared on screen every time software used).

Acceptance is “a final and unqualified expression of assent to the terms of an offer.”

Unilateral contract: acceptance is achieved by fully performing the required act or forbearance. There is generally no
need for the offeree to give notice of acceptance to offeror.

**VERY IMPORTANT CASE** Acceptance in unilateral vs bilateral contracts

Dawson v Helicopter Exploration Co [1955] SCR 868

Facts: Dawson (Appellant, lapsed mineral right owner), Helicopter (Respondent, staker)
Springer and Dawson discuss developing the property over which Dawson once had a claim.
 Significant document from Springer to Dawson: “[If I can secure a pilot to take us in] I hereby agree that if
you take us in to the showings and we think they warrant staking, that we will stake the claims and give you
a 10% non-assessable interest.”
 Dawson: promise to try to get military leave as soon as Springer gets a pilot. (contract)
 Springer: doesn’t want to take trip to scope property as he has been told it has unfavourable conditions
(Suggesting no contract btw parties).
 Springer Incorp’s a company to develop claims for mineral rights in Dawson’s areas.

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Issue: Courts will endeavour to regard the contract as bilateral in order to protect the offeree pending complete
performance.

Results: Court deems this a bilateral contract.


 Implied subsidiary obligations - Implies a term in the contract that Springer is req’d to make reasonable efforts to
locate a pilot and bring Dawson into the area.
 Contingent upon Conditions subsequent: Springer - Good faith efforts to secure pilot; and Dawson - good faith
efforts to get leave.
 When Springer says I am not getting pilot he is in Anticipatory Breach of contract; thus Dawson has immediate right
of action at this point.

Comments: This means that Dawson & Springer were in contract whereby their primary obligations to perform were
contingent on the fulfillment of certain conditions such as securing a pilot; securing leave; etc. Because the parties are in a
contract, they have binding subsidiary obligations.
Had this been unilateral contract this argument would have failed (succeeds as bilateral)

Felthouse v Bindley
Facts: Felthouse PL (uncle, purchaser) Bindley DF (Auctioneer)
COMMUNICATION FROM UNCLE TO NEPHEW: “If I hear no more about him, I consider the horse mine at 30 pounds and 15
shillings. Offeror waiving communication of acceptance.
 No reply from nephew. Ambiguous & confusing…
 Nephew tells auctioneer not to sell the horse b/c it was already sold [to uncle]. The auctioneer forgot these
instructions and did sell the horse at auction to someone else.
 Feb 27 Nephew writes to uncle that auctioneer sold horse admitting error.
Issues: Can an offeror waive the requirement for communication in bilateral contract? Is silent acceptable?
Results: Offeror waiver of communication – (Nephew) offeree did not communicate acceptance. Silence is not acceptance:
acceptance would have taken place on Feb 27th so technically the horse already sold in auction & uncle not entitled to
horse.

Comment: Conversion (auctioneer selling horse out of his authority) can only succeed if uncle owns the horse. Uncle
doesn’t own horse so no conversion.
Case may not be decided correctly:
Per Treitel, “the need to communicate an acceptance can be waived, and it seems that the uncle’s letter did waive it. In
view of these facts, the actual decision is hard to support.”

Saint John Tug Boat Co v Irving Refinery Ltd.


Facts: DF entered into express contract with PL to use tugboat for 1mth; contract extended twice (invoices paid). DF headed
by new president and no formal extension of contract after Aug. DF continued to use PL’s service until Feb failed to pay
invoices but also did not contest any invoices.
Issues: Is conduct by the offeree that evidences acceptance? Does conduct of the DF (using services) but silence constitute
continual acceptance of contract?
Objective test: Would a reasonable objective person have interpreted the conduct of the DF as accepting the continuation
of the contract?
Results: Conduct, unaccompanied by any written or oral undertaking, can amount to acceptance. DF accessed and used
services of tug boat after the contract period had ended.
 Offeree’s silence reasonably indicates acceptance to the offeror
 Irving’s silence is deceptive, if they don’t want to pay they have obligation to say something to cancel services, but

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now they are obligated to pay.
 When services provided for your benefit & you have acquiesced in the taking service, you are required to pay for it.
Comments:
Per McCamus, conduct unaccompanied by any explicit undertaking may constitute acceptance: “The general principle is
well established and perhaps more obviously applies in circumstances were some positive action on the part of the offeree
– such as a seller sending goods in response to an order or a buyer accepting delivery of goods – where the conduct in
question plainly signals agreement to the terms of the offeror.”
Per Williston on Contracts, quoted by the SCC: “Silence may be so deceptive that it may become necessary for one who
receives beneficial services to speak in order to escape the inference of a promise to pay for them…[T]he ordinary implication
is that the services are to be paid for at their fair value, or at the offered price, if that is known to the offeree before he
accepts them.”

Could also argue unjust enrichment: If there has been enrichment and expense of one party, with no reason, even with no
contract.
o If you have “enrichment” (DF Irving gets services)
o a corresponding deprivation (PL provided services)
o absence of legal (juristic) reason supporting enrichment (no reason for enrichment they expected to get
paid part of commercial business)

Per Treitel: over a lengthy period of time, retailer has placed offer to wholesaler who has always accepted by simply
sending to goods. Wholesaler does not want to fill the order.

 ‘in such a situation, it may not be unreasonable to require the offeree to give notice of his rejection of the offer,
especially if the offeror, in reliance on his believe that the goods would be delivered in the usual way, had
forborne from seeking an alternative supply.”

Eliason v Henshaw 77

Eliason v Henshaw
Facts: Feb 10 Buyer (DF) contacts sellers (PL) by mail, offering to purchase flour from them. Letter stipulates that acceptance
was to be made on the ‘return wagon’ to Harper’s Ferry. Offeror master of own offer.
 Feb 14 Sellers receive the letter. Feb 15: Sellers accept the offer but send acceptance to Georgetown by mail on Feb
19th instead of by return wagon to Harper’s Ferry. Wrong method of transportation and wrong location.
 Feb 25: Letter from buyer to seller, acknowledging seller’s letter of Feb 15: “I didn’t hear from you so I purchased
elsewhere, and I requested answer by return wagon next day which you did not abide by”
 Seller delivers flour anyway and the buyers refused delivery, alleging no contract.
Issue: We have an offer, was it accepted?
Results: No contract btw the parties. No confusion as to place of letter to return “back to Harper’s Ferry” and this was
distinctly indicated by the mode pointed out or the conveyance of the answer.
 The place where answer was to be sent, constituted an essential part of the PL’s offer.
 Acceptance communicated at a place diff from that pointed out by PL, and forming part of their proposal, imposes
no binding obligation (unless they want it to which they don’t).
 Could the seller have accepted by dispatching arriver who arrived at Harper’s Ferry before the return wagon. If you
choose mode of transportation that is the same or better it may be fine. But if you do not follow terms of contract
to the letter you risk the judge finding that since it wasn’t followed exactly than it is not valid.

5. Communication of Acceptance 79
The offeror is master of his or her own offer. Acceptance must be compliant with any mandatory method of
acceptance specified.

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Communication of Acceptance: General rule, per Treitel: acceptance has no effect (ie: is not complete) until it is
communicated to the offeror.

1. Purpose of the communication rule (protect from mischief that law doesn’t want) To protect offeror – so that
offeror knows that she/he is in a contract
2. To protect offeree – so that offeree does not have to take the trouble of rejecting every offer she/he receives

Exceptions to the General Rule

1. Offeror waiver of the communication requirement in the context of a unilateral contract: is silence acceptance.

Carlill – per Bowen L.J.: “As notification of acceptance [in this case] is required for the benefit of the person who makes
the offer, the person who makes the offer may dispense with notice to himself if he thinks it desirable to do so…and if
the person making the offer, expressly or impliedly intimates in his offer that it will be sufficient to act on the proposal
without communicating acceptance of it to himself, performance of the condition is sufficient acceptance without
notification. AKA not necessary for communication

2. Offeror waiver of the communication requirement in the context of a bilateral contract: is silence acceptance?

Assuming no prejudice to the offeree (i.e. no foisting of an obligation to reject) why shouldn’t the waiver be effective?

(a) Mailed Acceptances 79

I. The postal rule: (Postal & Telegram)

Acceptance takes effect when the letter of acceptance is posted.

 Did not solve problem created pro-offeree rule.


II. Rationale for the postal rule “[i]f the contract is not finally concluded, except in the event of the acceptance actually
reaching the offeror, the door would be open to the perpetration of much fraud and considerable delay in commercial
transactions. B/c the acceptor would never be entirely safe acting upon his acceptance until he had received notice that
his letter of acceptance had reached its destination.”

Household Fire and Carriage Accident Insurance Co v Grant 79

Household Fire and Carriage Accident Insurance Co v Grant


Facts: Grant – DF: Gave company’s agent an application for shares in PL’s Co which stated that he had paid a five pound
deposit to the bank (credit to account from previous debt) Other dividends from July 1875 and Feb 1876 also applied to
account (money still owing in purchase of shares).
Household Fire & Carriage Accident Insurance - PL
 Accepted Grant’s offer by mailing a letter of allotment in favour of DF, letter of allotment (acceptance) is never
received by DF but purchase price is partly satisfied by set-off; balance to be pd. within a yr. PL is now in liquidation,
official liquidator is suing for the balance of the purchase price of the shares in company’s name.
Issue:
1. Was the letter of allotment of Oct 20th in fact posted? Jury says Yes.
2. Was the letter of allotment received by the DF? Jury says No.
Results:
Postal rule Court: technically no communication of acceptance (b/c DF never received the letter of allotment) BUT there is
good acceptance because the post office is the agent for both parties. As soon as the letter of acceptance is “posted”
delivered to the post office, the contract is made is complete. Acceptance occurs when dropped at post office.
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 Court is saying Offeror  Post office  Offeree: method of acceptance is valid to use the post, but when you use
the post, the post office is agent “for receiving communication” (not just for transporting but content of letter is
communicated to post office) and once dropped in mailbox this constitutes communication of acceptance.
 Court says – offeror can protect themselves by saying communication of acceptance is necessary. Dissent – Judge
says contract should say “unless I hear from you by return of post then offer is revoked”.
 DF is the Offeror. Offeree's letter of acceptance is never delivered. Technically no acceptance.
 Court: What does Offeror require in relation to acceptance? ¾ Offer made under circumstances which implied that
Grant authorized the offeree to send notice of acceptance by post.
 Offeror contemplated that post office would be agent to receive [versus merely carry or be the conduit of]
acceptance. Contract complete when letter mailed.
Comments: Subject to criticism Per Treitel: “The rule is an arbitrary one, little better or worse than its competitors. When
negotiations are conducted by post, one of the parties may be prejudiced if a posted acceptance is lost or delayed; for the
offeree may believe that there is a contract and the offeror that there is none, and each may act in reliance on his belief.
The posting rule favours the offeree….

The postal rule only applies if it is reasonable to use the post Per Treitel: “The posting rule only applies when it is
reasonable to use the post as a means of communicating acceptance. Generally, an offer made in a letter sent by post
may be so accepted.

 The postal rule can be excluded by the terms of the offer.


 The rule does not apply if it would produce a inconvenience and absurdity
 Ex: Postal rule would not be acceptable during postal strike, or proposal of marriage, or letter of instructions to
stock broker to sell shares in falling mkt.

Holwell Securities v Hughes 84

Holwell Securities v Hughes (Avoid Postal Rule by **Notice in writing)


Facts: Howell Securities PL offeree. Its acceptance is never delivered to DF offeror.
Hughes – DF offeror - option contract of selling property to the PL
Issues: What does optioner require as to what constitutes exercise of the option in writing?
Results: To exercise option the PL must provide "Notice" in writing to DF.
Option not validly exercised as Optionee did not follow the rules. Optionor never got the letter, no notice in writing = not
contract b/c no communication of acceptance.
 Even though post could be used, Postal rule does not apply b/c of terms of option that offeror must receive notice
in writing for comm. of acceptance to occur.
 Must go to optionor directly. Lawyer cannot simply explain the mere “existence of a written letter” over the phone
to the DF and have that constitute notice in writing.
 But the Notice in writing component may be satisfied by receival by the lawyer IF the lawyer was an “agent” to the
other party.
Comments: If lost in mail too much damage done if not received.
An option is a "privilege existing in one person [optionee], for which he has paid money, which gives him the right to buy
certain commodities …from another person [optionor] if he chooses, at any time within an agreed period, at a fixed price."
 An option contract limits the promisor's power to revoke an offer because the promise to sell is supported by
consideration from the promisee/optionee. Unlike Dickinson
 Contrast – Firm offer not binding; but option binding b/c there is consideration.

(b) Instantaneous Methods of Communication - acceptance when heard/received by offeror

Per Treitel: The postal rule does not apply to acceptances made by some instantaneous mode of communication, e.g.
by telephone or by telex.
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 Such acceptances are therefore governed by the general rule that they must have been communicated to the
offeror.
 Postal rule does not apply in such cases b/c the acceptor will often know at once that his attempt to
communicate was unsuccessful, so that it is up to him to make a proper communication. But a person who
accepts by letter which goes astray may not know of the loss or delay until it is too late to make another
communication.
 Fax messages seem to occupy an intermediate position. The sender will know at once if his message has not
been received at all and where this is the position, the message should not amount to an effective acceptance.
But if the message is received in such a form that it is wholly or partly illegible, the sender is unlikely to know
this at once and it is suggested that an acceptance sent by fax might be effective in such circumstances.
 The same principles should apply to other forms of electronic communication such as email…effects of
unsuccessful attempts to communicate should depend on whether the sender of the message knows (or has
the means of knowing) at once of any failure in communication.

Brinkibon Ltd v Stahag Stahl Und Stahlwarenhatulelsgesellschaft mbH 87

Brinkibon Ltd v Stahag


Facts: Brinkibon – (buyers) PL London / Stahag – (sellers) DF Vienna
 Buyers (in London) are suing Sellers (in Austria) for breach of contract to supply steel. Buyers are seeking an order
for service ex juris.
 May 3: telex counter offer from Sellers in Vienna to buyers in London
 May 4: telex acceptance from Buyers in London to Sellers in Vienna
o if acceptance by postal rule, acceptance is communicated upon “posting.” This means that the contract is
made in ENGLAND and buyers will get their order.
o if acceptance by instantaneous communication rule, acceptance occurs when received in Vienna. This
means that the contract is made in VIENNA and the buyers will NOT get their order for service ex juris.
Issue: Is telex instantaneous? Where is contract formed, to determine jurisdiction? Only if contract is formed in England will
the Buyers get their order.
Results: Telex problems: The senders and recipients may not be the principals to the contemplated contract. They may be
servants with limited authority. Message may not reach designated recipient immediately. Messages may be sent out of
office hours, or at night, with the intention or upon the assumption, that they will be read at a later time. There may be
some error or default at the recipient’s end which prevents receipt at the time contemplated and believed in by the sender.
The message may have been sent and/or received through machines operated by third parties.
 Court says it will follow instantaneous communication rule (will apply when mutual intention of parties and
simultaneousness of message)
 Buyer will not get their order for service ex juris

Buyer’s back-up argument – acceptance by conduct to get jurisdiction in England:


May 3: Offer from VIENNA
 Acceptance by conduct of buyers in LONDON when they instructed their bank to open up an irrevocable letter of
credit. Buyer – instructs Bank In England  Opens a irrevocable letter of credit in favour of seller  Corresponding
Bank in Vienna – notifies seller (Vienna). Activity btw buyer and bank in England thus nothing communicated to
seller in Vienna, conduct in England does NOT = acceptance in England.
Comments: Fort McKay (2014 Ont)
 Where was the contract formed (contract through email)?
 Acceptance transmitted through instantaneous communication electronically – contract formed “when and where”
communication received.
 Email not exactly instantaneous - acceptance may not be when email gets to inbox but perhaps when a reasonable

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time to open the email would have been.

Rudder v Microsoft Corp 91

Rudder v Microsoft Corp


Facts: (Two PL’s both law school graduates)
Rudder clicks “I Agree” in an agreement with Microsoft
 R wanted to bring the resulting action in Ontario, but the “I Agree” included a clause that can only sue in the state of
Washington “jurisdiction forum selection clause”. R says forum selection clause is fine print, need to draw attention
to major clauses.
(Class action lawsuit seeking to represent larger group w/ similar claim against same DF)
Issue: What is jurisdiction for action? Do scrollable terms and clickwrap constitute acceptance of all terms or is everything
below the main screen “fine print”?
Results: R did not pay attention to terms just looks at what costs are, then scrolled to bottom  “I accept”.
Default rule: when you assent to something you are bound (just like paper document you scroll (or flip pages). But there are
situations where this doesn’t apply, like if super fine tiny writing at
M wins – jurisdiction is Washington. Not fine print, easy enough to flip through the contract. Scroll mechanism used to read
through the member agreement = flipping pages. Claim dismissed Courts will support e-commerce where reasonable. No
specific notice was needed if you want to have any business with online contracts, you have to allow these types of contract
to support business efficacy.

6. Termination of Offer 95
An offer is terminated by withdrawal/revocation

 An offer can be w/d at any time before it is accepted. *Byrne


 As another general rule, Revocation must be communicated to offeree.
(a) Revocation 95

Dickinson v Dodds 95

Dickinson v Dodds (W/D or revocation – 3rd Party Communication of Acceptance possible)


Facts: Dodds DF makes firm written offer to sell property to Dickinson (P). Offer open until Friday.
 Thurs. Dickinson hears from 3rd party that Dodds had been offering to sell the property to Allan. Later that night
Dickinson delivers written acceptance to Dodd’s relative, as he was staying with her. This acceptance is never
received as the relative forgot to give Dodds the acceptance.
 Fri. Dickinson finds Dodds at the rwy. stn. and handed him acceptance. Dodds responds: “You are too late. I have
sold the property.”
Issues: Is an offeree able to accept offer knowing that the other party has already entered into a contract for the same
purposes with another party? NO
Results: Rule of law is that a party may w/d a contract at any time (which effectively Dodds did by selling to Allan).
 Dickinson cannot say he accepts the offer when he knows that the offeror has already sold the property to another
(this would lead to more than 1 binding contract and possible for others to claim damages simply b/c they knew by
accepting the other would be in breach).
 There is no contract btw Dickinson and Dodd since the property has already been sold to Allan (which Dodds knew
by indirect hearsay) and Dodds need not communicate the revocation of offer since Dickinson already had
knowledge that another sale was in place.

Comments: Firm offer to keep it open until Friday = gratuitous promise since there is no consideration. (revocable at any
time).

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 Contrast to “option contract” where optionee pays “consideration” to keep offer open = binding contract.

Byrne v Van Tienhoven 99

Byrne v Van Tienhoven (Revocation must be communicated to offeree)


Facts: Byrne – PL Buyer / Van Tienhoven – DF Seller
 Oct. 1: DF in Cardiff, mail offer to sell tinplates to PL in NY.
 Oct. 8: DF mails revocation of offer.
 Oct. 11: PL accept offer by telegram; contracts to sell subject matter to 3rd Party.
 Oct. 20: PL receive letter of revocation of Oct. 8. PL unaware of revocation at time of acceptance.
Issue: 1. Does the w/d of offer have any effect until it is communicated to the offeree?
2. Is posting a letter of w/d is communication to the person to whom the letter is sent?
Results: Postal rule does not apply to revocations – notice of communication to offeree essential.
 Revocation of offer was not communicated to the offeree (B4 offeree accepted Oct 11) the Oct 8th w/d letter is
inoperative.
 Complete binding contract was entered into on Oct 11th, which PL accepted with no knowledge of revocation. If a
person has accepted an offer, not knowing to him that it had been revoked, shall be in a position safely to act upon
the footing that the offer and acceptance constitute a contract binding on both parties.
Comment: Do not rely judgment on fact that PL had entered in another contract w/ 3rd party to help with decision of
whether, or not, a contract had occurred in the case above. Should be independent and irrelevant factor in determining
whether there is a contract.

Errington v Errington and Woods 100

Errington v Errington and Woods


Facts: A father bought a house for 750 pounds of which he borrowed 500 pounds. He allowed his son-in-law and daughter
to live there. The arrangement was that they would make the mortgage payments and, when the mortgage was paid off, he
would transfer the house to them.
Issue: When the father passes away does the unilateral contract btw the father and daughter continue or is there
revocation?
Results: Father expressly promised couple that property would be theirs upon completing mortgage payments to Building
society.
 This is a unilateral contract (father promises to give house when daughter promises to pay remainder of the
mortgage) and the daughter has not come into default on that promise (meaning not missed any mortgage
payments) no reason for end by fathers death.
 Offeror can revoke offer anytime before acceptance – but unilateral contract. Once performance “begun” cannot
revoke.
 Judge appealing to “equity” once offeree has begun performance it would be inequitable to revoke offer of this
unilateral contract.
 In the present case the Father expressed & impliedly promised so long as they paid installments they should be
allowed possession. Couple Not “purchasers” but deemed in a position analogous to purchasers. The father, widow,
or successor in title can eject them from promise.
Comments: If kids fail to pay they aren’t in breach of any “contract” specifically but then executor could repossess house.
Revocation & Unilateral Contracts – Flagpole problem:
 Promise to pay $500 to anyone if they walk to Calgary from Edmonton. (Unilateral)
 Then when I am in Airdrie O’Byrne drives by and says I revoke my offer.
o Cannot do this! Since acceptance is completed by performing the thing requested by the offeror in the
unilateral contract.

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(b) Lapse 102
An offer which states that it will expire at a certain time cannot be validly accepted after that time.

An offer which does not expressly provide for how long it is open is said to lapse after a reasonable time

Barrick v Clark (Cannot accept offer after expiration unless renewed)


Facts: Barrick: PL (seller, offeree) Clark: DF (buyer, offeror)
 Oct. 30, 1947: Clark (PL& Appellant) offers to purchase land from Barrick for $14K with possession at anytime
between Jan. 1 and March 1. Asks for telegram reply.
 Nov. 15: Barrick replies by post; counters with $15,000 with transfer of clear title on Jan 1st. Stating deal could be
closed “immediately” and trusting to hear back ASAP.
 Nov 20: Letter is delivered but Clark is absent on a hunting trip
**Mrs. Clark responds, asking Barrick to keep the offer open. Explains her husband would be back in about 10 days
and she would try to locate him. No reply from Barrick
**Nov 30: Third party enquires about land
**Dec 3: Barrick and third party enter into contract for the purchase and sale of the land. Dec. 10: Clark returns and
purports to accept Barrick’s c/o.
Dec. 11: Clark telegrams Barrick because he had heard of a third party purchase. Barrick writes back: “I waited til
Dec. 6 [should read the 3rd] and didn’t hear from you so I sold to someone else.”
Issue: Has a “reasonable time” for the offer lapsed btw the Nov 15 offer for purchase and Dec 10 acceptance?
Results: Offer expires after “reasonable” period of time & depends on circumstance. Reasonable time starts to run when
offer rec’d by “Mrs. Clark.” Even though Mrs. Clark asked for extension this is not binding on offeror b/c offeror is master of
their own offer. Further, Barrick did not reply to request (did not accept it).
 Dec 10th Acceptance to be delivered btw 13th-15th would leave only a short 2-week window where an agreement for
sale would have to be exchanged.
 Wording of Barricks offer pivotal. Treating Nov 15th as offer using terms as “deal to close immediately” and trusting
to hear back “ASAP” implies a sense of urgency to complete the deal giving rise to the facts that Dec 10th was
beyond a reasonable time for acceptance. (Barrick hopes there would be no delay in sale)

Comments: **Manchester – Clark case seems to be all about offeror. Suggest that SCC is sides with offeror and their
perspective so theory 1 likely better. An offer contains the implied term that it is automatically withdrawn by offeror after a
reasonable time (This test looks at the offeror)
Argument for offer open for longer period:
- Land stable, doesn’t expire (like produce) & offer should be open for longer period
- It’s winter & cannot use land till spring, also tenant in place until March
- Could be norm in community for Nov being hunting season – not expect Clark to be home
Offer open for shorter period:
- Barrick urgency to sell land “ASAP” and deal to close immediately.
- Closing Jan 1st, doesn’t leave much time to close if wouldn’t get acceptance until Dec15th-ish.

Manchester: What counts as a reasonable time can be assessed from two perspectives

1. An offer contains the implied term that it is automatically withdrawn by offeror after a reasonable time (This test
looks at the offeror)

2. When an offer is not accepted within a reasonable time, it has impliedly been rejected by offeree. (This test looks at
the offeree). An offer is terminated via rejection

 An offer is terminated by rejection Livingstone v. Evans (relying on Hyde v. Wrench)


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CHAPTER III. FORMATION OF THE AGREEMENT: CERTAINTY OF TERMS

1. Introduction 109
Per Treitel: “an agreement is not a binding contract if it lacks certainty, either because it is too

vague or because it is obviously incomplete.”

Per Anson’s Law of Contract:

Although the parties may have reached agreement in the sense that the requirements of

offer and acceptance have been complied with, there may yet be no contract because the

terms of the agreement are uncertain or because the agreement is qualified by reference to

the need for a future agreement between them.

Two competing propositions courts can apply:

1. Courts will not make an agreement for the parties (If parties don’t have contract court won’t enforce one)
2. That is certain which is capable of being rendered certain (only infer terms based on the explicit writing in the
document in question)
2. Vagueness 112
Per Treitel, where the courts cannot determine on what terms the parties have purportedly contracted, due to
vagueness, the agreement is unenforceable.

 That said “courts do not expect commercial documents to be drafted with strict precision, and will, particularly if
the parties have acted on an agreement, do their best to avoid striking it down on the ground that it is too
vague.”

R v CAE Industries Ltd… 112

R v CAE Industries Ltd


Facts: Negotiations took place between the Canadian gov’t and respondent regarding the respondent taking over and
running an aircraft maintenance base that was no longer required by Air Canada.
 March 26, 1926: In letter to respondent, the gov’t agreed that the present employment levels should be maintained
and that "every possible effort" should be made to support and assist the development of the airspace industry in
Winnipeg. The government further agreed to employ its "best efforts to secure additional work" for the base when
work levels after 1971, when work levels were expected to drop off, in order to meet the target level of 700,000
man hours.
 The subsequent paragraph in the letter noted that these were commitments. In 1971, the workload of the
maintenance base diminished and respondent sued for breach of contract.
Issue: Was a contract was actually intended, and was it was certain enough to be enforceable?
Results: The appeal decided in favour of CAE Industries and thus dismissed.
 The agreement was not vague and uncertain or incomplete. If parties have expressed themselves in language
sufficiently clear so as to have created rights and obligations, the court will enforce the contract especially where
the contract has been partly performed.
 Courts will struggle against vagueness, providing the contract is complete. Here, everything has been settled
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between the parties [no missing terms] and words such as “best efforts” can be given meaning.
 Court finds “Best efforts”  leave no stone unturned in getting balance of work. No promise they will be successful
but they must try very hard. Language of the letter intended a contract rather than just a political arrangement, and
that there was intention from both sides to create a binding contract.
 The Court noted that the government was clearly seeking a solution to their problem, and anxious to find a buyer so
that the industry and employment could be preserved.
 The parties also treated the document as a contract to the extent that it was partly performed.

3. Incomplete Terms 117


Per Treitel: parties to agreement may be reluctant to commit themselves to a rigid LT arrangement, particularly when
prices and other factors affecting performance are likely to fluctuate. They therefore attempt sometimes to introduce an
element of flexibility into the agreement….

Per Anson’s Law of Contract: The line between discovering the agreement of the parties and imposing an agreement on
basis of what the Court considers the parties ought to have intended can be fine. The Court must be satisfied that the
parties have in fact concluded a contract, and not merely expressed willingness to contract in the future

 It may have regard to what has been said and done, the context, the importance of the unsettled matter, and
whether the parties have provided machinery for settling it.

A. Criteria/Formula

Per Treitel: An agreement may fail to specify matters such as price or quality but lay down criteria for determining
those matters. For example, in Hillas…an option to buy timber was held binding even though it did not specify the price,
since it provided for the price to be calculated by reference to an official price list.

re ‘standards’: vague words or phrases can be interpreted in light of what is reasonable.

Per Treitel: “The agreement was upheld as the standard of reasonableness could be applied to make the otherwise
vague phrase certain.”

Hillas v. Arcos (1932)(HL): content of option clause is determined with reference to other sections of the agreement or
is derived from a reasonableness standard. It is the duty of the court to construe documents fairly and broadly. This
agreement is complete and is not dependent on any future agreement for its validity. Court says that May v. Butcher
does not apply here.

 Ex: O’Byrne to sell car to Yahya. Price is MKT value as set by Dean. The Dean is the “machinery” which is the
person to set the value. What if Dean says No I will not set the price for contracts btw faculty. In this case the
“machinery” has failed. If the parties intended to set “reasonable” price court can decide.

B. Machinery

Per Treitel, “Alternatively, the agreement may provide machinery for resolving matters originally left open.”

Sudbrook Trading v. Eggleton [1983] (H.L.): (not in CB.): Lease gave tenant the option to purchase the property “at such
price as may be agreed upon by two Valuers, one to be nominated by” each party. Mechanism failed because lessor
refused to appoint a valuer(!!)

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Issue is whether price mechanism is an essential term [to distinguish from May]. If it isn’t and a reasonableness standard
is consistent with the parties’ intent, the court can set the price.

 The valuer’s clause amounts “to an agreement to sell at a reasonable price to be determined by the valuers;
and the stipulation that each party should nominate one of the valuers was merely ‘subsidiary and inessential.’”

Terms “to be agreed” Key issues for the cases below in this section: when can a “price to be agreed” clause be
interpreted as a clause which means that the price is to be fair and reasonable? Does the contract contain a device for
creating certainty?

Per Treitel, seems that parties did not intend to be bound until they had agreed upon price.

May & Butcher Ltd v R 117

May & Butcher Ltd v R


Facts: May & Butcher Ltd (PL) and R. Disposals Board (DF)
 Agreement to buy surplus tentage from DF up to Dec.1921**This agreement was evidenced by letter dated June
1921
 Jan. 1922: Agreement above renewed to March 1923, on same terms **later in the month, there was a dispute as
to price.
Key terms from the agreement:
 (1) The commission agrees to sell and [May & Butcher Ltd.] agree to purchase the total stock of old tentage...
 (3) The price or prices to be paid, and the date or dates on which payment is to be made by the purchasers to the
commission for such old tentage shall be agreed upon from time to time between the commission and the
purchasers as the quantities of the said old tentage become available for disposal, and are offered to the
purchasers by the commission.'
 (10.) It is understood that all disputes with reference to or arising out of this agreement will be submitted to
arbitration…
Issue: Are terms of the contract sufficiently defined to constitute a legally binding contract btw the parties? Or is this an
agreement to agree?
Results:
PL arguments: The parties have agreed that a reasonable price would be paid**per the Sale of Goods Act (U.K.):
8 Ascertainment of price (when parties silent on price court can imply “reasonable price” when they have talked about
price the “reasonableness” argument fails as it did here)
9 Agreement to sell at valuation
(1) Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party,
and he cannot or does not make the valuation, the agreement is avoided (contract would fail); but if the goods or any part
of them have been delivered to and appropriated by the buyer he must pay a reasonable price for them.
 Court parties are like valuer who has refused to set the price & thus contract void and fails
Lord Buckmaster: agreements to agree are not enforceable, they are not contracts.
 It is of course perfectly possible for two people to contract that they will sign a document which contains all the
relevant terms,
 But cannot agree that in the future they will agree on matter vital to contract that has not yet been determined. It
has been argued that as the fixing of the price has broken down, a reasonable price must be assumed. That
depends in part upon the terms of the Sale of Goods Act, which no doubt reproduces, and is known to have
reproduced, the old law upon the matter.
 The mechanism here has broken down [price shall be agreed upon from time to time; disputes arising out of this
agreement will be submitted to arbitration]. Contracts that have not been silent about price cannot turn to SGA].
Because, pursuant to the S.G.A., a reasonableness standard has been thereby ousted, the contract fails for

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uncertainty
 Arbitration clause does not apply. Must have agreement first then can go to arbitration. Failure to agree is not that
same as dispute.
Lord Dunedin: Parties were not silent so SGA cannot apply.

Hillas & Co v Arcos Ltd 120

Hillas & Co v Arcos Ltd


Facts: Hillas (PL) and Arcos (DF) - Alleged breach by DF to supply 100,000 standards of Russian timber
 Hillas merchants purchasing timber from Arcos. Reached an agreement to purchase 22,000 standards of timber,
under the specific condition that they should also have the option of entering into a contract with Arcos to purchase
100,000 standards the following year with a 5% reduction on price.
 Arcos refused to sell them the 100,000 standards the following year. Hillas was successful at trial, which Arcos
appealed successfully to the Court of Appeal.
 Per clause 9 of the agreement: Hillas “shall also have the option of entering into a contract with the sellers for the
purchase of 100,000 standards for delivery during 1931. Such contract to stipulate that, whatever the conditions
are, buyers shall obtain the goods on conditions and at prices which show to them a reduction of 5 per cent on the
f.o.b. value of the official price list at any time ruling during 1931. Such option to be declared before the 1st Jan.
1931.”
Issue: Was the term negotiating the future sale a condition of the contract?
Can you make a contract to enter into another contract?
Results: Appeal allowed; a binding contract existed to sell the 100,000 standards.
 Contract missing terms
o Price clause 9 says not agreement to agree but use new “price list” & a 5% discount … so court knows what
price will be once they public it.
o Delivery (when & where) – needs to be flexible and the whole idea is that these are to be determined based
on give & take shipping dates. Contract in this case is instalment contract since whole quantity couldn’t be
delivered in 1 shipment etc… Also, look at how they managed under the main contract. Lastly, if cannot look
at main contract they can imply by Sale of Goods Acts delivery would be “reasonable times”
o Quality – 100,000 std’s no adjective that specifies “fair, average, reasonable” standards. Context for words
standard can be taken from balance of contract. In other portions of contract, it talks about fair standards
“reasonable” therefore we just grab that adjective from another part of contract. Or courts can imply what
is reasonable.
 There is a main contract and the clause 9 was a further to a contract to negotiate.
 A contract to negotiate is enforceable.
 They say that this term indicated more than an agreement to agree, and was an offer that merely had to be
accepted by Hillas. The only thing that had to be negotiated was the price, but this was because prices change
yearly. Wright says that "words are to be interpreted so that subject matter is preserved not destroyed" a legal
realist position focusing on the intention of the parties.
Comments: The courts should intervene to determine the terms of an agreement through context and intentionality of the
parties. The courts tried REALLY hard to make this contract enforceable. This is an extreme high water mark of judicial
intervention. Ratio is that Russian’s cannot win in an English court lol.

Foley v Classique Coaches Ltd 124

Per Treitel, parties here did intend to be bound immediately, in spite of a provision requiring further agreement.

 One of the mechanisms here had broken down [at a price agreed by the parties from time to time] but May was
distinguished because the unusual arbitration clause here referred not to this agreement [as in May] but to “the subject
matter or construction of this agreement.” It could therefore be used to fix price.
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Foley v Classique Coaches Ltd
Facts: Sale of land subject to DF entering into a supplemental agreement to purchase all gas needed for their business from
the Plaintiff. Clause 8 provided:
“If any dispute or difference shall arise on the subject matter or construction of this agreement the same shall be submitted
to arbitration ….”
Issue: Is there a contract or an agreement to agree?
Results: Both parties believed that they had a binding agreement and had acted on it for a number of years; it formed part
of a larger bargain. Court appears to be saying presence of the arbitration clause on these facts means that “it is to be
implied in this contract a term that the petrol shall be supplied at a reasonable price and shall be of reasonable quality.”

Plaintiff’s arguments
1. Arbitration clause applies. Per Scrutton L.J.: “this arbitration clause applies to any failure to agree to the price.”
Courts accepts b/c the arbitration clause applies to any dispute of “subject matter” meaning price of gas.
2. The parties intended that a reasonable price be paid for the gas. Per Scrutton L.J.: “By analogy to the case of a tied
house there is to be implied in this contract a term that the petrol shall be supplied at a reasonable price and shall
be of reasonable quality.”
 Compare to Hillas court jumping through hoops to make the contract valid. Imply “reasonable” in all terms like
price, delivery etc.. Arbitration clause specifically applies to “subject matter” price of gas so court wants to apply
reasonable price.
 Anytime there is an implied term (through business efficacy and those principals) it is there b/c judge says implied
term is there.
Comments: Courts will be prepared to find a way to make a contract certain, but they wont make the contract for the
parties. They agreed they had a contract, they acted on it for 3 yrs and they had a dispute mechanism process

A tide house means purchaser has to buy from one particular source so therefore must be reasonableness standard that
emerges from this agreement meaning we have a contract.
 Reasonableness standard: In May & Butcher parties did not have contract therefore did not imply reasonable price
and cannot use arbitration until after contract already finalized; there is a reasonableness standard in Foley.

4. Agreements to Negotiate 128

Empress Towers Ltd v Bank of Nova Scotia 130

Empress Towers Ltd v Bank of Nova Scotia (Revived by Bhasin)


Facts: In 1972, Scotiabank first leased property from Empress Towers - this lease expired in 1984.
 In 1984, the parties entered into a new lease which contained the clause stating Scotiabank could renew for two
successive periods of five years by three months written notice, and the "rental for any renewal period, which shall
be the market rental prevailing at the commencement of that renewal term as mutually agreed between the
Landlord and the Tenant".
 On May 25, 1989 Scotiabank exercised its option to renew for a further 5 years from September 1, 1989. On June
23, 1989 Scotiabank proposed a rate of $5,400 a month, up from $3,097.92 under the existing lease, but they
received no written reply from Empress Towers.
 On August 31 Empress Towers responded stating Scotiabank would be allowed to stay if they made a payment of
$15,000 before September 15 (an employee of Empress Towers had been robbed of $30,000 in that branch of the
bank and only $15,000 of insurance was paid) and rent of $5,400 per month thereafter, and that tenancy would be
terminable on 90 days notice going forward. Shake down to recover stolen money that insurance did not reimburse.
 Empress Towers sought a writ of possession. Scotiabank was successful at trial, which Empress Towers appealed.

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Issue: (1) Is clause 7 uncertain? (2) Does the federal government have an implied obligation to negotiate in good faith under
clause 7?
Results: Interprets the section of the clause requiring the parties to agree on the rent to mean:
1. Empress could not be compelled to enter into a market rental value;
2. Here was an implied term that landlord will negotiate in good faith; and
3. An agreement on market rate would not be unreasonably withheld.

Court - Implying these terms was acceptable for reasonability and for reasons of business efficacy. In the evidence adduced,
Empress had not negotiated in good faith by adding the $15,000 "penalty".
 Duty to negotiation in good faith – if there is no contract there is not duty to negotiate but if there is an existing
contract then they must negotiate in good faith.
 Allowed to be unreasonable to a certain extent though.

1. where rent is to be agreed, clause is normally not enforceable;


 No mechanism to agree. Cannot measure others conduct objectively (agreement to agree fails).
2. where rent is to be established by a formula [example: market value] but no machinery for application of the formula is
provided [ie: who determines market value?], courts will often supply the machinery [ie: the court will determine what
market value is]; Formula but no machinery could be enforceable.
3. formula is set out but defective [example: formula provides for a market value price but there is no market activity] and
machinery is provided for application of the formula, machinery may [perhaps] be used to cure defect in the formula. Here,
formula is market value as mutually agreed. Court can be the machinery to determine what the family business is worth.

Enterprises Ltd v Canada 132

Mannpar Enterprises Ltd v Canada


Facts:
 The parties entered into a contract for the extraction of sand and gravel from an Indian Reserve.
 Permit originally effective for five years. Under permit, Mannpar was obliged to pay a modest yearly rental on the
working area plots on the reserve, as well as a royalty on the materials removed. It was also required to do
reclamation work on the area from which sand and gravel were extracted.
 Clause 7: Permittee shall have the right to renew this Permit for a further five (5) years subject to satisfactory
performance and renegotiation of the royalty rate and annual surface rental. Under no circumstances shall the
royal rate or surface rent be less than the rates received in the preceding term. No reference to “reasonable price”.
 Mannpar gave written notice of its intention to renew the permit for an additional five years. However, the Band
became less satisfied with the permit arrangement. Neither the Crown nor the Band were prepared to renegotiate
the royalty rate for the purpose of renewal.
 The Crown failed to renew the permit. Mannpar took the position that the Crown had repudiated its obligation to
renew, and elected to accept the repudiation and commence an action for damages.
 Manparr says gov’t refusal to negotiate is a breach of contract. Gov’t has a duty to negotiate in good faith per
Empress Towers.
 At trial judge held that the renewal clause was void for uncertainty, which Mannpar appealed.
Issue: Was the renewal clause void for uncertainty?
Results: Appeal dismissed. Court says I will not apply Empress.
Hall J: held that the language chosen in the renewal clause afforded the Crown considerable latitude in deciding whether to
agree to any extension of the permit and in deciding what terms might be acceptable. No enforceable agreement arose out
of the language of the renewal clause.
 He distinguished Empress on the facts: there was no general market rate in this case, no element of objectivity, and
no way to calibrate the value at hand.
Comments: Gov’t purposefully left out benchmark about how to negotiation like market value or something like it; there is
no intent in the contract for them to negotiate in good faith.
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 B/c gov’t owes judiciary duty to Band & don’t want to be obligated to do anything in good faith b/c larger obligation
owed to Band.
 A term can be applied in contract if both parties would have intended it to be there, court will not imply if both
parties did not intend that it ought to be there. Clause was not accidental it was to give crown flexibility. Permittee
has right to renew if it is in the best interest in the Band to do so.

Wellington City Council v Body Corporate 51702 (Wellington) 137

Wellington City Council v Body Corporate (New Zealand CA)


Facts: Wellington (The Council, appellant, defendant) Alirea (Body Corporate, leasee, plaintiff, respondent)
 Parties entered into a "process" contract relating to "negotiate in good faith" for the lease of 20 Brandon Street
 Per Council’s commitment in a letter to Alirae: “Council officers will negotiate, in good faith, sale of the Council’s
leasehold interests to existing lessess at no less than the current market value of those interests.”

Trial judge found Council to be in breach of contract for failing to conduct the negotiations in good faith
Issue: Is Council in breach of a process contract obliging it to negotiate in good faith? Agreements to agree not enforceable
but is this a contract or not?
Past case law:
 “a promise to negotiate in good faith is illusory and therefore cannot be binding:
 Legally, “neither party is under any legal duty to consider the interests of the other”
 Reasonably ≠ good faith
 “good faith” is illusory and therefore cannot be binding

Results: An obligation to negotiate in good faith is subjectively honest & objectively reasonable. There is no objective
criterion to measure conduct.
 NOT IN Canada  court talks about Good faith meaning “best efforts” as seen in Empress. The common law is
adversarial system, do not have to look out for best interests of other party, but cannot act dishonestly and
knowingly mislead as seen below in Bhasin.
 Walford decision. PC raised issue whether agreement to negotiate in good faith is not synonymous to negotiate
with best efforts. (In Canada this is best efforts)
On Appeal council argued that there was no contract, an agreement to negotiate in good faith (as part of a process contract)
is not enforceable because it lacks, here, a specific procedure by which courts can reasonably determine what the parties
are required to do and whether they have done it (agreement to agree).
Comments: McCamus: No duty to negotiate in good faith at large (no existing contract)  cannot be fraudulent but you can
be unreasonable if you want. However, an obligation to bargain in good faith when in existing contractual agreement.
Tendering contract  Courts generally imply must act in good faith.

While Canadian case law remains mixed, the preponderance of judicial authority rejects recognition and enforcement
of a contractual duty to negotiate in good faith as a general principle.

 Yet, recent Ontario case law the supports that good faith applies to negotiations
 When parties agree in an existing contract to negotiation a renewal or another contract related to a first. An
express or implied duty to negotiate the new contract in good faith is contractually enforceable if the agreement
provides some objective criteria (Empress Towers and Mannpar)
o Is there really a distinction between re-negotiating and negotiating de novo?
 McCamus: “the prospects for the recognition of a duty to bargain in good faith in the absence of a pre-existing
contractual relationship do not appear to be promising”

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In Light of, this might change:

Timberwest 2014 BCSC 2433: wherein the court applies Bhasin. It concludes that the renewal clause mandating good
faith in negotiationsrequires the defendant to take an “honest and reasonable” approach to renegotiating the rates. (Note the court
found that the renewal clause was sufficiently certain to be enforceable.”
Bhasin didn't specifically discuss negotiations but the court in Timberwest applies it regardless.

Bhasin v Hrynew, 2014 SCC 71


What is Bhasin’s impact: it is going to have massive significance b/c SCC recognized for first time in Common Law an
official organizing principal of good faith in contractual performance.

 Doesn’t mean contract law is completely changed.


 Claims based on good faith will fail unless they fall under existing relationships. May recognize new areas of
good faith. Now can argue good faith as being legitimate b/c of this face.

Bhasin v Hrynew (Duty to act Honestly & Organizing Principal of Good faith)
Facts: Can-Am Mkter of education savings plans to investors. Mr Bhasin & Co was an enrollment director. The relationship
between Bhasin and Can-Am was governed by a commercial dealership agreement.
 Similar to Franchise agreement but a bit different. Bhasin owed Fiduciary duty to Can-Am & could only sell Can-Am
products. Bhasin could not merge, sell Business w/o Can-Am approval. Can-Am owned customer list.
 Agreement between Bhasin and Can-Am was an expiry/termination clause which said agreement was for 3 years, &
will be automatically renewed for another 3 years subject to 6 months notice of non-renewal. No direction of how
renewal clause can be exercisable.
 Agreement clause intent was to exclude any outside source for contract, whatever is written down in contract is ALL
that exists. Cannot imply terms.
 Problems began when a competitor of Bhasin, Hrynew, moved his agency to Can-Am. Hrynew wanted Bhasin’s mkt
and Can-Am wanted to force merger, Bhasin had no interest in merging.
 Can-Am appointed Hrynew to conduct audits of the enrollment directors in its stable in response to AB securities
legislation. Bhasin refused to give confidential info about business to Hrynew.
 Most seriously, however, Can-Am lied/mislead Bhasin, including being equivocal about whether the merger with
Hrynew was a “done deal” even though in plans outlined to the Securities Commission, Can-Am committed that
Bhasin would be working for Hrynew’s agency.
 Bhasin dug in his heels and refused to allow Hrynew to continue his audit. Can-Am threated to terminate agreement
and in fact did so. Bhasin lost the value of his business as well as the majority of his sales staff who went over to
work for Hrynew’s agency. Bhasin was forced into less lucrative work with a competitor of Can-Am.
 Bhasin successful at trial for breach of contract & overturned at ABCA.

The ABCA found that there was no duty of good faith performance engaged by the contract because: (1) a court cannot
imply a term that conflicts with an express term; (2) establishing any such a term involved violating the parol evidence rule;
and (3) the contract was governed by an entire agreement clause.
Issue: Do people or businesses contractually owe each-other a duty to act in good faith?
Results: SCC finds No term of good faith in the contract between Can-Am and Bhasin because it falls outside of existing
situations and relationships where good faith is implied (insurance, franchise). As well, the term cannot be implied as that
would be contrary to the entire agreement clause. Cannot imply term of good faith b/c of agreement clause.
 Can-Am is in breach of the new duty of honesty in contractual performance. Simply that parties must not lie or
otherwise knowingly mislead each other about matters directly linked to performance of the contract. But for this
new duty Bhasin would not have succeeded. Had Can-Am been honest in contractual performance, Bhasin would
have sought to sell or otherwise monetize his agency before Can-Am triggered its decision not to renew.

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 The new duty makes things more just
 Bhasin awarded value of his business at time of breach
Comments: Duty of honesty, per SCC
 Is not a term - good faith would be a contractual term
 Duty of honesty comes from new “organizing principal of good faith”
 Operates irrespective of parties’ intention
 May be subject to modification by agreement (TBA)
 Hybrid btw contractual term & doctrine (ex unconscionability) therefore not excluded by operation of a “generically
worded” entire agreement clause. Like a term, however, its violation is considered a breach of contract sounding in
damages.

What is the difference between a principle versus a contractual rule or doctrine?


Per Bhasin: “an organizing principle states in general terms a requirement of justice from which more specific legal doctrines
may be derived. An organizing principle therefore is not a free-standing rule, but rather a standard that underpins and is
manifested in more specific legal doctrines and may be given different weight in different situation.”

Difference between a principle and a rule?


 A principle (like the principle of good faith) does not dictate a result but justifies a result.
 A rule does dictate a result but is rooted in a principle
 Put another way: the duty of honesty is an emanation of the principle of good faith in contractual performance

Good Faith in Contractual Negotiations: Enforceable?


 Yes: Empress/Mannpar – IF – duty pursuant to an existing contract, duty consistent with parties’ intent; and there is
objective benchmark against which court can assess whether the party in question is in breach or not.
 No: Wellington – Good faith is subjective honesty therefore cannot enforce.

FIDUCIARY DUTY: engages “duties of loyalty to the other contracting party or a duty to put the interests of the other
contracting party first” (Bhasin, para 65). It is “a general duty to subordinate his or her interest to that of the other
party” (Bhasin, para 86).

GOOD FAITH AS AN ORGANIZING PRINCIPLE: is context-specific (Bhasin, para 69) but includes the concept that “parties must
perform their contractual duties honestly and reasonably, not capriciously or arbitrarily”(Bhasin, para 63). It
“exemplifies the notion that, in carrying out his or her own performance of the contract, a contracting party should have
appropriate regard to the legitimate contractual interests of the contracting partner” (Bhasin, para 65). It must be
“applied in a manner that is consistent with the fundamental commitments of the common law of contract which
generally places great weight on the freedom of contracting parties to pursue their individual self-interest” (Bhasin,at
para 70.)

DUTY OF HONESTY IN CONTRACTUAL PERFORMANCE: is a manifestion of the good faith principle. The duty applies to all
contracts (Bhasin, para 33) regardless of contractual intention (Bhasin, para 74) but is not a term (Bhasin, para 74 of
Bhasin). It does not mandate disclosure but does forbid lying or knowingly misleading “on matters directly linked to the
performance.” (Bhasin,at para 73).

GOOD FAITH AS A TERM: is also a manifestation of the good faith principle. No express definition is offered. Gateway v
Arton 1 is cited but with no endorsement.2

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UNCONSCIONABLITY: is based on “consideration of fairness and preventing on party from taking undue advantage of the
other” (Bhasin at para 43).3

5. Anticipation of Formalization 149


Per Treitel: The effect of a stipulation that an agreement is to be embodied in a formal written depends on its purpose.
Is the document incomplete and not binding until terms of document are agreed and document is executed OR is such a
document intended only as a solemn record of an already complete and binding agreement?

Bawitko Investments Ltd v Kernels Popcorn Ltd 149

Bawitko Investments Ltd v Kernels Popcorn Ltd


Facts: PL(respondent) was looking to acquire a franchise from the DF (appellant), and at a meeting they made an oral
agreement which partially amended part of the franchisor’s agreement draft. Prior to the signing of the formal agreement
draft, a dispute arose between the parties.
Issues: “was the oral contract…a complete and binding contract or was its enforceability subject to the parties’ subsequent
agreement on all of the terms and conditions to be contained in the contemplated written franchise agreement?”
Results: Appeal allowed. Judgement for DF (Appellant)
 When parties agree on all of the essential provisions to be incorporated in a formal document with the intention
that their agreement shall thereupon become binding, they will have fulfilled all the requisites for the formation of a
contract. Oral contract did not express all terms and therefore not agreement and no binding contract.
 Evidence establishes that the terms other than those specifically agreed to, were to be settled and agreed to later.
 Passander made it clear that on April 18th he was only interested in terms regarding "business" including personal
guarantees, renewal and resale fees… etc
 Material conditions are essential to this kind of specialized contract
 No meet of the minds as of April 18
 Post-conduct would support no contract
o Kernel invited Passander many times following April 18 to comment on the draft form of agreement so that,
if necessary, terms could be negotiated…
o Some conduct indicates franchisee thought they had a contract, e.g. franchisee put down deposit.
Comments: Statute of Frauds, certain kinds of contracts have to be in writing to be enforceable. Doesn’t mean they don’t
exist it’s just that it is not enforceable. Oral contracts by default enforceable, but certain contracts must be evidenced in
writing.

When an original contract is legally binding?


1. When parties agree on all essential provisions to be incorporated in a formal document with the intention that
their agreement shall therupon become binding, they will have fulfilled all the requisites for the formation of a
contract. The fact that a formal written document to the same effect is to be thereafter prepared and signed does
NOT alter the binding validity of the original contact.
When an original contract is NOT legally binding?
1. When the original contract is incomplete because essential provisions intended to govern the contractual
relationship have not been settled or agreed upon
2. When the contract is too general or uncertain to be valid in itself and is dependent on the making of a formal
contract
3. The understanding or intention of the parties is that their legal obligations are to be deferred until a formal contract

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has been approved and executed
Notes:
 Where it is clear that parties intend to be bound, courts will sometimes find a contract exists notwithstanding that
dimensions of the transaction are left to be worked out in the future.

CHAPTER IV. THE ENFORCEMENT OF PROMISES 157


1. Introduction 157
Three ways for a “promise” to be enforceable: (3 routes enforceability)

1. As a contract
The following criteria always apply:

i. Consideration (particular to common law)


ii. The promisor must intend legal relations
A third additional criterion applies in certain cases:

iii. Evidenced in writing to be binding; eg. land, home, will


2. Deed: A promise that is signed, sealed and delivered” is binding as a deed, which is a legal instrument distinct
from a contract but with virtually the same legal effects.
Promises under Seal: If a promise is under seal, “there is no need for there to be consideration moving from
either party towards the other”

 Protects one party b/c there is a legal obligation to do something even if there is not consideration.
3. Estoppel: In a limited range of cases, law prevents a party from breaching his or her promise, at least to the
extent required to avoid injurious reliance. Even when the promise is not supported by consideration nor given
under seal.

Per Treitel:

1. Consideration is mainly about reciprocity: "something of value in the eye of the law" must be given for a promise in
order to make it enforceable as a contract.

2. Consideration is either some detriment to the promisee (in that he may give value) or a benefit to the promisor (in
that he may receive value). Usually, this detriment and benefit are merely the same thing looked at from different points
of view.

 Payment by a buyer is consideration for the seller’s promise to deliver


 Payment is detriment to the buyer or as a benefit to the seller;
 Delivery by a seller is Seller promises to deliver widgets at a fixed price and on a specified date. Buyer promises
to pay that fixed price on delivery.
 Both Seller & Buyer are both promisor/promisee – both exchanging promises.

A - I promise to mow your lawn when you go on vacation. B – OK.

 Agreement but not consideration by B (no consideration)


A – I promise to mow your lawn when you go on vacation. B Ok I promise to pay you $5.

 Offer & Acceptance. Exchange of promises & Consideration

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A – I promise to pay you $5 if you mow my lawn when I go on vacation.

 Unilateral contract. Upon performance = acceptance. Enforceable.


B – I promise to pay you 1 cent for mowing my lawn when I go on vacation. A: I promise to mow lawn.

 Nominal consideration is good consideration (even if belief that it is inadequate). Where do you draw the
line of the adequacy of consideration? $20, $10, $2… who knows

Unilateral contract: Essence of a `unilateral' contract is that neither party is bound until the promisee accepts the offer
by performing the proposed act....It consists of a promise for an act, the acceptance consisting of the performance of
the act requested, rather than the promise to perform it.

 All offers technically unilateral but true unilateral the distinction is that the offeree is not bound to do
anything BUT OFFEROR has bound themselves to do something if the party does the requested act.

Bilateral contract: Contracting parties are bound to fulfil obligations reciprocally towards the other. Contract formed by
the exchange of promises in which the promise of one party is consideration supporting the promise of the other as
contrasted with a unilateral contract which is formed by the exchange of a promise for an act.

2. Exchange and Bargains 160


The Governors of Dalhousie College at Halifax v the Estate of Arthur Boutilier Deceased

Governors of Dalhousie College Halifax v the Estate of Arthur Boutilier


Facts: Boutilier promised to pay Dalhousie $5000 in a campaign run by the university to raise funds to "improve the
efficiency of the teaching, to construct new buildings and to otherwise keep pace with the growing need of its constituency"
with terms of payment "as per letter from Mr. Boutilier".
No letter ever followed and Boutilier fell on hard economic times and could not pay. He acknowledged that he still intended
to pay, and would do so when he could afford to. He died, and Dalhousie claimed against his estate for the money.

Dalhousie was successful at trial, which was overturned on appeal.


Issues: Is a gratuitous subscription promise sufficient to find a binding contract?
Results:
Crocket J
 Subscription can be sustained as a binding promise only upon on basis: as a contract, supported by consideration
Governors: the subscription was given in consideration of the subscription of others
 Concurring with appeal judge, the fact that others had signed separate subscription papers for the same common
object does not constitute a legal consideration
 We don’t judge consideration (except when it is factually wrong, $1 for a donation of $45000); consideration can be
nominal but it must exist
 Consideration must flow from the Promisee (promisee must do something)
 Third party consideration is no consideration. No privity of contract.
Governors: Based on the doctrine of mutual promise there was an implied request from decease to apply the promised
subscription to this objet
 The pledge card was far to vague for this to apply
 No statement mount amounted intended to be raised
 Buildings were undescribed/”maintain and improve … teaching” too broad
 Pledge can’t simply gesture to the future
 Flip the argument, if Boutillier was bringing a cause of action against the Governors because he didn’t like how his
money was spent, the court would hold that Boutilier donated the money regardless of a vague pledge card and the
Governors could do as they pleased with it.

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Governors: there was consideration because the College increased expenditures for the purposes stated on the pledge
 Reliance on promise doesn’t confer a gratuitous promise into contractual promise.
 In past case law that supports this claim, there was personal participation in the action of the promissee as a result
of which the expenditure
 There is no evidence that without Boutillier’s donation the project would have been stopped
 The acts of a promissee cannot turn a promise into something binding
 Usually some specific use of money must be condition of the donation which can be consideration. Dalhousie
receiving promise and they have to be doing something in exchange for receiving promise from Boutilier. Must
purchase promise.
Held:
That this gratuitous promise did not receive any consideration, and therefore that it is not a binding agreement. When
the promise is not purchased we don’t want to always enforce to be careful not to change charitable donations to
obligations.
Comments:
 Pro Donee cases acts that donee impliedly undertakes to carry out purposes of subscription cards. Enforce Payment.
 Pro-donor cases court will never find consideration even where specific acts are requested… Never enforced.
 Court took middle road for consideration present if express promise by Dal to do something specific.

Branford General Hospital Foundation v Marquis Estate 165

Branford General Hospital Foundation v Marquis Estate


Facts: Mrs. Helmi Marquis pledges $1M over fiver years in 200K instalments to the Foundation. She pays 1 instalment then
dies.
Issue: Was there consideration between the Fdn. and Mrs. Marquis so as to make her pledge contractually binding?
Results: The pledge failed in this case for lack of consideration. Suggestion that naming the wing after Mrs. Marquis was
consideration failed b/c Mrs. Marque did not bargain for it in exchange for giving money.
 The purpose of naming wing after Marquis to demonstrate appreciation of donation
 Naming the wing was not intended as price for pledge, therefore it’s not consideration.
 Also, Board still has to approve naming of wing. So if it is still subject to approval it cannot be part of the contract.
 The idea to name the ICUCCU came from the hospital, not Mrs. Marquis
 Mrs. Marquis never told her accountant about the naming clause so it was clearly irrelevant to her in her decision to
make the commitment
 We hate foisting in law Hospital couldn’t go out and just name the wing after the Marquis and say it’s consideration. It
still was not the purchase price for the pledge so it cannot be consideration.
Comments:
How could the pledge have been handled differently to help ensure its enforceability?
a) Nominal consideration from the charity to the donor;
b) the agreements should be signed under seal; (issue of consideration wouldn’t matter)
c) any naming rights should be stipulated as a specific condition of the payment of the donation in its entirety; and
d) an explicit statement in the agreement that the charity will rely, potentially to its detriment, on the donor's promise to
pay, together with, to the extent possible, a description of the activities which will reflect such reliance.
**Additionally, for a claim based in equity to succeed, it is important that the charity in fact rely to its potential detriment
on the donor's promise to pay**

Wood v Lucy, Lady Duff-Gordon 169

Wood v Lucy, Lady Duff-Gordon


Facts: Duff-Gordon(DF) was a celebrity who attached her name to products to help them sell in return for payment. She
employed Wood (PL) to help her do her business, and gave him exclusive right to license out her name in exchange for 50%
of the profits he earned. Wood claimed Lady Lucy broke the contract by placing endorsements without his
knowledge and keeping all the profits too herself.
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Wood was successful at the initial trial, but this was overturned by the lower appellate court.
Issues: Is there an enforceable contract even when there is no express promise by one of the parties?
Results: Duff-Gordon claimed that there was no corresponding request to her promise – she did not request anything from
Wood, thus there was no consideration. Wood did not bind himself to anything, and therefore there was no contract.
 Court says look at context of relationship to imply promise by Wood. A promise may be lacking but may have an
obligation perfectly expressed.
 Cardozo J, said that it goes without saying that anyone who contracts to do this type of thing will do his or her best
efforts. Wood's promise to render accounts and to give Duff-Gordon 50% of the profits inherently implied that he would
use reasonable effort to implement the agreement.
 Implied based on business efficacy. They make these arrangements in hopes that they will work.

3. Past Consideration 170


Eastwood v Kenyon 170

Eastwood v Kenyon
Facts: Eastwood(PL) takes care of Sarah after her father dies. Kenyon (Sarah’s husband) promises to pay the debt for
Eastwood. In return, Eastwood promises to handle old debt from Sarah. Sutcliffe: deceased father of Sarah Blackburn:
creditor of Eastwood. Eastwood borrowed money from Blackburn and used it for Sarah's benefit.
Issue: Is consideration present? Is past consideration valid? Or is it gratuitous?
Results: Eastwood's theory: The fact that Eastwood took care of Sarah when she was an orphan and spent money to do so
IS THE CONSIDERATION for Kenyon's subsequent promise to repay Eastwood's promissory note.
The problem: The "consideration" supplied by Eastwood PREDATES the promise. How can
Eastwood's taking care of Sarah support a promise by Kenyon which is made years later?

Common law rule: past consideration is not good consideration. Past consideration is no consideration because it provides
no link between the alleged consideration and the promise made. Plaintiff’s action fails because the promise sued upon had
not been purchased by him. Kenyon’s promise to pay had not been purchased by the promisee. Present promise MUST be
purchased to saying something happened years before is not consideration. Taking care of Sarah would have to occur at
“roughly” same time as Kenyon’s promise or they cannot be connects.
Comments:
 Moral consideration is not good legal consideration (Past consideration here not good)
 Exceptions: Infants contracts
o Necessaries supplied by c/o to infant who upon reaching age of majority agrees to pay. This is enforceable
even though consideration is past. Thus Sarah could have been successfully sued by Eastwood.

Lampleigh v Brathwait 172

Lampleigh v Brathwait
Facts: Assumpsit: An express or implied promise, not under seal, by which one person undertakes to do some act or pay
something to another.
1. Brathwait killed one Patrick Mahume
2. Brathwait, a felon, now wants a pardon from the king
3. Brathwait asks Lampleigh, a lawyer, to ride to Roiston and seek a pardon for Brathwait from the King
4. Lampleigh rode off to Roiston to try to secure the pardon
5. Upon Lampleigh’s return, Brathwait agreed to pay Lampleigh 100 pounds but now refuses to pay.
Issue: Is there consideration supporting Brathwait’s promise to pay? Or do we hit the wall of past consideration is no
consideration?
Treitel – An act done before expressed promise can be good consideration but you must satisfy three conditions:
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Contractual Quantum Meruit: reasonable sum to be paid
1. Act must have been done at request of promisor (Felon ask lawyer to ride to get pardon)
2. Must be understood that payment would be made (Lawyers don’t go ride to see king for free)
3. Payment, if promised in advance, would have been legally recoverable (was something that could have been
enforceable, ex: hit man contract not enforeable)

Contractual quantum meruit per Black’s:


 Latin for “as much as deserved”
 Founded on an implied assumpsit or promise on the part of the def. to pay the plaintiff as much as he reasonably
deserved to have for his labor.

CHAPTER IV. THE ENFORCEMENT OF PROMISES


1. Introduction 157

Three ways for a “promise” to be enforceable: (3 routes enforceability)


1. As a contract
2. Deed
3. Estoppel
A promise must also contain the following to be binding:
1. Consideration
2. The promisor must intend legal relations
3. & in some instances it must be evidenced in writing; eg. land, home, will etc..

Why are some kinds of promises enforced and others are not?
 NIECE can afford $1,000 for a car.
 AUNT to NIECE in writing states: "I promise to give you $1,000 to buy a car.
 On strength of this promise, NIECE buys a car for $2,000… Why should Aunt’s promise be enforceable?
1. Reliance of promise by niece. We don’t want promisee to go out and do something, even if intention was that it
wasn’t to be enforceable
2. Certainty – facilitates the conduct of niece
3. Formality - In writing
4. Consideration – promise binding if consideration, is there consideration when niece fulfilled request of a more
expensive car being purchased
5. Promises should be kept. ONLY PROMISES supported by consideration are enforceable contracts.
Promises enforceable if purchased by the niece. Argument is that it is gratuitous, voluntary promises not
enforceable b/c no consideration.

Doctrine of Consideration: An agreement is not enforceable absent consideration. This means that the promisee (the
person to whom the promise is made) must ‘purchase’ the promise from the promisor (the person making the promise.)
If the promise isn’t ‘purchased,’ it is gratuitous and therefore not legally enforceable.

EX: Seller promises to deliver widgets at a fixed price and on a specified date. & Buyer promises to pay that fixed price
on delivery. Note: The Seller is both a promisor and a promisee. Likewise, the Buyer is both a promisor and a promisee.

Per Treitel:
1. Consideration is mainly about reciprocity: "something of value in the eye of the law" must be given for a promise in
order to make it enforceable as a contract.

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2. Consideration is either some detriment to the promisee (in that he may give value) or a benefit to the promisor (in
that he may receive value). Usually, this detriment and benefit are merely the same thing looked at from different points
of view.

 Payment by a buyer is consideration for the seller’s promise to deliver


 Payment is detriment to the buyer or as a benefit to the seller;
 Delivery by a seller is Seller promises to deliver widgets at a fixed price and on a specified date. Buyer promises
to pay that fixed price on delivery.
 Both Seller & Buyer are both promisor/promisee w/ both exchanging promises.

A - I promise to mow your lawn when you go on vacation. B – OK.


 Agreement but not consideration by B (no consideration)
A – I promise to mow your lawn when you go on vacation. B Ok I promise to pay you $5.
 Offer & Acceptance. Exchange of promises & Consideration
A – I promise to pay you $5 if you mow my lawn when I go on vacation.
 Unilateral contract. Upon performance = acceptance. Enforceable.
B – I promise to pay you 1 cent for mowing my lawn when I go on vacation. A: I promise to mow lawn.
 Nominal consideration is good consideration (even if belief that it is inadequate). Where do you draw the line
of the adequacy of consideration? $20, $10, $2… who knows

Unilateral contract: Essence of a `unilateral' contract is that neither party is bound until the promisee accepts the offer by
performing the proposed act....It consists of a promise for an act, the acceptance consisting of the performance of the act
requested, rather than the promise to perform it.
 All offers technically unilateral but true unilateral the distinction is that the offeree is not bound to do
anything BUT OFFEROR has bound themselves to do something if the party does the requested act.
Bilateral contract: Contracting parties are bound to fulfil obligations reciprocally towards the other. Contract formed by
the exchange of promises in which the promise of one party is consideration supporting the promise of the other as
contrasted with a unilateral contract which is formed by the exchange of a promise for an act.
Promises under Seal: If a promise is under seal, “there is no need for there to be consideration moving from either party
towards the other”

2. Exchange and Bargains 160


Governors of Dalhousie College Halifax v the Estate of Arthur Boutilier
Facts: Boutilier promised to pay Dalhousie $5000 in a campaign run by the university to raise funds to "improve the
efficiency of the teaching, to construct new buildings and to otherwise keep pace with the growing need of its constituency"
with terms of payment "as per letter from Mr. Boutilier".
No letter ever followed and Boutilier fell on hard economic times and could not pay. He acknowledged that he still intended
to pay, and would do so when he could afford to. He died, and Dalhousie claimed against his estate for the money.

Dalhousie was successful at trial, which was overturned on appeal.


Issues: Is a gratuitous subscription promise sufficient to find a binding contract?
Results:
Crocket J
 Subscription can be sustained as a binding promise only upon on basis: as a contract, supported by consideration
Governors: the subscription was given in consideration of the subscription of others
 Concurring with appeal judge, the fact that others had signed separate subscription papers for the same common
object does not constitute a legal consideration
 We don’t judge consideration (except when it is factually wrong, $1 for a donation of $45000); consideration can
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be nominal but it must exist
 Consideration must flow from the Promisee (promisee must do something)
 Third party consideration is no consideration. No privity of contract.
Governors: Based on the doctrine of mutual promise there was an implied request from decease to apply the promised
subscription to this objet
 The pledge card was far to vague for this to apply
 No statement mount amounted intended to be raised
 Buildings were undescribed/”maintain and improve … teaching” too broad
 Pledge can’t simply gesture to the future
 Flip the argument, if Boutillier was bringing a cause of action against the Governors because he didn’t like how his
money was spent, the court would hold that Boutilier donated the money regardless of a vague pledge card and the
Governors could do as they pleased with it.
Governors: there was consideration because the College increased expenditures for the purposes stated on the pledge
 Reliance on promise doesn’t confer a gratuitous promise into contractual promise.
 In past case law that supports this claim, there was personal participation in the action of the promissee as a result
of which the expenditure
 There is no evidence that without Boutillier’s donation the project would have been stopped
 The acts of a promissee cannot turn a promise into something binding
 Usually some specific use of money must be condition of the donation which can be consideration. Dalhousie
receiving promise and they have to be doing something in exchange for receiving promise from Boutilier. Must
purchase promise.
Held:
That this gratuitous promise did not receive any consideration, and therefore that it is not a binding agreement.
When the promise is not purchased we don’t want to always enforce to be careful not to change charitable donations
to obligations.
Comments:
 Pro Donee cases acts that donee impliedly undertakes to carry out purposes of subscription cards. Enforce Payment.
 Pro-donor cases court will never find consideration even where specific acts are requested… Never enforced.
Court took middle road for consideration present if express promise by Dal to do something specific.

Branford General Hospital Foundation v Marquis Estate


Facts: Mrs. Helmi Marquis pledges $1M over fiver years in 200K instalments to the Foundation. She pays 1 instalment
then dies.
Issue: Was there consideration between the Fdn. and Mrs. Marquis so as to make her pledge contractually binding?
Results: The pledge failed in this case for lack of consideration. Suggestion that naming the wing after Mrs. Marquis was
consideration failed b/c Mrs. Marque did not bargain for it in exchange for giving money.
 The purpose of naming wing after Marquis to demonstrate appreciation of donation
 Naming the wing was not intended as price for pledge, therefore it’s not consideration.
 Also, Board still has to approve naming of wing. So if it is still subject to approval it cannot be part of the contract.
 The idea to name the ICUCCU came from the hospital, not Mrs. Marquis
 Mrs. Marquis never told her accountant about the naming clause so it was clearly irrelevant to her in her decision to
make the commitment
 We hate foisting in law Hospital couldn’t go out and just name the wing after the Marquis and say it’s
consideration. It still was not the purchase price for the pledge so it cannot be consideration.
Comments:
How could the pledge have been handled differently to help ensure its enforceability?
a) Nominal consideration from the charity to the donor;
b) the agreements should be signed under seal; (issue of consideration wouldn’t matter)
c) any naming rights should be stipulated as a specific condition of the payment of the donation in its entirety; and
d) an explicit statement in the agreement that the charity will rely, potentially to its detriment, on the donor's promise to
pay, together with, to the extent possible, a description of the activities which will reflect such reliance.
**Additionally, for a claim based in equity to succeed, it is important that the charity in fact rely to its potential detriment
on the donor's promise to pay**
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Wood v Lucy, Lady Duff-Gordon
Facts: Duff-Gordon(DF) was a celebrity who attached her name to products to help them sell in return for payment. She
employed Wood (PL) to help her do her business, and gave him exclusive right to license out her name in exchange for
50% of the profits he earned. Wood claimed Lady Lucy broke the contract by placing endorsements without his knowledge
and keeping all the profits too herself.

Wood was successful at the initial trial, but this was overturned by the lower appellate court.
Issues: Is there an enforceable contract even when there is no express promise by one of the parties?
Results: Duff-Gordon claimed that there was no corresponding request to her promise – she did not request anything from
Wood, thus there was no consideration. Wood did not bind himself to anything, and therefore there was no contract.
 Court says look at context of relationship to imply promise by Wood. A promise may be lacking but may have an
obligation perfectly expressed.
 Cardozo J, said that it goes without saying that anyone who contracts to do this type of thing will do his or her best
efforts. Wood's promise to render accounts and to give Duff-Gordon 50% of the profits inherently implied that he
would use reasonable effort to implement the agreement.
 Implied based on business efficacy. They make these arrangements in hopes that they will work.

3. Past Consideration 170

Eastwood v Kenyon
Facts: Eastwood (PL) takes care of Sarah after her father dies. Kenyon (Sarah’s husband) promises to pay the debt for
Eastwood. In return, Eastwood promises to handle old debt from Sarah. Sutcliffe: deceased father of Sarah Blackburn:
creditor of Eastwood. Eastwood borrowed money from Blackburn and used it for Sarah's benefit.
Issue: Is consideration present? Is past consideration valid? Or is it gratuitous?
Results: Eastwood's theory: The fact that Eastwood took care of Sarah when she was an orphan and spent money to do so
IS THE CONSIDERATION for Kenyon's subsequent promise to repay Eastwood's promissory note.
The problem: The "consideration" supplied by Eastwood PREDATES the promise. How can Eastwood's taking care of
Sarah support a promise by Kenyon which is made years later?

Common law rule: past consideration is not good consideration. Past consideration is no consideration because it
provides no link between the alleged consideration and the promise made. Plaintiff’s action fails because the promise sued
upon had not been purchased by him. Kenyon’s promise to pay had not been purchased by the promisee. Present promise
MUST be purchased to saying something happened years before is not consideration. Taking care of Sarah would have to
occur at “roughly” same time as Kenyon’s promise or they cannot be connected.
Comments:
 Moral consideration is not good legal consideration (Past consideration here not good)
 Exceptions: Infants contracts
o Necessaries supplied by c/o to infant who upon reaching age of majority agrees to pay. This is enforceable
even though consideration is past. Thus Sarah could have been successfully sued by Eastwood.

Lampleigh v Brathwait
Facts: Assumpsit: An express or implied promise, not under seal, by which one person undertakes to do some act or pay
something to another.
1. Brathwait killed one Patrick Mahume
2. Brathwait, a felon, now wants a pardon from the king
3. Brathwait asks Lampleigh, a lawyer, to ride to Roiston and seek a pardon for Brathwait from the King
4. Lampleigh rode off to Roiston to try to secure the pardon
5. Upon Lampleigh’s return, Brathwait agreed to pay Lampleigh 100 pounds but now refuses to pay.
Issue: Is there consideration supporting Brathwait’s promise to pay? Or do we hit the wall of past consideration is no
consideration?
Treitel – An act done before expressed promise can be good consideration but you must satisfy three conditions:
Contractual Quantum Meruit: reasonable sum to be paid
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4. Act must have been done at request of promisor (Felon ask lawyer to ride to get pardon)
5. Must be understood that payment would be made (Lawyers don’t go ride to see king for free)
6. Payment, if promised in advance, would have been legally recoverable (was something that could have been
enforceable, ex: hit man contract not enforceable)

Contractual quantum meruit per Black’s:


 Latin for “as much as deserved”
 Founded on an implied assumpsit or promise on the part of the def. to pay the plaintiff as much as he reasonably
deserved to have for his labor.

4. Consideration Must be of Value in the Eyes of the Law 173


5. Bona Fide Compromises of Disputed Claims 175
Forbearance to sue – refraining from something you have legal right to do can be good consideration for money from
them.
Ex: B Injured in car accident be A. B has cause of action against A, and B promises not to sue (discontinuance) and A in
return promises to pay money. This is a binding contract b/c B promises not to sue and A promises to give money, and is
enforceable.
Consideration: Bona Fide Compromises of Disputed Claims (Zellers)
per Treitel:

(i) VALID CLAIMS


General Rule: Promise to release a valid claim is good consideration
(ii) INVALID AND DOUBTFUL CLAIMS
 Claims known to be invalid: [There is no consideration] if the sole consideration provided by A is his
forbearance to enforce a claim which is clearly invalid and which he either knows to be invalid or does not believe
to be valid. Thus a promise by a bookmaker not to sue his client for the amount of lost bets was no consideration
for a promise made in return by the client….
 Doubtful claims: Where the claim is doubtful in law, a promise to abandon it involves the possibility of detriment
to the potential claimant and of benefit to the other party. Such a promise is therefore good consideration for a
counterpromise given by the latter party: e.g. for one to pay a sum of money to the party promising to abandon the
claim.
 Claims wrongly believed to be valid: A promise by A to abandon a claim is also good consideration for a
counter-promise made by B, even though A’s claim is clearly bad in law, if it is believed by A to be a valid one
[citing Callisher]. One reason which has been given for this rule is that otherwise “in no case of a doubtful claim
could a compromise be enforced” [citing Callisher] but this does not explain why the rule applies where A’s claim
is not merely ‘doubtful’ but clearly bad. Another suggested reason for the rule is that A suffers detriment because
“he gives up what he believes to be a right of action” but, in general, consideration must be something of value,
not something believed to be of value.
o A bit of a logic leap because this doesn’t explain why giving up an invalid claim is not good
o You cannot say generally “well I thought it was good consideration”
o The law doesn’t care what you thought
o Odd that here, we’re backsliding and enforcing a situation when the claim in clearly bad but wrongfully
believed to be valid.
 Safeguards for giving up an invalid claim: ….The rule that a promise by A to abandon a claim which is clearly
bad, but believed to be valid, is good consideration for a counter-promise from B is subject to a number of
safeguards:
1) There must a reasonable claim (i.e. one made on reasonable grounds)
2) A must honestly believe that his claim had at any rate a fair chance of success.
3) He must not conceal from B any facts which, if known to the latter, would enable him to resist the claim.
4) And he must show that he seriously intended to enforce the claim.
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B (DC) v Arkin, [1996] 8 WWR 100
Facts: Zellers (DF), B(DC) (Ms B/Mom of theft kid who stole from Zellers)
 Zellers (would-be plaintiff) threatens to sue D.C.B. (the mom) (would-be defendant) for $225.00 as compensation for
damages Zellers says is sustained due to the son's shoplifting.
 JB (14 years) and RM (15 years) put merchandise in their backpacks and left Zellers without attempting to pay.
 Loss Prevention Officer caught thefts
 Letter written by lawyer:
o Unlawful taking of merchandise worth $59.95
o Zellers has right to claim civil restitution from you
o Zellers is willing to settle out of court for $225
o Criminal charges may still apply
o Class comment: page 176:
 The boy may be subject to criminal issues regardless of this, this is true.
 In accordance with QB Zellers has the legal right to claim civil restitution: that legislation recited is the
legislation that creates the court. Not the legislation that says that someone can successfully sue the parent
of a shoplifting kid. Very mean. It's not intimidation, but a show of force.
 So the letter is harsh and there might be occasions to send those letters but it gives the impression to
someone not trained in law that the legislation gives Zellers direct power
 So here, we're really creating reason for the judge to like the Mom more than Zellers based on this letter.
 Ms. B (JB mom) paid $225 by cheque August 16, 1965 in response to letter
 No damage to recovered items from JB or RM, items were returned for sale
 No automatic vicarious liability - Parents not liable for the torts of their children by virtue of their status as parents
 Zellers claims that Mom voluntarily entered into contract by paying with consideration on both sides (money from
mom and promise not to sue from Zellers)
 PL: Zellers was not entitled to money and money should be repaid for equitable reasons
Issue: Can the PL recover the money paid on the grounds that Zellers never had a valid claim against her personally

Results:
 Valid Claims, forbearance to sue is good consideration if there is a valid claim and that monies paid in exchange for a
promise not to sue is valid and enforceable legal contract.
 Claims known to be invalid. A promise is not binding if the sole consideration for it is a forbearance to enforce a
claim which is invalid and which is either known by the party forbearing to be invalid or not believed by him to be
valid…
 Claims which are doubtful or not known to be invalid. The validity of the claim is doubtful, forbearance to enforce it can
be good consideration. It has further, been held that the same rule applies even if the claim is clearly invalid in law, so
long as it was a 'reasonable claim' (i.e. one made on reasonable grounds) which was in good faith believed by the party
forbearing to have at any rate a fair chance of success

 Two further conditions must be satisfied by a party who relies on his forbearance to enforce an invalid claim as the
consideration for a promise made to him He must NOT deliberately conceal from the other party (i.e. the promisor) facts
which, if known to the latter, would enable him to defeat the claim. And he must show that he seriously intended to
pursue the claim.
o PL mislead by the tone and content of the lawyer's letter
o PL entitled to a refund on the ground of monies paid under a mistake
Class Notes:
 Forbearance to sue: refraining from doing something, is good consideration
o i.e. you're injured in car accident and you're PL. You have a cause of action against the driver. Instead of going to

38
trial you can settle, meaning the PL promises NOT to sue/or discontinue action and DF promises to pay money.
This is a binding contract.
 Mom must show that she gave up nothing for her promise to pay
 Zellers said they provided consideration because they forebore from suing
 give the judge a reason to be inclined toward your client and give the court a legal reason to come to that result
 We don't have a valid claim on Zeller's part.
 Zeller's claim cannot succeed at law, there is no principle that allows them to succeed at law so they have an invalid
claim
 Zellers must demonstrate they didn't know the claim was invalid and the claim was
1. Made on honest grounds
2. Had a chance of succeeding (reasonable claim)
3. Seriously intended to enforce claim
4. Did not conceal anything
a. PAGE 178: whatever legal opinion Zellers had about their claims general I cannot believe they thought
the claim would succeed or intended to pursuit it to court... It would be futile to pursue it
i. The business plan was to write a few letters and shake the cage and if nothing happens, let it go. Likely no
intention to bring the people to small claims court
ii. No intention to enforce claim and court couldn't believe that Zellers thought they had a true change at court

6. Pre Existing Legal Duty 178


(a) Introduction 178
Ex: Harvey’s father promises to pay Harvey $500 if Harvey promises to stop welling weed. Thus, Harvey promises to
obey the law, is this enforceable? Fulfilling a public duty is not good consideration is traditional view.

(b) Public Duty 178


Can the Promisee’s fulfilment of a pre-existing legal duty be good consideration for the Promisor’s promise?
 Such fulfilment is not good consideration since the promisee is only doing what he is otherwise already required
to do. (Police officer example).
 If the promisee does something more than she is required to do, then good consideration is present. See Ward v
Byham [1956]. In exchange for the father’s promise to support the child, the mother promised to make sure the
child was well looked after, happy & the child can choose who they want to live with. This was more than the
statutory obligation to maintain the child required. Doing more than statutory obligation, b/c keep child happy and
allow child to chose who to live with. Give the judge a reason for why they want to help your client and give them
a legal hook. The legal hook “mother doing more than statutory minimum” promise to let child decide where to
live and make sure kid was happy  Extra was found to be good consideration.
 Lord Denning: mother is not providing extra consideration, but the promise to perform existing duty SHOULD
BE good consideration & will not apply statutory duty obligation b/c he doesn’t like it (he just made it up). So the
mother should get the 1pound per week.

(c) Duty Owed to a Third Party 179


Ex: Promisor  I promise to tutor your child
Promisee  I promise to hire your child for snow removal (consideration to a 3rd party)
Consideration flowing to 3rd party good consideration is OK.

Can Fulfilment of a pre-existing duty to a third party at the request of the promisor? Such fulfilment is good
consideration. See Shadwell where the nephew’s fulfilment of a pre-existing duty to marry his finance was good
consideration for his uncle’s promise to pay an annual allowance. Court concluded that the uncle benefited from the
marriage taking place and so there was consideration.
EX: Uncle Promisor Promise to pay nephew (promisee) if, he marries fiancé (contract to marry)
 Promisee (nephew) Already obligated to marry fiancé (contract)
 Uncle benefited from marriage so it is good consideration.
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 Criticism: No additional detriment to promisee (so how could it be consideration).

(d) Duty Owed to the Promisor 182


Fulfilment of a pre-existing duty to the Promisor? Such fulfilment is traditionally not regarded as good consideration
but this may be changing. (TBA, including Roffey and Greater Fredericton)

(i) Promises to Pay or Provide More 182


Stilk v Myrick (1809), 2 Camp 317 (Eng KB)
Fact: Seaman (PL)
 Seamen to be paid L5 per month
 When 2 crew deserted Captain entered into an agreement with the rest of the crew, that they should have the wages of
the two who had deserted
 Captain: this is contrary to pubic policy, crews are often thinned, case law shows that these promises are not enforceable
 AG: distinguishes case law b/c contract was made on sore where no pressing danger or emergency existed

Issue: Is there consideration supporting the captain’s promise to pay more?


Court: As the mariners had contractually committed to do “all that they could under all the emergencies of the voyage”, they
were not entitled to enforce the captain’s promise to pay more. Court applies Harris v. Watson on the basis that it was rightly
decided.
 No consideration for ulterior pay
 Had the sailors been at liberty to quit the voyage at Cronstadt the case would be different

In Harris (1781), a promise for further wages in exchange for extra exertion was unenforceable, because, in the court’s words,
"If this action was to be supported, it would materially affect the navigation of this kingdom. It has long since determined that
when the freight is lost, the wages are also lost. This rule was founded on a principle of policy, for if sailors were in all events
to have their wages, and in times of danger entitled to insist on an extra charge on such a promise as this, they would in many
cases suffer a ship to sink, unless the captain would pay an extravagant demand they might think proper to make."
Arguable based on false premise. Would they all just say “ok we will all sink and die unless you pay us more”, likely not?
Very pro-public policy (captain and management perspective).
False dichotomy – we have choice btw “Fomenting mutiny”  or  “exploit the labour of sailors”
If someone enters into contract on basis of “duress” this is not enforceable, the captain would not have to pay additional wages
b/c there wasn’t really an agreement for that to happen.

Ratio: The sailors were not entitled to additional wages promised to them by the captain because they were already under a
contractual obligation to do “all that they could under all the emergencies of the voyage.”

Gilbert Steel Ltd v University Const LTD (1976), 12 OR (2d) 19


Facts: Gilbert Steel (Plaintiff; seeking to enforce defendant’s promise to pay more.); University Construction Ltd. (def; resists
action based on the defence of pre-existing legal obligation.)
 September 4/68: contract whereby Gilbert to supply steel to def. for three projects in total. Plaintiff supplies steel to
two of the projects at the agreed contract price.
 October 22/69: In response to price increase of steel, P approached def. for a new contract with an increased price. A
new contract on this date was entered into.
 About half a year later, another price increase for steel is announced by mill owner and the P seeks additional
concessions from the def.
 March 1: At P’s urging, D agreed to pay an increased price for the steel.
 P billed the def. according to the new price agreement which agreement was never signed by the def.
 D did not remit full payment on the invoices but also never complained about being charged a higher price
Issue: Is contractual variation unsupported by consideration enforceable?
Per plaintiff, there is consideration in:

40
1. Gilbert’s promise to give the University a “good price” on steel in the future.
a. Court: too vague to be consideration
2. The mutual abandonment of the first contract and a new agreement being put in its place
a. Court: no, the only thing discussed was a price variation, no other changes to contract discussed. Intent to
change price not abandon contract.
3. In the increased access to credit which University receives as a result of the price hike.
a. Court, no. This must be something the University Bargained for to be good consideration.
In return is the something he's already obligated to do so there is no consideration

Williams v Roffey Bros. & Nicholls (Contractors) Ltd. (Common law is harsh in regards to variation of contracts, this case
the court helped ease the harshness)
Facts:
Shepherd’s Bush Housing Assoc. – Owner of Flats Contract 1 (BTW Bush Housing & Roffey)
Roffey (DF) General contractor to renovate 27 flats - Contract 2 (BTW Roffey & Williams)
Williams (PL) Subcontractor hired to install carpeting
Facts: DF promised PL extra payment per flat over and above what Contract 2 called for. If reno’s not done by specific date,
that damages will be owed by Roffey to Owners (Shepherds).
 Sub trade Williams runs into trouble performing contractual obligations, and looks like they will going to default and
not complete on time. Then Roffey will face damages if Williams defaults.
Issues with Contract 2: (These are all self-inflicted issues PL should have to deal with)
 Williams is having trouble b/c hey were underpaid (bid contract price too low)
o & Issues with payment schedule from Roffey to Williams and Williams to Contractors.
 Williams mismanaged work crew
Williams made bad choices and should maybe just be their fault to cover deficiencies.
Issue: Is this promise to pay more supported by consideration?
Results:
Roffey argues:
 Argue no new consideration (cites Stilks)
 gratuitous promise and not binding b/c no extra consideration Unsuccessful argument.
Court:
Consideration is present. Both received benefits; Practical Benefits are good consideration in this case
 DF avoided default penalties (damages clause) from Contract 1 for finishing renovations late;
 Did not have to replace PL with another sub trade.
 Ensure sub trade and contract 2 will seek compliance (complete on time)
 PL got extra compensation to finish full flats (instead of partial completion of several flats).
 DF obligated to pay the additional 10,300 euros for the 8 flats fully finished.

TEST: if practical benefits are good consideration, which exactly fits Williams V Roffey (made up for this case):
1. If A has entered into a contract with B to do work for, or to supply goods or services to B, in return for payment by B
and
2. At some stage before A has completely performed his obligations under the contract B has reason to doubt whether A
will, or will be able to, complete his side of the bargain and
3. B thereupon promises A an additional payment in return for A’s promise to perform his contractual obligations on
time and
4. As a results of giving his promise B obtains in practice a benefit or obviates a disbenefit, and
5. B’s promise is not given as a result of economic duress or fraud on the part of A, then
6. the benefit to B is capable of being consideration for B’s promise so that the promise will be legally binding.
RATIO: Consideration by practical benefits is good consideration
Comments:
 Williams recognizes practical benefits but Gilbert does NOT.
 Where promisor has received no benefit (Stilk) then promise unenforceable; arguably Stilk would be overruled b/c a
“practical benefit” to captain would be peaceful performance of work b/c there was no suggestion of duress from the
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Seamen.
These are “Practical benefits”? Historically these practical benefits not legal consideration
 Court states it has refined the Stilk test, not overruled it. This isn’t product of extortion and duress like in Stilk.
Historically, in time of Stilk only duress in terms of bodily or personal duress (death or bodily harm)
 BUT today “Economic duress” exists which is extortion of additional payment is sufficient to render this
unenforceable.
For a House of Lord’s definition of “economic duress”, see Pao On:
 “a coercion of the will so as to vitiate consent”…
 “in a contractual situation commercial pressure is not enough”

Greater Fredericton Airport Authority Inc v NAV Canada


Greater Fredericton Airport Authority Inc. (PL) – Nav Canada (DF) – responsible for air navigation services
assignee of the fed. government’s duties and rights under an and equipment, on a monopoly basis, at Canadian airports,
ASF [Aviation and Services Facilities Agreement] with Nav pursuant to the ASF
Canada
Facts:
 The Airport requested that Nav relocate an instrument landing system (ILS) because one of the runways was being
extended.
 Nav suggested an alternative which would include purchasing new distance measuring equipment called a DME. The
cost of the DME was $223,000 and under the ASF, NAV was responsible for this cost.
 However, Nav did not want to be bound by the ASF and insisted that the airport pay for the DME. Otherwise, Nav
said, it would not relocate the ILS. NAV says they don’t want to pay for new equipment and if Airport doesn’t pay
they will refuse to relocate the old equipment.
 The Airport signed a letter “under protest” agreeing to pay for the equipment.
 Nav relied on the letter, acquired and installed the necessary equipment.
 The Airport now refuses to pay.
 Decision went to arbitration, and arbitration decided Airport would have to pay.

Issue: Was the Airport’s promise to pay for the DME legally binding? Was there economic duress?
Results: Appeal dismissed. Court found that arbitrator erred in finding there was fresh consideration.

 Prepare to recognize & adopt an “incremental change” in the traditional ways (vary from Stilk v Myrick) by holding
that a variation unsupported by consideration remains enforceable provided it was not procured under
economic duress.
 Contractual variations not supported by new consideration are not binding. NAV already obligated under original
contract to relocate or replace equipment this had not changed, following Gilbert Steel that variations not enforceable
w/ no new consideration (a gratuitous promise).
 Promise to pay for the DME could be enforced in the light of the doctrine of consideration, provided that it was not
procured by economic distress. The promise by Airport Authority was procured under economic duress and was
therefore unenforceable.
 In the context of enforcing a gratuitous contractual variation, the C.A. in Nav sets out a lengthy test as to what
constitutes duress.

Court can transform gratuitous promise to an enforceable one (if court wants to) to avoid Stilk:
 Promise to do more can be good consideration
 Original circumstances have changed and a new benefit or detriment to make enforceable.

Judge changing rule by building on Roffey case, and concerns over Stilk.
 Contractual variations are enforceable unless there is (economic) duress. WHY Change in law?
o Commercial expediency is of important value.
o Commercial efficacy should protect legit expectations of person receiving promise.
 Courts should be open to avoid fictional attempt to “find” consideration.
Evolution of economic duress means we can set aside certain decisions.
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Greater Fredericton Airport Authority Inc v NAV Canada
Results: Opinion of court that Airport had no “practical alternative” but to pay money that it was not legally bound to pay.
Nav Canada threatened to withhold performance of its obligations until Airport Authority capitulated to the demand that it
pay for the costs of navigational aid. This is evidence of economic duress not conclusive proof.
**Lack of Consent** only agreed to pay under protest
DURESS & Economic Duress:
1. Contracts that are made as a result of one of the parties being threatened with physical harm or actually harmed are
obviously not enforceable. Duress is now a broader concept and includes economic duress.
2. The House of Lords in Pao On (involving a threatened breach of contract) defines duress as “coercion of will so as to
vitiate consent” but adds the proviso that “in a contractual situation commercial pressure is not enough.” The court
states that in applying this test, certain evidential matters are important, such as
 “the effectiveness of the alternate remedy available,
 the fact or absence of protest,
 the availability of independent advice,
 the benefit received, and
 the speed with which the victim has sought to avoid the contract.”
3. In a commercial context, economic duress often involves one party financially pressuring the other. For example, a
company might threaten to break a contract that it knows is extremely important to the other side unless the other side
grants certain concessions or payments in return. (This was held to amount to duress in North Ocean Shipping Co.
Ltd. v. Hyundai Construction Co. Ltd., [1978] 3 All E.R. 1170 (Q.B.).) Under the traditional test, these concessions
are unenforceable if it is shown that more than ordinary commercial pressure was at play. Per Pao, there must be a
“coercion of will so as to vitiate consent.” In short, ordinary commercial pressure is acceptable but not more. A
company wouldn’t just give you more money w/o something extra in return.
4. Per McCamus, the ‘overborne will’ test set in Pao is difficult to meet. As the author notes, “if seriously applied, the
defense would rarely, if ever, be available and on the further ground that it requires a difficult, perhaps impossible,
inquiry into the psychological state of mind of the coerced party.” If you have to show test of coersion of will as to
vitiate consent is immensely difficult to show *high bar*.
5. McCamus notes that the H.L. revamped the Pao test in Universe Tankships (1983), stating that duress requires
showing:
a. pressure amounting to compulsion of will of the victim [no practical alternative] and
b. the illegitimacy of the pressure exerted.
6. Per McCamus, most Cdn. Courts seem to be following the H.L. decision in Universe Tankships. That is, at least in
the context of threatened breach of contract, there is an apparent shift away from the “overborne will theory of Pao
On” to the “no practical alternative coupled with illegitimate pressure test set forth in Universe Tankships.”
7. McCamus welcomes this, stating: As a factual matter, it should normally be a straightforward exercise to determine
whether or not the coerced party had an available alternative and practical course of act. The test of illegitimacy
speaks more directly to the problem of distinguishing legitimate commercial pressure from illegitimate coercion.
Where the threatened conduct constitutes a crime…or a tort…the illegitimacy test is easily applied. The more
difficult case…is that of threatened breach of contract, conduct that is, in the normal case at least, considered to be
lawful. Threat to breach contract isn’t “Illegal”, you are just saying I promise to perform contract or pay damages so
in abstraction not illegal.
8. McCamus concludes as follows: As the courts have observed,
a. ‘in determining the legitimacy of the pressure, one, one must consider the nature of the pressure and the
nature of the demand the pressure is applied to support’…. Accordingly, even though
b. a threat to breach a contract is normally a lawful act (bad man theory of law), it may be that the nature of the
demand being made may cross the line separating legitimate from illegitimate pressure. (You are saying you
will breach contract and pay damages)
c. The threats that have the flavour of blackmail to them are likely to be considered illegitimate. For example,
where an employer threatens to dismiss an employee and, as well, to tarnish the employee’s reputation… in
order to coerce the employee’s consent to an adjustment to his or her existing employment contract, the threat
is likely to be illegitimate. On the other hand…if the party making the threat is seeking to enforce a right to
which it believes, in good faith, it is entitled, threat is legitimate one.

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In common law we Usually follow Universe Tank ships, but concerning contractual variations we could follow this test in
Greater Fredericton Airports:

THRESHOLD REQUIREMENTS:
1. First, the promise (the contractual variation) must be extracted as a result of the exercise of ‘pressure’… (Ex:
Contractor suggested paying more to finish on time, pressure not coming from person extracting benefit)
2. Second, the exercise of that pressure must have been such that the coerced party had no practical alternative but to
agree to the coercer’s demand to vary the terms of the underlying contract. (Could the victim have gone to 3rd party
and found a replacement supplier? If yes this is a practical alternative, the plea of duress would fail)
Once these thresholds are met, the issue shifts to whether the coerced party ‘consented.’ Consider the following
THREE FACTORS to see if consent present:
(1) whether the promise was supported by consideration; (If yes this would show no duress, If no court may be more
sympathetic to plea of duress)
(2) whether the coerced party made the promise ‘under protest’ or ‘without prejudice’; and (If you complain at time you don’t
like what is going on, then court more sympathetic)
(3) if not, whether the coerced party took reasonable steps to disaffirm the promise as soon as practicable. (Expected to act
promptly pg 697: Promisor who waits several years will be guilty of acquiescence [go along with it & cannot later come
down hard on other side.])
 The cases demonstrate those who voluntarily negotiate variations that could be advantageous cannot come back and
say later they are burdensome. Promptly seek legal advice.

Threshold Questions:
First: Was promise extracted by pressure. NAV  we did not do anything wrong either relocate old equipment or buy new
equipment. Court Wrong implicit threat by ANV to withhold performance of contract unless airport pay for equipment.
Second: Practical Alternative: Onus on PL to have sought replacement services? Fredericton Airport cannot seek anyone else
to do work, b/c NAV has monopoly to do these services all over the country.
Three Factors:
(1) no consideration from NAV = supports duress
(2) under protest = yes, set up to pursue duress
(3) reasonable steps to disaffirm = Airport never waivered in its protest

Variation of contract procured under duress on the facts, BUT FOR this duress this PROMISE WOULD HAVE BEEN
ENFORCEABLE, even absent consideration! Probably do these steps in AB, if this case would help you would argue it.
ABCA case Globex, agree w/ NAV that consideration shouldn’t be applied in a rigid way.

7. Promises to Accept Less 198

1) Promise: “I’ll pay more.”


Stilk, Gilbert – pre-existing legal duty to promisor is not good consideration; practical benefits are not legal benefits
Roffey – pre-existing legal duty to promisor is good consideration; practical benefits are legal benefits
Nav – With contractual variations no consideration is needed absent duress

2) Promise: “I’ll accept less”


Foakes: no consideration from Dr. Foakes (even fully performed deals)
Robichaud: yes consideration – practical benefits are legal benefits
Selectmove: won’t apply Roffey. Foakes to be overruled by the House of Lords or by statutory enactment (Parl).
Foot: consideration in the cheques
Legislation – AB Judicature Act makes a less for more situations enforceable, even absent consideration; works once
agreement performed & possibly when partial performance, as long as debtor performing.
 NB – no Judicature Act, might explain why might be more interested in making consideration a more dispensable
ingredient b/c no legislation, use court to fill Gap. Airport v NAV

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(a) Accord and Satisfaction 198
I. The hypothetical:
Debtor owes creditor $100.00: Creditor agrees to accept $80.00 in full satisfaction of the debt (i.e. agreeing to accept a
lesser sum in full satisfaction of the whole). Is this enforceable, or does this agreement fail for want of consideration? This
alone would fail, b/c paying $80 to someone is never going to satisfy $100. What is the creditor getting back? Nothing.

Foakes v Beer 198


Facts: Dr. Foakes (appellant; judgment debtor of Mrs. Beer; seeks to enforce agreement whereby Mrs. Beer agreed to take a
lesser sum in full satisfaction of the whole – i.e. she apparently forgave interest on the judgment.)]

Mrs. Beer (respondent; judgment creditor of Dr. Foakes; says agreement is unenforceable for want of consideration; now
seeks interest even though Foakes fully performed his side of the agreement)
Facts: Beer secured judgment against Foakes in the amount of 2,090 pounds plus interest and is now known as a judgment
creditor. (She is creditor because she is owed money under the judgment)
 Foakes is judgment debtor. He owes money under the judgment
 Faokes asks for time to pay and they entered into a written agreement
 Beer agreed not to take any further proceedings to collect on the judgment in consideration of an immediate down
payment plus a series of instalments until the amount of the debt was reached.
 Foakes paid the down payment and made ALL the instalments. Mrs. Beer claims 300 pounds, which represents the
interest she was awarded under the judgment.
 Pg 198: Judgement amount written in Instalment Contract, but not interest.
Legal issue: Can Beer claim interest at this point or is she bound?
Result: Court applies the rule in Pinnel’s case: “that payment of a lesser sum on the day…in satisfaction of a greater, cannot
be any satisfaction for the whole, because it appears to the judges, that by no possibility a lesser sum can be satisfaction to the
plaintiff for a greater sum.”
 In this situation, Dr Foakes did not provide any consideration from him to make enforceable Mrs B’s promise to
accept less. Mrs Beer did not intend to forgive interest just a mistake on her part to include it in contract
 This may be possible if under seal, or some other bargain with new consideration.
 What if Dr. F saying “I will give up a defence, or appeal saying he won’t”  For Mrs. Beer accepting a lesser
amount. This could be good consideration just like giving up a cause of action could be good consideration.
 Or nominal consideration “a peppercorn” or anything of uncertain value.
 Parl is in best position to legislate on this matter Judges don’t want to overrule Pinnel, which is a case been around
for 200 years. This Pinnel rule may not be good, but not their place to overrule it.
What could possibly be consideration (benefit) to Mrs Beer?
1. Not having to pursue Mr. F in further legal proceeding to get judgment.
2. Something is better than nothing, maybe Mr. F won’t be able to pay otherwise.
3. She got first upfront judgment payment and ALL instalments. Already obligated to pay judgment debt.
1 & 2 are Practical benefits, not legal benefits. Thus don’t count as legal consideration.

Policy reason for Pinnel  pro-creditor rule benefiting one side. This is to protect creditor from ruthless debtors who
may not be cooperative or put pressure to accept lesser sum.
 Pinnel  a bad creditor exacts cooperation of debtor, take lesser amount and once paid debt discharged. This could
result with creditors overreaching and manipulating debtors.
Comments:

Mrs. Beer did not intend to get interest according to the post-judgement agreement. Could she go to judge for post judgement
agreement doesn’t reflect actually agreement? She has two issues:
0. Must hurdle over parole evidence rule (which is that what is written is complete)
1. Her evidence is that she's changing the agreement outside of what was written. We won't want people after the fact or
people who weren’t good a negotiating to come back after the fact.
2. If she can show that the written agreement wasn't the whole agreement but that there was an oral part of the contract
she might be able to prove that interest was to be paid. Dr. Foakes would likely disagree and say that the document

45
was the whole agreement.
3. She could get a rectification: to include a provision that interest was also payable. Obviously, if both parties agree
that the contract wasn't correct then the rectification is simple. But we can anticipate that Dr. Foakes would not say
that interest was intended to be paid. So they won't get a rectification by agreement. Mrs. Beer can unilaterally get
the rectification if Dr. Foakes fraudulently or uncausionable got the contract signed.
 We have a high bar for rectification and not open a door to a buyers remorse where the person seeking rectification is
seeking a rectification to an error they made.

II. Accord and Satisfaction:


Per Talbot: et al: Accord and satisfaction is the purchase of a release from an obligation … by means of any valuable
consideration, not being the actual performance of the obligation itself. The accord is the agreement by which the
obligation is discharged. The satisfaction is the consideration which makes the agreement operative.
 If a creditor agrees to take lesser sum (agreement – accord)
 Must be “satisfaction” – consideration supporting lesser sum
o Ex: Paying lesser amount Early
o Ex: Paying by Cash, rather than by Cheque

I. An aside on rectification, per Waddams: The essence of rectification is to bring the document that was expressed or
intended to be in pursuance of a prior agreement into harmony with that prior agreement. It deals with the situation where,
contracting parties have reduced into writing the agreement reached by their negotiations, some mistake was made in the
wording of the final, written contract, altering the effect, in whole in or part, of the contract. What the court does is to alter
the document, in accordance with the evidence, and then enforce the document as changed. Rectification is not used to
vary the intentions of the parties, but to correct the situation where the parties have settled upon certain terms but have
written them down incorrectly.
Where the mistake is one-sided or unilateral, courts are reluctant to grant rectification.
 Dr. Foakes would say it is silent on interest B/c under agreement he was not to pay interest.
 Must prove there was oral and written parts to agreement. Not going to get recification by agreement.
Per the court in Lee v. Arthurs, quoted in Waddams, [t]he whole principle of rectifying or reforming a conveyance
rests upon the idea that the document as written is not evidential of the contact as made, and if both parties agree on the
point, the Court will proceed to reform the deed or writing in accordance with the common intent but a deed cannot be
reformed or rectified against the protest of one party thereto who says it is right already.
 exceptions to this rule include fraud by the defendant, unconscionable conduct by the defendant. and per
McCamus, when the “defendant ‘knew or ought to have known of the error and the plaintiff did not.’”

II. An aside on parol evidence, Per McCamus, there are two different versions of the parole evidence rule.
1. The traditional version holds that where a written agreement appears on its face to be a complete agreement,
parole evidence [outside communication] cannot be admitted that contradicts, varies, adds to or subtracts from the
terms of the written agreement. Under this version of the rule, one must determine that the written agreement
appears to be, in some sense, incomplete before one can turn to consider evidence of prior communications
[whether written or oral].
2. The ‘modern’ version places emphasis on the need to demonstrate that the parties actually intended to reduce the
agreement into writing as a precondition to the application of the rule. In determining whether the parties actually
did intend to reduce their agreement into written form, all evidence of their prior communications relevant to this
issue…is admissible. Under this version of the rule…a party could lead evidence demonstrating that a written
agreement that appears complete on its face is actually merely a component of an agreement that is intended to by
the parties to be partly oral and partly in writing. Per McCamus, it is not clear in Canada which version courts are
relying on but there seems to be “movement in the direction of the modern rule in recent Canadian
Jurisprudence.”

Re Selectmove Ltd. 201 (Robichaud judgement rejected by English CA here)


Facts: Crown: brings winding up petition against Selectmove for source deduction arrears in the amount of approx. 17,000
46
pounds. Selectmove: resists application on basis of disputing the debt “in good faith and on substantial grounds.”
 Selectmove was required by law to make source deductions from payments to employees (income tax; national
insurance payments) and remit those payments to the Crown. It failed to do so.
 Crown collector asked Selectmove for a proposal to deal with the arrears.
 Selectmove says it had struck a July 1991 compromise agreement with the Crown whereby, inter alia, Crown would
accept instalment payments on 24,000 pounds of arrears. First payment to be made Feb. 1992.
 Selectmove alleges that collector agreed to this and committed to get back to company if it was unacceptable to his
supervisors.
 October 1992 Crown demands all arrears (24,000 pounds) no instalments or lesser $
 Selectmove does not remit all arrears but simply begins performing compromise agreement in Feb. 1992. It also made
payment of its current obligations though not its strict compliance with the alleged compromise.
 Crown now seeks all arrears (in the amount of approx. 17,000 pounds.)

Legal Issue: Is Crown bound by alleged agreement to accept instalment payments?


Results:
 Judge held that if there was an agreement btw the company and the Crown it was unenforceable for want of
consideration. Rejects Roffey arguments b/c of precedent of Foakes v Beer, they do not want to overrule case. Lord
Denning would have overruled for sure, Parl sucks!!

Comments:
 Practical benefits NOT good consideration, opposite in NB where they are good consideration, and is broader more
flexible view.
 Practical reasons as consideration: no need to sue or chase after debtor, something is better than nothing
 Roffey being applied in the opposite scenario
o The Roffey argument was not accepted because the court was not prepared to overrule Foakes.

Less for more scenario, practical benefits NOT good consideration in England (Selectmove)
In New Brunswick practical benefits are good consideration.

Foot v Rawlings 203


Facts: Foot (debtor/promisee; says creditor is bound by an agreement to accept a smaller sum); Rawlings (creditor/promisor;
says agreement is unenforceable for want of consideration.
 Creditor suggested he would accept a lower than negotiated interest rate on an existing loan and lower monthly
instalments provided debtor gave a regular series of posted-dated cheques and fulfilled the agreement faithfully.
 Debtor substantially complied with these new terms but the creditor changed his mind and sues for what is owed
under the first agreement.

Issue: Is there consideration for the creditor’s agreement to accept less in full satisfaction?
Results:
 SCC applies Sibree and concludes that giving the post-dated cheques was good consideration for the promise of
release of the debt at a lower interest rate.
 Agreement owed in “cash 500” but substituting, Negotiable instrument (post-dated cheques amounting to 300) might
give satisfaction.
 Substituting paper (cheque) for a sum of money may be sufficient consideration b/c cheque could be worth more or
less… it is of “uncertain value” … well that sucks. The negotiated set of cheques is good consideration and each
cheque of “uncertain value”.
 Per court: “So long as the appellant continued to perform his obligations under the [new] agreement… the
respondent’s right to sue on the notes was suspended, consequently his action brought on December 7, 1960 was
premature and should have been dismissed on that ground.”

Denning:
 is trading payment by cheque diff from cash? Is creditor bound? It is the same, no sensible distinction to payment of
less by cheque than by cash. If creditor not bound by payment in cash in lesser sum, they should not be bound by
cheque of lesser sum.
47
Comments:
 There is cooperation in that he has postdated cheques and he doesn't have to chase the debtor for money every month
- but this is a practical benefit.
 If the payment is negotiated for in less amount maybe it is consideration.
 If you're negotiating for the cheque and you want the cheque then maybe there is consideration but otherwise
they are the same.
 The SCC's argument is that the cheque is that the cheque is of uncertain value, but would you argue it? Only if
you absolutely had to. It's probably not a winning argument but it's an SCC case and it hasn't been overruled.

(b) Statute 206


Judicature Act 206
Judicature Act, R.S.A. 2000 c. J-2 Part performance
13(1) Part performance of an obligation either before or after a breach thereof shall be held to extinguish the obligation
a) when expressly accepted by a creditor in satisfaction, or
b) when rendered pursuant to an agreement for that purpose though w/o any new consideration

Effectively repeals Foakes v Beer – less for more agreements ARE enforceable w/ no consideration
 A $100
 C  $80 on Friday. But on Thursday I change my mind. Must be “Expressly accepted” part performance actually
receiving money, so Thursday I can say no never mind I want all my money. Not “promise to accept lesser
amount” but ACTUALLY accepting lesser amount.
o Able to revoke before agreement executed?
(a) Once money transferred “accepted” by creditor, CANNOT revoke and ask for full amount. Execution of
contract, or fully performed.
(b) pg 187 One case Note 3: Pending performance (agreement in place) cannot revoke until expiry date of
offer.
(c) Instead of paying $80 I give 8 postdated cheques for $10ea, in month 7 could I cash cheque and tell
debtor that an arrangement is off and seek full amount. “When being rendered” creditor may be able to
revoke before full performance. Promotes a deceptive way to settle debts. Creditor pretends to be
amendable to settlement, and all along intends to revoke at last minute.
 Not allowed. As long as Debtor preforming the creditor CANNOT revoke. If they fail to perform, yes creditor
may revoke.
**PUT UNDER SEAL, so you don’t have to argue consideration.

Per McCamus: page 263


 Judicature Act partly overrules Foakes.
o Does not save an agreement under which the creditor agrees to complete forgiveness of a debt.
o Act only engages if a part performance[less for more agreement] of some kind is rendered by the
debtor.
o Unclear if provision protects those who partly executed their less for more.
 Some cases suggest that once the part performance has commenced, the creditor’s undertaking is
irrevocable
o Accordingly, it has been suggested that the creditor might be able to revive the existing debt while the
arrangement remains executory.

8. Promissory Estoppel and Waiver 207


Lord Denning’s definition of PE in High Trees:
There are cases in which a promise was made which was intended to create legal relations, and which, to the knowledge
of the person making the promise, was going to be acted on by the person to whom it was made, and which was in fact so
acted on. In such cases the courts have said that the promise must be honoured.
48
II. Ingredients of promissory estoppel (Parties must be in contract) based on Fridman, McCamus, Treitel, and the
definition above.
1. THERE IS A PRE-EXISTING LEGAL RELATIONSHIP BETWEEN THE PARTIES
2. THERE IS A CLEAR PROMISE OR REPRESENTATION OF INTENTION BY THE REPRESENTOR
Court’s comment in John Burrows that the equitable defence of promissory estoppel cannot be invoked:
Unless the parties entered into a course of negotiation which had the effect of leading the other to suppose that the
strict rights under the contract would not be enforced, and I think that this implied that there must be evidence
from which it can be inferred that the first party intended that the legal relations created by the contract would be
altered as a result of the negotiations
a. query whether a COURSE OF NEGOTIATIONS is required to precede the clear promise or
representation
b. See analysis from 741431 Alberta Ltd. v. Devon (Town) 2003 ABQB 377 at para. 95: The leading case
of Maracle bespeaks the legal standard for estoppel. In that case, Sopinka J. wrote:
c. “The principles of promissory estoppel are well settled. The party relying on the doctrine must establish
that the other party has, by words or conduct, made a promise or assurance which was intended to affect
their legal relationship and to be acted on.”
3. THE REPRESENTOR KNOWS THAT THE REPRESENTEE WILL ACT ON THE PROMIS
4. THE REPRESENTEE ACTS/RELIES ON THE REPRESENTATION (PE REQUIRES RELIANCE
See Saskatchewan Bungalows:
a. But must the reliance by the representee be DETRIMENTAL?
i. Examples of cases requiring detriment:

Wilson J.A. in Gilbert (re: customer’s gratuitous promise to pay more for steel) requires detriment
in her definition of PE.
Robertson J. in Greater Fredericton Airport at para. 23 also recites the detriment requirement,
stating:

 Regrettably, the fact that the plaintiff [Nav Canada] may have relied on the agreement [by the
Airport to pay for the equipment] to his or her detriment [emphasis added] is of no consequence
as promissory estoppel may be invoked only as sword and not as a shield. Thus, Nav Canada's
estoppel-based argument - that it relied to its own detriment on the Airport Authority's gratuitous
promise - must be rejected also.

Goff J. in Post Chaser, refused to apply PE because there was no evidence of “significant
detrimental reliance by the promisee” per McCamus. Per Goff J., the seller’s position ‘was not
prejudiced by reason of their action in reliance on the representation.’

ii. Examples of cases that do not require detriment


Lord Denning in W.J. Allan says detriment is NOT required, focussing instead on the equities. As
Goff J. summarizes the matter in The Post Chaser:

 [I]n W.J. Allan…Lord Denning MR, while stating that the principle of equitable estoppel in terms
that it must be inequitable for the representor to be allowed to go back on his representation,
nevertheless considered that it might be sufficient for that purpose that the representee had
conducted his affairs on the basis of the representation, and that is was immaterial whether he has
suffered any detriment by doing so.
 The SCC in Miracle defined promissory estoppel with no express reference to a possible
detriment requirement: The principles of promissory estoppel are well settled.
 The party relying on the doctrine must establish that the other party has, by words or conduct,
made a promise or assurance which was intended to affect their legal relationship and to be acted

49
on. Furthermore, the representee must establish that, in reliance on the representation, he acted on
it or in some way changed his position.
 Per Treitel (stating the English position): It is enough if the promisee has altered his position in
reliance on the promise so that it would be inequitable to allow the promisor to act inconsistently
with it. Thus, the requirement can be satisfied if the promisee has forborne from taking steps to
safeguard his legal position (as in Hughes…); or if he has performed or made efforts to perform
the original obligation as altered by the promise (e.g. where a seller who has been promised extra
time for delivery continues to make efforts to perform after the originally agreed deliver date has
gone by)
 Per Fridman, Goff J. in the Post Chaser, also seems to take a position comparable to that
of Lord Denning. Per Goff J., in the context of the equities, states:
 It is not necessary to show detriment; indeed the representee may have benefited from the
representation, and yet is may be inequitable, at least without reasonable notice, for the
representor to enforce his legal rights.
o Detriment in the context of agreements to accept a lesser amount in full satisfaction of the whole

Goff J.’s view, that some detriment or prejudice is necessary, appears more consistent with the underlying
objective of the doctrine of promissory estoppel. It may, however, have the unattractive feature that it
leaves at large the question of whether the reliance of the defendant in cases like Foakes v. Beer is
sufficiently detrimental to engage the doctrine. It is, as yet, unclear whether courts will be persuaded by
the argument that once the partial payment has been made, it would be inequitable to allow the creditor to
recover the outstanding balance.

See too Collier v. P & M J Wright (Holdings) Ltd., [2008] 1 W.L. R. 643 (C.A.) per CB

5. PE IS AN EQUITABLE DOCTRINE (THE REPRESENTEE MUST HAVE ACTED EQUITABLY; AND IT


MUST
BE INEQUITABLE TO ALLOW THE REPRESENTOR TO RESILE)
 D & C Builders

Hughes v Metropolitan Railway Company (TEST OF PROMISSORY ESTOPPEL CREATED)


Facts: Metro Rwy Co. (tenant; under its lease, it had an obligation to repair within six months of the landlord’s written
notice.) Hughes (landlord).
 OCTOBER 22, 1874: landlord serves notice to repair within six months
 NOVEMBER 28, 1874: T offers to sell leasehold back to L and proposed to defer repairs pending the L’s decision (T
would not start repairs b/c want to vacate, time not running)
 L never responded to T’s proposal to defer repairs (by conduct amenable, or appear to be)
 Parties negotiate until the end of December, 1874 at which point negotiations broke down
 APRIL 19, 1875: three days before notice to repair would expire, T said it was now undertaking repairs
 APRIL 29, 1875: L serves writ of ejectment
 JUNE, 1875: T completes repairs (good standing in Court b/c actually completed work, although possible to decide
against & waste of money.
 Landlord wants the writ enforced notwithstanding.
Issue: When does time run against the Tenant?
Results:
 Negotiations breakdown Dec 31st, this is when time starts to run.
 Repairs complete by 6month period, comply w/ lease.

Per court: if parties who have entered into definite and distinct terms involving certain legal results – certain penalties or legal
forfeiture – afterwards by their own act or with their own consent enter into a course of negotiations which has the effect of
leading one of the parties to suppose that the strict rights arising under the contract will not be enforced (time won’t run

50
against), or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not
be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between
the parties.
 Time starts to run when negotiations have ended
Comments: Could you argue agreement to suspend time supported by consideration? Benefits:
 LL suspect running of time, what are they getting in exchange?
o Opportunity to buy back lease, it is obviously valuable or why would they be negotiating. If court motivated
to find consideration they will find it (in NB)
Compliance w/ repairs

Central London Property Trust Ltd v High Trees House Ltd.


Facts: (Creditor) Central LP Trust Plaintiff/Landlord Parent Company to Defendant 99 year lease w/ High Trees DF
(Tenant/Subsidiary). High Trees Defendant (Tenant/Subsidiary) Who must find sub tenants to fill vacancy.
 Landlord and Tenant entered into a 99 year lease for 2500L/year
 Jan 1940: L volunteers to reduce rent to 1250L. This was in response to flats not being fully occupied due to war time
conditions in London [WWII: Sept 1939-Aug1945 (Japanese surrender)]. Condition: Tenant doesn't have to pay full
rent when 1) flats are not fully let 2) oweing to wartime conditions
 During this time, London was being bombed nightly
 Jan 1945: flats were fully let; T paid reduced rent from 1941 to 1945 when all the flats were fully let and continued to
payer a lower rent even after that
 Sept 1945: the receiver discovered this and presumably wanted to recover more for the creditors of the L.
 Sept 1945: received demanded full rent from T going forward plus arrears of 7916 pounds

In these proceedings, receiver is seeking arrears of 635L for two periods: for the quarter ** ending Sept 1945 and for the
quarter ending Dec 1945. Since flats were fully let by Jan 1945 would any estoppel against the landlord have ended by
them?? A year divided into fiscal quarters looks like this: 1st quarter: Jan -mar 2nd Apr -June 3rd July-Sept and 4th: Oct-Dec.
Issue: Is the received/L stopped from seeking arrears?
Results:
Lord Denning:
 LL is not estopped from seeking arrears, the contract made during the war was supposed to last until the flats were
fully let (or significantly let).
 Upon Jan 1st 1945 flats fully let and as such end of agreement.
 Intention of parties was for agreement to become binding for that time period.
 Cannot use estoppel by representation, because the promise is going to the future
 Law hasn’t been standing still, promise to do something for time frame must be honoured.
o Promissory estoppel – future promises need to be honoured and a party cannot act in contrary to it; is
binding absent consideration.
Application:
 Tenant will accept reduced rent, if during the time frame flats are not full due to wartime
o Once those conditions cease the estoppel putters out by it's own words. During this time the flats were fully
let so the estoppel has fully seized.
Comments:
 Denning’s agricultural practices … plants seed to use in future, started doctrine of promissory estoppel. He might
need this later, although not needed in this case. So he can refer back later. If you are in contract w/ someone and one
makes representation in future (accept lesser sun) is binding.
 At this time, only real time of fighting LL would be:
o Estoppel by representation: per Treitel, if one party makes a representation as to a “present or past fact” upon
which the other party relies to his detriment, the representor cannot afterwards repudiate the representation;
Will not assist High Trees. There is no representation going to the future. LL is sating to T “I will not charge
you full rent” (representation to future) & very difficult for counsel for T to rely on representation by
estoppel.
 Was there consideration? This is a contractual variation not supported by consideration by T.
 Leading case in promissory estoppel is one where DF fails. LL wins.
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What was representation given to T, what is nature of the estoppel (representation)?
 Rep by LL that you T will pay reduced rent, only when flats not fully let during wartime conditions. Once conditions
cease, estoppel ends by its own words.
 During time LL seeks arrears the flats were FULLY LET.
PAGE 211 Questions

Would PL have recovered full rent if the PL sued in March 1943?


 L would not be entitled to arrears because the promise is binding so long as the terms apply. If the terms are in place
you can't back away. It would be binding from the representation until the beginning of 1945. You can't sue for arrears
where the estoppel is operative. VS here, when the PL sued it was during a time when the estoppel wasn't operative. So
they were entitled to rears.

Had PL given notice in March 1943, that they intended to claim the full amount [going forward], could they have done
so? From when?
 Denning says in last paragraph "with reasonable notice" the L could recile from representation.

Is promissory estoppel promissory or suspensory?


McCamus: Let's look at the nature of the representation. There is a scenario where the obligations are continuing and a
once-and-for-all obligations
Continuing obligation: EX: lease under High Trees because the lease is present but also triggered in the future. It seems
that a promise not to enforce can be revoked going forward and a promisor can retract by giving notice. In High Trees
tenant could be force to go back to original position and they should be able to do that on notice
Once and for all: Cases in WJEllen: you might not be able to recile - in such a situation the representation cannot be
taken back
EX: Hughes and Metropolitan: 6 mn time suspended running against client - court says on a dime you can't go
back to running the clock from "notice". The clock restarts when you say when it restarts.

Notice ---------- 6 mo ---------- repairs. Once the deadline passes there is nothing the tenant can do it to recover it.
If we allow the L to take back the representation it means that the T is kicked out

EX: Foakes and Beer. Foakes paid less amount in full satisfaction of whole. Can Foakes give notice going
forward that I want the full amount? PG 210 - Denning says looks at doctrine of promissory estopel and -
promissory estoppel change the outcome of Foakes and Beer. Denning would say that Ms. Beer is promissory
estoppel to take the promise. You cannot go back to the original obligation once Foakes has paid his lesser
amount.

Would it make a difference if the apartments had all be let during the war?
 Yes, then the L would be able to recover full rent.
 If you have a situation where the flats are not fully let and the war is over the estoppel by its own terms comes to an
end.
 What if flats aren't fully let during war because of poor management? - In that situation then you have to pay full rent
because you're inability to do so has nothing to do with the war, it's about your competence
 It becomes important to articulate what is the representation.
 The PL and DF will fight over scope of representation

How did the DF "act on" the promise in High Trees


 In Hues there was representation because time doesn't run against you while we are negotiating. The T was not taking
steps to effect repairs and the ultimate reliance is that time goes by
 High Trees has softer reliance: the reliance takes forms arranging financial affairs accordingly.
o "Dump and run" justification but it's the best one

(a) The Nature of the Representation 211

52
John Burrow LTD v Subsurface Surveys LTD 1968 SCC
Facts: John Burrows Ltd. (plaintiff; vendor of business; brings action against defendant pursuant to an acceleration clause in
a promissory note)

Subsurface Surveys Ltd. (defendant; purchaser; seeks to enforce an alleged PE)


 Defendant purchased plaintiff’s business for $127,000
 $42,000 of that sum was secured by a promissory note whereby the defendant promised to make regular monthly
payments to the plaintiff
 The acceleration clause permitted the plaintiff to claim the entire balance at once if there was a default of more than
10 days on any given monthly payment
 Over 18 months, defendant was always more than 10 days late with each payment (!!) but the plaintiff never
complained nor invoked the acceleration clause
 The parties then had a falling out and when the defendant was late with the next payment, the plaintiff invoked the
acceleration clause and sues for the whole amount owing.
Issue: Does the DF of promissory estoppel apply?
Results:
 Unless the parties entered into a course of negotiation which had the effect of leading the other to suppose that the
strict rights under the contract would not be enforced, and I think that this implied that there must be evidence from
which it can be inferred that the first party intended that the legal relations created by the contract would be altered as
a result of the negotiations.
 Promissory estoppel will not apply. Court believes behaviour of Burrows is more consistent with that of having
granted friendly indulgences to old associate while retaining his right to insist upon letter of obligation, which he did
when party became estranged and were in default of interest payment over 10day period (36 days).

1) Pre-existing relationship – contract for purchase for sale;


2) What is representation? In past PL accepted late payments & in future they will also accept late payments (will not
trigger acceleration clause). (Course of negotiations may not be necessary, just whether a representation Lord Denning refers
to exists).
Comments:
 Court said no we do not have representation we have friendly indulgence.
 We don’t want to create such that any time vendor/creditor cuts someone slack that there would be large legal
consequences arising.
 We want creditors to give debtors a break sometimes, w/o automatic promissory estoppel coming into effect
 There is not intention to vary existing contract (not enforce acceleration).
 What would work instead of taking to court? LL should just give reasonable notice, “I know I accepted late
payments, but NO MORE!” if you give reasonable notice court will back you.
**Is negotiations necessary for promissory estoppel? Maybe not, problem that arises is that the test of PE came about b/c of
Hughes (where negotiations existed). You would want to argue that negotiations were not necessary, just arose b/c of the
situation of the case itself. Show a judge why it doesn’t matter, just that intention was there be a pre-existing relationship & a
representation.

(b) The Equities 214


D & C Builders Ltd v Rees **Think about 2017 Duress defence**
D. & C. Builders: (plaintiff and creditor; suing on whole amount owed to them by def. customer)
Rees: (defendant and debtor; resists action for balance of debt based on PE.)
Facts:
 DF, Rees, employed PL to do work on his house. Plaintiffs did the work and rendered accounts. The debtor
started to complain about the quality of the work when D & C started to press for payment a little.
 After sending several reminders, PL telephoned about the account and spoke to Mrs. Reese. She complained
about the work and offered 300 pounds on a 480 pound account. In her view: “300 pounds is better than nothing.”
 Donaldson and Casey talked it over and decided to accept the 300 pounds and see what they could get later. They
were facing bankruptcy and needed the money immediately.
 On November 14, 1964, Mrs. Reese gave Casey and cheque and insisted on a receipt stating that the tendered
sum was “in completion of the account.” Casey felt he had no choice: “if I did not have the 300 pounds the
53
company would have gone bankrupt. The only reason we took it was to save the company. She knew the position
we were in.”
 On November 23, 1964: the plaintiffs went to see their lawyer for help. Lawyers wrote to the debtor saying the
whole amount was owed. The defs. Replied alleging bad workmanship plus a binding settlement.
Legal Issues: (a) is there consideration supporting the creditor’s promise to accept the lesser amount in full satisfaction of
the whole? (b) is the creditor estopped from seeking the balance?
Results:
 If supported by consideration=binding, if promissory estoppel=binding.
 No consideration to accept lesser amount, debtor gave a cheque, which is not consideration, it was actually an
incidental arrangement. Was not bargained to pay cheque instead of cash. Cheque is not of uncertain value, it is
of same value as cash. Denning:
 Must be a true accord (agreement) for promissory estoppel, for less for more agreement to hold.
 Debtors evil wife held the Company to ransom, and putting Undue pressure on D&C (which was not a thing thus
far in common law).
o BUT Denning just making shit up again: Presence of undue pressure makes true accord impossible, PE
cannot be defence to action.
 Promissory Estoppel is an equitable remedy and only available to the worthy. “He who seeks equity must do
equity.”
 Debtor has not come with clean hands, took advantage of financial situation of D&C through undue pressure,
thus equitable remedy not available. Illegitimate pressure since Wife knew facing bankruptcy and exploited this
fact.
 Are there any practical alternatives? Not really, probably could not get loan or financing since facing bankruptcy.
Creditors will be estopped from seeking a balance of a settled debt (accepting a lesser sum in true accord for a greater
sum), but there must be a true accord or agreement by thee creditor in doing so. When Mrs. Rees used intimidation
stating they would get 300 or nothing, knowing the financial situation that the Co was in was not a true accord. There is
no justification in law or equity to bar the creditor in seeking the balance, they rightly may do so.

Pg 216 - When D/B & C/R enter into course of negotiations, and agree a less for more, after performance creditor cannot
come back later and ask for more. Look to High Trees, and says Prom Estoppel could apply to Less for more scenarios.
In 2017, we don’t really need undue pressure because we have the Tankship test for duress instead”
Tankships: Argument that duress exists.
THRESHOLD REQUIREMENTS:
1. First, the promise (the contractual variation) must be extracted as a result of the exercise of ‘pressure’…
2. Second, the exercise of that pressure must have been such that the coerced party had no practical alternative but
to agree to the coercer’s demand to vary the terms of the underlying contract.
Once these thresholds are met, the issue shifts to whether the coerced party ‘consented.’ Consider the following
THREE FACTORS to see if consent present:
(1) whether the promise was supported by consideration; (If yes this would show no duress, If no court may be more
sympathetic to plea of duress)
(2) whether the coerced party made the promise ‘under protest’ or ‘without prejudice’; and (If you complain at time you
don’t like what is going on, then court more sympathetic)
(3) if not, whether the coerced party took reasonable steps to disaffirm the promise as soon as practicable. (Expected to
act promptly pg 697: Promisor who waits several years will be guilty of acquiescence [go along with it & cannot later
come down hard on other side.])
 The cases demonstrate those who voluntarily negotiate variations that could be advantageous cannot come back
and say later they are burdensome. Promptly seek legal advice.
**If there is duress, you cannot rely on Promissory Estoppel b/c there cannot be “Accord” or agreement if duress.
Ratio:
TAKE AWAY: Promissory Estoppel is an equitable doctrine from two perspectives:
 Party alleging must have acted equitably
 The one who wants to rescile and only do so if it would be equitable (other party can go back to previous
position)

54
(c) The Notice 217
(d) The Reliance 223

WJ Alan & Co. v El Nasr Export & Import Co 223


El Nasr Export & Import Co. (Egyptian Buyer of coffee)
W.J. Alan & Co. (Kenyan coffee producers)
Facts: Parties were in two separate contracts for the purchase and sale of coffee. Contracts recite that purchase price is in
Kenyan shillings (the vendor’s currency)
 Purchase price is to be paid pursuant to confirmed letter of credit.
 Contract calls for KENYAN SHILLINGS but the letter of credit opened in BRITISH STERLING. Non-
conforming letter of credit.
 Sellers did not object as the two currencies were largely on par.
 SEPT/67: sellers ship the product due under the first contract and some of the product for the second contract.
Sellers invoiced the bank in sterling and accepted payment from the bank in sterling.
 NOV 16/67: sellers ship balance of product due under the second contract
 NOV 18th, sellers prepared an invoice in sterling but before presenting it to the bank, learned that sterling would
be devalued though it was not clear if the Kenyon shilling would move down as well.
 Sellers accepted payment in sterling.
 NOV 21/67: Sellers learned that the Kenyan shilling would not be devalued. Sellers have now invoiced the
buyers for an extra 165,000 Kenyan shillings to offset the devaluation. Buyers refuse to pay.
Issue: Can the sellers insist on the terms of the contract? has there been an enforceable variation? are the sellers estopped
from reverting back to their strict contractual rights?
Results: If consideration = binding or Prom Est.= binding.
1st analyze consideration, contract variation: Megaw held that there had been a variation in the form of payment, is
there consideration.
 Parties can agree to vary contract that could benefit either side, variation could generate its own consideration.
 When the contract was formed, the currencies were on par so they did want to go through process of getting new
letter of credit that was conforming.
2nd analyze PE – what is the seller saying, representation from seller to purchaser?
 I will accept a non-conforming letter of credit subject to currency being on par.
 Problem: Court saying No  held the vendor said “I would accept a non-conforming letter of credit in general”.
Seller rep they will accept Sterling over Kenyan currency.
 Seller should fight back and say they only accepted at the time b/c they were on par.
 Once accepted payment in non-conforming currency you cannot resile. Once letter of credit accepted they are
stuck.
In the revised agreement to pound sterling and that W.J. Alan had waived their right to be paid in shillings. He rejected
the supposition that this was a sale of goods deliverable in instalments where the terms could vary and held that the sellers
could not unilaterally change the currency of exchange.

Denning agreed, holding that once an alternative method of payment is accepted (the pounds sterling) it is deemed to
have been accepted as a term of the contract and the sellers had waived their right to be paid in shillings.

W.J. Alan could not then withdraw this waiver if it was either too late, or if it would be unconscionable in the
circumstances. On the subject of detriment, Denning held that there was no support in the case law for that requirement,
simply that the other party had relied on the decision and altered their position.
 Detrimental reliance is not required for promissory estoppel to apply.
 Promissory estoppel requires that the claimant party rely on the actions of the other party and alter their position
as a result. (Regular reliance). Party must act on representation.

Promissory Estoppel: Certain case require detriment and others do not. The law is divided. Show a case that promissee
relied on the promise Hughes. Detriment not necessary.
High Trees  No detriment
NAV  Detriment
Treitel  Reliance on promise enough in England. If it would be inequitable for promisor to resile, then not justified to
55
do
Foakes  Relied on promise but not detriment. Was not enough so Prom Est. not successful.

(e) Sword or Shield?


1. CAN PE CREATE A CAUSE OF ACTION (I.E. BE USED AS A SWORD?)

Examples of cases insisting on the traditional view that PE cannot be used as a sword: Combe, Gilbert, Greater Fredericton
Airport.
Examples of cases that say PE/waiver can be used as a sword: Robichaud

Per McCamus,
the current Anglo-Canadian position is that promissory estoppel may be deployed only defensively. …This limitation on
the role … is a source of criticism. Thus restricted, the doctrine appears to have little if any role outside the context of
gratuitous contractual variations. And indeed, in that context, the doctrine creates an artificial distinction between
concessions granted [per SKO: promise to accept late delivery] and an affirmative promise to provide greater value [per
SKO: promise to pay for the equipment in Greater Fredericton.]

2. IS PE SUSPENSORY OR PERMANENT?

Per Lord Denning in W.J. Alan:

The one who waives his strict rights cannot afterwards insist on them. His strict rights are at any rate suspended so long as
the waiver lasts. He may on occasion be able to revert to his strict legal rights for the future by giving reasonable notice in
that behalf….But there are cases where no withdrawal is possible. It may be too late to withdraw; or it cannot be done
without injustice to the other party. In that event he is bound by his waiver. He will not be allowed to revert to his strict
legal rights. He can only enforce them subject to the waiver he has made.

Per Treitel, the default is that PE is suspensory. The doctrine only ‘has an extinctive effect’ where ‘subsequent events,
or the passage of time, though not making performance of the original obligation impossible have made it highly
inequitable to require such performance even after reasonable notice.’

To distinguish between when reasonable notice is permitted and when it is not, ask whether the estoppel in question
concerns a CONTINUING OBLIGATION or a ONCE- AND-FOR-ALL OBLIGATION. (These categories are not water-
tight but are conceptually helpful.)

a. A representation relating to a continuing obligation can generally be withdrawn on reasonable notice with
respect to the future and subject always to the equities
Example:
 to charge a lower rent (High Trees: can give reasonable notice to resile going forward but arrears are not
recoverable)
b. A representation in relation to a once-and-for-all obligation/election is typically permanent.
Examples:
 to accept a smaller amount by lump sum in full satisfaction of a larger amount (per Robichaud; per discussion in
D&C Builders)
 to accept a non-conforming letter of credit (W.J. Alan)
 to provide an extension as to when repairs must be effected (Hughes)
Bottom line: each case is unique; the equities always prevail.

Combe v Combe
56
Facts:
1. Agreement, negotiated with the assistance of lawyers, that husband would pay wife 100 pounds a year as permanent
maintenance. Husband promises to give her $$  Wife gives “Forbearance to sue” = won’t bring action later to sue for
maintenance in a greater amount of 100 pounds per year (She has common law right to sue for maintenance)
2. AUG. 26/43: The now ex-wife’s solicitor wrote to the husband for the first instalment but the ex-husband never paid
anything under the agreement.
3. The ex-wife pressed for payment privately but never instituted an action.
4. JULY 28, 1950: The ex-wife brought an action for arrears in the amount of 675 pounds. She successfully relied on
promissory estoppel but received judgment in the amount of 600 pounds due to a partially successful limitations defence.
(Some of money was statute barred). Husband appealed.
PE historically cannot be used as a sword but only as shield. PE does not found a cause of action, it just gives defence.
Legal Issues:
1. Is there consideration supporting the husband’s promise to pay 100 pounds a year as permanent maintenance?
2. Is the husband bound by his representation that he would pay 100 pounds a year as permanent maintenance via
promissory estoppel?
Results:
DENNING
 The principle of promissory estoppel established in High Trees does not create new causes of action where none
existed before. It only prevents a party from insisting upon his strict legal rights, where it would be unjust to allow
him to enforce them.
 Promissory estoppel: “where one party has, by his words or conduct, made to the other a promise or assurance
which was intended to affect the legal relations between them and to be acted on accordingly, then once the other
party has taken him at his word and acted on it, the one who gave the promise or assurance cannot afterwards be
allowed to revert to the previous legal relation as if no such promise or assurance had been made by him, but he
must accept their legal relations subject to the qualification which he himself has so introduced, even though it Is
not supported in point of law by any consideration but only by his words”
 Since promissory estoppel never gives a cause of action by itself: the wife can only enforce the promise if there
was consideration for it.
 No consideration
o The forbearance is not consideration because it was not at the husband’s request
 The wife cannot be better off than husband and it wouldn’t be fair to enforce this after many years for the whole
amount. But her being better off is legally irrelevant to her cause of action. In the facts, she was pressing for
payment privately & did not take formal step of suing later.
 estoppel is a "shield", not a "sword". Estoppel is only a defence not a cause of action where one did not exist before.
You cannot use PE as sword which is what wife is doing here, as cause of action.
 “equity aids the vigilant” Mrs Combe should have lost action b/c she waited too long to sue for equity to apply (not
because of limitation period)
o is equitable doctrine and must comply with maxims that go with equity. Equity aids the vigilant, not
those who slumber on their rights. Must bring action quickly.
Comments:
 Can we challenge that there is no consideration. Husband agreeing to pay 100L/year to wife. What is she giving up
in return?
o Forbearance to sue? This is all by implication. She has an action against him by virtue of common law she
is entitled to sue for maintenance.
o When she agrees to 100L she assumes the risk that maybe she could get more by suing.
o he is assuming the risk that she might need less going forward or that the court might find he owes less
o Denning says that the forbearance was not at the husband's request, but we argue back it is.

Robichaud c Caisse Populaire De Pokemouche Ltée, (1990), 69 DLR (4th( 589 (NBCA), page 236
Facts: Robichaud: brings action to have his agreement with Caisse enforced and Caisse’s judgment against him removed
from registry. Caisse Populaire: resists action on the basis that the agreement is unenforceable – inter alia, promissory
estoppel is a shield, not a sword.
 Robichaud owed money to Caisse Populaire
 Caisse secured judgment against Robichaud for $3,787 and registers it.

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 Robichaud decides to consolidate his debts with Avco
 Avco negotiates with Robichaud’s creditors and commits to lend money to Robichaud to pay his judgment creditors
 Subsequently, as part of an Avco debt consolidation plan, Caisse agrees to remove its judgment against Robichaud
from the registry in return for a $1,000 payment by Robichaud in full satisfaction. (Voluntarily agree to do so)
 Caisse received its cheque from Avco but the Board refused to approve the compromise agreement. The cheque was
not cashed and the judgment was not removed. Promise to pay “lesser amount” what is consideration on side of
Robichaud? Nothing, even less than before.
Legal Issue: Can Robichaud rely on promissory estoppel to enforce Caisse’s promise?
Results: RICE
 Case law traditionally shows that promissory estoppel can be invoked as a grounds of defence and not as grounds
for an action
 Assuming Caisse Populaire brought the action (instead of Robichaud) then Robichaud could use promissory
estoppel as a defence (successfully), therefore, to refuse this appeal on the pretext that it is not invoked as
grounds of a defence is untenable and contrary to the principle of equity on which the doctrine is based

Concurring judgment dealt with Robichaud's argument for relief on the basis of promissory estoppel. After reviewing the
case law and agreeing that estoppel can only be invoked as a defence, he writes that the distinction between estoppel as a
ground for defence but not as a ground for action has been widely critiqued. Finding that in the case at bar the Caisse could
invoke promissory estoppel against Robichaud, he found it contrary to the equitable principle of estoppel that Robichaud
would not be able to utilize it in an action. Robichaud changed his position to his detriment in reliance on the promise of the
Caisse, and thus is entitled to a judgment.
 Estoppel can be used as a cause of action.
If the court can find legally sufficient consideration, even one of time/effort/expense, it can enforce a promise to accept less.
Promissory Estoppel

1. Existing Legal relationship: judgment creditor (cassie) & judgement debtor (Robichaud)
2. Accord  agree to take $1000 in satisfaction of whole
3. Promisor knows Promisee will act
4. Reliance on promise  Robichaud arrange financial affairs with help of Amco for repayment of orderly debts.
a. But does it have to be detrimental? No just reliance sufficient; Yes  it is detrimental b/c Robichaud
mortgaged house to borrow money from Avco to repay debt to Caisse which could be viewed as
“Detriment”
5. Did party act equitably? Robichaud did acted equitably took steps to pay debt but did act honestly and his conduct is
forthright.
a. Is it inequitable for Caisse to resile? Yes, kind of
**BUT Robichaud is using PE as sword to found cause of action in PE. Wants a court order saying they have to remove the
judgment. NB Court of Appeal  That’s ok Robichaud CAN use as sword.
 Ex: If Caisse sues Robichaud for full amount  He can use PE as defence as he has satisfied all the steps b/c Caisse
promised to accept lesser amount.
 Court saying in this case: Caisse has judgment against Robichaud, it doesn’t need assistance to enforce judgment
(Can seize property, garnish wages etc). He does not need help of court to realize on judgement and defence of PE
could never be raised by Robichaud b/c Caisse wouldn’t need to use courts to collect.
o Judge says Robichaud is “Stuck” b/c cannot use as defence and must use as sword.
o BUT Robichaud can resist all those seizures debtors have rights. (We use to put debtors in jail till they
paid). Robichaud could file injunction with the court to the seizure. Then Caisse would say we have
judgment in greater amount, so I can seize. Then Robichaud would then raise PE as defence at this point!!
This is a defence (PE) to a defence (Caisse defence that judgement in greater amount).

Shield v Sword:
Combe: PE estoppel as sword not ok
Robichaud: PE as sword on facts, still ok if PL is relying on estoppel as defence to defence that is acceptable.
Situation #2:
Customer agrees to pay more for car than recited in contract, then refuses to pay more.
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Vendor sues for larger amount = sword. Based on facts, is he is a position where he cannot bring any other action. If
resembles Robichaud enough than maybe allowed.

PL (PETER) (rely on no consideration)  Sue for full $10K  DF (Doug) say defence PE, &/or rely on Judicature
Act

COMMON LAW: Less for more problem


1. Is there an accord?
a. No, if
i. Undue pressure? Denning may not just apply to PE but maybe under CL and under statute.
ii. Traditional Duress? Universe Tankships
1. Is there no practical alternative?
2. Is pressure illegitimate?
iii. Duress in NAV?
1. Threshold: #1: Extracted by pressure; #2: practical alternative
b. Yes move to step #2
2. Is there fresh consideration?
a. Yes
b. No, If NO Fresh consideration, move to cheques
3. Is there fresh consideration in getting cheques?
a. Yes Foot v Rawlings, this could be binding b/c of uncertain value and can constitute good consideration in certain
scenarios.
b. No, Denning cheque not uncertain value worth the same as cash if written for same value. If NO then move to
practical benefits
4. Are there any practical benefits and do they count as consideration?
a. Yes (Roffey), practical benefits not legal benefits
b. NO (Selectmove), If NO absent consideration?
5. Is promise binding even absent consideration?
a. Yes, NAV says yes if no duress.
b. NO, Gilbert Steel

STATUTE: Judicature Act


1. Is there accord?
a. No  See above analysis.
b. YES
2. Is a partially executed agreement binding pending performance.
a. NO, Strict grammar of legislation a partially executed agreement is not binding if NOT completely performed.
b. YES, if debtor is performing the C/R cannot successfully sue, if debtor performing the action is premature. This
promote certainty and settlement of debts. Prevents situations where C/R can pull run out of D/R feet and act not fair
or consistent with law

EQUITY: Promissory Estoppel


1. Pre-existing legal relationship?
a. No, See previous
b. Yes, Peter lent Doug 10K
2. Is there a clear promise or representation of intent by representor?
a. No
b. Yes, move to step #3
3. Does P/or know that P/ee will act on promise?
a. No
b. Yes,
4. Did P/OR rely?
a. No
b. Yes, Governed financial affairs accordingly...
5. Assuming reliance, is detriment required?
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a. No
b. Yes, look at contradicting case
6. Assuming all other ingredients in place has Doug Acted equitable?
a. No,
b. Yes

9. Intention to Create Legal Relations 249


(a) Introduction 249
 Contractual obligations are voluntary obligations
 Traditional view: the requirement that the parties to a contract must intend to create legal relations. Intention is a
fourth, discrete criterion of enforceability alongside offer, acceptance, and consideration

(b) Family Arrangements 250


Family Arrangements: Presumption is that the parties DO NOT intend to create legal relations.
 The person asserting there was an intention to create legal relationship must rebut presumption and prove that
legal relations were intended
 Can apply to other closely associated parties, close friends, family where commercial presumption wouldn’t apply
(rather presume they did not intend legal relations).
Note: Offer: Willingness to contract on certain terms made with the intention that it be binding as soon as it is accepted
by the person to whom it is address.
 Well wouldn’t this suggest that by virtue of the definition of an “offer” that there an intention to create legal
relations.
 Close to commercial relationships in Balfour: wife gives up right to pledge husbands credit in return for
allowance when he husband is abroad (a later upon separation). This is not normal domestic situation where wife
gets money to continue with normal household activities like maintaining household budget.
 You can always use implied terms to dial back harshness of a contract instead of making a new rule all together.
 Balfour in 1919 Isolate women in domestic sphere in what is arguably a contract this is contributing to their
oppression (they have no redress in court) to help rebut the precedent.

Ex: Susan sent invoice to Ann b/c her 5 year old son failed to attend the Susan’s son’s B-day party. Ann had RSVP’d but
then failed to show leaving Susan out of money.
 This is a b-day party, no intention to legal relations.
 Is there even an offer? No capacity for minors to contract and no offer at all.

Balfour v Balfour [1919] 2 KB 571 (Eng CA)


Facts: Mrs. Balfour: sues on Mr. Balfour’s promise to pay a monthly allowance of 30 pounds
Mr. Balfour: resists action on basis that there was no contract between them.
(Family presumption not rebutted)
 Mr. and Mrs. B married in 1900; lived in what was then Ceylon until 1915; husband went on leave and they
returned to England. When Mr. B’s leave was up, Mrs. B decided to stay behind, on doctor’s advice;
 Prior to setting sail in Aug. 1916, Mr. B orally promised to pay her 30 pounds a month. [at this point, couple was in
amity, per court]
 A few months later, Mr. B suggests that they remain apart. The parties ultimately divorce, with Mrs. B securing an
order for alimony on Dec. 16, 1918. (Husband has obligation to support her, before this she is an abandoned spouse.
Court give spouse ability to pledge her husbands credit)
 Floodgate concern: if all the failed promises between spouses could be sewed on then the courts would have to be
multiplied

At trial Mrs Balfour was successful.


At appeal 2/3 judges did not dispute consideration argument, but that there was no intention to create legal relations.
Issue: Can Mrs. B enforce Mr. B’s promise between time and promise and alimony order, assumption that promise is
extinguished upon alimony order?
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Rule: Arrangements made between husband and wife are arrangements in which there are mutual promises, or in which
there is consideration… Nevertheless they are not contracts, and they are not contracts because the parties did not intend
that they should be attended by legal consequences.
Results:
 Defence argues: there was no contract b/c there are agreements that do not result in contracts within the meaning of
law (e.g. agreeing to take a walk)
 Consideration might be a right, interest, profit, benefit, forbearance, detriment, loss or responsibility… Nonetheless
no contract because there was no intention to create legal consequences.
 The consideration is natural love and affection which counts for so little in these cold Courts.
 Onus on PL to establish contract.
o The parol evidence does not establish a contract, letter included
Comments:
Consideration?
 Mrs. B is an “abandoned spouce”, which gives her the power to pledge her husband’s credit
 Mrs. B gives up right to pledge her husbands credit.

Critical Analysis of Balfour includes this fact (Stephen Hedley, “Keeping Contract in its Place – Balfour v.
Balfour and the Enforceability of Informal Agreements (1985) 5 Oxford Journal of Legal
Studies 391):
 while the courts had previously refused to enforce agreements where the parties had deliberately excluded
legal sanctions (there is agreement but not enforceable), this was the first time they had denied liability
simply because the plaintiff could not prove that legal sanctions were intended.
 Balfour v Balfour introduced a new obstacle for plaintiffs, which had not been there before.
 Pg 250: Defence to action on alleged contract, agreements btw parties that do not result in contracts, ex: 2
parties agree to take walk together. In this case, there is legal relation  they are discussing interim
support payments prior to divorce. They are tying her claim to something that is inconsequential and
social. The Court’s analogy is unfair. We have an agreement with consideration. Court assumes in
marriage relationships there is not enforceable legal relations to it.
 Pg 251: Court These kind agreements if regarding as contracts lead to disastrous results (Flood gates). If
Mrs Balfour succeeds all agreements in marital relations would lead to courts deciding things in the home.
When husband makes wife promise to give $ per week (or for maintenance for children, even though no
kids here) and then she could sue him for money and he could sue her for not doing her part in home or
raising kids. There would be endless actions of spouses suing each other and justice could come to a halt.
o Respectfully tell court: This is reasonably mild situation and there is little empirical evidence to
support that claim. Sometimes matters are actionable but not worried about judicial time being
taken up.
 Court explains situation in “domestic” context only with no legal relations.

Today how would you approach the issue with this precedent in court?
 Equality theory: the law strives for equity and fairness whether in relation to common law rules or
legislation. Focus on equity and fairness s. 15 Charter today. Equality under the law. The common law
should also reflect Charter values. To get rid of precedent in way in this context.
 Look for patterns of approaches – there will be wins and losers, these can be one sided rules, the law is
never neutral there will always be wins and losses based on it. There are a number of theoretically
questions based on equality. There are social norms and structures that serve the larger goals of
empowerment and equality, And we rework laws to serve empowerment and equality.
o Critical race theory – concerns discrimination on basis of race and looks at law on that foundation.
o Queer theory – discrimination and how law enforces based on sexual orientation.
o Feminism – discrimination against women.

Ex: Try to take a non-discriminatory perspective, find out what is wrong with legislation, and how to change it:
Feminist Critique A critical perspective, including a perspective informed by feminist analysis, can
destabilize the law and lead to reform. Look at law as contingent, and moveable, as advocate b/c you try to

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persuade. For example, see Bliss.
Bliss (S.C.C., 1979): Court concluded that a longer qualifying period for women claiming unemployment (EI)
payment due to pregnancy is unimpeachable and non-discriminatory.
 Per the court, if the impugned section treats unemployed pregnant women differently from other
unemployed persons, be they male or female, it is, it seems to me, because they are pregnant and not
because they are women… Any inequality between the sexes in this area is not created by legislation, but
by nature. (Treats pregnant men and pregnant women the same… really WTF? Pregnant Men don’t exist
so they cannot be treated differently or be discriminated against) Ten years later, Bliss was reversed by the
SCC in Brooks v. Canada Safeway Ltd., [1989] 1 S.C.R. 1219 – discrimination on the basis of pregnancy
is discrimination on the basis of sex.

A. What is the feminist analysis of Balfour per Christine Boyle (unpublished manuscript)

PUBLIC/PUBLIC
 Governmental
 law is legitimate in this sphere

PRIVATE/PUBLIC
 marketplace
 law has a limited legitimacy in this sphere – the law must, for example, maintain market choice, protect
property and enforce contracts
 Some law is required (contracts, criminal, basic law) that is legitimate

PRIVATE/PRIVATE
 hearth & home (house, personal space)
 values of altruism, morality, love, affection
 law has virtually no legitimate scope in this sphere Court saying Balfour is agreement in this realm and
law doesn’t seek admittance here
 State just cannot cross barriers as they see fit, b/c we live in individualistic society and privacy is
paramount.

Balfour not given support when promised to her, when court says we are not entering the private/private sphere
(we are not doing nothing) Court is enforcing status quo that Mr Balfour doesn’t have to pay (this is not neutral
they are making a decision it is not doing “nothing”) remains intact, this preserves gender relations. Isolating
women in sphere divorced from legal order denies them ability to seek legal help and continues to leave women in
isolated and discriminated position. This would not be something we would allow in 2016.

(c) Commercial Arrangements


[no case assigned]

Commercial/business arrangement: Presumption that parties intend to make legal relations. Then it falls to the person
rebutting the intention of legal relations to prove there was no intention.

10. Formality: Promises under Seal 258


Purpose of putting a document under seal is that person is acknowledging that they may or may not be consideration but
the person is consenting to the contract regardless of consideration. Thus making in enforceable.

Formality of Seal: How formal does putting documents under seal have to be to be enforceable?

Royal Bank v Kiska [1967] 2 OR 379, page 259


Facts: Kirksa’s brother  borrows from  Bank (PL)
Kirksa (DF) Kirksa guarantees brother’s debt. What is the bank giving back?

62
 At time of Kiska signing the guarantee, no wafer seal was attached.
 Bank is now calling on the guarantee.
Legal issue: Is there consideration? If no, is the guarantee properly under seal such that it is enforceable even absent
consideration?
Holding: When Kiska signed seal he thought the brothers debt was properly under collateral, so would not be called upon
as guarantee.
MAJORITY
 The guarantee was binding b/c there was consideration. B/c by brother signing the Bank would give his brother
more time to pay off the debt. This was valid consideration.

LASKIN J (dissenting)
 There was no consideration so the guarantee could only be enforceable if it was under seal.
 Printing of bracket word “seal” is merely an invitation to place a seal.
 The document by the bank did not have sufficient formality, intention to be binding and enforceable, in this case.
 Neither the words “given under seal” nor the formula of “signed, Sealed and Delivered’ suffice, even when taken
collectively.
o The words merely anticipate the formality which must be observe and are not a substitute for it
 Just because the executing party (bank) intended to adopt a seal does not is not enough to bind a document under
seal when no seal is affixed
o A bank thrusting printed form in front of young man is not proper.
o There should be some semblance of formality, not anything will do just b/c the bank says so.
o The purpose of seal is to alert the guarantor of the obligation.

11. Formality: The Requirement of Writing 261

A.Why do certain kinds of contracts have to be reduced to writing or evidenced by writing?


 Due to 1677 Statute of Frauds, Sale of Goods Act, Guarantees Acknowledgment Act
 B/c Law requires certain contracts in writing to be enforceable.
 Statute of Frauds repealed in Manitoba but there are common law rules that still apply.

B. Rationales for the writing requirement


 Historically, 17th century England. Lots of fraud in this time PL allege contract secured juried verdict due to
perjured evidence. Then contract enforceable against DF, who did not actually enter a contract. This was to stop
egregious litigation.

C. What kinds of contracts have to be reduced to writing or evidenced by writing?


 s. 4 of the Statute of Frauds. From a commercial perspective, note especially:
1. Contracts for the sale of land or any interest concerning them (Deglman v. Guaranty Trust; Thompson v.
Guaranty Trust)
2. Contracts not to be performed within a year
a. Peoples Memories fade overtime. It is kind of arbitrary though.
i. Statute of Fraud ought not to be used against an innocent party (party show there is a contract but
not reduced in writing)

*Rule in Adams v. Union Cinema: contract only


has to be in writing if its performance of necessity
must last longer than 1 year. Not what statute of
fraud actually says but Common Law rule.

*Rule in Hanau v. Ehrlich: If there is no mention of


time and time is uncertain or indefinite, the
agreement is not within the statute.
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Example #1: Alexi Yashin enters into an oral, 3 year, no-cut contract with the Edmonton Oilers in March. The next
month, the Oilers cut him.
Query: What is Yashin’s legal position now? He cannot bring himself into Adams/Hanau case b/c a 3-year contract can
never be performed in a year. Unenforceable b/c a 3-year contract can never be performed within a year.

Example #2: What about a lifetime oral contract of employment? It is enforceable? Adams This could technically be
performed within a year (employee could die). So the contract could be performed within a year and could be enforceable.
Hanau Time is not stated therefore not determined.

Example #3: Ms. X is hired by ABC law firm as a junior lawyer under an oral contract for an indefinite period at $8,000
a month. Both parties anticipate that the contract will last at least two years. After 3 months, Ms. X is fired without cause
and without notice. Can she successfully sue? This would be enforceable b/c time indefinite.
3. A contract for the sale of any goods of the value of $50 or upwards

Sale of Goods Act, R.S.A 2000,c. S-2, s. 6


Enforcement of contract over $50
6(1) A contract for the sale of any goods of the value of $50 or more is not enforceable by action
(a )unless the buyer accepts part of the goods so sold and actually receives that part, or gives something in earnest to bind
the contract or in part payment, or
(b) unless some note or memorandum in writing of the contract is made and signed by the party to be charged or the
party’s agent in that behalf.

(2) This section applies to every contract referred to in subsection (1) notwithstanding that the goods may be intended to
be delivered at some future time, or may not, at the time of the contract, be actually made, procured or provided or fit or
ready for delivery or that some act may be requisite for the making or completing the goods or rendering the goods fit for
delivery.

(3) There is an acceptance of goods within the meaning of this section when the buyer does any act, in relation to the
goods, that recognizes a pre-existing contract of sale whether there is an acceptance in performance of the contract or not.
(note evidentiary substitutes that are not found in the original SF s. 4)

1. Contracts of Guarantee

Guarantees Acknowledgement Act R.S.A. 2000, c. G-11 as recently amended under Justice Statutes Amendment Act,
2014
Amends RSA 2000 cG-11
31(1) The Guarantees Acknowledge Act is amended by this section.

(2) Section 1(b) is repealed.

(3) Section 3 is repealed and the following is substituted:


Requirements
3(1) No guarantee has any effect unless the person entering into the obligation
(a) appears before a lawyer,
(b) acknowledges to the lawyer that the person executed the guarantee, and
(c) in the presence of the lawyer signs the certificate referred to in section 4.

(2) The lawyer referred to in subsection (1) must not represent or be employed by a person or corporation who stands to
benefit as a result of the guarantee.

(4) Section 4(1) is repealed and the following is substituted:


Certificate
4(1) The lawyer, after being satisfied by examination of the person entering into the obligation that the person is aware of
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the contents of the guarantee and understands it, must issue a certificate in the prescribed form.

 We want people who sign guarantees to know their obligations, they must appear before a lawyer (use to be
notary) Higher standard of knowledge of person talking to enter into guarantee. Sign certificate in presence of
lawyer (w/o certificate guarantee not enforceable). Person entering into it must understand what they are signing
and aware contents of guarantee. (Protect ppl who enter into guarantees)

D. What counts as "some memorandum or note


...in writing...signed by the party to be charged therewith" (Sale of goods Act)?
What do we have to have by way of writing requirement?
 it must adduce the existence of the contract and not fail for uncertainty. See McKenzie: need the 3 essential P's,
namely parties, property, and price. But, per Tweddell, other essential terms might exist, as here, that payment of
the purchase price was to be in stages.
 the document need not be intended as a memo of the contract.
 it is sufficient if the memo comes into existence anytime before the action is commenced.
 it can be constituted by several pieces of paper.
 it must be signed by the party against whom the contract is being alleged.
 mere initialling is sufficient
 hand-printed name is sufficient
 printed name of the contracting party on top of a standard form is sufficient (per McCamus)

What about e-contracts? Electronic Transactions Act, SA 2001, c E 5.5


Any land contract must also be evidenced in writing.

E. What is the effect of non-compliance with the S/F?


1. At common law
Per Treitel: this failure does not make the contract void but only unenforceable.
Per Riddell J.A.: “it must never be forgotten that the Statute of Frauds does not deal with the validity of the transaction,
but only with the evidence to prove an agreement.”
 this means PL has only a procedural problem with enforcement of the contract but the contract itself does exist.
 hence, per CB, the contract can be used by way of defence as in Wauchope and can also be used as consideration
for a new contract and the like.

2. In equity
Per Fridman: “it was decided quite early after the passage of the Statute, by courts of equity, that DF’s would not be
allowed to plead and rely upon the Statute if to permit them to do so would be to allow the Statute `to be used
as an engine of fraud.'”

Per Coyne J.A.: “Equitable principles which hold that the Statute of Frauds does not apply where there has been
performance or part performance of the oral contract by, or where otherwise the result would be fraud against, or injustice
to, the other party….” Can enforce these.

F. What is Part Performance?


1. Equity's desire to ensure S/F is not used as an engine of fraud is the foundation for the doctrine of P/P.
2. What counts as part performance?
a. Lord Selbourne in Maddison v. Alderson seems to posit two views, per Fridman
i. per Lord Selborne: the acts relied on “must be referred to the ACTUAL contract” [emphasis
added] EX: Oral contract to buy farmland F/S. What if PL did all these acts of P/P, I built
graineries, re-shingled the barn. This would be consistent with LT lease (maybe not F/S). PL
would lose b/c consistent with 2 contracts (F/S or LT Lease). The PL would fail here if take the
narrow view so fight against this construction.

This is the narrower view, per Fridman


65
**Part performance must be ‘referable to the oral agreement that is relied on’, per court in McMillen v. Chapman. Must be
in relation to the very contract that is alleged.
 This narrow view appears to have been followed in Deglman (S.C.C. 1954) by Rand J. while the broader view
appears to have been followed by Cartwright J., according to the analysis offered by Erie Sand and Gravel Ltd. v.
Seres’ Farms Ltd., 2009 ONCA 709
 per Lord Selborne: the acts relied on ‘must be unequivocally, and in their own nature, referable to SOME such
agreement as that alleged.’ [emphasis added] The PL would be ok here b/c the acts of alleged P/P are consistent
with SOME sort of agreement (either the F/S or LT Lease)

This is broader view, per Fridman


 See related analysis by MacDonald J. in Toombs v. Mueller:
 The broader doctrine is stated in Spry's Equitable Remedies, 1st ed. (1971), at pp. 244-5, where it is said:
... if the possession of land is delivered up in circumstances which are consistent, not only with the existence of a contract
of sale, but also with the existence of a contract of lease, or of assignment, or of settlement, or indeed any other contract
relating to the obtaining of a proprietary, possessory or other interest in that land, it will ordinarily be open to the plaintiff
to establish any contract which falls within this wide general class. Accordingly, if once a contract of the general class of
that actually entered into is sufficiently pointed to, the actual terms of the contract may be proved ... [emphasis added]

 Per Upjohn L.J.: “acts need not be referable to no other title than the one alleged. They need only ‘prove the
existence of some contract, and are consistent with the contract alleged.’”
 This broader view appears to be the one followed in Thompson (SCC 1974). SCC in Thompson says that its
decision in Brownscombe stands for the proposition that the performance has to be plainly referable to an
agreement as to the very land.
 Sask C.A. in Lensen discusses the theoretical foundation of the doctrine of P/P:
1. orthodox account: “alternative evidence” – acts of P/P are seen as evidence sufficiently cogent of the contract to
permit equity to enforce it. Leads to a more narrow test of P/P
2. modern account: “raising equities” - acts of P/P raise equities in the plaintiff’s favour which render it unjust not
to enforce the contract, per Steadman. Leads to a broader test of P/P. Thompson 48 years on farm helps to support
equity.
Test in Canada is not yet clear.

G. When can one seek a quantum meruit and why?


*see Deglman

Maddison v Alderson (1883) **MADDISON TEST FOR PART PERFORMANCE REQUIREMENT FOR
SPECIFIC PERFORMANCE UNDER S4 of the Statute of Fraud
“All the acts done must be referred to the actual contract, which the measure and test of their legal and equitable
character and consequence.”

BORAD TEST: All the authorities show that the acts relied upon as part performance must be unequivocally, and
in their own nature referable to some such agreement as that alleged.

NARROW TEST: It must be unequivocal. It must have relation to the one agreement relied upon and to no other
when it must be such, “as could be done with no other view or design that to perform that agreement”.

Deglman v Guaranty Trust Co 273


Facts:
 Constantineau lived with his aunt, Laura Burnet (Guaranty Trust acting as executor)
 Burnet promised Constantineau her house upon her death if he and helped her
 Agreement never put in writing
 Constanineau was not in Burnet’s will.
 Acts of alleged part performance: driving aunt around; doing odd jobs around the house.
 He is making a claim for restitution – you provide something to someone else and now you want it back b/c the
contract was not performed
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Issue(s): What is the nature of part performance and will it enable a court to order specific performance of a contract? Are
these sufficient acts of part performance?
Holding:
CARTWIGHT
 all authorities must unequivocally be in relation to SOME such agreement”. Act are unequivocal, they do not tell
us much.
 you cannot imply a contractual promise to pay in the context of a failed contract. You can't use the same set of
facts and generate a contract to pay when we've written there is a failed contract on the facts.

Rand J (dissenting)
 Acknowledge Madison test (two tests) recites both parts but seems oblivious to the fact that there are two tests
 You have to show contract and, acts must be consistent of some such agreements.
 The Nephew cannot meet either test of P/P (either the loose Madison or Narrow Madison).
 Acts of performance are wholly neutral and no relation to contract connected to promised property. (P/P is based
on Equity [or alternative remedies]) In this case it is not clear why he is doing this he could just be acting as
decent family member. Rand takes narrow view and P/P must be in relation to alleged property. (He cannot pass
either test)
Quantum Meruit: provide remedy in context of a contract that has failed (oral contract for land unenforceable &
insufficient acts of P/P).
 “contractual Quantum Meruit” b/c Aunt and Nephew understood he was not giving acts gratuitously. Court is
saying, there is a contract btw the parties, there is implied term that he will be paid reasonable sum for services
rendered
 The oral contract for reasonable some is what they imposed on fact scenario, so to do justice they “imply
contractual Quantum Meruit” on the facts… promise to pay for service b/c contract unenforceable.
 The respondent is entitled to recover for his services – what the deceased would have had to pay for them on a
purely business basis to any other person
 The restitution demonstrates that the estate is unjustly enriched if the estate retains the services of the nephew
but doesn't pay for them. This means that you have to show
1. An enrichment of the aunt or her estate
i. Estate enriched because of all the free labour
2. A corresponding deprivation in the nephew
i. Nephew not compensated for work
3. Absence of a juristic reason justifying the enrichment. (reason in law)
i. Since nephew did work and no reason in equity it shouldn't be compensated.
 Unjust enrichment – he is entitled to recover what he put in to the contract, otherwise it would be unjust
enrichment for the aunt. There was an expectation here that some payment would be given to him. Nephew gave
benefit to estate pursuant to unenforceable contract. (O’Byrne - Not technically accurate to say there was contract,
rather give restitution of quantum meruit as opposed to some kind of contractual element).

Ratio: When part performance is done on the footing of a contractual relationship, and the party who got something out of
the performance does not complete the contract, the party who preformed is entitled to recover for that performance.
→ (ie. A provided services to B expecting to get paid, therefore B must pay for those services.)
Note: Don’t always be single-minded in actions, there can be concurrent actions. Ex: Contract for house? If you fail on
that contract element what about … payment action in restitution? You want him to get something.

Thompson v Guaranty Trust Co SCC 1973


Facts: Appl (PL) sued for specific performance of an agreement alleged to have been entered into between him and the
deceased whereby the deceased agreed in consideration for remaining to work and operate the farmland until his death, the
plaintiff will get the whole estate Gus (plaintiff) stayed with Dick and shared or did all work while Dick was well or ill
 Appl Gus worked from 1921 – 1924 w/ Dick for wages.
 After Dicks 1st accident 1924 worked for free under promise to inherit property upon death
 1928 Dick sustained another injury and Gus worked summer season alone under promise to inherit property
 Against reaffirmed after crippling injury 1942, from here on out Gus continued to care for Dick and work property
alone for remained of dicks life in 1970. Did housecleaning, all farming, home repairs, cooking under reaffirmed
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promise to inherit property.
 Issue with “Will” was actually power of attorney.
Issue: Was there sufficient acts of part performance to take the case out of s. 4 of the Statute of Frauds?
Decision: Yes, PL proved acts which are unequivocally referable to the lands and therefore has adduced the evidence of
part performance which takes the case out of the provision of s. 4 of the Statute of Frauds
Ratio:
 Court applies the Broad test in Madison (pg 279) the acts relied up… “some” such agreement.
 Everything Gus was doing was in relation to some such agreement which constitutes sufficient acts of part
performance. Pg 281 unequivocally connected to “A” contract. He did the work in relation to the land in
questions.
 Unequivocal performance in accordance with the intent of an oral contract satisfies part performance and takes the
actions out of the realm of s. 4 in the Statute of Frauds.

CHAPTER V. PRIVITY OF CONTRACT


1. Introduction
1. DEFINITION OF PRIVITY: Per Treitel, a contract cannot, as a general rule, confer rights or impose obligations
arising under it on any person except the parties to it.
 This means that, again as a general proposition, someone who stands to benefit from a contract between two
parties cannot sue on the contract.
The doctrine prevents two types of persons from enforcing a contract
1. A complete stranger to the contract that has no legal right to enforce the promise of any party to that contract
[uncontroversial]
2. 3rd party beneficiary, the person intended by the promisor and promisee to receive all or part of the benefit of the
agreed upon performance [controversial: this was eliminated in almost all common law jurisdictions, except
Canadian provinces]

2. TWO CONTRASTING EXAMPLES


Example #1: You are in a contract to buy A’s house. A breaches.
 B decides I don’t want to sue. But O’Byrne wants to sue, but she cannot because it is not of her business b/c she
has no cause of action.
Example #2: A and B are in a contract whereby A promises to convey a house to C and B pays for that promise.
 Historically, C could successfully sue, as we see in the 1630 Provender case but this whole line of authority is
reversed in the next case, the 1861 decision of Tweedle.
 Third party beneficiary  contract contemplates who will benefit by it.
Ex: Provender Bride’s Father and Groom’s Father have an agreement to pay the groom money. The Groom is a 3rd party
beneficiary and has the right to sue.
Ex: Tweedle – Identical situation to Provender, the Groom had to sue the Bride’s father b/c he never paid what he was
obligated to under the contract. Court says Groom cannot sue b/c it would be a “monstrous proposition”
 Completely opposite view from Provender
2. The History of the Doctrine of Privity and Third Party Beneficiaries 287

Provander v Wood, (1630) Het 30


Facts: Provender (PL, son of promisse); Wood (father-in-law, DF); Provinder's father (promisee)

Contract between Wood and Provinder's father whereby Wood promises Provender's father that he will pay Provender.
When Wood doesn't pay, Provender brings an action against Wood.

** the action of assumpsit is derived from action upon the case or action on the case. The latter thereby generated “a large
part of our law of simple contract” per T.F.T. Plucknett, Studies in Legal History (1983) at 778. ***Per Black’s, asssumpsit
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refers to “a common law form of action which lies for recovery of damages for the non-performance of a parol or simple
contract…” Assumpsit means: “He undertook. He promised.”

Issue: can Provender (who is not a party to the contract in question) sue on the contractual commitment made to his father?
Ratio: Yes. “the party to whom the benefit of a promise accrues may bring his action.”
Comments:
Tweddle (1861): No. “It would be a monstrous proposition to say that a person was a party…for the purpose of suing upon it
for his own advantage, and not a party to it for the purpose of being sued.”

Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd. 289 [1915] AC 847 (HL)
Facts:
Dunlop (tyre manufacturer) (PL) Contract 1 with  Dew Wholesaler (wholesaler)
Dew wholesaler  Contract 2  with Selfridge (retailer, DF)
Selfridge  Contract 3  With Customer
 Dunlop under Contract #1 Dunlop sells to Dew. contains a resale price maintenance clause (which is now illegal but not
at the time this is price fixing). Dew can only sell below list to retailers who agree not to sell below list to their customers. To
such customers, Dew can sell at 10% below list if they obtain their customer’s promise to observe the list price.
 Dew in Contract #2, Dew selling tyres to retailer Selfridge. Selfridge promised Dew that it would not sell below list or
offer to do so; and agreed to pay Dunlop £5 by way of liquidated damages in face of breach.
 Selfridge In breach of Contract #2, b/c Selfridge sold below list to customer under Contract #3 (Dew doesn’t want to
Selfridge b/c it is one of their best customers and the cost and uncertainty of litigation. Dew has discharged obligation under
Contract 1. Contract 2 says everything Contract 1 requires it to say)
Dunlop is 3rd party beneficiary and not a party to contract on its face. There is a breach of contract 2 by Selfridge, Dew were
so inclined could sure. Dunlop is suing Selfridge for breach of Contract 2.

Issue: Can Dunlop sue Selfridge for breach of the Jan. 2nd contract between Selfridge and Dew (i.e. contract #2) even though
Dunlop was not a party to the contract.
Results:
VISCOUNT HALDANE LC
The Lords agree fundamentally with the decision of the Court of Appeal; there was no contract between Dunlop and Selfridge
and therefore Dunlop cannot sue.

 We have three established principles


1. Only a person who is a party to a contract can sue on it
2. If the contract isn't under seal, there must be consideration to enforce the contract
3. A principal not named in the contract may sue upon it if the promisee really contracted as his agent (and there
must also be consideration either personally or through the promisee acting as his agent)
 It was at Dew's discretion to issue discounts to customers who would abide by the contract 2.

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 Appellants argue that there is consideration because the appellant's permitted and enabled Dew to give discounts
 "The consideration by way of discount under contract 2 was to come wholly out of Dew's pocket and neither directly
nor indirectly out of that of [Dunlop's']. If [Dunlop] enabled Dew to sell to the [Selfridge] on the terms they did, this
was not done as any part of the terms on the contract sued on [contract 1].
o What was rec'd? Selfridge rec'd discount from Dew, not appellant so no consideration there
o Dew took the loss for providing the discount to Selfridge, still no consideration between appellant and respondent
o Did Dunlop give permission to sell? No. Dew owned the tired outright and could do whatever he wanted. There
was no residual control.
o Contract 2 confers benefit on Dunlop in way of liquidation damages clause. But the court says this doesn't give
you standing to sue on the contract.
 Argument by counsel for Dunlop : Dew is an agent of Dunlop.
o An agency relationship is a relationship where the agent is empowered to effect legal relations on behalf of the
principle. Therefore when Dew as agent of Dunlop, enters into a contract with Selfridge it enters also on behalf of
Dunlop
o Therefore everything Dew is doing, it is Dunlop doing it, they are one in the same.
 Court: we don't see an agency relationship
o To show an agency relationship, the contract #2 between Dew and Selfridge would need to show that Dew is
acting as an agent and as himself. There is no prof of this in the contract. The contract clearly only depicts Dew
acting as himself.
o Assuming there is an agency relationship (dissent finds agency relationship) and Dew is effecting legal
relationship to Selfridge on behalf of Dunlop we still hit a wall because of consideration
Ratio:
 Only parties to a contract can sue for a breach of the contract.
 The only exception to this rule is if a party named in the contract was acting as an agent AND there was consideration
flowing from the ; in this case, the unnamed party can be sued. yes
Comments:
 These price fixing contracts are now illegal by statute.
 At the time, the contracts were legal so we accept the contract was enforceable.
 What they could have done, Dunlop could have imposed an obligation on Dew to pass on savings. So when Dew
entered into contracts "2" then that would be their consideration to enforce resale maintaince. There are ways the clause
could have been enforced but it wasn't done.
 In contract 1: you could also say that Dew would undertake to sue anyone who breaches contract 2.
 Maybe there is an implied term that Dew would enforce it's contract 2. Much better to have an express term.

3. Ways in Which a Third Party May Acquire the Benefit 293


Privity rule doesn't apply to:
 Trust or agency relationship
 Employees claiming benefits of a limitation of liability clause and another for waiver of subrogation rights
 Assignment of indemnification agreement
(a) Statute 293
Right to sue
195. A beneficiary may enforce for the beneficiary’s own benefit, and a trustee appointed pursuant to section 193 may enforce as trustee, the payment of
insurance money made payable to him, her or it in the contract or by a declaration and in accordance with the provisions thereof, but the insurer may set up
any defence that it could have set up against the insured or the insured’s personal representative. R.S.O. 1990, c. I.8, s. 195.

258.
(1) Any person who has a claim against an insured for which indemnity is provided by a contract evidenced by a motor vehicle liability policy, even if such person is
not a party to the contract, may, upon recovering a judgment therefor in any province or territory of Canada against the insured, have the insurance money payable
under the contract applied in or towards satisfaction of the person’s judgment and of any other judgments or claims against the insured covered by the contract and
may, on the person’s own behalf and on behalf of all persons having such judgments or claims, maintain an action against the insurer to have the insurance money so
applied. R.S.O. 1990, c. I.8, s. 258 (1).

(b) Specific Performance 295


The privity rule does not apply/is not triggered in a number of situations, as the following list illustrates.
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Privity is obviated when:
1. Lord Denning is the judge and he chooses not to follow the privity rule Smith??
2. The plaintiff can proceed with an action in tort
a. P sues the hairdryer manufacturer in negligence for physical injury or property damage
3. The plaintiff can establish a collateral contract
a. P sues hairdryer manufacturer pursuant to a collateral contract containing the warranty. [The
consideration for the collateral contract is in P entering the main contract to purchase the hairdryer from
the retailer.]
b. Provided the manufacturer's warranty was in some way communicated to the purchaser at the time of
purchase, then you may be able to find a collateral contract and sue the Manufacturer directly on that
contract. Consideration supporting the warranty would be found in the primary contract of sale between
retailer and customer.
c. Primary contract Retailer and customer for product. The promise by manufacture of 2-year warranty is
the customer entering the primary contract with the retail is the Consideration.
4. Statute law creates an exception to the operation of privity EX: the Insurance Act
a. Per CB, insurance legislation gives the beneficiary a direct cause of action against the Insurer.
5. The plaintiff brings an action for specific performance; Beswick (C.A.; H,L.)
6. Trust law applies
a. Per CB, “once a trust is created, the beneficiary is entitled to enforce the trust obligation directly."
7. There is an agency relationship
a. Per McCamus:
i. Under the principles of the law of agency, where a principal authorizes an agent to enter into
contracts on the principal's behalf with third parties, the result of the agent's doing so is that the
principal has a direct contractual relationship with the third party. [footnotes deleted]
b. See discussion in Dunlop and New Zealand Shipping
8. A common law exception applies
a. The limitation of liability clause falls within London Drugs (as opposed to Edgeworth
b. The waiver of rights clause falls within Fraser River

Beswick v Beswick (HL) [1932] 3 WWR 573, page 296


Old Peter Beswick Sells his business to John his nephew on these terms:
 Peter to stay on as a consultant at 6 pounds a week
 On Peter’s death, John the nephew to pay Peter’s widow 5 pounds a week until her death.
John Joseph Beswick (Defendant) Old Peter’s nephew purchaser of Peter’s business the rogue
Mrs. Beswick (Plaintiff) Peter’s widow A 3rd party beneficiary under Peter’s contract with John Administratrix of
Peter’s estate
 Contract btw Peter and John
 Widow 3rd party beneficiary
 John is now under contract to pay Mrs. Beswick 5 pounds a week.
 He only makes one of these payments and refuses to pay anything further. Mrs. B sues as administratrix of Peter’s
estate, for specific performance of the agreement and in her personal capacity; she claimed arrears in the sum of 175
pounds.

Denning (at CA): Mrs B can sue in her personal capacity, and as the executor. Denning did not summarize Dunlop case
correctly. Per O'Byrne, this is Denning's most shocking decision.
Legal issue: Does the privity rule prevent Mrs. B from successfully bringing this action?
Holding:
LORD REID
 Start with the presumption that a 3rd party cannot enforce a contract
 Widow has not capacity to sue in her personal capacity, but can sue as administratrix for specific performance
 Appellant argues: widow can only sue for damages for breach of contract (contract being between himself and the
estate) and damages therefore are minimal.
o What are the damages to the estate? Very little because the estate wasn't the one getting paid. But
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technically she can only recover damages for the estate and therefore damages are nominal. This is a
repugnant result.
 Respondent argues: entitled in her capacity of administratix of her decease husband's estate to enforce the
provision of the agreement for the benefit of herself in her personal capacity, and the proper way to enforce this is
specific performance
 The court orders specific performance b/c the common law remedy for damages would be inadequate
Ratio
 Third parties cannot sue for breach of contract when they were not a party to the contract, even if they were named as
a benefactor of the contract. 3rd party beneficiary rule is good law.
 Executors of wills can sue for specific performance of promises made in contracts with the deceased.
Comments:
 It's not a formal doctrine, but O'Byrne calls it the law of repugnant: If there is something repugnant, it just doesn't
matter what the common law is, the court will do what is right
 Specific performance is very common in land transaction (usually based on showing the land was unique)
 O'Byrne unsure why she widow suing personally because they knew she would win as an administrator… but they
were probably worried about the damages being nominal if she sued as administrator only (which counsel for the
respondent also addressed).
 What if someone else had been name the administrator?
o What if the evil nephew was the administrator? This is very possible, the old man gave the nephew his
business so he obviously like him.
 Then you would make an application to have nephew removed as executor because he's not doing his
job.
 You could try Denning's reasoning that she can sue if she has personal interests, but…. It's not really
true.

(c) Trust
(d) Agency 302
New Zealand Shipping Co Ltd. v A.M. Satterthwaite & Co Ltd. (New Zealand)
Ajax (shipper consignor maker of drill)  Contract 1 Federal Steam carrier (subsid. of NZ Shipping hires NZ
Shipping to unload the drill via Contract 2)  Contract 1  Satterwaite (consignee holder of bill of lading and owner
of drill when it was dropped due to stevedores’ negligence)
(Ajax & Satterthwaite have equal rights just depends who owns it at the time is was dropped) Consignor and
Consignee have identical rights.
Federal Steam (carrier subsid. of NZ Shipping hires NZ Shipping to unload the drill via Contract 2)  Contract 2
NZ Shipping Co. (stevedore parent to Fed Steam (which simply explains why Fed. Steam decided to hire NZ) under
contract #2, is obligated to unload the drill.)

Contract #1 is a bill of lading* which provides: [Limitation of liability clause – precluding one party from suing but
this was contractually agreed upon so this is ok; shelters Stevedores from liability from negligence]
“In accepting this bill of lading, the shipper, consignee and owners of the goods… agree to be bound [as follows:]…
”No servant or agent of the carrier (including an independent contractor) shall… be under any liability to the shipper,
consignee or owner of the goods… for any loss or damage… The carrier will not be accountable… beyond £100…”
NOTE: Bill of lading also incorporated the carriage of goods by Sea Act, which imposed a one year limitation period.
 When parties agreed to this clause to limit liability this is not a cause that rips them off but something they
agreed to. They are paying less for drill and they should get insurance on the drill. Signal to Setterthwaite to get
insurance (b/c Federal Steam DOES NOT HAVE INSURANCE) b/c if damage or loss occurs insurance would
only pay out once and both don’t need to pay for insurance.
*Bill of Lading per Black’s: “Document evidencing receipt of goods for shipment issued by person engaged in business
of transporting… It is receipt for goods, contract for their carriage, and is documentary evidence of title to goods.”
Consignment per Black’s: “To deliver goods to a carrier to be transmitted… [Consignee is one] to whom a consignment
is made… [Consignor is]… the shipper of goods.”

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Stevedore Co is parent of carrier (subsidiary) and acts as the carriers agent on a regular basis. The focus here is the
reverse… To what extent is the Carrier acting as agent of the Stevedore?
Issue: Can Federal Steam act as agent making others party to contract? Is New Zealand 3rd party beneficiary that
cannot be successfully sued? Is there consideration flowing from Stevedore/NZ Shipping Co.
Analysis: Dunlop says Stevedores are not protected (3rd party beneficiaries not covered). There needs to be a way the
NZ Shipping Co (Stevedore) is covered by liability clause (can they rely on protection on Bill of Lading). Need an
agency relationship where Fed Steam gets benefits under contract for NZ Shipping AND Need consideration.

Wilberforce, writing for the majority, lays out a test for agency (citing Scruttons):
1. If the 3rd party beneficiary is meant to be covered by provisions/contract
a. Bill of Lading clearly says the NZ [Stevedore] should be protected they are expressly recited under the
clause as independent contracts
2. If the promissor is clearly acting as agent for the party
a. In the BOL clause, the carrier is identified as an agent for the Stevedore expressly recited
3. If the carrier has authority to act as agent
a. No doubt the carrier was authorized to act as agent because of the pre-existing corporate relationship.
b. If someone protects you in a clause of course you will accept. "it's indisputable" that this is allowed.
Federal steam is benefiting New Zealand shipping and typically you will ratify what they've done.
There is no issue is this situation the carrier is authorized to secure benefits.
4. Then consideration moves from party through agent to promisee.
a. Ajax/Satterthwaite promises not to sue…but for what
b. The entire relationship is commercial context to all parties. Cannot describe one part of relationship as
gratuitous.
c. Maj saying that the bill of lading is an offer of unilateral contract by shipper Ajax to the stevedores of
the world “whoever unloads the cargo is going to get the benefit of the exempting clause” (dissent says
no, and really we don't)… but it is from Ajax to the Stevedores of the world whoever unloads the cargo
will get the benefit of the exclusion of liability clause. The unilateral contract is accepted by discharging
the goods.
d. When NZ shipping unloads the goods it's already obligated to that under contract #2.
i. If NZ shipping is under a pre-existing legal obligation to unload the goods, how can doing that
also be consideration for the promise by Ajax??
ii. NZ Shipping has a pre-existing legal duty to federal steam
iii. Ajax is saying to NZ shipping, fulfill that contract. And the law recognizes fulfilling a
preexisting legal duty to a 3rd party at the request of a promisor is good consideration.

Satterthwaite agreed to exempt carrier and agents from liability in the BOL and commercial realities must mean that this
covers the whole carriage from loading to discharge. This is essentially a "unilateral" contract which becomes bilateral
with the specific performance of loading the goods. Consideration is loading the goods. These acts constituted
consideration for an agreement between Satterthwaite and NZ Shipping and therefore NZ Shipping would be subject to
the exemption conditions of the bill of lading. Wilberforce makes it clear that this decision is in the interest of ensuring
an efficient global market; the owners should have been insured since they knew the true value of the goods. Court
wants to do justice or serve commercial reality.
Additional points/points of confusion
 Stevedore Co is parent of the Carrier and acts as Carrier’s agent on a regular basis. Our focus is the reverse: To
what extent is the Carrier agent of the Stevedore Co.?
 Consignee (Satterthwaite) became holder of the BOL just before drill was dropped. Therefore, at time of loss,
property in drill had passed to consignee and therefore, consignee sues. If loss had occurred before property had
passed to consignee, the consignor (Ajax) would have sued. Consignee and Consignor have identical rights under
the Bill of Lading.
 Per Treitel: “A” (the stevedores) unloads cargo belonging to “C” from “B”’s ship. In exchange, “C” promises not to
sue “A” for causing any loss. “A” provides consideration even though already obligated under a contract with “B” to
do the unloading because fulfilling the contract with “B” comes at “C”’s request.
 That is, fulfillment of Contract #2 by the Stevedores comes at the request of the shipper and is therefore good
consideration for the shipper’s promise of an exemption.
 The whole analysis is a stretch, but the court is driven by commercial practical reality
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(e) Employment 310
London Drugs Ltd. v Kuehne & Nagel International Ltd [1992] 3 SCR 299, page 310
Facts:

**Note that contract of storage btw LD and KN contains this limitation of liability:
LIABILITY – Sec 11(a) The responsibility of a warehouseman in the absence of written provisions is the reasonable
care and diligence required by the law. (b) The warehouseman’s liability on any one package is limited to $40….
The purpose of this clause is signal for LD to insure the transformer against damages not KN.

Trial court finds against Hank and Dennis personally for $34K.
Legal Issue: Can Dennis and Hank shelter under clause (b) (as 3rd party beneficiary of contract) as a defense to LD’s
action against them?
Holding:
Iacobucci (maj)
 The employees did owe a duty of care, and that they were negligent.
 Therefore the only issue is whether they are excluded from liability under the limitation clause. The main obstacle
to this finding is the doctrine of privity of contract; Hank and Dennis arguing that they should be able to rely on

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the liability clause, but technically hey are 3rd party and cannot win.
Iacobucci states that the only reason to reject the employee's claim is a strict adherence to this doctrine.
 When the parties signed the contract they knew of the clause, and knew that employees of the company would be
handling the material.
 To allow the employees to benefit from the limitation coincides with the agreement of the parties when they
signed the contract. Further, there are policy reasons to allow the exclusion – particularly that employees do not
expect to be found liable when there are clauses that specifically state that they are excluded. Identity of interest
btw warehouseman and warehouse employees. This a third party predicted to exist from the beginning.

He sets out a two-step test that must be satisfied in order for employees to be excluded from liability:
1. The limitation of liability clause must, either expressly or impliedly, extend its benefit to the employee(s) seeking to
rely on it; and
 Clause states: Warehouseman not ‘warehouseman employees’ and throughout the contract interchange the
wording throughout the contract. Pg. 318 did not use express wording but rather implied 3rd party beneficiaries.
2. The employees seeking benefit of clause, must have been acting in the course of their employment and must have
been performing the very services provided for in the contract between their employer and the other party when the loss
occurred.
If both of these provisions are not met, then the employees are excluded from liability. They are met in this case, and
therefore the employees can benefit from the limitation clause.
Comments:
 Corporations are invisible, they need people. Of course the Corp is using employees.
 This is not a random 3rd party, this is a 3rd party that you can predict to exist from the beginning
 The court has articulated a test just far enough to protect Denise and Hank BUT what if Denise and Hank were
going about their business at work and they were moving someone else's stuff and damaged the PL's stuff.
o If the wearhouse stores stuff from many different people then as long as Denise are operating within their
course of employment they are covered. The court makes it more specific but it could probably be expanded.
 We could apply the NZ shipping case?
o K&N has negotiated a contract to protect people like Denise and Hank. We've established the agency piece.
o Must find consideration: say that LD is making an offer of unilateral contract to forklift operators of K&N

Edgeworth Construction Ltd. v. ND Lea & Associates Ltd 1993 SCC 320 (Limits of LD case for 3rd parties)
Facts: Edgeworth Construction Ltd. was engaged in the business of building roads in British Columbia. In 1977, it bid on
a contract to build a section of highway in the Revelstoke area. Its bid was successful, and Edgeworth entered into a
contract with the province for the work. Edgeworth alleges that it lost money on the project due to errors in the
specifications and construction drawings. It commenced proceedings for negligent misrepresentation against the
engineering firm which prepared those drawings.
Contract 1: Crown hired ND Engineering to prepare construction and specification drawings.
Contract 2: Edgeworth hired under tendering process to do road construction (relying on ND engineering drawings)
Clause 42: Crown is absolved from any liability for the plans
Clause 42 in Contract #2 states: any representation in the tender documents were ‘furnished merely for the general
information of bidders and [were] not in anyway warranted or guaranteed by or on behalf of the Minister…”
Issue: Can ND shelter under the clause in Contract #2 through privity of contract?
Holding: Pre-trial – clear that ND is going to be liable for neg misrepresentation
 When Edgeworth performed the construction it was relying on N.D. Lea, not the provincial government.
 Following the provisions in London Drugs the court finds there was no express or implied protection of the
respondent in the contract.
 Unlike in London Drugs the respondent could have drawn up a contract that protected it from liability. Employees
who are not "powerless" will not benefit from an employer's exemption. Clause 42 in contract 2 only protects the
minister or Crown.

Can we imply that it covers ND?


 No court won’t imply that it covered ND engineering firm and individuals
 Clause is just intended to protect the Crown.

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 Presumably ND could have limited their liability by disclaimer or by requiring supervision so changes could be
made when necessary.
Sheltering under LD exemption of liability clause will not always work.

(f) Subrogation 322


Fraser River Pile & Dredge v Can-Dive Services Ltd 1999 SCC 1999
Facts: Fraser River owned a ship that sank while it was under charter by Can-Dive. Can-Dive was negligent in the sinking
of the ship. Fraser River recovered from their insurance company, who in turn sued Can-Dive. However, there was a
clause in the contract between Fraser River and their insurance company stating that the insurance company could not
bring actions against any charterers of Fraser River, however Fraser River made an additional agreement to waive the right
to the waiver of subrogation. Can-Dive was found liable at trial but that was overturned by the Court of Appeal and Fraser
River sought leave to appeal to the Supreme Court.
Legal Issue: Can 3rd party beneficiary (Can-Dive) rely on the waiver of subrogation clause as a defense to the action
against it in negligence?
Holding:
Iacobucci, writing for a unanimous court,
 The test in London Drugs applies to any third party who meets the requirements.
 Evidence in favor of relaxing the doctrine of privity is even more convincing in this case than in London Drugs as
it explicitly states that charterers will be exempted in the contract.
 As Can-Dive was expressly mentioned in the contract, and they were doing the activity anticipated in the contract
(chartering), they are covered by the limitation clause and therefore the insurance company cannot sue them.
Further, the plain reading of the contract shows that this should be the case. Fraser River was acting as the agent of
Can-Dive when they excluded them from liability.
 The test in London Drugs applies to all third parties and not only employees of one of the parties assuming
the protecting provision intends to protect them.

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CHAPTER VI. CONTINGENT AGREEMENTS 329
1. Introduction 329
Pg 68 Dawson
Reasonable efforts to locate a pilot to bring him into the area and if acceptable Dawson would receive 10% stake. If could
not get pilot
Condition Subsequent  if we say there is a contract subject to condition sub then there is a guaranteed contract but it
contemplates it’s demise if something happens (or doesn’t happen) contemplated own demise if Springer using best
efforts could not get helicopter pilot  Contract gone.
III. What is a contingent agreement?
A contingent agreement is also called a conditional agreement

 Per Treitel, an agreement is conditional “if its operation depends on an event which is not certain to occur.” Ex:
offer to purchase “subject to financing” or “subject to inspection”
 Something that may or may not occur (not something you promise that will occur)
 This does bind the parties in the interim.

IV. Some distinctions per Treitel


A. CONTINGENT AND PROMISSORY CONDITIONS
1. condition as an event (a contingent condition) VERSUS condition as a term (a promissory condition)
(a.)‘condition’ as an event which neither party undertakes to bring about (not promise anything will happen)
‘A’ agrees to work for ‘B’ and ‘B’ is to pay ‘A’ the sum of 50 pounds “if it rains tomorrow.”
 Per Treitel: “Here, the obligations of both parties are contingent on the happening of the specified event which
may therefore be described as a contingent condition.”
 No one promises that it will or will not rain, parties just ID’d a contingency.

(b.) ‘condition’ as a term where one party’s duty to perform is contingent on the other party performing her undertaking
‘A’ promises to work for ‘B’ at a weekly rate, payable at the end of each week.

 Per Treitel: “Here, the contract is immediately binding on both parties, but B is not liable to pay until A has
performed his promise to work. Such performance is a condition of B’s liability and, as A has promised to
render it, the condition may be described as promissory.”

This part of the course concerns contingent conditions (see (a.) above). Our next chapter concerns promissory conditions
(see (b.) above).
2. Conditions precedent and conditions subsequent
Per Treitel: Contingent conditions may be precedent or subsequent. A condition is precedent if it provides that the
contract is not to be binding until the specified event occurs. It is subsequent if it provides that a previously binding
contract is to determine (end) on the occurrence of the event:
 e.g. Where A contracts to pay an allowance to B until B marries. [when B married contract comes to end] See
Dawson Helicopter

Per SKO: be careful. Don’t assume that presence of an unfulfilled condition precedent means the absence of a binding
agreement. If you have agreement and there is CP there is a contract.

B. DEGREES OF OBLIGATION: In CONTEXT OF CONDITIONS PRECEDENT

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Per Treitel: an agreement which is subject to a contingent condition precedent is not fully binding until the specified event
occurs; nor does either party undertake that it will occur. That said, an agreement subject to such a condition may impose
some degree of obligation on the parties or on one of them.
WHAT ARE THE POSSIBILITIES PER TREITEL?
1. Before the event occurs, each party is free to withdraw.

 EXAMPLE: agreement for sale of a patent is executed but the parties also agree that it should "not be the
agreement" unless a third party approved of the invention. No agreement UNTIL approval. See Murray, cited in
Weibe.
**Put another way, we have a condition precedent going to the creation of the obligation as opposed to one the fulfilment
of which triggers the duty to perform. There is no contract btw the parties.
2. Before the event occurs, main agreement is not binding but, so long as the event can still occur, one or both of
the parties CANNOT withdraw.

 EXAMPLE: A sells land from B subject to financing. A cannot withdraw before the time fixed for completion; he
was bound to wait to see whether B could arrange the loan. See Smith v. Butler, [1900] 1 Q.B. 694.

3. Before the event, the main agreement is not binding but that in the meantime, the parties must not prevent
occurrence of the event.

 EXAMPLE: Soccer player is transferred. He is to be paid part of his fee immediately and the balance upon
scoring 20 goals. He is cut before he has the change to score the goals. Held: that the team was in breach as it had
not given him a reasonable opportunity to score the goals. See Bournemouth discussed in Treitel.
 Before the event occurs the main agreement involved is not binding but parties cannot prevent the occurrence of
the event. There is a contract and the obligation to pay him is contingent upon scoring the goals. One party
cannot prevent the other from performing the event.

4. Before the event occurs, the main agreement is not binding but one of the parties undertakes to use reasonable
efforts to bring about the event without undertaking that those efforts will succeed.

 EXAMPLE: Hargreaves Transport Ltd. v. Lynch, [1969] 1 W.L.R. 215. Land is sold subject to the condition that
the purchaser should obtain planning permission he is bound to make reasonable efforts to get the permission
but isn't liable for failing.
 There is a contract btw the parties but the primary obligations under contract (buy sell develop) are suspended
pending fulfillment of the condition. Unless or until that condition is filled the primary obligation isn’t triggered.
In the meantime there is a contract and parties are bund in subsidiary way. Falls on purchaser to make reasonable
efforts to get the permission but not faulted for failing. As soon as you say someone has to ‘do something’ there
is a contract.

The principal obligation (to buy and sell) will not take effect if planning permission is not obtained. But note that there is
an implied subsidiary promissory obligation to make reasonable efforts.
**the foregoing pages must be read in light of Turney.

VI. Conditions precedent to obligation vs. conditions precedent to performance


Wiebe v. Bobsien, quoting Corpus Juris Secundum:
A condition precedent may relate to the binding effect of an agreement or to the duty to perform an existing contract. The
existence of such a condition depends upon the intent of the parties as gathered from the words they have employed, and it
will be interpreted according to the general rules of construction.

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VII. The “Let’s Make a Deal” summary of conditions precedent **can use on exam
DOOR #1: CONDITION PRECEDENT TO CREATION [FORMATION] OF THE CONTRACT [OBLIGATION]
Example: I’ll buy your house if I like it (not in contract)

 No binding agreement results from this because the condition precedent is Illusory – it is based on ‘whim, fancy,
or dislike.’ It has no objective content and therefore cannot be enforced.
 Cannot have implied subsidiary obligations b/c there is no contract.

DOOR #2: CONDITION PRECEDENT TO THE DUTY TO PERFORM THE PRIMARY CONTRACTUAL
OBLIGATIONS (in a contract)

 A binding agreement (contract) results but whether the primary contractual obligations (example: to buy and sell
a house subject to selling one’s own residence per Wiebe) depends on whether the condition precedent is
fulfilled.
 Such agreements can have subsidiary obligations breach of which is actionable b/c there is a contract to which we
can append.
o Wiebe has to make bf efforts to sell his house (Weibe has to do something)
o Bobsien has to wait and see if Wiebe fulfills the CP VIII. What is a True Condition Precedent?

See Turney: But here there is no right to be waived. The obligations under the contract, on both sides, depend upon a
future event, the happening of which depends entirely on the will of a third party – the Village Council. This is a true
condition precedent – an external condition upon which the existence of the obligation depends.
2. Intention, Certainty, and Consideration 332

Wiebe v Bobsien
Facts: Wiebe, PL, purchaser, paid a DEPOSIT* of $1,000  sues Bobsien, DF, vendor
 Pursuant to the parties’ interim agreement dated 22 June 1984, house sale is subject to PL selling his own residence
on or before 18 August 1984.
 On 22 July 1984, DF purported to “cancel” the interim agreement.
 PL did not accept this cancellation and on 18 August 1984, he fulfilled the condition by selling his own home
 On that day, plaintiff notified defendant that the “subject clause” was removed
 Defendant refused to complete
*DEPOSIT per Alberta Conveyance Law Practice is “security for completion of the contract by the payer and will be
forfeited to the other party if the payer fails to perform his side of the contract” and, citing Howe v. Smith, “a guarantee that
the contract shall be performed… [I]f the sale goes on… it goes in part payment of the purchase money for which it is
deposited; but on default of the purchaser… he can have no right to recover the deposit.” Deposit Refundable.
**OPTION TO PURCHASE per Black’s: A bilateral contract in which one party is given the right to buy the property within
a period of time for a consideration paid to the seller. In option to purchase the consideration is paid to the vendor to keep
offer open for set period of time ($1K is purchase price for promise) don’t get money back.
Issue: Is the interim agreement a binding contract or a failed OPTION TO PURCHASE** that the def. was entitled to
cancel?
Holding:
Three types of Condition Precedents
1. DOOR #1: Circumstances where a condition precedent prevents the formation of a contract. (No contract)
a. Condition precedent is clear, precise and objective. If unable to fulfil the condition this agreement becomes
null and void.
2. DOOR #2: Circumstances where a CP suspends the performance of the contract (Contract)
a. CP is partly subjective and partly objective. Dealt with by implying a term, i.e., for the purchaser to take all
reasonable steps. If Weibe uses good faith efforts and fails, this is not actionable. The vendor has implied
subsidiary obligation to wait until the deadline passes and not free to deal with other people.
b. Pg 335 CP suspends performance to some obligations until some conditions are met (CP usually interpreted
as Door #2). Also means parties are bound pending fulfillment of CP pf purchaser to sell his own house.
3. CA DOOR #3: Circumstances where CP cannot be possible to imply a term and the agreement will fail for
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uncertainty. (Actually then turns into Door #1 preventing formation of contract)
a. Condition precedent is imprecise, or depend so entirely on the subjective state of mind of the purchaser, i.e.,
incurable uncertainty. Contract process is still at the offer stage (never accepted). Pg 338 CP to purchaser
completely dependent upon the “approval of president” not clear enough to make binding. The condition
precedent is illusory (cannot determine whether or not best efforts were used). The CP has not content.

Denning: if parties reached agreement on all essential matters there is an agreement (Door #2). Must bring to court for
approval and neither party cannot disavow prior to court approval. Meaning there is a contract btw the parties. Usually in real
estate CP are Door #2.
Summary:
1. Door #2: Real estate contract containing a CP will usually result in a binding agreement of sale and purchase. The
obligation to complete the contract is merely in suspense pending the occurrence of the event constituting the
Contract
2. Door #1: However, sometimes, such as condition may prevent the formation of contract if agreement itself and the
surrounding events indicate it was never the intention of the parties to bind themselves to a contract of sale and
purchase.
3. In this case the contract and the surrounding circumstance indicate the parties intended to reach a consensus when
they executed the interim agreement on June 22nd, 1984.
4. Completion of the sale was suspended pending disposition of the PL’s Port Moody Home on or before 18th August
1984. He had a duty to take all reasonable steps to sell his home. If he failed to do so, he would be in breach of his
agreement and liable for damages to the PL.
5. When the Port Moody home was sold August 18, 1984, the DF was then contractually bound to sell the Crescent
Beach property to the purchaser b/c the agreement was no longer in suspense. Hence, the DF had no legal right to
cancel the contract by his telegram 22, July, 1984.

Wiebe v Bobsien (340) Dissenting Opinion at CA


No disagreement with how trial judge articulated the law. There is Door 1 & 2 but there is a 3rd class of CP that are partly
subjective and partly objective. Sometimes it looks like Door #2 it actually is uncertain & when CP fails for uncertainty it
turns out to be a Door #1. This CP has tremendous amount of uncertainty in it. Incurable uncertainty  What should be
implied? Sell by certain date, reasonable efforts to sell by certain date. What does this mean. Officious bystander test…
whether he must sell at price he can get on market (best price) or only the sale can take place at the price he considers
reasonable. Ex: Dentist got offer but he turned it down. So he is in breach of subsidiary obligation for not taking reasonable
price “subject to me selling my house if I feel like it”. Not intended to be Door #1 but becomes Door #1 b/c of uncertainty.

3. Reciprocal Subsidiary Obligations 343

Dynamic Transport Ltd v OK Detailing Ltd. 345


Facts: Dynamic (PL, Appl., Buyer); OK Detailing (DF, Resp., Vendor)
Dynamic wants to enforce a contract in writing btw OK Detailing (Vendor) and Dynamic (Buyer) for the sale of land in
Edmonton. Purchase price was $53K and current value is $200K. Contract subject to subdivision. Purchaser wants to buy
land but wants to be able to sell it in subdivided way so it can be developed. Only interested in acquiring land if it can be
legally divided into smaller portions of land. Vendor does not want to go through with deal b/c there is almost a 150K
difference with deal.

Contract to Purchase of land  Subject to condition that land can be subdivided


 Each party has subsidiary obligation to do everything necessary to get it subdivided.
Issue: Ok Detailing (vendor) refuses to complete, maintaining the contract is unenforceable on two grounds:
1. The description of the land is so vague and uncertain to make the identification impossible
2. The contract is silent to which party will obtain subdivision approval required under the terms of Planning Act
Holding: Dickson, J. “The parties created a binding agreement. It is true that the performance of some of the provisions of
that agreement was not due unless and until the condition was fulfilled, but that no way negates or dilutes the force of the
obligations imposed by those provisions, in particular, the obligation of the vendor to sell and the obligation of the purchaser
to buy. These obligations were merely in suspense pending the occurrence of the event constituting the condition precedent.”
 Vendor must obtain subdivision approval. If purchaser carried out actual work in connection to application he could

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only do so in vendors name as his agent. Vendor under duty to act in good faith and to take all reasonable steps to
complete the sale. Failure to fix responsibility on a party for obtaining planning approval cannot render a contract
unenforceable.
 Both parties knew about subdivision clause and both parties must do what is necessary to comply with the planning
approval. Based on legislation vendor has implied duty to comply and must act in good faith to take all reasonable
steps to complete the deal. I cannot accept proposition of failure to fix who gets planning approval makes the contract
void. This is a Door #2 (implied subsidiary obligations to do what is necessary to get approval) The contingency is no
one know if it will actually get approved. The vendor’s failure to seek approval is actionable b/c they failed to do
implied subsidiary obligation.

Remedy: We are saying the vendor is in breach of implied subsidiary obligation to make the application for subdivision.
Purchaser lost the ‘possibility’ of profit on the deal (contingency). There should be discount based on how likely it was to get
the approval. SCC remedy as follows:

1. Vendor must apply for subdivision (Likely Implied term  bona fide application in good faith but better to get
expressly recited)
2. If vendor doesn’t apply, PL gets loss of profit (With no discount for the contingency) Pg 347: this quantification
was based on the approval for subdivision was certain to be obtained, this is not typical usually here would be a
negative contingency that the application may fail. O’Byrne thinks justifiable b/c they want to ensure vendors goes
through with specific performance and this ensures that they will do everything they can (added penalty to ensure best
efforts). If they fail to make application the idea is that the vendor thinks the application will likely succeed.
3. If application is successful, deal proceeds.
4. If application fails, deal ends.

(a) Remedies for Breach of Subsidiary Obligation 347


Courts that award damages for breach of a subsidiary obligation of the kind addressed in Dynamic Transport Ltd.
generally recognize that there is no guarantee that the requisite approval or state of affairs would have been achieved if
proper efforts were made; what the victim of breach has lost is the chance to realize the benefit that would have followed
from the fulfilment of the condition. Note that a plaintiff who requests specific performance may end up with neither
performance nor damages if approval is not granted.
Even if the court has to make something up, they will generally try to assess damages. It is no argument that it is too hard
to assess monetary value. We do not know what the basement of chance is, but there is an Ontario Court of Appeal
decision that gave an award based on an assessed 20% chance of success. See below

Eastwalsh Homes Ltd v Anatol Developments Ltd. 348


Facts: Agreement for Real Estate transaction. Best efforts for one party to have subdivision plan registered before closing
date of sale. If condition did not occur, agreement terminated. Plan was not registered and sale did not happen.
Contract for purchase of land  Subject to subdivision approval (contingency)
Issue: Did a breach of the agreement occur?
Holding: Yes, but damages were nominal; failure would have occurred with best efforts. Breach occurred because no effort
to obtain approval from municipality. Damages were nominal because even if best efforts were used to obtain approval,
parties did not leave enough time to complete the task. Outcome was the same.
 PL must show the DF caused the loss you plead (loss of profit) since the subdivision plan was not certain to succeed
(only possible). The PL would have had 50% chance of succeeding thus awarded 50% profit for chance it would have
succeeded.
 Burden rests on PL that breach and not some other factor has caused the loss, in this respect the courts have not
relaxed standard of proof. DF tries to say it is just so hard to quantify damages, court says ‘oh well we will try even if
they aren’t exact.’
 Pl must prove chance constitutes some reasonable probability of reasonable monetary probability. What Eastwalsh
lost was too insubstantial to award more than just nominal damages. This is good b/c you will almost always get your
costs covered by the other party.

Multimalls: what Eastwalsh lost was too insubstantial to justify damages (more than nominal. What success would we have
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to show to get damages? In Multimalls they had 20% chance of success which would merit 20% in damages. So at least 20%
could justify damages, but any lower we don’t know for sure.

4. Unilateral Waiver 351


Parties to a contract that includes a condition precedent as one of its terms can agree to vary or waive satisfaction of the
condition. However, in many cases one of the parties wishes to waive the condition so the contract can be given effect
while the other does not. Common sense would suggest that, since the condition was included to ensure that the purchaser
would have funds available to make the purchase and was thus intended for the purchaser’s benefit, he or she should be
permitted to waive it. Waiver would, of course, put the purchaser in the position of being subject to an unconditional
contractual obligation to pay the purchase price on the agreed date, regardless of whether he or she has succeeded in
arranging the necessary funds from an external source.
** Make an explicit provision in the contract permitting or precluding waiver of any conditions precedent. Usually
contract silent.

 According to Turney a true CP under the SCC test cannot be waived by either party, regardless of whether it was
intended to benefit one of them.

Turney v Zhilka 352


Facts:
 Parties entered into a continent agreement for the purchase and sale of land.
 Condition was: Providing the property can be annexed to the Village…and a plan is approved by the Village Council
for subdivision. Completion date 60 days after approval.
 Purchaser made some efforts to secure fulfillment of the condition but then purported to simply waive fulfillment of
the condition.
 Vendors claim that they are not bound by the agreement because the condition was not fulfilled.
 Trial judge said that the condition was for sole benefit of purchaser and so the purchaser could waive the condition
which the Court of Appeal affirmed. Saying this is a Door #2 to the sole benefit of the purchaser and can be waived
(if there was a condition in benefit of BOTH parties than one party could not waive).
Issue: Did the purchaser have the right to unilaterally waive the condition precedent?
Holding: SCC doubts whether the condition was for the sole benefit of the purchaser but “in any event, the defence [of the
vendor] falls to be decided on broader grounds.”
 The purchaser had no right to waive the annexation condition which was a true condition precedent.
 Why is this a true condition precedent?
Per Judson J.: “But here there is no right to be waived. The obligations, on both sides, depend upon a future uncertain event,
the happening of which depends entirely on the will of a third party – the Village Council. This is a true condition
precedent -- an external condition upon which the existence of the obligation depends. Until the event occurs, there was no
right to performance on either side. The parties did not promise that it would occur. The purchaser now seeks to make the
vendor liable on his promise to convey in spite of non-performance of the condition and this to suit his own
convenience…Waiver has often been referred to as a troublesome and uncertain term in the law but it does at least presuppose
the existence of a right to be relinquished.”
 The purchaser had no right to waive the annexation condition which was a true condition precedent.
 SCC might mean by “true Condition Precedent” is a Door #1 CP. Meaning there is no contract until the uncertain
event occurs. Existence of contract itself depends on the condition being fulfilled. You cannot waive a right that you
cannot have yet, and PL has no rights b/c until the condition is fulfilled there is no contract.

I. SHOULD A ‘TRUE CONDITION PRECEDENT’ BE CLASSIFIED AS A DOOR #1 OR A DOOR #2?


Per Davies, "Conditional Contracts for the Sale of Land in Canada" [1977] 55 C.B.R. 288 at 296:
... Judson J. said that the obligations of both parties were dependent upon fulfillment of the condition. What did he mean?
Did he mean that the purported binding agreement was of no binding effect whatsoever until the condition was fulfilled
(DOOR #1) or did he mean only that neither party could call on the other to perform (by paying the purchase price or
making the transfer as the case may be) until the condition had been fulfilled (DOOR #2)? The difference being that in
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the latter case parties are clearly bound by the contract in the sense that the vendor cannot sell to another until the time
prescribed for fulfilling the condition, or a reasonable time for so doing, has elapsed; while both the purchaser and the
vendor may have obligations with respect to achieving the fulfillment of the condition. In the former case the position is
much less clear ….
A strict reading of Turney would suggest that in the context of a true condition precedent there are no subsidiary
obligations resting on the parties because, in Judson J.'s words, it is the fulfillment of the condition which CREATES
THE OBLIGATION. This analysis is also consistent with Judson's comments on waiver. (Judson saying until CP fulfilled
there is NOTHING to waive)
Fridman notes, however, that cases following Turney have stated that a true condition precedent may impose duties
on one party or on both. Per Dynamic Transport, (SCC): “the existence of a condition precedent does not preclude the
possibility of some provisions of a contract being operative before the condition is fulfilled ... (Courts will dodge Turney’s
interpretation b/c it puts many commercial agreements as Door #1, only subsidiary obligations can exist in Door #2)
Per Fridman:
Decisions in the past few years have drawn attention to the fact that, where a contract is subject to a true condition
precedent, even though failure of the condition to be fulfilled might result in there being no binding contract between the
parties, some liability may emerge from the lack of compliance with the condition....The basis of such liability is the
doctrine of implied terms.... By virtue of such an implication a party may come under a duty to act in good faith, to co-
operate with the other party to obtain the assent or approval of a third party whose approval is a prerequisite of the
contract, or to use his best efforts to achieve compliance with, or fulfillment of, the condition precedent.
With reference to a number of cases, Fridman makes the following observation:
in Steiner ... and Haupt ... the claim that was successful was for specific performance of the contract that was subject to
the unfulfilled condition precedent. Although the condition precedent was a true condition precedent, in the Turney sense,
and could not be waived unilaterally, in both these cases the court held that the vendor could not frustrate the entire
agreement by his failure to apply for the requisite subdivision; hence, he could not resist a claim for specific performance.
 Even in Door #1 CP scenario you can imply obligations (although theoretically possible)

II. HOW TO GET AROUND THE TURNEY PRONOUNCEMENTS REGARDING WAIVER?


For help on this, see Davies "Some Thoughts on the Drafting of Conditions in Contracts for the Sale of Land" (1977) 14
Alta. L.R. 422. At 427, Davies suggests that drafting be done so that the condition cannot be classified as a true condition
precedent. Draft your CP clauses that exempt Turney case.
One way of accomplishing this is to insert a waiver clause:
The purchaser may at any time, up to and including the __day of __, 199__ , waive the protection of the above clause in
whole or in part by giving notice to that effect to the vendor in writing at __ (address). [per Davies, obviously the clause
would have to operate in conjunction with and be compatible with the condition itself.]
At 428, another possibility is to frame the condition so that the appropriate party can declare the contract null and
void. This would mean there is a contract btw the parties and one or the other cannot wander off.
This agreement may be declared null and void at the option of the purchaser (vendor) if the purchaser (vendor) is unable
to obtain by the __ of __ , 19 __ , financing upon the following terms and the deposit shall be returned to the purchaser
without deduction. [per Davies, clause should also state that purchaser should exercise this option by giving notice in
writing to vendor at stated address and further, a time period within which such notice is to be given.]
How courts get around Turney:
1. Repackage Turney
a. As Door #2
b. Or if it is Door #1  implied subsidiary obligations

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2. Distinguish Turney (court do this but usually for reasons unknown)
3. Ignore Turney completely

Summary:
Condition Subsequent  easy

 Contract btw parties, due to fulfillment or non-fullfillment it comes to an end. (Dawson helicopter) Comes to an
end if something happens. But b/c three is a contract there ARE subsidiary obligations

Condition Precedent

 Door #1  condition is illusory, or dissent in Weibe when Door #2 condition is uncertain and unclear making the
condition void, so it becomes door #1 and contract void.
 Door #2  contract btw parties and there can be implied subsidiary obligations (just like Condition Subsequent)

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Chapter VII. Representations and Terms: Classifications and Consequences

2. Misrepresentation and Rescission

PRE-CONTRACTUAL MISREPRESENTATION: A TERM “Promise” this is Constable. Classification is


must be unambiguous, material and relied on. NOT intention-driven. (RIGHT SIDE)
STATED AS TERM IN ACTUAL CONTRACT. (LEFT 1. Remedy for breach of condition (a stipulation that
SIDE) goes to the “root” of the contract):
1. Remedy for innocent misrepresentation:  Treat contract as at an end
 No tort committed only remedy in contract law  Damages in contract to put PL in a position s/he would had
 Rescission in contract been in had contract been performed
 No damages but possibility of monetary but see Leaf
 Compensation as part of rescission  Upon acceptance of goods “right to reject” is lost
 “Reasonable Opportunity to discover the truth is  For exceptions to the Leaf principle, see the law of mistake
Not a Defense – Successful Redgrave
2. Remedy for breach of warranty (a stipulation going
2. Remedy for negligent misrepresentation: to a subsidiary aspect of the contract):
 Rescission in contract  Damages in contract
 Damages in tort. Measure is to put PL in position she
would have been in had tort not occurred 3. Remedy for breach of innominate term (a
 Must show special relationship btw person making stipulation whose characterization is achieved by
rep and person receiving rep. by showing Prima facie assessing the severity of the event to which the breach
duty of care which will be established if gave rise):
o 1) DF ought to have reasonably foreseen  Depends on characterization
reliance &
o 2) PL’s reliance is reasonable in Dick Bentley sets up facts of Oscar chess:
circumstances. Difference btw something as a statement and something as a
 “Reasonable Opportunity to find the truth” promise.
COULD be a Valid defense.
 Is the PL’s reliance reasonable if there is a Term & Warranty interchangeably mean promise (RIGHT
“reasonable opportunity to discover truth?” Then SIDE)
possible this is not reasonable. No case to point.
Can bring action in contract and possibly in tort.
3. Remedy for fraudulent misrepresentation:  If you have given action in tort by way of a clause you
 Rescission in contract cannot turn around and successful sue in tort (to get around
 Tort could be committed (must prove) you can get contract)
Damages in tort. Measure is to put P in position s/he  When you are in contract parties can negotiate the scope of
would have been in had tort not occurred. liability and tort can be involved but b/c parties know
 Redgrave – pleadings for tort insufficient each-0ther and in position to negotiation whether a tort
 “Reasonable opportunity to discover the truth” action can be brought is something they can discuss.
Not a defense. (Redgrave old lawyer cannot say if he
weren’t so stupid.) Fraud unravels all, fraudster stuck. Breach of promise and DEFECT GOING TO
PERFORMANCE
Can bring action in contract and possibly action in
tort. Leaf – if you don’t give me a constable this is breach of major
term of contract “condition” not breach of warranty.
We have a DEFECT GOING TO FORMATION OF
THE CONTRACT. When negotiating contract
something is wrong with how it is being created.

I. Definition of a misrepresentation per Fridman: "a misstatement of some fact which is material to the making or
inducement of a contract."
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II. General rule per Treitel: no relief for a misrepresentation unless it is a statement of existing fact
A. Mere puffs do not count as misrepresentation: “The car was a “good little runner.”
B. Statements of opinion or belief do not count as misrepresentations: “I think this is a Rembrandt but I am not sure”
this is just giving a statement of opinion.
a. If you lie about your opinion is it still an opinion or is it something else? This is a misrepresentation of
fact (misrepresenting your opinion b/c you are lying about it). BUT Smith v. Land and House Property
Corp (CB)
Negligent misrepresentation (contract tort overlap)– When a professional vendor states it is a Rembrandt but you do NOT
take the time to get the item verified.
C. representations as to the future do not count as misrepresentations
*Edington v. Fitzmaurice (1885) 29 Ch.D. 459.

If a misrepresentation goes to the present or to the past, the classification cannot go to the future.
 A induces B to lend him money, and promises that A will never borrow elsewhere. This is not a misrepresentation
b/c statement to future not covered by this representation. Could be found liable for tort of deceit though (this
could be term of contract which would be liable under breach of contract as well).

III. Ingredients of an actionable misrepresentation per Treitel


Vendor of constable knows it is NOT a constable but say “I bet an appraiser would say it IS a constable” The vendor has
no reasonable grounds for holing this belief
The misrepresentation must be:
A. Unambiguous – obscure and no legal consequences flowing from it
B. Material - What is the test? Per Treitel: "it must be one which would affect the judgment of a reasonable person in
deciding whether or on what terms to enter into the contract without making such inquiries as he would otherwise make."
C. relied on by the representee
**How is the reliance criterion different from the materiality criterion?
Ex: Renting Van and asked to buy additional 3rd party insurance coverage. Girl says if you buy the extra coverage it will
be $8 million. O’Byrne says NO WAY.
 Unambiguous – very clear coverage = $8mil
 Material – yes you would not buy it unless it was higher amount
 Relied on by Representee – O’Byrne though NO WAY was not relied on. But if in subjective mind of O’Byrne
she did not rely on it (b/c she did not actually buy and didn’t believe the girl) Redgrave v. Hurd (CB)

IV. Meanings of "rescission"


Remedy for innocent misrepresentation is rescission in contract (for factual misrepresentation):
1. an action to set the contract aside due to some defect affecting the formation of the contract (what is meant in this
chapter)
2. voluntary setting aside of the contract by both parties
3. incorrectly, it refers to situation where one (innocent) party is discharged from having to carry out his or her
obligations under the contract because the other party has committed a serious breach (Used for breach of contract
when there is a contractual term it is used this way sometimes which is incorrect RIGHT SIDE chart)

V. Difference between a claim for damages and an action to rescind a contract

Damages: plaintiff seeks money damages for the performance which should have been rendered under the contract.
Rescission: plaintiff seeks non-enforcement of the contract (parties are restored to their pre-contractual position.)

VI. Liability in tort: fraudulent misrepresentation

For the purposes of this class, rely on McCamus, citing Redgrave and related case law, who states that a representation is
fraudulent if either the misrepresentor knew that the statement was false or made the statement “recklessly and without
care, whether it was true or false.”

VII. Liability in tort: negligent misstatement


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For the purposes of this class, rely on the following assessment by McCamus as to when a negligent misrepresentation
may occur in the pre-contractual arena:

As a general proposition, it appears to be sufficient to establish a ‘special relationship’ if the reliance of the representee on
the representor’s statement was both foreseeable by the representor and reasonable on the part of the representee. Where
the misrepresentor does not possess any particular expertise or access to superior skill and knowledge, reliance may well
be unreasonable and the special relationship will be held not to exist.

Note too that negligent misrepresentation if a recognized analogous category of proximity under Coopers. The parties are
proximate due to the defendant's invitation to rely.

IX. Duty to disclose?

Bank of B.C. v. Wren

X. Bars to actions for rescission based on innocent and negligent misrepresentation (non-fraudulent)
A. Laches – You must bring action promptly (act common law just sue before limitation period ends) but in equity
may have to move more quickly than that. BC v Wren Sept 1960 letter implied repudiation & only repudiation
that would justify non-payment on the mortgage. Action not commenced for a year after letter Nov 1961 … Close
call for court to call based on no Laches. Should always advance claim promptly.
B. Affirmation of contract – if innocent party continue with contract knowing they have grounds to rescind can be
bar. Argued in Kupchak that they continued to run the Motel instead of resigning but if they had done that DF
could argue that restitutio in integrim impossible on the opposite side b/c no one running Motel (not as valuable).
In reality they were trying to mitigate their losses than affirmation.
C. Restitution is impossible, impractical or unjust. *Kupchak v. Dayson Holdings Ltd. (compensation in lieu of
directly transferring back specific property)
D. Third party rights are prejudiced – Pg 373 idea is if in the period btw what has gone wrong and remedy and
3rd party acquired rights, courts are unwilling to hurt 3rd party rights this will preclude exercising rights to
rescind. Kupchak there was ½ interest affected but b/c Haro St property stays with DF and only compensation
goes to PL than this solves problem.
E. Execution of the contract in the case of land – Execution, meaning both sides fully performed, absent Fraud,
will be a bar (but a weakening bar). Kupchak not fully executed PL refuse to pay mortgage.
F. Execution of the contract for the sale of good: Leaf International – accepted goods and paid in full is bar to
rescission.

Sale of Goods Act R.S.A. 2000, c. S-2:


s. 13(4) When...the buyer has accepted the goods or part of them...the breach of any condition to be fulfilled by the seller
shall only be treated as a breach of warranty and not as a ground for rejecting the goods...unless there is a term of the
contract expressed or implied to that effect.

s. 35 The buyer shall be deemed to have accepted the goods…


(c) when after the lapse of a reasonable time he retains the goods without intimating to the seller that he has rejected them.

XI. Bars to actions for rescission based on fraudulent misrepresentation


(note: whether the contract is executed or not is irrelevant)
A. Laches
B. Affirmation of Contract – if you know there is fraud yet you affirm this should be a bar.
C. Restitution is impossible, impractical or unjust – can be a bar but un Kupchak court use compensation as work
around from damages.
D. Third party rights are prejudiced – work around in Kupchak compensation did not affect 3rd party rights.

Redgrave v Hurd, (1881), 29 Ch D 1 (CA)

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Facts: PL (elderly lawyer, purports to sell his practice to the young lawyer). DF (young lawyer).
 Lawyer business and house was part of deal
 DF counter claims for rescission based on misrepresentation
 DF wants deposit back
 DF wants moving expenses.
 Parties entered into contract for house and law practice. Young lawyer moved family to where practice is located
 Young lawyer then learns that the old lawyer exaggerated the value of his business the business is worthless.
 Young lawyer wants to not conclude
 Old lawyer sues young lawyer
 Elderly lawyer sues for specific performance of contract and when you counter claim basically you also sue
 Young lawyer also asks for damages in receipt (in tort).
 You can't get damages in rescission because contract believes that if it was such an important term why wasn't it
in the contract… so no damages but we'll help you escape contract.

At trial, court held for old lawyer and held there was misrepresentation but the DF should have looked at documentation
and he didn't take the opportunity to discover truth but you didn't take it so how can you say you relied on the
misrepresentation. Perhaps it was professional curtesy that the young lawyer didn't look at value.
Issue: Does the PL have an enforceable contract or is it impeachable via pre-contracted misrepresentation?
Held: Defense to action for pre-contracted misrepresentation: reasonable opportunity to discover the truth
False representation is not got rid of on the fact that the person to whom it was made was guilty of negligence
o As a matter of law, having am opportunity to discover the truth is not to raise the bar for pre-contractual
misrepresentation.
o CA says trial judge was wrong b/c there was pile of paper offered to young lawyer but the true value of practice
not present in those documents (nothing there to consult).
o Young lawyer gets rescission b/c he establishes pre-contractual misrepresentation (unambiguous, relied on,
material)
o Gets deposit and unravelling the parties.
o Hits wall for getting moving expenses b/c he needs tort and is unable to establish tort.
 Can rescind for misrepresentation when: statements have been made recklessly or without care and not with the
belief that it was true
o Really trying to rip someone off. In civil scenario Dary and Peak: fraud of deceit if you make statement
recklessly or without care as to whether it is true or false.
 If we're saying they've committed tort of deceit in that context you can't say if you weren’t so stupid you wouldn't have
relied on us.
o It doesn't lie in the mouth of the person who was victim.
o BUT now that we have test for fraud and even if there was opportunity to look at papers the young lawyer fails
on the tort claim in deceit . He probably did his own pleadings.
o Court: fails as to damages b/c has no pleaded knowledge that the allegations were untrue to found action for
deceit . So court: your pleadings stink.
Writ of innocent misrepresentation: not a defence (Redgrave)
Writ fraudulently misrepresentation: not a defence
Negligent misrepresentation, could be a defence
 Queen v Cognos [1993] 1 SCR 87
o Special relationship between plaintiff and defendant
o To establish action of negligent misrepresentation we establish prima facie duty of care then the DF ought to
reasonably to have foreseen reliance by PL (old lawyer would have forseen that the young lawyer would have
relied on his words about the value of his business), and that the PL reliance in the circumstances is
reasonable.
 Is the PL's reliance reasonable if there is an independent opportunity to discover the truth
independently??
 A reasonable opportunity to discover the truth might be a fail answer to a claim in negligent
misrepresentation… O'Byrne not sure.
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 It's not a DF in innocent or fraudulent misrepresentation, but maybe in tort misrepresentation
 If reliance by representee is unreasonable then you don't have the tort. Whereas in the other areas
of tort we don't care about opportunity to discover truth… might impact in negligent
misrepresentation.
 Slight question mark because no case law.

 Young lawyer can get deposit back because that was paid pursuant to issue.
 Moving expenses: no. no tort. No where to append damages to.

Smith v Land and House Property Corp, (1884) 28 Ch D 7 (CA)


Facts: PL is vendor and has entered into contract with DF purchaser.
PL has made a representation.
PL offered hotel for sale
 Hotel was currently leased to Fleck, described as "most desirable tenant."
 As someone looking to purchase hotel, you will likely have mortgage and need tenants to pay down mortgage
 Fleck goes bankrupt, DFs allege pre-contractual misrepresentation and want contract rescinded.

Issue: Was the statement "a most desirable tenant" a material fact?
You must show unambiguous, material, relied on.

PL argues: we don't have a statement of fact, we were just giving our opinion on Mr Fleck. A statement of opinion is not a
statement of fact.
 Purchaser knows nothing about Mr Fleck and vendor knows everything
 The vendor gives an opinion, well there is an implicit representation in that opinion
o Implicit representation that you know facts that make this opinion reasonable
 Unambiguous: vendor is saying that he has factual foundation for the view the tenant pays the rent (something you
want to know as purchaser).
 Material: yes would compel reasonable purchaser b/c you know if you'll have someone helping with mortgage
 Reliance: arguing that it is implicit.
 It is an inference of law that a material representation calculated did induce evidence to the contrary: we assume
reliance.
o If it's material we assume reliance. Others have suggested that it is an inference of fact.
o View in Canadian law: when you assess it as being material and unambiguous you can assume it can be
relied on. Alberta courts have said show me everything. Show on facts it was relied on.
Held: Statement of opinion can be statement of fact

Bank of BC v Wren Developments LTD, (1973), 38 DLR (3d) 759 (BCSC) (Duty to disclose)
Facts:
 Wren took a loan from the bank and deposited shares in a number of companies by way of security. This was done via
a hypothecation agreement. Hypothecate, per Black’s means ‘to pledge property as security or collateral for a debt.’
 Over time, plaintiff released some of these shares to Smith without Allan or Wren’s knowledge or consent. This
negatively affected Allan’s position under his June 2,1971 guarantee.
 Allan asked about the position of the shares but did not wait for an answer — he simply signed on the assumption that
there had been no change.
 Bank already has default j. against Wren on the loan and summary j. against Smith on his guarantee.
Mr Allan didn't realize that the bank was releasing shares that Wren had pledged as securities for the debt and released to
collateral to Mr Smith. It was unauthorized and shouldn't have happened.
Legal issue: Does Allan have to pay $25,000 pursuant to his written guarantee? Is there pre-contractual misrepresentation
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in the form of silence that would allow us to argue that Mr Allan is not bound by a form of guarantee.
Holding: Judgment for DF. Silence as Misrepresentation (failing to inform Allan of change in collateral)
1. Unambiguous – silence gives statement of fact that collateral unchanged. Munroe held that Allan had labored under the
mistaken belief that collateral security pledged by the company was still at the bank. He had not been informed of any sale
or exchange, his signature was required for banking transactions, and neither he nor the company had ever authorized
Smith to act as agent.
2. Material – He had been materially misled by the words, acts and conduct of the Bank. Satisfied that Allan would not
have signed the second loan guarantee if he had known all the facts, Munroe found he was induced by misrepresentation
(failure to disclose facts) to sign the second agreement. In the circumstances, he is not liable for repayment of the second
agreement.
3. Relied upon – Would not have signed the agreement had he known there was change in collateral.

In this case silence is misrepresentation and the bank did have a duty to disclose b/c of exceptions below:
No duty to disclose EXCEPT:
Creditor must disclose to the guarantor any change that guarantor would not expect to exist (not up to guarantor to ask). In
this case guarantor did ask but did not wait for answer. There was a positive obligation on part of bank to disclose.
Silence can be treated as misrepresentation:
 Half truth – don’t tell the entire truth. Silence about half and that is misrepresentation b/c when you answer you
are representing that you are giving a complete answer.
 Actively Concealing the truth – Sales of house vendor placed scatter rugs over termite damage. Purchaser did
not ask is there termite damages and DF did not say there wasn’t but actively concealed it.
 After a Given statement Something changes – duty to disclose any changes after a statement has been given and
circumstances change.
 Contractual relationship requiring good faith you have duty to disclose – contract of insurance (utmost good
faith) when enter into insurance contract the person seeking insurance has duty to disclose. Cannot wait to be
asked the magic questions.
Remedy: recession. Which is everything he needs. On these facts you don't need tort. Just need innocent
misrepresentation.
Silence amounted to the implication that there was no change.

Exception to silence being a misrepresentation: if a true representation is followed by a change of circumstances prior to
agreement which renders the statement false, the representer has a duty to draw the change to the representee’s attention
(With v O’Flanagan)
 EXCEPTIONS TO THIS RULE ABOVE IN WREN

Universal Concerts Canada v Ryckman Amature Sports Society [1997] A.J. No.1228. (No general duty to disclose)
Facts: Universal Concerts (PL in an action for breach of lease contract, a concert promoter, in this case for shock
rocker Marilyn Manson (AKA Brian Hugh Warner), wants summary j [court by default wants to send to trial, but
if no triable issue then you don't have risk of trial or expense or delay.]
 Rydman Amateur Sports Society (DF), lessor of Calgary arena (Max Bell). Resists application).
 Def. agreed to lease arena to plaintiff to stage a Marilyn Manson concert at the Max Bell Arena and entered into a
written rental agreement.
 Prior to entering the contract, the plaintiff noted the 'controversial' nature of the band's performance.
 Public opposition to the concert began to mount and eventually the def. 'cancelled the concert.'
 Defendant's position in cancelling the concert was, inter alia, that Manson' promoters had a duty to disclose the nature
of the act.
Court grants summary j. as there are no genuine triable issues between the parties.
Default rule: no duty to disclose at default.

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"That mere silence as to anything which the other party might by proper diligence have discovered, and which is
open to his examination, is not fraudulent, unless a special trust or confidence exists between the parties, or be
implied from the circumstances of the case"
Comments:
 Memorandum of appellant really mocks DFs for delicacy.
 Pulled police reports, newspapers, tipping them back and gives you momentum
 Application successful

Whittington v Seale Hayne (1900), 82 LT 49


Facts: PL entered the lease on the faith of the lessor's statement that the premises were in a good sanitary condition. The
PL took possession and incurred various expenses. The PL invested in poultry stock, made improvement to the premises
and paid certain taxes. As well, of course he paid rent to the lessor. The premises were quite insanitary and the PL's
poultry perished as a result.
Issue: PL sued for rescission of the lease of the farm. Which expenses should be reimbursed in a rescission claim?
Holding:
 Can recover money that you spent that you were required to spend under the contract
 Any money spent on repairs until chickens perished is recoverable b/c it was pursuant to the lease that you had to
spend the money
 Cannot be compensated for chicken’s b/c that is damages
o Had contract been performed you could sell chickens at profit
 If Fraud then tort and you can claim damages in tort

Rainbow Industrial Caterers Ltd v Cdn National Railway Co, [1991] 3 SCR 3
Facts:
The Canadian National Railway Company ("CN") called for tenders for the catering of meals nationwide for its track
crews, from March 15, 1985 to March 14, 1986. It was estimated that 1,092,500 meals would be required.

The respondents are industrial caterers which operate as a single entity. I will refer to them together as "Rainbow". They
bid $4.94 per meal. Then CN stated that the number of meals required would be only 85% of the previous
estimate. Rainbow submitted a new bid of $5.02 per meal, and this was successful. It turned out that far fewer meals were
required; there was something like a 30% reduction. The contract was not a financial success for Rainbow. They suffered
a loss of over $1,000,000 by the time they terminated the contract on September 21, 1985, on thirty days' notice as
permitted by its terms.
Issue: What damages for misrepresentation are appropriate?
Analysis:
 There was a misrepresentation b/c CN underestimated the number of meals needed
 As reliance Rainbow entered into the contract and rainbow was losing money on the contract
 Award for entire loss, based on the assumption that but for the misrepresentation, the PL would not have entered the
contract at all
 PL to prove that it had entered into the contract b/c of negligent misrepresentation and establish loss
 DF to prove the contract would still have been made if a correct representation had been made, and since DF
failed to establish this the PL was entitled to recover all losses though unrelated to the misrepresentation
 But for rainbow in a losing contract with CN it would have been in a profitable contract. So in that scenario you look
at loss of profit as an opportunity lost.

Kupchak v Dayson Holdings LTD, (1965) 53 WWR 65 (Explain remedy of rescission and defenses to remedy of

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rescission)
Facts:
Palm Motel Ltd (owned a motel)
Kupchack (purchaser of shares in Palm Motel Ltd from Dayson)
Dayson Holdings (vendor of shares in Palm Motel Ltd)

1. Plaintiff Kupchak purchased the shares of the def. motel company


2. Plaintiff pays/secures purchase price for shares by:
 transferring two properties to vendor (known as the Haro St. property and North Vancouver property)
 paying some cash
 giving mortgages over motel land and chattels in favour of vendor for the balance of the purchase price [if Kupchack
doesn't pay what's owed Dayson has the hotel as pledged to them so Dayson has authority in law on default to sell
motel and apply proceeds motel to bring down debt.]
3. Two months later, plaintiff learns that representations by def. regarding hotel earnings were false and stopped making
payments under the mortgages
4. Lawyers for both sides exchanged communications
5. Subsequently, defendant dealt with the Haro St. property as follows:
 sold an undivided half interest;
 tore down the building; and
 put up a new apartment
6. Plaintiff continued to run the hotel, feeling they had no choice

TJ established Kupchaks had been induced by fraud to exchange their property for the Motel. Rescission not possible
so award of $28K.
Issue: Is the plaintiff entitled to rescission?
The DF cannot restore the PL to it's pre-contractual position.
 Changes to property are such that we can't restore so restitutio in integrum.
 A court may decline rescission when restitutio in integrum is impossible

Analysis:
 Condition of rescission: restoration of the DF to his precontract position so that no stress is placed on whether the
pursuer is so restored.
 TRADITIONAL VIEW: b/c fraud, rescission, accompanied by restitutio in integrum, is proper
o But a court of equity cannot give damages, and unless it can rescind the contract, can give no relief
 NOW: Courts must fix its eyes on the goal of doing "what is practically just", which depends on facts.
 Respondents may not bar rescission unless it is impractical or so unjust that it ought not to be imposed upon a guilty
party
 Equity has the power to remove inequities resulting from rescission and deficiencies in restitution by
compensation. Rescission is an equitable remedy and can order one to pay compensation to the other in order
to effect substantial restitution under a decree of rescission.
 Character of property has been changed so much it would be unjust to deprive respondents of the property and give
it to the appellants

Is Claim Barred by laches [unreasonable delay]:


 If a guilty party intends to allege that this victim has affirmed the contract or has been guilty of laches, he must plead
and prove those defences to rescission
 Per Clough: "so long as [victim of fraud] makes no election he retains the right to determine it either way, subject to
this, that if in the interval whilst he is deliberating, an innocent third party has acquired an interest in the property, or
if in consequence of his delay the position even of the wrong-doer is affected, it will preclude him from exercising
his right to rescind".
 Hals: "Affirmation of contract: defence… if after discovery of the whole of the material facts giving him a right to
avoid the contract, the representee has by word, act or conduct elected to adhere to it the representor has a complete
defence to any proceeding

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 Did appellants affirm the transaction by retaining the shares and remaining as directors of the company, by
continuing to manage the motel and by keeping up the payments on the first and second mortgages against the
company's property?
o Appellants could not divest themselves of shares, and the only person they could possibly appoint without
losing their right to rescind are the respondents.
o They were responsible for operating the business and could not abandon the operation without ensuring its
proper management
o Appellants were mitigating their loss

Analysis:
 Anytime someone has been fraudulent they CANNOT raise an equitable defence!
 "fraud unravels all". Restitutio in integrum is not a bar to rescission in case of fraud.

Problems with Pleading Fraud & Not proving it:


 Filed statement of claim and alleged fraud
o If you alleged fraud and failed to show fraud, you are facing a cost penalty
 Costs:
o In discretion of the court
o Default rule: successfully party gets costs from other side
 Party-party costs: partial indemnity (filing)
o Costs at discretion of the court
o Default rule: successful party gets costs from other side
o Not made whole
 Solicitor-client: full indem of reasonable costs

3. Representations and Terms

Leaf v International Galleries, [1950] 2 KB 86 (Court of Appeal of England and Wales)


Facts:
Leaf: purchaser of a painting which the vendor claimed was a Constable (PL)
International Galleries: vendor of the painting (DF)
 During contractual negotiations, DF represented the painting in question as done by Constable. This was also recited
in the contract as a term.
 Five years later, the PL decided to sell the painting and at that point, he was advised by Christies that it was a fake
 PL now seeks rescission only. He would like the purchase price back [why?? Why not sue for breach of contract
also!!, Also maybe negligence and fraud in tort]
Issue: Is the PL entitled to rescission?
HELD: Once a representation has become a contractual term, sufficient remedies are available at common law for beach
of contract and thus, the intervention of equity, with a rescission decree, is either unnecessary or inappropriate
Analysis:
Denning
 There was a mistake about the quality of the subject matter, because both parties believed the picture to be a
Constable, and that mistake was in one sense essential or fundamental (does not avoid contract)
 There was no mistake about the subject-matter of the sale/kind/substance/essence/error of substantial (different
than what was contracted for) (Mistake of law)
 Both parties have executed and performed obligations under contract (paid/given painting). This can be a bar.
o More strong in relation to land than sale of goods. But both can be problematic.
 Assuming condition: PL is barred b/c buyer accepted the goods in performance of the contract. The buyer took the
painting for 5 years and it is far too late for him to reject this picture for breach of any condition.

93
 Assume innocent misrepresentation: can obtain rescission after contract has been executed under innocent
misrepresentation
o Innocent misrepresentation is much less potent than a breach of condition
o Condition is a term of the most material character
o If a claim to reject for breach of condition is barred, it seems to me a fortiori that a claim to rescission on the
ground of innocent misrepresentation is also barred.
Application to Alberta:
In case, unable to claim breach of condition b/c of Sale of Good Act 1893. AB has similar SGA
o Under the act if you accept the painting in pursuance of the contract (or had goods a (long) period of time) then your
right to reject for breach of condition is downgraded to breach of warranty.
o Breach of warranty: can recover damages, do not treat contract as if it is at an end.
o Mr Leaf hung onto painting without complaint for 5 years so as per sale of goods act can only treat breach of
condition as breach of warranty
o Time starts to run within a reasonable time of getting the painting, regardless of not finding out 5 years later it was a
constable. He should have had his own appraisal done when he bought it
Comments:
o IF you lose on left hand side then you're also barred on right hand side
o Execution is a weakening bar. Less in the context of land.
o Absent fraud, your starting position is that execution is a bar and there are some cases to the contrary.

What if Mr leaf had sued for breach of term:


 Then you get damages to put you in place you would have been had it been performed
o Value of constible-85L
McCammus says: sometimes a striking difference in damages for negligence in tort vs breach of contract. In Tort,
Mr Leaf is entitled to be put in the position had the tort not been committed: gets 85L back (minus value of actual
painting). But in Contract: to be put in position had the contract been perform including loss of profit.

Dick Bentley Productions LTD v Harold Smith (Motors) LTD, [1965] 1 WLR 623
Facts: Mr Dick Bentley: PL, purchaser of a Bentley. Harold Smith: DF, vendor

"The car has only done 20,000 miles since it was fitted with a replacement engine and gearbox"
 This statement is false (not fraudulent) just untrue
 Statement made at time of contract
 Dick really likes car so he doesn't want to rescind the contract

Issue: Is there a breach of "warranty"


 We could argue pre-contractual misrepresentation but we can also argue term
 How do we determine what the statement was??
 Test to differentiate: would the innocent bystander convey it as a promise or as a statement of fact

Legal Test per Denning MR: If an intelligent bystander would reasonably infer that a warranty was intended that will
suffice.

 "if a representation is made in the course of dealings for a contract for the very purpose of inducing him to act on it
by entering into the contract. It is prima facie grounds for inferring that the representation was intended as a
warranty" [presumption can be rebutted]
o Statement was a promise if it was so intended

Oscar Chess Dick Bentley

 Non-professional vendor  Professional vendor

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 Passes on log-book which stated year of car  Stated a fact that should have been in his
to be a 1948 own knowledge
 No warranty based on reasonable bystander  It is a warranty based on a reasonable
test bystander test
 The statement is an innocent  Ended up with term aka warranty
misrepresentation  ~promising "term"
 ~stating


TJ : "Mr Smith had jumped to a conclusion and stated it was a fact. A fact that a buyer would act on." (O’Byrne
wishes he had said PROMISE) b/c we are on right side of board.
 PL could have pursued as LT side but he doesn't want rescission b/c be wants to keep the car
 Representations were not dishonest, no fraud.
SOLMAN
 Smith intended legally binding promise (a side promise) or warranty right in the main contract
 We know the car has been paid for and Mr Bently has the vehicle but it doesn't matter b/c Mr Bently isn't on left
hand side of board.

Heilbut, Symons & Co v Buckleton, [1913] AC 30 (HL)


Facts:
 Helibut (PL, appellant, rubber merchants)
 Helibut is selling share via intermediary Johnston (Liverpool manager). Johnson instructed by Helibut to obtain
applications for shares in Liverpool
 Buckleton has agent, Mr Wright
 PL is "trying to have it both ways"
 Not contested that Mr Johnston told the PL the DF's company was a rubber company.
 Prospectuses (documents about company) noted rubber trees
 Value of shares plummeted

Jury trial: jury found no fraud but breach of warranty that the company was a rubber company
 Lose on LT side
 Win on Right side breach of warranty

Issue: Did Johnson liable for precontractual misrepresentation? (at time of case the modern use of this term didn't exist).
At the time execution was a very strong bar for execution.
Holding: Appeal Allowed.
 Argument for LEFT SIDE – UMR (relied upon? Not really) the intermediary was reputable Co and was not very
important that it was a rubber Co. PL would have to go to innocent misrep (not option b/c execution strong bar to
rescission) or fraudulent misrep (does argue this unsucessfully).
 Also, restitutio in integrim impossible as well. The shares are not at the same value as they were at time of
purchase. So PL cannot restore same shares back as he purchased as another bar to rescission (especially in
context of fraud court can do what is practically just)
 Also suing RIGHT SIDE “promise or term” that this was rubber Co. Would intelligent bystander would
reasonably infer that a warranty was intended as promise? In this case no.
 Collateral contract option – pg 378 evident on principle and authority that there is a making of some other
contract. If you enter into A (purchase sale shares) I promise to you that this is a X (rubber company). Must show
intention to enter into a contract. Collateral contract where the sole effect is to add a term is suspect. No evidence
to support collateral contract, it was mere statement of fact (LEFT SIDE). Or in reply to question for info and
nothing more. Was rep of fact and rep upon which the main case of PL rested. Difficulty here that statement was
intended as promise. Do not want to bring term in through back door of collateral contract. No intention to do so

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here.

Moulton, Majority, says that strictly speaking the contracts in this case were not contracts of sale, as the DF was only an
agent of the rubber company and he was to undertake the necessary action to procure the shares for the PL.
 Parties are not liable for damages arising from their own innocent misrepresentations.
 Damages are only awarded for fraudulent or reckless misrepresentations, or misrepresentations that refer to a
material issue that fundamentally change the contract
 Innocent representations are only referred to as warranties if they have clearly been intended to be warranties by
the parties.

There are two situations in which a tort action might arise:


1. Misfortune arrives on you (you get rear-ended)
2. You're in a contract with them and negotiate or enter into contract: there you can negotiate your relationship more
and you can use contract law to decide what the scope of liability is

Torts can be involved but b/c parties know each other whether a tort action is permissible is something we can address
 As general proposition: it is sufficient to establish relationship by showing reliance by the representee was
foreseeable and reasonable on part of the representee.

On Left side we have a pre-contractual misrepresentation defect going to the formation.


On the Right we have a breach of promise with a defect going to performance
 Defect to performance b/c there is a breach of contract, you didn't do what you said you would do.

3. Statutory Reform
FAIR TRADING ACT, PAGE 392 CASEBOOK

Unfair practices
6(1) In this section, “material fact” means any information that would reasonably be expected to affect the decision of a
consumer to enter into a consumer transaction.
(1.1) It is an offence for a supplier to engage in an unfair practice.
(2) It is an unfair practice for a supplier, in a consumer transaction or a proposed consumer transaction,
(a) to exert undue pressure or influence on the consumer to enter into the consumer transaction;
(b) to take advantage of the consumer as a result of the consumer’s inability to understand the character, nature,
language or effect of the consumer transaction or any matter related to the transaction;
(c) to use exaggeration, innuendo or ambiguity as to a material fact with respect to the consumer transaction;

(3) It is an unfair practice for a supplier


(d) to make a representation that a consumer transaction involves or does not involve rights, remedies or
obligations that is different from the fact.

13(1) When a consumer


(a) has entered into a consumer transaction, and
(b) in respect of that consumer transaction, has suffered damage or loss due to an unfair practice,

(2) In an action under this section, the Court of Queen’s Bench may
(b) award damages for damage or loss suffered;
(c) award punitive or exemplary damages;
(d) make an order for
(i) specific performance of the consumer transaction,
(ii) restitution of property or funds, or
(iii) rescission of the consumer transaction;
(e) grant an order in the nature of an injunction restraining the supplier from engaging in the unfair
practice;
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(f) make any directions and grant any other relief the Court considers proper.

(3) In determining whether to grant any relief under this section and the nature and extent of the relief, the Court of
Queen’s Bench must consider whether the consumer made a reasonable effort to minimize any damage resulting from the
unfair practice and to resolve the dispute with the supplier before commencing the action in the Court.

 Must be consumer transaction


 For misrepresentation you can't get damages, but here legislation permits damages.
 At common law the restrictive principles are set aside for consumer transaction caught by this legislation
 Court has lots of flexibility to award damages, rescind, etc…

5. Concurrent Liability in Contract and Tort

Sodd Corp v N Tessis (1977), 17 OR (2d) 158


Facts:
 DF (Sodd Corp, chartered accountant and licensed trustee in bankruptcy)
 Advise given for how to calculate price by DF
 Entire Agreement Clause: "Tenders are accepted on basis that they have on the basis that the Purchaser has inspected
the asset and title thereto, and no warranty or condition is expressed or can be implied as to designation, classification,
quality or condition or in any manner whatsoever"
 PL is professional accountant so we can infer that they were relying on … reliance was reasonable and foreseeable

Holding:
LEFT SIDE – There is a special relationship. DF professional accountant and knew or ought to have known that the PL
was relying on him (RELIANCE WAS REASONABLE AND FORESEEABLE). We have pre-contractual negligent misrep
which induced PL to submit his tender (formation of contract)
 Tessis was liable both in contract and in tort. He held that the relationship of Tessis to Sodd as an accountant was
sufficient to create a special relationship: he had a professional responsibility and therefore a duty of care. The
valuation was thus a negligent misrepresentation intended to be acted upon, creates liability in contract & tort.

RIGHT SIDE – Is statement about the “value of inventory” a term or promise. Would innocent bystander believe that
statement was intended to be a promise? Yes b/c the way to “value the inventory”. The warranty or promise is “how you
calculate inventory” is actually in a collateral contract. The exemption clause is in the main contract for buying and selling
inventory (judicial slight of hand) the court held there is a main contract with exclusion of liability clause. The collateral
contract contains one term “this is how to value inventory” and there is no exclusion of liability clause b/c it only has the
one term. Court held that the representation as to the value of the goods was a warranty & b/c the trustee is changing the
context when he answered the question of how to value inventory and as such waiving the exclusion of liability clause.
Regarding the exemption claus, Lacourcière says that the exemption clause does not include negligent misrepresentation.
Because it is not included specifically, the clause will be interpreted contra proferentem against the person who drafted the
agreement.
Can be used to address relationship pre-emptively (compared to being rear ended by a stranger with no contractual context
for relationship.
Comments:
Left side
 Defect going to contract with remedies in context of contract AND in tort.

Right side:
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 This is how to value inventory. As a term?
 Using the Denning Test (intelligent bystander) … yes the PL could have reasonably inferred that it was a
warranty or a promise.
 This can be either a defect going to formation and/or performance.
o That statement: this is how you value inventory is also negligent.
 When you see entire agreement (exclusion of liability) clause, it may not cover everything

BC Hydro v BG Checo Ltd


Facts:
Nov/82: Hydro called for tenders
Dec/82: BG inspected area by helicopter – assumed that clearing process that had begun would be completed by Hydro
Feb/83: BG’s tender was accepted whereby BG contracted to construct 130 towers and install insulators, hardware, and
conductors over 42 kilometers of right of way.
SUBSEQUENTLY:
• Hydro did not complete clearing the right of way
• “dirty” condition of right of way caused BG loss
• BG sues for negligent misrepresentation or, alternatively, breach of contract. It later amended its s/c to include fraud as it
emerged Hydro knew if problems with right of way clearing and how it would negatively impact the successful tenderer.

II. The Contract


Cl 2.03 – It shall be the Tender’s responsibility to inform himself of all aspects of the work and no claim will be
considered… for any misunderstanding. [wide sweeping clause]
Cl 404 – Contractor shall inspect and examine site… contractor shall be deemed to have satisfied himself as to correctness
and sufficiency of his tender…
Cl 6.01 – Clearing of right-of-way… has been carried out by others
Issue: Can BC sue in both contract and tort regarding right-of-way?
Holding: Appeal dismissed.
Rule of construction – interpret contract as a whole and construe based are parties intentions and in this context try to
reconcile terms. Cl 6 says clearing of right of way by others (Stands on own) & CL 4 tender should inspect site and put risk
on tenderer (General clauses apply generally except in relation to clauses that stand on own).
 Under contract hydro has obligation to clear right of way. This is not negated by broader general clauses which puts
misunderstanding on PL

What should BG be able to recover: Court says BG CAN recover for additional overhead for the work and recover its
costs for doing the work. Does not want to give loss of profit on this. If contract performed as agreed and BC would not
have been required to do extra work and would have avoided certain overhead. BG not entitled to profit on the cost of
clearing right of way b/c this would have put BG in better position had the contract been performed. They never bargained
for profit on this clearing work.
 Contract: Loss of profit: Opportunity Cost – This means other employees cannot work on other projects that are
profitable.
o IF BG wasn’t clearing way on this project it would be making profit on another project. Could possibly get
loss of profit as opportunity cost.
o BG never bargained for profit on clearing – BG is in business to make money not donate services to BC
Gov’t.
o BG doesn’t bargain for profit for clearing on right of way b/c it wasn’t supposed to be doing this work. If
they knew they would have had to do this work they would have bargained for profit.
 TORT: Loss of Profit – SCC allowed loss profit for clearing work (BUT not in contract). This was negligent
misrep that induced BG to enter into contract. Entitled to position would have been in had tort not occurred. They
would have likely included clearing in scope of work and bid more. SCC says BG would have just bid more and

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should be compensated for all reasonably foreseeable loss. BG would have increased bid to include loss of profit for
the clearing work.

La Forest and McLachlin, Majority, decide that they can sue in both causes of action, and that there are different
remedies for both actions because the law should allow wronged plaintiffs to recover in any way possible.
 In the contract action, the goal is to put the plaintiff in the position that they would have been in if the contract was
performed.
 In the negligence action the damages could amount to any loss that reasonably stemmed from the negligence, as the
goal is to put the plaintiff in the place they would have been in if the representation never happened.
They state that a tort action is only disallowed if it is explicitly set out that this is the case in the contract. In this case, the
contract did not limit the BC Hydro's duty. Therefore, they have the ability to sue in both, but this case needs to be sent back
to trial to determine the damages in tort.
 If you contracted out of tort action you cannot pursue it, which did not happen in this case.

SCC references: Three situations that may arise when contract and tort arise at the same time:
1. Contract btw parties increases standard of care in tort
a. A contract B to deliver widgets (unqualified promise). In contract if A does not deliver than it is breach in
contract for failure to deliver for ANY reason
b. In tort we hold the person to the standard of what is reasonable. Contract action is strongest action but
always sue in court just in case.
2. Contract lowers the duty that you would owe at common law pursuant to tort b/c of (exemption clause)
exclusion of liability clause
a. Contract could limit what PL can do going forward they may nullify the court duty
b. SCC states don’t sue in court b/c little reason to sue in court b/c not going to succeed in tort, but the
exclusion clause may not stick b/c contrary to public policy or invalid.
3. Contract and tort are co-extensive
a. Common calling case – situation involving services available to public which require skill. Doctors,
Lawyers, Vets. The standard of what you have to do in contract and tort are the same. Meet standard of
reasonably competent “Lawyer, Doctor, Vet”.
Sue in both contract and tort when matter goes to trial in case contract suit fails or vice versa.
They also state that the damages for breach of contract are to put the party in the position it would have been in had the
contract been completed.

6. Parol Evidence (no cases)


 Parol Evidence Rule: prohibits the addition of evidence that adds to or varies the contract but there are tons of
exceptions.

7. Classification of Terms (right side of board)

 Normally we look at a term and look to see if it is a warranty OR condition

Leaf: breach of condition gives right to reject unless a reasonable amount of time has passed, in which case we say PL has
accepted the goods so breach of condition is just breach of warranty.
 Provision of services over time, if there is a breach of condition then treat it as if contract is at an end but you can
get damages

Repudiation in this area of law: party not at fault is treating contract at an end
 Courts call this rescind sometimes which is NOT CORREST
 Rescissio : left hand side restoring parties to original state
 DO not say rescission on RT hand side only REPUDIATION

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Prior to Hong Kong:
 Term or warranty "does the term in question go to the root of the contract (condition), was innocent party deprived
of substantial the whole contract (condition)".
 Read in light of contract and made that determination as a judge
 DO not look at what happened
 Look at contract at time of formation

Hong Kong Fir Shipping Co Ltd v Kawasaski Kisen Kaisha Ltd, [1962] 2 QB 26
Facts: Hong Kong Fir Co (PL, owner of vessel); Kawasaki (DF, charterers)

1. The contract provided for a 24 month charter. Other provisions include:


a. Cl 3: That owners would maintain the ship "in a thoroughly efficient state in hull and machinery during
service."
b. This is a term going to seaworthiness
2. Timeline
Feb 13/57: ship delivered at Liverpool, complete with an undermanned and incompetent engine-room staff -
despite owner's knowledge that ship's machinery was old and needed a better crew
o Ship sales to Osaka but was off for about 5 weeks due to the need for repair engines cause by the staff
May 25/57: Ship arrives in Osaka in very bad shape due to engine room staff incompetence. Ship needs 15 weeks of
repair to make it seaworthy
June 6/57: charterers purported to "repudiate"
September 11/57: charters again purport to "repudiate"
Sept 15/57: ship is seaworthy and has an efficient and adequate engine room staff

Per Trial Judge: There was a breach of the seaworthiness term, but in June there were no reasonable grounds for
concluding that the PL could not make the ship seaworthy by mid-Sept at worst. TJ rejected the DF"s contention that it
was entitled to repudiate.
Issue: is there a beach of term such that the charterers can "repudiate"** the contract or are they liable for wrongful
repudiation?
 On the one hand, the ship was off for a total of about 5 months and had been used for about 3 months
 On the other hand, there are still 17 months left on the charter

** Per McCamus, the term repudiation "is used to refer to a severe breach of contract; or, alternatively, to the election if
the party not at fault to treat the contract as discharged by the breach".

 Seaworthiness Can be breached in large and small terms. Breach of same term but big difference in results.
 Courts: introduced the helpful idea of an innominate term
 Was breach sufficient to provide repudiation?
 Must distinguish between "important" terms… means that it is so important that if not performed that the DF is
released from the contract if PL doesn't perform.
 From outset we have "conditions" and "warranties"
o It is a condition of a leaf contract: painting is a constable… it is a promise. That is a "condition" of the
contract in the traditional sense
o Every breach of term goes to the root of the contract
 "seaworthiness": historically in abstractions courts would look at a term and ask "is it a condition or a warranty".
You make that determination in abstraction based on what parties intended when the contract was form.
Seaworthiness in abstraction is a "condition" under the old system, it is very important but it can be breached in a
big or small way (i.e. fixable in 20 minutes or where ship sinks).
 Court tries to focus to the event to which the event gave rise and asks if that was a severe or light event and then
classifies the term as "warranty-like" or "condition-like".
 Court introduces: innominate term
o If court decides something is innominate term then you don't classify it as a condition or warranty and then
court looks at severity of event and looks at what happens as a result of the breach

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 Warranty-like innominate term: boat needs fixing for 1 day
 Condition-like innominate term: boat floating at sea for days on end
Comments:
 RESPONSIBLE FOR MITIGATING DAMAGES: If you go get a new ship from the market, then you get the
difference in cost between the ship you had and the new ship you rent
 Tritel: when no loss, the courts will try to protect the owner… "Contracts are meant to be performed and not avoided
according to the whims of market fluctuation".
 Owners are on receiving end b/c of wrongful repudiation
 Owners must mitigate, so they must find another charterer and they will likely be able to find party at lower rate
than what they charged Kawaski so Kawaski is liable for difference
 Charter party sued for breach of contract by owners but does it give them right to repudiate? Charter owners said
yes…. But owners then sue charterers for breach of contract b./c they walked from a contract they weren’t entitled to
walk away from: trial and CA agree.
o In wrongful repudiation they must mitigate and get replacement charter party

In T5 Case: ABCA reviews Hong Kong Fir and says that accepted test pre-Hong Kong: Whether the term went to "the
root of the contract", otherwise it is a warranty. You can repudiate and get damages or you can just get damages as
innocent party.
TEST: Hong Kong Fir: innominate term: assuming the term is innominate then innocent party will be discharged if the
occurrence of the event deprives the party of substantially the whole benefit then the term is condition-like.
Per HongKong: it is the happening of the event and not that the even is a result of contractual obligations.
 It is the event itself is relieves you because the event is so large. This also ties into idea of frustration.

CLASSIFICATION OF TERMS
1. Per the Alberta C.A. in First City Trust Co. v. Triple Five Corp. (1989), the traditionally accepted test for distinguishing
a condition from a warranty, pre- Hong Kong Fir, is as follows:
 The question was said to be whether, in the later words of Lord Ellenborough in Davidson v. Gwynne in 1810, the
term and its nonperformance went to the "whole root and consideration" of the contract. This expression "the root of
the contract," was generally accepted as the basis of the distinction between conditions an other, lesser terms, in
particular warranties.

2. Breach of condition would allow the innocent party to repudiate and/or seek damages. Breach of warranty would allow
the innocent party only to seek damages.

3. Under the pre Hong Kong scheme, breach of term defined to be a condition triggers the right to repudiate, even if the
event caused by the breach is minor.

4. Hong Kong Fir seeks to mitigate the potential harshness and formulaic quality of the old scheme by introducing a third
possibility, namely the innominate term. Assuming the term involved is an innominate term, the innocent party will be
discharged from further performance under the contract if the answer to the
following test is positive: does the occurrence of the event deprive the party who has further undertakings still to perform
of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain
as the consideration for performing those undertakings.

5. Per Hong Kong Fir, "It is the happening of the event and not the fact that the event was the result of breach by one party
of his contractual obligations that relieved the other party from further performance of his obligations."

6. If the `depriving' event occurs due to breach by one party, that party is in breach of contract.

7. If the event occurs due to no one's fault, the contract may be frustrated.
Per Fridman:
o The key to both the understanding and the application of the doctrine of frustration in modern times is the idea

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of a radical change in the contractual obligation, arising from unforeseen circumstances in respect of which no
prior agreement has been reached, those circumstances having come about without default by either party.
[example: Taylor v. Caldwell (1863), 3 B. & S. 826 (Q.B.)]

8. According to Alta. C.A. in T5, Hong Kong Fir does not replace the warranty/condition distinction but is additional to it.

9. Per ABCA in T5 , approach the issue of classification in this way:

STEP ONE: apply the traditional condition/warranty test as articulated by Bowen L.J. in
Bentsen as ‘a starting point’:
There is no way of deciding that question except by looking at the contract in light of the surrounding circumstances, and
then making up one's mind whether the intention of the parties, as gathered from the instrument itself, will best be carried
out by treating the promise as a warranty sounding only in damages, or as a condition precedent [really just condition
"precedent not needed, not contingent agreements] by the failure to perform which the other party is relieved of his
liability [to perform]).

STEP TWO: include consideration of the commercial setting when assessing surrounding circumstances [such as, per
Reardon, the ‘genesis of the transaction, the background, the context, the market in which the parties are operating’]

STEP THREE: if intent thus far not determined, “then the basis for seeking out that intent should be, as put forward by
Hong Kong Fir, an assessment of the gravity of the event to which the breach gave rise.

10. Keep in mind when applying the intent tests that:


A. even where the breach of a term has produced a minor event, it can be treated as a breach of a condition. See
Schuler quoting Bettini: "Parties may think some matter, apparently of very little importance, essential; and if they
sufficiently express an intention to make the literal fulfilment of such a thing a condition precedent, it will be one."
a. *making it a condition of the contract that the potatoes be delivered with little blue bows.
b. If it shines through in the contract that the blue bows matter (you are allowed to contract into an unreasonable
contract), then it can be treated as at an end.
B. common sense has a role to play. Per court in Schuler, using the word condition in the contract may be enough to
establish this intention but not conclusively. "The fact that a particular construction leads to a very unreasonable
result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can
have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly
clear."
a. Common sense tells us, how can the blue bow possibly matter. But if intentions are expressed with specific
intentions then the court will respect the contract.

Frustration
 Performance becomes impossible:
 RIGHT SIDE: Party claiming frustration must show the event or change of circumstances
1. Dramatic and unforeseen
2. Matter neither party had assumed the risk of occurring
3. Arose without being the fault of either party
4. Makes performance not possible or legal
 EX: guy leased farm and under contract he has land but flooding makes ploughing impossible.
o Court: says that the leasee is liable b/c promise to plough is unconditional
 EX: tailor decision 1863: performer leases a concert hall and before it happens it burns to the ground
o Court: frustrated b/c loss and destruction of music hall defeated purpose of hall and risk hadn't been allocated
to landlord.
 EX: Leaf: court classified the mistake as "an error going to quality", so usually that's not enough to trigger law of
mistake. Air of Quality goes to the identify so most commentary says law of mistake should not apply.

Wickman 449

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Facts: agreement so wickmann sold exclusively Shuler products so Shulter wants Wickmann to take this seriously.
449: c7b "it shall be a condition of this agreement that Wickmann should send a representative … once per week… a) if
ther other has made a failure of obligations and shall remedy in 60 days.

Wickmann's staff have failed to send representatives on a few occassions (but only a few). But if it's a conditon then
Shuler can treat it as if the contract is at an end.
Analysis:
Lord Reid, Majority, states that simply calling something a "condition" does not make its breach necessarily result in a
right of rescission. In this case, it is clear that it would be almost practically impossible for Wickman to successfully
complete all of the visits – what if someone was sick, etc. There was also another clause in the contract that said Schuler
would inform the distributor of material breaches and demand a remedy, which did not occur here. The use of the word
"condition" is strong argument for that it is a condition but we must look at broader picture
o EX: what if someone died and that's why the representative didn't make the visit, that's unreasonable
o Any breach of 7 is a material breach under 11. If a sales call is missed then Wickman would have to improve
his system and remedy.
Comments:
 Simply calling something a "condition" in the contract itself does not mean that its breach will lead to a right of
repudiation - you must look at the event as per Hong Kong Fir Shipping Co. Ltd. v Kawasaki Kisen Kaisha Ltd..
 When there is a breach of one clause in a contract, the breach must be read in context with the entire contract to
decide if rescission is in order.

8. The Principle of Good Faith and the Duty of Honest Performance

Jo Robertson (past NSCA), author of NAV case: said implied term cannot override an express term.

Bhasin
Facts: you know it, I know it, we all know it.
Court: Principle of good faith can be implied, regardless of entire agreement clause

CHAPTER VIII. STANDARD FORM CONTRACTS AND EXCLUSION CLAUSES 467


1. Introduction 467
Protecting Vulnerability Party
Unanimous decision on how to approach exclusion clauses (with some SKO add-ons)
1. Is there a breach of contract (here, is there a breach of Contract A)?
 Reason need breach is b/c without you don’t rely on exclusion clause
2. If yes, is the exclusion clause at issue part of the contract? (SKO)
 If exclusion clause not part of contract it cannot provide a defence
3. If yes, does the exclusion clause apply to the circumstances as a matter of interpretation? (depends on parties’
intentions)
 Look at clause and ask whether it applies to the situation or applies to something else.
4. If yes, is the exclusion clause unconscionable at the time the contract was made (versus at time of breach)
 Still chance (small) that clause will not be followed by court if the exclusion clause was unconscionable
at time contract was made. Something wrong at time of formation such that it vitiates the exclusion clause
applying.
i. this might arise out of situation s of unequal bargaining power
ii. this might arise out of policy considerations arising from relevant legislation like the
Transportation Act.
5. Assuming validity, is there any overriding public policy that would justify the court’s refusal to enforce it?

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Undue Influence – both parties decided to enter into the contract. If one party limited in exercising their discretion.
Operates in two spheres:
1. Actual Pressure – one party exerted unfair influence over the other. The one who seeks release must show that
the influence existed, it was used and resulted in impugned contract.
a. Ex: Elderly person influence to sign over estate in return for care.
2. Presumed based on special relationship – sometimes there is relationship that gives rise to presumption that one
side can unfairly manipulate another, Contract btw lawyer client, and doctor-patient. Court assume undue
influence.
a. Goodman – SCC potential for domination inherent in relationship, baker-customer do not import
presumption. The more powerful party must show NO undue influence.

2. Implied Terms 468

Machtinger v Hoj Industries Ltd , [1992] 1 SCR 986. pg 469


Facts: Both appellants began working for HOJ Industries, a car dealer, in 1978, and were discharged in 1985 without cause..
Each had entered into a contract for employment for an indefinite period, which contained a clause allowing the respondent
to terminate his employment without cause, in Machtinger's case without notice and in Lefebvre's case on two weeks' notice.
Under the provincial Employment Standards Act the appellants were entitled to a minimum notice period of four weeks.
After they were dismissed, the respondent paid each of them the equivalent of four weeks' salary. The appellants brought
action for wrongful dismissal and the trial judge found that they were entitled to reasonable notice of termination, and that
the period of reasonable notice for Machtinger was 7 months and for Lefebvre, 7½ months, however this was overturned by
the Court of Appeal.
Issue: In the absence of a legally enforceable term providing for notice on termination, on what basis is a court to imply a
notice period?
Holding: Appeal allowed, lower court judgment restored.
McLachlin

Categories of implied terms:


1. Terms implied by fact (intention at time of contract formation);
o Sub category: As necessary to give business efficacy to a contract (terms that the parties would
obviously have assumed. Implied on basis of presumed intention)
2. Terms implied by law (no intention required); and
o Sub category: “As legal incidents of a practical class or kind of contract, the nature and content of which
have to be largely determined by implication”
3. Terms implied by custom and usage (must be evidence to support an inference that the parties to the contract would
have understood such a custom or usage to be applicable; presumed intention)

TEST for applying a term as a matter of LAW is necessity


 whether in the world in which we live today it is a necessary condition of the relation
 EX: while a tenancy agreement could continue with a term that the landlord in in charge of the maintenance of
common areas of the building, it is necessary in practical sense to the fair functioning of the agreement, given the
relationship between the parties.

Holding that the employer had a legal obligation to provide reasonable notice and that this can only be displaced by an
express contrary agreement, the court imposed a reasonable term of notification on HOJ; HOJ industries.
Ratio: Terms can be implied by the court based on:
1. custom or usage;
2. if necessary for business efficacy (implied by law and necessity test);
3. legal incidents of a particular class of contract (implied by law and necessity test).

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3. Judicial Control of Standard Form Contracts and Exclusion Clauses
(a) Introduction
(b) Incorporation 484
(i) Unsigned Document 484
Thornton v Shoe Lane Parking Ltd. [1971] Court of Appeal of England and Wales, pg 484
Facts: Thornton parked his car in the Shoe Lane parking lot while he was going to the BBC. He received a ticket from an
automatic machine. On the ticket was printed the time of issue, and a statement that the ticket is issued subject to the
conditions posted in the parking lot. These conditions were posted in the office where you had to pay upon departure, and on
the wall opposite the ticket machine, however the poster was not very prominent. The conditions included exempting Shoe
Lane from any liability for injury caused to the customer while their car was in the parking building. Thornton was seriously
injured when placing goods in his trunk before leaving by another car due to the DF’s negligence. At trial the judge found that
Thornton was 50% responsible for the act, but awarded him 50% damages from Shoe Lane, which they appealed.

Exempting condition states, inter alia, that defendants shall not be responsible for any “ injury to the Customer… occurring
when the Customer’s motor vehicle is in the Parkade Building howsoever that loss, mis-delivery, damage or injury shall be
caused…”
Issue: Is the exempting condition, posted in the garage, part of the contract or did it come too late?
Does the fact that the ticket was dispensed automatically matter?
Holding: By the time Thorton gets the ticket the excepting clause comes too late, PL not bound by exemption clause.

APPROACH A: TICKET IS DELIVERED BY AN ATTENDANT (TRADITIONAL ANALYSIS)


 Offer: made by proprietor by issuing ticket via attendant
 Acceptance: given by customer retaining ticket without objection
 Per Denning M.R.: “The Customer is bound by the exempting condition if he knows that the ticket is issued subject
to it; or if the company did what was reasonably sufficient to give him notice of it.” Can be bound by exclusion of
liability b/c they have a chance to reject the offer after they read it (not option with automatic machine).
 A fiction that anyone would read the ticket, then ask for a refund because then he would miss his boat

APPROACH B: TICKET IS DELIVERED BY AN AUTOMATIC MACHINE


 Offer: made by proprietor who holds out the machine as ready to receive money
 Acceptance: given by customer when the customer puts his or her money into the slot
 Per Denning M.R.: “The terms of the offer are contained on the notice placed on or near machine stating what is
offered for the money. The customer is bound by those terms as long as they are sufficiently brought to his notice
beforehand. He is not bound by the terms printed on the ticket if they differ from the notice, because the ticket comes
too late.” Exclusion of liability clause cannot bind or be part of the contract b/c not close to the machine.

 The ticket is simply a receipt showing that the contract had been formed. Further, Shoe Lane did not do what was
reasonably sufficient to give notice of the conditions to Thornton – a driver would have to wander around the parking
lot to discover them, which is more than can be asked of a sensible patron.
 There were signs by machine where ticket bought but states “car parked at owner’s risk” … this would only apply
damage of vehicle this would not affect the PL’s personal injury.
 Customer bound if aware of exemptions at time of purchase or reasonable notice brought to his attention. Exemption
condition not part of contract and cannot provide defense for DF.

(ii) Signed Documents 498


Traditional view: one party’s signature to a document containing terms established that party’s assent to those terms, in
the absence of fraud or misrepresentation.
Defense of relying on Exemption Clause (Tilden and clarified in Karoll)
 Fraud
 Misrepresentation – say oh there is nothing to worry about just sign it.
 Non est factum – what you sign is completely different than the document you thought you were signing.
o Limited defense – thought you were buying land and in fact you were buying shares.
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 Where the other party knew, or had reason to know of the other party’s mistake as to term (MUST take reasonable
steps to bring term to attention)

Relevant factors to consider in determining whether there was a duty to take reasonable steps to advise of an
exclusion or waiver include: (NOT GENERAL PROPOSITION or BROADLY) (Karoll)
1. the effect of the clause in relation to the nature of the contract;
2. the length and format of the contract; and
3. the time available for reading and understanding it.

Tilden Rent-A-Car Co v Clendenning (1987) ONCA 498 (Qualified traditional position on signing documents)
Facts: Mr Clendenning (DF) signed contract without reading it.
Tilden (PL) wants to rely on exclusions to make the DF liable for damages.
Attendant asked if Clendenning wanted extra insurance for full total coverage and he says yes. She knows Clendenning has
not read the contract. There was an exclusion clause that exempted coverage in certain conditions:
Excepting condition states:
“… customer shall be fully liable for all collision damage if vehicle is used… in violation of any of the provisions of this
rental agreement or off highways serviced by federal, provincial, or municipal governments…”
 This means no insurance in parking lot at a mall (they might mean no off-roading?)
& In small font the following:
“… customer agrees vehicle will not be operated… [b]y any person who has drunk or consumed any intoxicating liquor,
whatever be the quantity.”
 Small font is hard to rely on and this is a problem for enforceability
Issue: Is defendant liable for damage to vehicle by reason of contract’s exclusionary provision?
Holding: The exclusion clause conflicts with the total coverage clause. Further the clause is onerous as it is overbroad – a
driver would not be covered if they had a single glass of wine or if they were driving 1km/h over the speed limit. Tilden
argues that under L'Estrange as Clendenning signed the contract he was bound (even if he did not read it except in fraud or
misrep).
 This is rejected as the clerk was aware he had not read the contract and the purpose of signing is to manifest consent
(consensus ad idem).
 Tilden cannot rely on provisions of the contract which it had no reason to believe were being assented by the
other contracting party
 distinction between the consumer and commercial spheres: a signature in the commercial sphere creates the
presumption of an agreement whereas in the consumer sphere is not that of consensus; generally the signing of a
contract is hurried and informal. Sufficiency of notice and proportionality trump the notion that the signature is
binding.
 The party offering the clause has to draw to the attention of other side unusual or onerous terms when the party
operating the contract knows that the signature doesn’t not represent the signers consent.

Lacourcière, in the dissent, held that the contract was not difficult to read (the terms clearly printed on the reverse) and was
brought to the customer's attention clearly, fulfilling sufficiency of notice. While agreeing that the clause is strict, he held that
it was economically efficient as insurance companies set their rates based on risk and as other rental companies have a similar
approach it was not an unusual clause. Citing New Zealand Shipping Co. Ltd. v A.M. Satterthwaite & Co. Ltd., he finds that
the court should give effect to the intent of a commercial document. With this he concludes the contract was binding.

Defense of relying on Exemption Clause


 Fraud
 Misrepresentation – say oh there is nothing to worry about just sign it.
 Non est factum – what you sign is completely different than the document you thought you were signing.
o Limited defense – thought you were buying land and in fact you were buying shares.
 Where the other party knew or had reason to know of the other party’s mistake as to term
Ratio:
 You cannot rely on a provision of a contract when the party offering the provision had no reason to believe
was being assented by the other contracting party. If the party seeking to enforce the document knew or had
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reason to know ot the other’s misake the document should not be enforced.
 If a term of the contract is particularly onerous, the party looking to enforce that term must prove the other party was
aware of the term through either their reading of the specific term or through direct notification of the specific term..

Karroll v Silver Star Mountain Resorts Ltd, 1988 BSSC 502


Facts: Karroll (PL) broke leg in downhill skiing race and alleges negligence. Silver Star (DF) relies on terms of release as
defense.
She went to a booth after signing in to fill out forms and get her bid. She thought she was agreeing to waive liability if she fell
and hurt herself.
Prior to participating in the race, she had signed a one-page document headed "Release and Indemnity-Please Read
Carefully". The heading was in capital letters. In signing the release, Karroll agreed to assume risks inherent in participating
in the race and release the resort and its agents from all claims resulting from personal injury arising out of participation in the
race. She did not recall whether she read the heading at the top of the form, and asserted she did not read the body of the
document. She acknowledged she could have read the document in one or two minutes, but was unable to recall if she was in
fact given an opportunity to take the time to read it.
 Compared to contract in Tilden (would have had to take a day off work to read it) BUT this was a short contract that
was clear concise and easy to understand.
Issue: is plaintiff bound by terms of the release?
Holding: McLachlin J(BCSC)

 It is was not a general principle of contract law that the party offering the exclusion of liability must take reasonable
steps to bring it to the other party’s attention. It is a limited principle, applicable only in special circumstances.

1) Start with proposition that “where a party has signed a written agreement it is immaterial to the question of his
liability under it that he has not read it and does not know its contents” (L’Estrange)
2) EXCEPTIONS:
a. Where the document is signed “in circumstances which made it not her act” (non est factum)
b. Agreement has been induced by fraud or misrepresentation
c. (1) that in the circumstances a reasonable person would have known that she did not intent to agree to the
release she signed; and (2) that in these circumstances the defendants failed to take reasonable steps to bring
the content of the release to her attention
i. Factors to determine if duty to take steps to advise of an exclusion:
1. Exclusion of liability is inconsistent with purpose of contract
2. Absence of opportunity to read and understand
3. Length/small print

Commercial context: can assume the party signing intended to be doubt/no need for presenting party to bring exclusion of
liability to the attention of the signing party nor advise him to read the document

Application:
 The burden was on Karroll to show fraud or misrepresentation, or that Silver Star knew or had reason to know she
was mistaken as to terms of the document. Relied on L-Estrange case saying if you sign you are bound in ordinary
course”.
 Karroll signed the release knowing it was a legal document affecting her rights.
 The release was short, easy to read and headed in capital letters.
 In the circumstances, a reasonable person in would not conclude that Karroll was not agreeing to terms of the release.
In any event, Silver Star took reasonable steps to discharge any obligation to bring the contents of the release to
Karroll's attention.
(c) Strict Construction 509
Exclusion clauses that are ambiguous are construed contra proferendum

 It is well established when contract drafted by one party any ambiguities will be construed against the party
offering the term and in favour of the other, contra proferendum
 Denning, provision that seller gave no warranty as to description of goods and did not protect of breach of
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condition.
o Warranty means “warranty” or subsidiary breach that only gives rise to damages.
o Contra Proferendum – construe against party drafting so warranty is vague and this means it will only be
construed as “warranty” in terms of exclusion clause

(d) Fundamental Breach 512


Denning, Fundamental breach means “If the offering party of exclusion clause commits fundamental breach going to root
of contract they cannot by operation of the contract rely on that clause

 NOT THE LAW… historically followed in Canada, But do NOT Follow now.
 House of Lords – NOT THE LAW IN ENGLAND
What is fundamental breach?
Per Lord Denning: when a party breaches its contract it a fundamental way then, by operation of law, that party cannot
rely on an exclusion clause in its favour (Karsales). Fundamental breach includes the notion that one party, through
breach, has deprived the other party of substantially the whole benefit intended under their contract (per Lord Diplock
in Photo Productions Ltd v Securicor Transport Ltd [1980] AC 827 at 849, cited by Wilson J in Hunter Engineering Co v
Syncrude Canada Ltd, [1989] 1 SCR 426, 1989 CanLII 129 (SCC) at para 137.) Rejected by House of Lords
1. The Supreme Court of Canada in Beaufort Realites v Chomedey Aluminum [1980] 2 SCR 718 rejected Lord
Denning’s operation of law approach to fundamental breach because that approach was divorced from an enquiry
regarding the parties’ actual intentions. This would infringe freedom of contract.
2. In Hunter, the SCC concurred that the reach of an exclusion clause depended on the parties’ intentions, but was
evenly divided as to when, on an exceptional basis, the court should not give effect to the exclusion clause in
question. Responses in Hunter:
Dickson CJ concluded that the notion of fundamental breach was unhelpful and should simply be replaced with an
enquiry going to whether the clause in question was unconscionable, as when there is inequality between the parties.
This reference to unconscionability, regrettably left undefined, appears to invoke the classic contract law doctrine
whereby courts set aside a contract based on procedural inequality and substantive unfairness. [Courts are to
measure the enforceability of the exclusion clause as time of formation of the contract.] For more on unconscionability,
see Downer v Pitcher 1017 NLCA 13 – TBA. Concerned with Unconscionability at time of formation, no place for
fundamental breach.
Wilson J (with L’Heureux-Dube J concurring) would preserve a role for fundamental breached as a contained trigger.
Wilson J said her enquiry as to the enforceability of the exclusion clause would take place with reference to what actually
happened, provided that a fundamental breach had occurred. Per Wilson J, there is a “virtue in a residual power residing
in the court to withhold its assistance on policy grounds in appropriate circumstances.” Note that Wilson is not rejecting
the doctrine of unconscionability as indispensable for measuring voluntariness of the agreement at time of formation.
Wilson J’s view, however, was that courts have a bounded discretion to consider more than voluntariness and, when a
fundamental breach has occurred, to consider the clause’s reasonableness in light of what has happened. [Courts are to
measure the enforceability of the exclusion clause as at time of breach, IF the breach has been fundamental. Concerned
with Fundamental breach at time of breach, yes there is a role for fundamental breach in some limited circumstances.
1. Justice Binnie in Tercon purported to “shut the coffin on jargon associated with fundamental breach” at para 82.
But did he succeed? Binnie J states that categorizing a breach as “fundamental” or (quoting from other decisions)
“immense” or “colossal” is not all that helpful. Yet in his own judgment, he finds himself having to distinguish
between types or levels of contractual breach. For example, Binnie J agreed that sometimes contractual
performance could be “so aberrant” (so breaching contract in fundamental way) that the exclusion clause’s
protection is forfeit; he acknowledged situations where one party’s conduct in breach of contract had been “so
extreme” as to “engage some overriding and paramount public interest in curbing contractual abuse.” It is
virtually impossible not to read these references as surrogates for the phrase “fundamental breach.”

How do Dickson CJ’s and Wilson J’s decisions find their way into Tercon?

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Two way to talk about fundamental breach
1. Denning sense – if there is fundamental breach party cannot rely on exclusion clause
o Tercon – do not apply Denning rule as per Karsales.
2. If one party committed fundamental breach the innocent party can treat contract as at an end and sometimes courts
talk about this as fundamental breach. This is the “Law Fundamental breach” can be a remedy to treat contract at
end (if deprived of substantially whole benefit under contract this is still fundamental breach)

Karsales (Harrow) Ltd v Wallis, [1956] Court of Appeal of England and Wales 512
Facts: Wallis - DF & Purchaser: Inspected Stinton's 2nd hand Buick, in excellent shape
Stinton – Offering Buick for sale. Arranges financing for Wallis by selling to Karesales Ltd
Karsales Ltd – PL sells to Mutual Finance (Karsales owns car and if Wallis doesn’t pay they can take the car)
Mutual Finance – later assigns its rights under hire purchase to Karsales

Car is dropped off outside Wallis’s garage late at night. It was now badly damaged. As Denning L.J. describes the situation:
“it had evidently been towed in. There was a rope attached to the front bumper. It was, as the judge found, in a ‘deplorable
state’. The new tyres had been taken off and old ones put on. The wireless set had been removed from it; the chrome strips
round the body were missing; and when the defendant’s fitter looked at the engine, the cylinder head was off all the valves
were burnt, and there were two broken pistons. The car would not go. Wallis refused delivery and the car was towed back to
Stinton's place.

Karsales sues Wallis for 10 mos. of instalments under the hire purchase.
CL 3(g) under hire-purchase agreement: "No condition or warranty that the vehicle is roadworthy or as to its age,
condition or fitness for any purpose is given by the owner or implied herein."
Issue: Can Karsales rely on cl.3 (g) of hire-purchase agreement?
Holding: On appeal, Denning LJ reversed the trial judge's decision. He said the following:
“Under a hire-purchase agreement of this kind, when the hirer has himself previously seen and examined the motor car and
made an application for hire-purchase on the basis of the inspection of it, there is an obligation on the lender to the deliver the
car in substantially the same condition as when it was seen.”

Denning LJ established a new precedent by declaring this a fundamental breach: that is, a breach that goes to the root of the
contract, where the breach is so severe that there cannot be a contract after this breach.
 Misconduct or indifference to contract will not be covered under exclusion of liability
 Exclusion of liability does not enable DF to turn a blind eye to his obligation

This decision set the precedent that goes against the Strict Construction rule. In Strict Construction, the rule is that the
contract is intended to do what it says it will do, and that judges can only apply what the contract says within its own terms.
Since the contract has been agreed upon by both parties, the contract is seen as representing both parties' interests. However,
Denning ruled against this rule since it would not be equitable (or fair) for both parties.

NOTE: This is a question of construction or interpretation of whether clause will cover fundamental breach, depends on what
the clause actually says. (Not a rule by Denning saying it will never be relied upon when fundamental breach occurs).
Freedom of contract – parties should be able to contract out of this if everything else is copesetic.

(e) Fundamental Breach/Unconscionability Post-Hunter 531


Fraser Jewellers (1982) Ltd v Dominion Electric Protection Co 531
Facts: The two parties had entered into a contract whereby Dominion, operating under the name ADT, provided Fraser with a
new protective signaling system, and monitored such system for an annual fee of $890. Fraser's store was robbed and the
alarm system was activated, however, ADT did not respond immediately and the robbers escaped with $50,000 worth of
jewelry. PL did not want to purchase robbery insurance b/c expensive but wanted to sue ADT instead of getting insurance.
The trial judge found that company was negligent by not promptly notifying police when the alarm sounded, and that the
negligent activity made a limitation of liability clause in the contract unenforceable as security company had committed a
fundamental breach of the agreement. In the alternative, the limitation clause was unconscionable because no honest and fair
man would have expected that liability would be limited in the circumstances to only $890.
Issue: Does a fundamental breach render a limitation clause unenforceable?
Holding: PL – Argue Tilden limitation clauses have to be pointed out, McLauchlin rejected this argument.
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 A exclusion clause should be enforced on true meaning.
 Relief should be granted only if the clause, seen in the light of the entire agreement, can be said unconscionable
(Dickson Hunter) or “unfair or unreasonable (Wilson, Hunter).
 Enforceability in absent of fraud or misrep person is bound by agreement whether he read it or not, this is not legally
acceptable basis for not wanting to rely on it. Presume business person should be aware of clause and enforce
L’Estrange. (May be more give in non-consumer except Karoll)
 Nothing wrong with clause, monitoring fees, with risk assumed by purchaser and risk of damages associated with
robbery is on business owner to get insurance.
Robins, writing for the court, was not persuaded that there was any valid basis for interfering with the factual findings of the
trial judge. There was sufficient evidence to conclude that the robbers would have been caught if ADT had not negligently
delayed in contacting the police. However, the limitation of liability clause was enforceable. The company's negligence in
failing to respond appropriately to the alarm could not be equated to a fundamental breach. In addition, the clause was not
unconscionable. The provision was reasonable in the commercial context of this case, the contract was clear and
unambiguous, and the clause was highlighted in bold black letters. Accordingly, the company was only liable in the amount
of $890.

Plas-Tex Canada Ltd v Dow Chemical of Canada Ltd. 536


Facts: The respondents were affiliated companies providing pipeline systems to carry natural gas to rural co-ops. They shared
common ownership, management and goals. Dow sold defective resin to two of the respondents. Dow did not have a
contractual relationship with the other respondents. One of the contracts contained clauses limiting Dow's liability by stating
that Plas-Tex accepted all liability for loss or damage resulting from use of the resin. Dow knew that that the resin was
defective and that some respondents would use the resin to manufacture pipe installed by other respondents to carry natural
gas. The pipe was dangerous and allowed natural gas to escape. The respondents were forced to undertake major remedial
operations and use of the pipe was eventually prohibited. Plas-Tex's reputation was damaged, which caused it to lose some of
its customers and be petitioned into bankruptcy. The trial judge found Dow liable in contract and tort. The respondents were
awarded damages for the purchase price of the resin, cost of pipe repairs and lost profits, which Dow appealed.
Issue: Are the limitation clauses in the contracts valid or void for unconscionability?
Held:
 Hunter stands for that whether a party is prevented from relying on a limited liability clause is not a matter of law
but a matter of construction.
 Unconscionable exclusion clauses won’t be enforced (Hunter)
 When enforcing exclusion clauses would be unfair, unreasonable, or contrary to public policy, they won’t be
 A DF is prohibited from relying on the limited liability clauses when:
o 1) DF knew of a possible risk associated with its product
o 2) DF failed to disclose important assumptions within its knowledge thereby preventing the other party
from property measuring the consequences and risks they were undertaking
o 3) deliberately withheld information and induced the claimant to enter the agreement on the basis that the
other party had “scientifically done their homework”
Take away: ABCA overall upholding and adopting Hunter, though aware unconscionability should be used sparingly.

Tercon Contractors Ltd v British Columbia 539


Facts: Tercon – PL, Responded to a Request for Proposals (“RFP”) submitted a tender creating Contract A
Province of BC – DF, accepted a non-compliant tender from Brentwood **NOT SUPPOSED TO DO THIS!!
Contract B with Brentwood
Brentwood – lacking drilling & blasting expertise, it entered into a pre-bidding agreement (joint venture) with a company
(“EAC”) that did have the expertise but who was not a qualified bidder.
 Submitted a non-compliant bid (Joint ventures were ineligible); mis-described EAC as a ‘major member’ of the team
instead of a joint-venturer.
 Pg 541 Who can bid went to the premises of the rules of the bid, only the 6 preapproved were allowed to participate (Did
include Brentwood but not with EAC as JV which Gov’t knew at the time of acceptance). This is huge violation of terms
of RFP process.

A few months later, the Province informed the six proponents that it now intended to design the highway itself and issued a
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request for proposals (“RFP”) for its construction. The RFP set out a specifically defined project and contemplated that
proposals would be evaluated according to specific criteria. Under its terms, only the six original proponents were eligible to
submit a proposal; those received from any other party would not be considered. Under Contract A: The RFP also included an
exclusion of liability clause which stated:
 “Except as expressly permitted…no Proponent shall have any claim for any compensation of any kind whatsoever, as a
result of participating in this RFP, and by submitting a proposal each proponent shall be deemed to have agreed that it has
no claim.
Issue: Can Tercon succeed in an action based on breach of Contract “A” or is the no claims clause a complete answer?
(Tercon is seeking compensation equiv. to the profit it expected to earn had it been awarded Contract “B”).
Holding: Exclusion clause cannot be used in cases of Fraud & cannot exclude when one party intentionally causes harm.
Tercon tries to fill gap of how to treat exclusion of liability clauses.
In Contract A – there is implied term of fairness (Good faith) the province behaved egregiously. In relation to exclusion
clause – it is not within contemplation of parties that it would bar action when province did something that the clause does not
cover (accepted non-compliant bid).
 Exclusion of liability no defense and at trial Tercon won.
 At CA Tercon loses (freedom of contract don’t enter into contract with exclusion clause if you don’t like it)

Majority
A. Liability under Contract A
B. The no claims clause does not provide a defense.
Dissent
A. Liability under Contract A
B. Ministry misconduct was not so egregious as to generate public policy reasons depriving the Ministry of protection of
the no claims clause to which Tercon freely agreed.

Unanimous decision on how to approach exclusion clauses (with some SKO add-ons)
1. Is there a breach of contract (here, is there a breach of Contract A)?
2. If yes, is the exclusion clause at issue part of the contract? (SKO)
3. If yes, does the exclusion clause apply to the circumstances as a matter of interpretation? (depends on parties’
intentions)
4. If yes, is the exclusion clause unconscionable at the time the contract was made (versus at time of breach) IN
Dissenting:
o this might arise out of situation s of unequal bargaining power
o this might arise out of policy considerations arising from relevant legislation like the Transportation Act.
5. Assuming validity, is there any overriding public policy that would justify the court’s refusal to enforce it?
Cromwell, majority: Noted that the RFP model is a little more complicated than the simpler Ron Engineering Contract
A/Contract B model, where the terms of Contract B are fully articulated from the outset, but that this did not impact the
analysis of the case at hand, and further, it was not necessary to explore in full detail all the terms and conditions of Contract
A. The question remains whether it was a term of Contract A that the Ministry accept bids only from eligible bidders.
 If the Contract A was supposed to include an exclusion of liability that they can accept ineligible bidders (non-compliant).
Only eligible bidders can be chosen. Liability doesn’t arise from Tercon’s participation it is from the province going with
an ineligible bidder. Clear language is needed to oust standards of business efficacy and fairness (especially true in public
procurement  tax payers paying for this) and idea is that best bid (price) is from good and open process. This will not
result in fairest price.
 Treat all bidders on equal footing and not going back on the rules **Especially in Public Procurement** this insures
transparency and fairness as per Statutory regulations.
 If a clause is ambiguous (“contra proferendum”) construe against the maker. If apply this the clause would not cover
patriation against ineligible bidders (clause only apply against eligible ones).

Binnie, dissenting: accepts the finding of the CA that the terms of the RFP had been breached by the province and turns
immediately to the claim for relief from the exclusionary clause. ASK three questions:

1. Does exclusion clause apply to the circumstances? (per parties intentions expressed in contract)
2. If it applies, was it unconscionable at the time the contract was made (contract formation)? If unconscionability
applies you must show procedural inequality and substantial unfairness (must be extreme)
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3. Assuming validity is there overriding public policy why it should not apply?
o Public policy that would exclude exclusion clause: (Wilson J, from Karsales)
o Plas-tex must be more than egregious behavior. Intentionally supplied defective product with knowledge of
dangerous use and just inserted exclusion of liability clause to cover defective resin. CANNOT USE
CLAUSE ON THESE FACTS!!
o Intentionally selling toxic milk for consumption by babies  cannot rely on exclusion clause
o Conduct approaching criminality or egregious fraud are examples but less may be sufficient to exclude for
public policy… must outweigh freedom of contract before finding of abuse.

Applying this test to the case, Binnie found that the exclusion clause does apply, holding that Tercon did participate in the
RFP process, whether or not the process was compromised. “Tax payers of BC not prepared to pay Brentwood for actually
building road, and Tercon, even though Tercon profit gained w/o Tercon doesn’t have to take risks associated with Contract
B”.
 Tercon getting loss of profit comes from the misconduct of the Gov’t. They were willing to take on Contract B risks
and wanted the project. Binnie’s reasoning is unfair given the Gov’ts egregious behavior this is NOT Tercon’s fault
the Gov’t should be punished.
Tercon was a major contractor and while not at the same power level as government, was nonetheless able to bargain freely
so the clause was not unconscionable (They were not vulnerable). On public policy, while he agrees there is "a public interest
in a fair and transparent bidding process, it cannot be ratcheted up to defeat the enforcement of Contract A in this case".
While the Province's conduct was in breach of the RFP and the trial judge's condemnation was well founded, the misconduct
was not of sufficient character to require the clause not to be enforced.

If you have exclusion of liability clause it must apply to the specific part of the contract.
Standard form contracts are ones where the terms are not negotiated  take it or leave it and not subject to bargaining. Also
called subject of cohesion.
 These reduce transaction costs b/c don’t need to negotiate fresh contract every time. It is more efficient.
 Usually contain exclusion of liability clause in standard form contracts. Purpose is to signal which party should get
insurance.
 How do you prove clause is part of contract? Two ways to show:
1. Notice
2. Signature
Dickson in Hunter: objections to clause based on unconscionability (measured at time of formation)
Wilson in Hunter: Public policy objections to clause (measured at time of breach must be extreme) Plax-Tex

Unconscionability prior to Tercon - procedural uncertainty and substantial unfairness.


 Senior parents mortgaging house for no good gambling son to pay his debts.
 Procedural Uncertainty – Senior not sophisticated, did not have advice of lawyer
 Substantial Unfairness – their only asset and they have small pension

Pitcher v Downer 2017 NFCA 13 (NFLD case of unconscionability that uses AB test of unconscionability)
Facts: Collision btw two vehicles. Downer rear ended Pitcher and was clearly at fault. They agreed Downer would pay for
damages and $300 for loss of wages for time of accident. Downer Lawyer created release for waiver of liability. At time of
accident Pitcher feeling fine and signed a waiver clause for release of liability.
Pitcher signed release “forbearance to sue” and consideration would be Downer giving money for damages and $300 for
wages.

She developed soft tissue injury and she wants to sue in tort, and claims thought she was signing a release for damages of car
not personal injury. Claims she did not read who thing.
Downer – wants to rely on clause.
Issue: Is the waiver of liability clause valid in this instance? Did trial judge use right test for unconscionability?
Holding: Trial agreed clause unconscionable in circumstances.
NFLD court: No unconscionability. She was meek an unsophisticated but other than this there was no substantial unfairness
she will stuck with what she signed.

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AB CASE - Cain v Clarica Life Insurance – VERY strict test for unconscionability (not just procedural inequality and
substantial unfairness)
1. A grossly unfair and improvident transaction
2. Victims lack of independent legal advice or other suitable evidence (may not be absolutely required, just b/c you have
legal advice this shouldn’t be bar … what if it is bad legal advice?)
3. Overwhelming imbalance in bargaining power caused by victim’s ignorance of business, illiteracy, ignorance if the
language of the bargain, blindness, deafness, illness, senility, or similar disability
4. Other party’s knowingly taking advantage of this vulnerability (Would something less than actual knowledge do?
Like willful blindness or recklessly failing to make inquiries? Not sure.)

There must be a huge problem and unfairness in the signing of the clause. SCC hasn’t dealt with it directly and laid out test
but does state “overwhelming imbalance in the power relationship”.

Something substantially MORE than simple unequal bargaining power necessary for unconscionability. Judges will not
measure the fairness of the deal, that is for the parties to do (every contract has some imbalance). There is strong presumption
that individuals act rationally and in their best interest in contracting, only when substantial unfairness that it out of the
ordinary will the court intervene.
 Inequality can be more than disability it could stem from extreme financial need or external pressures or special
relationships.
1. Tercon – corporations will rarely be able to fit into this unconscionability test b/c need a substantial inequality of
bargaining power etc…

Damages
1. Yacht builder (the Builder@) agrees to custom build a yacht for Yacht owner (the AOwner@) for $10,000, which the
Owner pays for in advance. Builder fails to build. This particularly annoys the Owner who has already entered into a
trucking contract to transport the boat to the coast, where he lives. Assume that the Owner will have to pay the trucking
company $500 for >cancelling= their transportation contract. Owner sues Builder for breach of contract. What can Owner
recover? (Analysis based on Fuller & Perdue terminology. Some definitions are taken from Richard Craswell, AAgainst
Fuller and Perdue@ (2000) 67 U. Chi. L. Rev. 99)
Restitution Interest: this interest Aims to restore the breaching party to the position she occupied before the contract, by
forcing her to disgorge any gains she obtained from the non-breacher.@ (Requirements: enrichment; corresponding
deprivation; absence of a juridical reason for the enrichment.)

 PL, Yacht purchaser conferred value on the DF by paying money. Idea is that at this point the Yacht builder.
MUST SHOW THE FOLLOWING:
o Enrichment – situation where building been enriched by $10K
o Deprivation - $ belong to PL so deprivation & did not build the Yacht
o Absent juristic reason
Reliance Interest: this interest seeks to restore the non-breacher to the position he would have been in, absent the
contract, by compensating him for any losses he may have suffered.
Difference between them? Compensate for any losses suffered would put him into place prior to contract.

 Think of it this way: restitution calls for damages equal to whatever the breacher has obtained from the non-
breacher (in our example, the purchase price of the yacht.)
 Reliance gives damages equal to whatever the non-breacher gave up, whether or not the breacher received a
corresponding benefit.
 Restitution calls for damages from non-breacher, reliance gives damages for anything they gave up by entering
into with 3rd party.

Expectation interest (loss of profit): Also looks to the nonbreacher’s position, but aims to restore him to the position he
would have occupied if the contract had been fully performed.
What can the Owner recover?
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Example 2: Same situation as in example 1 except that Owner had also lined up a buyer for the yacht. He could have sold
to a third party, who also lives on the coast, for $15,500. What can Owner recover?

 Loss must not be too remote, or will not be recoverable. Must be reasonably foreseeable loss.

Restitution: $10,000 (as no yacht was ever built).


Reliance: thrown away transportation costs (lets assume that it is $500)
Expectation: Should Owner receive $15,500 (what the 3rd party would have paid for the yacht) OR $5,500? (Gross Profit
ie: no deduction for trucking expenses) OR $5,000 (Net Profit ie: what the Owner would have in his pocket minus the
trucking expenses)?
Note: Loss of profit it is recoverable if it passes the remoteness test in Hadley v. Baxendale. Had the deal gone through,
the plaintiff only would have had $5,000 in his pocket.

 That would be compensation under expectation interest since we already have recovery under restitution and
reliance for a total recovery of $15,500. ($500 goes to the trucking company; the $10,000 is recovery of the
money he is already out leaving a balance of $5,000 under expectation.)
 CANNOT RECOVER THE SAME EXPENSE TWICE… Cannot quantify that covers expectation interest twice.

Note per MacGregor on Damages: Plaintiff cannot recover, in addition to basic loss representing loss of bargain, any
expenses incurred in preparation or part performance. Watch out for double recovery. damages (yacht)

Can you recover ‘mental distress’ for breach of contract? Maybe, but you would have to show the consequence of the
breach was a reasonably foreseeable consequence of the breach, or that the breach caused the mental distress.

Two branches (arms) of damages: Loss of profit is recoverable if the


1. Arising naturally: reasonable person would have foreseen as consequences
2. Special circumstances – as long as communication, context approach as long as consequences were foreseeable in
light of particular contract and special circumstances (Context specific).
a. Punitive damages possible: Whiten – fire burned down family home, the insurance Co continued to claim
they intentionally set fire despite evidence to contrary. Insurance Co withheld compensation and know of
family’s rough financial situation and continued to claim fraud in attempts to get Whiten to settle for less.
Awarded Punitive damages.

Hadley v. Baxendale 1854 (How reasonably foreseeable losses are recoverable)


Facts: PL owns mill and Mills crank shaft broke and whole mill shut down. Shaft had to be transported to be used for model
to make new shaft. Hadley brings shaft to carrier, and carrier said if you get to us by noon it will get there by the next day.
The DF was negligent and it was not sent for several days.
Two branches (arms) of damages: Loss of profit is recoverable if the
3. Arising naturally: reasonable person would have foreseen as consequences
4. Special circumstances – as long as communication, context approach as long as consequences were foreseeable in
light of particular contract and special circumstances (Context specific).

In Hadley – DF did not know very much about the situation, that every day shaft delayed will cost money b/c whole mill shut
down. These were special circumstances but there were not properly communicated. If PL said everyday they have shaft I am
losing money the special circumstance would be in place. Then PL can decline business or take on risk and charge more.

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