Contracts CAN Final1

Contract Law Final – 13’ James Wegener
Contents
I. Content of the Contract ......................................................................................................................... 5
Misrepresentation and Rescission ............................................................................................................. 5
a) Is it innocent or fraudulent misrepresentation? ........................................................................... 5
Redgrave v. Hurd (1881) UK CA ............................................................................................................. 6
Smith v. Land House Property Corp (1884) UK CA ................................................................................ 6
b) Do Bars to Rescission Apply? ......................................................................................................... 7
Kupchak v. Dayson Holdings Ltd (1965) BC CA ...................................................................................... 7
c) Summary – Steps to Take .............................................................................................................. 7
Representation and Terms ........................................................................................................................ 8
a) Is it a representation or a term? .................................................................................................... 8
Heilbut, Symons & Co. v. Buckelton (1913) UK HL ................................................................................ 8
Bentley v. Motors (1965) UK CA ............................................................................................................ 9
Leaf v. International Galleries (1950) UK CA ......................................................................................... 9
b) Summary – Steps to Take .............................................................................................................. 9
Concurrent Liability in Contract and Tort ................................................................................................10
BG Checo v. BC Hydro (1993) SCC........................................................................................................10
Sodd Corp v. N Tessis (1977) NS CA .....................................................................................................10
Parole Evidence Rule ...............................................................................................................................11
a) Can the oral statements be added to the contract? ...................................................................11
Hawrish v. Bank of Montreal (1969) SCC .............................................................................................12
Bauer v. Bank of Montreal (1980) SCC ................................................................................................13
Gallen v. Allstate Grain Co. (1984) BC CA ............................................................................................13
b) Summery – Steps to Take ............................................................................................................14
Classifications of Terms ...........................................................................................................................15
a) What kind of term is it? ...............................................................................................................15
Hong Kong Fir Shipping Co v. Kawasaki Kisen Kaisha (1962) UK CA ....................................................16
Wickman Machine Tool Sales v L. Schuler A.G. (1974) UK HL .............................................................16
Discharge by Performance or Breach ......................................................................................................17
a) When can the innocent party walk away? ..................................................................................17
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Sumpter v. Hedges (1898) UK CA ........................................................................................................17

Fairbanks Soap Co. v. Sheppard (1953) SCC ........................................................................................18
b) When can the guilty party get some of their performance back? ..............................................19
Howe v. Smith (1184) UK CA................................................................................................................19
Stevenson v. Colonial Homes Ltd. (1961) Ont. CA ...............................................................................19
Standard Form Contracts and Exclusion Charges ....................................................................................20
a) Implied Terms ..............................................................................................................................20
Machtinger v. Hoj Industries Ltd. (1992) SCC ......................................................................................20
b) Standard Form Contracts and Exclusion Clauses .........................................................................21
c) Unsigned Documents ...................................................................................................................22
Thornton v. Shoe Lane Parking (1971) UK CA......................................................................................22
McCutcheon v. David MacBrayne Ltd. (1964) HL ................................................................................22
d) Signed Contracts ..........................................................................................................................23
Karroll v. Silver Star Mountain Resorts Ltd. (1988) BC ........................................................................23
Tilden Rent-A-Car Co. v. Clendenning (1978) BC CA............................................................................23
e) Exclusion Clause is Incorporated .................................................................................................24
Hunter Engineering Ltd. v. Syncrude Canada Ltd. (1989) SCC .............................................................24
Tercon Contractors Ltd. v. British Columbia (2010) SCC .....................................................................25
f) Summary – Steps to Take ............................................................................................................26
II. Avoiding Performance: Mistakes and Frustration ...............................................................................27
Unilateral Mistake as to Terms ................................................................................................................27
Smith v. Hughes (1871) UK ..................................................................................................................27
R. v. Ron Engineering (1981) SCC.........................................................................................................28
Agreements Made Under Mistaken Assumptions ..................................................................................29
Bell v. Lever Brother Ltd. (1932) UK HL ...............................................................................................31
Solle v. Butcher (1949) UK CA ..............................................................................................................32
McRae v. Commonwealth Disposals Commission (1951) Aust. HC .....................................................33
Great Peace Shipping v. Tsavliris Salvage(2002) UK CA .......................................................................33
Miller Paving Ltd. V. B. Gottardo Construction Ltd. (2007) ONCA ......................................................35
a) Summary – Steps to Take ............................................................................................................36
Mistakes as to Identity.............................................................................................................................37
Shogun Finance Ltd. v. Hudson (2003) UKHL ......................................................................................37
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Non Est Factum ........................................................................................................................................38

Saunders v. Anglia Building Society (1971) UK HL ...............................................................................38
Marvco Color Research Ltd. v. Harris (1982) SCC ................................................................................38
Rectification of Mistake ...........................................................................................................................39
Bercovi v. Palmer (1966) Sask. CA .......................................................................................................39
Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd. (2002) SCC ................................40
Frustration ...............................................................................................................................................41
Three Stages of Development for the Doctrine of Frustration ...........................................................42
Paradine v. Jane (1647) UK ..................................................................................................................42
Taylor v. Caldwell (1863) UK ................................................................................................................43
Davis Contractors Ltd. v. Fareham UDC (1956) UK HL.........................................................................43
Capital Quality Homes Ltd. v. Colwyn Construction Ltd. (1975) Ont. CA ............................................44
Edwinton Commercial Corporation v. Tsavliris Russ - The Sea Angel (2007) UK ................................44
Maritime National Fish Ltd. v. Ocean Trawlers Ltd. (1935) PC ...........................................................44
a) Summary – Steps to Take ............................................................................................................44
III. Relief for Weaker Parties to Contract..................................................................................................45
Undue Influence ......................................................................................................................................45
Geffen v. Goodman Estate (1991) SCC ................................................................................................46
Royal Bank of Scotland Plc v. Etridge (No.2) (2001) UK.......................................................................47
Unconscionability ....................................................................................................................................48
Morrison v. Coast Finance Ltd. (1965) BC CA .....................................................................................50
Marshall v. Can. Permanent Trust Co. (1968) AB ..............................................................................50
Lloyds Bank v. Bundy (1975) UK CA ....................................................................................................51
Harry v. Kreutziger (1978) BC CA ........................................................................................................51
Business Practices and Consumer Protection Act (S.B.C.2004, c.2) ss. 4-10 (*) .................................52
IV. Remedies .............................................................................................................................................54
The Interest Protected by Law: Expectation Interest, Reliance Measure, Restitutionary Response......54
McCrae v. Commonwealth Disposal Comm. (1951) Aust. HC .............................................................55
Bowlay Logging Ltd. v. Domtar (1982) BC CA ......................................................................................56
Sunshine Vacaction Villas Ltd. v. Governor and Company of Adventurers (1984) BC CA ...................56
Attorney General v. Blake (2001) UK HL ..............................................................................................57
Loss of a Chance, Cost of Completion, Loss of Enjoyment, Punitive Damages, Liquidated Damages ....58
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a) Loss of Chance .............................................................................................................................58

Chaplin v. Hicks (1911) UK CA ..............................................................................................................58
b) Cost of Completion ......................................................................................................................58
Groves v. John Wunder Co. (1939) US CA ...........................................................................................59
Nu-West Homes Ltd. v. Thunderbird Petroleums Ltd. (1975) AB CA ..................................................59
c) Loss of Enjoyment ........................................................................................................................60
Jarvis v. Swan Tours (1973) UK CA .......................................................................................................60
d) Punitive Damages ........................................................................................................................61
Whitten v. Pilot Insurance Co. (2002) SCC ...........................................................................................61
e) Liquidated Damages ....................................................................................................................62
Shatilla v. Feinstein (1923) Sask. CA ....................................................................................................62
Equitable Remedies: Specific Performance .............................................................................................63
John E. Dodge Holdings Ltd. v. 805062 Ontario Ltd. (2003) SCC .........................................................64
Boundaries to Recovery: Certainty, Causation, Remoteness ..................................................................65
Hodgkinson v. Simms (1994) SCC ........................................................................................................66
Hadley v. Baxendale (1854) UK ............................................................................................................67
Victoria Laundry (Windsor) Ltd. v. Newman Indust. Ltd. (1949) UK CA ..............................................68
Scyrup v. Economy Tractor Parts Ltd. (1963) Man. CA ........................................................................69
Koufos v. Czarnikow (C) The Heron II (1969) UK HL ............................................................................69
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I. Content of the Contract
Misrepresentation and Rescission

a) Is it innocent or fraudulent misrepresentation?
I. Innocent Misrepresentation
• Don’t have to be a liar or show a lie was made
Test for Innocent Misrepresentation (Redgrave)
i. X makes a statement of fact to Y.

ii. The statement was false.
iii. Y relies on the statement such that they were induced to enter into a contract
Remedy
A) Rescission
II. Fraudulent Misrepresentation

• Derry and Peek: “A statement made without any belief in its truth” is fraud
Test for Fraudulent Misrepresentation
i. Same test as innocent misrepresentation, and

ii. The statement was made fraudulently (a lie).
Remedy
A) Rescission
o to reverse or unwind the contract, restoring the situation to before contract was
entered into
OR
B) Equitable Damages
o Any loss you incurred that resulted from relying on misrepresentation
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Redgrave v. Hurd (1881) UK CA

Facts:
• Redgrave advertised to sell his business premises and a share in his business
• He represented that it brought in between £300 and £400 a year
• The defendant purchased the property and a partnership in the law practice in reliance of this
• However, when he discovered that the law practice was "utterly worthless" he refused to
complete his payments – it truly grossed less than £200 a year.
Rule:
• Test for innocent misrepresentation (above)

• If there was evidence that D tried to induce, then the presumption is that P is induced to enter
into contract
• Onus on D to show there was no inducement.
o No reliance on statement
o P knew the statement was untrue
• If statement is material, then it is presumed it was used for inducement
Analysis:
• The practice income statement was a statement of fact, it was false, and it was relied on
• It was clearly relied on as it was important to Hurd (it was material)
• This was innocent misrepresentation – can rescind contract (give it back)
Smith v. Land House Property Corp (1884) UK CA

Facts:
• Seller sells hotel to another

• Seller says hotel is occupied by “most desirable tenant”
• The tenant actually was a bad tenant, so purchaser sues and wants to rescind
• Seller argues it was a statement of opinion, not of fact
Rule:
• If the facts are not equally known, then a statement of opinion by the one who knows the
facts best involves very often a statement of material fact, for he knows the facts that justify
the opinion.
o Look for expertise or relative expertise
o Look for monopoly of knowledge
• If they are equally known, then could be a statement of opinion (persuasive)
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b) Do Bars to Rescission Apply?
Kupchak v. Dayson Holdings Ltd (1965) BC CA

Facts:
• Property swap contract

• At trial: fraudulent misrepresentation held – entitled to rescission unless bars apply
• CA: looks at bars to rescission
• Court finds none of the bars apply – but awards equitable damages as it is fraudulent
misrepresentation
From Kupchak
1. Restitutio in Integrum
o Not possible to unwind or restore item
o Courts less likely to apply this bar in fraudulent situation
2. Elective or Affirmative Bar
o After discovering misrepresentation the victim chooses to confirm contract anyways
o Can’t change mind later
o Can be express election or implied election
o Acts must be unequivocally an intent to confirm *focus on victim*
3. Latches or Delay Bar
o Latches: After learning of misrepresentation the victim does nothing – defendant relies on
the delay for a long time so it is unfair to unwind *focus on defendant*
o Delay: a “great delay” results in an implied election *focus on victim*
c) Summary – Steps to Take
1. Has there been a statement of fact that was false?

• Statements of opinion are not actionable
• Smith – sometimes what looks like an opinion is actually fact
2. Is this innocent of fraudulent misrepresentation?
• Courts are not motivated to call people liars without great evidence
• A bar to rescission may lead the court to find fraudulent statement, to give victim
damages
3. Was the victim induced by the misrepresentation?
• Redgrave – Presumption of inducement if speaker intended to induce – look at evidence
• Redgrave – look for evidence P knew the statement was false or didn’t rely on it
4. Does a bar for rescission apply?
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Representation and Terms
a) Is it a representation or a term?
I. Representations
• About a contract, but outside a contract
• No breach of contract with misrepresentation as it isn’t in the contract
• Upon misrepresentation, look to rescind or get equitable damages
• Bars to rescission apply when looking to rescind
II. Terms
• Provisions in the contract
• A breach of the contract, as it is breaking a promise or not fulfilling terms
• Upon breach, look to get expectation damages (or specific performance)
• Bars to rescission do not apply
The Test
Did the parties intend for this to be a term of the contract?
o Context of each case determines the outcome
Heilbut, Symons & Co. v. Buckelton (1913) UK HL

Facts:
• Famous rubber company wants to bring out a subsidiary company

• Businessman – “I understand you are bringing out a rubber company.”
• Parent Company – “We are.”
• Businessman buys share in subsidiary company
• Turns out subsidiary company is not a rubber company – businessman sures
Analysis:
• Court says it is a representation

o The parties did not intend for it to be a term
o It was not a serious response – it was off the cuff
o It was an oral statement, whereas the contract was later written, suggesting it wasn’t
intended to be there
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Bentley v. Motors (1965) UK CA

Facts:
• Bentley buys a car from Mr. Smith

• Smith tells Bentley the car has a new engine and only 20 000 miles
• So Bentley buys
Analysis:
• Court says it is a term of the contract

o He promised the car had these characteristics, it did not
o Objectively these characteristics were very important
o The statement was clearly intended to induce Bentley
o Mr. Smith was a relative expert, and would have or should have knowledge of the truth
Leaf v. International Galleries (1950) UK CA

Facts:
• Man buys a painting described as an original painting by Constable

• This characteristic was written in the contract
• 5 years later he finds out it was false
Analysis:
• Court says it is a term of the contract

o ORP would say it is a term
o It is very important to the seller – and seller is an art auctioneer with relative expertise
o It was also in the contract
b) Summary – Steps to Take
1. There is a difference between terms and representations.

o False term sue for breach of contract and get expectation damages
o False representations rescission or equitable damages (if fraudulent)
o The bars of rescission only apply to rescission – false representations
2. The test tells us the difference.

o Did the parties intend for this to be a term of the contract?
o Very contextual – look for similar factors in case
o Intention is key
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Concurrent Liability in Contract and Tort
I. Contract Liability
• Breach of contract by false terms
• Can sue for breach of contract
• Expectation damages
• Put in position as if promise was fulfilled
II. Tort Liability

• Tort of negligent misrepresentation
• Remedy in torts is reliance/compensatory damage
• Put in position you would have been before the tort was committed
Can you pursue both claims?
• Historically, no – could not sue in tort if there is a contract

• Today the answer is yes, usually
• But there are important differences:
o Remedies
o Time limitations: torts, generally 6 years; contract, generally 2 years
o Different tests
BG Checo v. BC Hydro (1993) SCC

Facts:
• Written contract between parties

• Hydro says it will clear right of way and Checo is not responsible for this
• Hydro doesn’t do this – causes additional costs to Checo
• Checo sues for fraudulent and negligent misrepresentation (tort), and breach of contract
Analysis:
• Plaintiff can pursue both tort and contract liability

• However, tort liability can be excluded in a contract
Sodd Corp v. N Tessis (1977) NS CA

• Example of negligent misrepresentation being pursued where contract exists
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Parole Evidence Rule
Parole Evidence means:
a. evidence tending to support the existence of an oral contract, or

b. the oral statements that one party wants to become a term into a written contract
i. Two parties have a written contract
ii. Lead up to the contract the parties make oral statements to each other.
iii. Some of the oral statements do not make their way into the contract.
iv. One of the parties states that it should have been in there because these oral
statements or promises were supposed to be part of the deal.
a) Can the oral statements be added to the contract?

• Historical Parole Evidence Rule: No, you can’t add new statements into the written contract
• Over time many exceptions were developed. We will not look at them all.
We must ask:
i. Ask, In what circumstances does the historical parole evidence still apply?
ii. Look at a couple major exceptions to the rule.
o An oral statement that is made at the time or before writing the contract is not
admissible if you are trying to introduce it to contradict the written contract
Policy Reasons for the Rule
• The written contract shows the intent of the parties, such that if it wasn’t written in the
contract, then it seems to show that it wasn’t intended to be included
• Certainty – there needs to be some certainty in the written contract
• Best evidence rule: when the deal was put in writing, that is the best evidence we have as to the
intent of the party – oral evidence is less reliable
The parole evidence rule does not apply to misrepresentations, either tortuous or contractual.
o For misrepresentation we are not looking to add a term to the contract

o For misrepresentation we are looking to get out of a contract
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Hawrish v. Bank of Montreal (1969) SCC

Facts:
• Hawrish went into the bank to sign a guarantee

• The written document says that he will pay the debts, including future debts
• The bank manager allegedly said that the guarantee will end at some point, once the bank
receives a guarantee from someone else
• The bank turns around and sues him, despite receiving a guarantee from someone else
Issue:
• Can Hawrish rely on the bank manager’s statement of a fixed term?
Rule:
• An oral statement that is made at the time or before writing the contract is not admissible if
you are trying to introduce it to contradict the written contract (affirms parole evidence rule)
Analysis:
• The oral evidence contradicted the written contract

• There are two ways in which it did this:
o The written document said it was an indefinite guarantee where the oral evidence said
it was a fixed term guarantee
o The written document said the guarantor (Hawrish) will be bound, regardless of
whether they get another guarantor or not
• Only the written contract stands
Collateral Contracts
• Historically collateral contracts are complicated and confusing

• In the Hawrish situation, we know you cannot introduce the oral contract
• However, you could say that you are not introducing an oral term into the contract, instead
there are two contracts and the parole evidence rule does not come into place
• The oral contract is a collateral contract, which is separate and different contract
• In Canada, whether it is 1 contract approach or 2 contract approach, the parole evidence rule
still applies (Gallen)
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Bauer v. Bank of Montreal (1980) SCC

Facts:
• The bank didn’t register the book debts like it was supposed to
• But they said they don’t have to do that, because the contract with the guarantor specifically
states that they don’t have to – even though normally they are required to
• The guarantor says that the manager said that they would register the book debts accordingly
Issue: Can Bauer rely on the manager’s oral statement? Can he introduce it into the contract?
Rule:
• An oral statement that is made at the time or before writing the contract is not admissible if you
are trying to introduce it to contradict the written contract
Analysis:
• The oral statement directly contradicts the written statement
Gallen v. Allstate Grain Co. (1984) BC CA

Rule:
True Statements
• 4th point: parole evidence does not apply to innocent and fraudulent misrepresentations that
induce the person to enter into the contract
• 1st point: whether you argue the 1 contract theory or the 2 contract theory, the parole
evidence rule applies if there is a contradiction between the two
• 5th point: the parole evidence rule is confined to excluding oral statements that contradict the
written terms of the contract
o If the oral statement simply adds to the contract, but does not contradict it, then the
parole evidence rule does not apply
False Statements – not applicable, though he says they are
• 2nd point: the parole evidence rule is not a tool for the unscrupulous or the unwary
o If you are being sneaky about the terms then it does not apply
o Problem: this is not the law; it opposes Hawrish
• rd
3 point: the parole evidence rule is not a strict rule, but rather a presumption
o Problem: it is clearly used as a strict rule in the cases
• 6 , 7th, and 8th point: discusses how presumption is applied
th
o Problem: it is not a presumption in the first place
Analysis:
• The oral “collateral contract” is made up, it is not real
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b) Summery – Steps to Take
1. There is a common law exception

o If there is an ambiguity in the written contract, then you can look to the oral statements
of the party to try to explain the ambiguity.
o The oral statements provide evidence for a certain reading of the ambiguity, between
two or more possible readings
2. There is a statutory modification

o Business Practice and Consumer Protection Act – s. 187
Applies to consumer contracts only
You don’t need an ambiguity, you can always look to oral words as evidence
Look to the oral words to try and understand the written terms
Still can’t contradict written contract
3. If the oral statement simply adds to the contract, but does not contradict it, then the parole
evidence rule does not apply (Gallen)
4. The parole evidence rule does not apply to misrepresentations.

o That is because you are looking for rescission, not trying to add a term
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Classifications of Terms
Classification of terms reflects the fact that there is a ranking of how important the term is to the
contract.
a) What kind of term is it?

Road Map
1. Terms are different than representations. What did the parties intend?
o If it’s a term, then it’s a part of the contract and if you breach a term then you breach
the contract
2. Determine the type of breach.

a. Conditions (Hong Kong Fir)
Look at the intention of the parties at the time the contract was formed
Go to the root of the contract
Most serious terms
Repudiation is the remedy – innocent party can walk away
b. Warranties (Hong Kong Fir)
Look at the intention of the parties at the time the contract was formed
Least serious terms
Did not intend repudiation
There is a breach of terms which will result in damages, but can’t walk away
c. Innominate – not based on intention (Hong Kong Fir)
Not clear at the time of contracting what parties intended or whether breach
would result in repudiation
We don’t know until there is an actual breach of the contract
Court has to decide whether the breach will result in repudiation or not
If it was so severe that the innocent party was deprived of the point of the
contract then it’s an innominate term that acts like a condition which gives the
right to repudiate.
If not then it acts like a warranty and there is no repudiation – it wouldn’t make
sense to repudiate the contract based on a warranty
*Repudiation and recession are different because the event triggering the right is different*
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Hong Kong Fir Shipping Co v. Kawasaki Kisen Kaisha (1962) UK CA
Facts:
• Hong Kong Fir agreed to rent their ship to Kawasaki for 24 months and stated on the date of
delivery that the ship was fitted for use in ordinary cargo service.
• Due to the fact that the engine room staff was inefficient and the engines were very old, the
ship was held up for 5 weeks, and then needed 15 more weeks’ worth of repairs after
• Kawasaki repudiated the contract, and Hong Kong Fir sued for wrongful repudiation.
Rule:
• Hong Kong Fir creates the idea of innominate terms
Analysis:
• it was an innominate term because “seaworthiness” promises lots and lots of things
o could cover the engine, staffing, toilets working, etc…
o we can’t tell at the front end whether a breach of this would give a right to repudiate so
we need to wait for a breach and see how serious that breach was
o On the exam if you see a term like “seaworthiness” that has a lot of meanings then it’s
likely to be innominate
• when looking for the right to repudiate it’s only the innocent party that can repudiate can’t
be the guilty party ever
Wickman Machine Tool Sales v L. Schuler A.G. (1974) UK HL

Facts:
• L. Schuler were a manufacturing company and they granted Wickman the sole right to sell their
products in the UK.
• In the terms of the agreement, Wickman were to visit six of Schuler's major British clients each
week for the duration of the contract (4 years), which they failed to do.
• It said in the contract that this was a "condition" of the agreement. Schuler repudiated
Rule:
• just because you called it a condition doesn’t mean it is

• look at plain language if word condition used it is a strong indication it is meant to be one
• also look at how it is treated – would it create an unreasonable result to treat as a condition?
Analysis:
• in this case they ultimately say it’s a warranty – would be unreasonable for it to repudiate whole
contract based on visits
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Discharge by Performance or Breach
Two aspects:
1. For Entire Contracts

o Any breach of these, then the innocent party can walk away
o Exception: Doctrine of Substantial Performance
It allows the guilty party to prevent the innocent party from walking away
2. If the innocent party is allowed to walk away
o Can the guilty party recover anything?
a) When can the innocent party walk away?
Sumpter v. Hedges (1898) UK CA

• Traditional common law rule for entire contracts
o A lump sum of money is promised in return for a specific thing
o If the specific thing is not fully completed, then the person can walk away without
paying
• Here, half a shed was built and then quit – but the promise was for a full shed
• The court found that he did not have to be paid for this work
• This contract rule is based on the presumed intention of the parties
• If it is clear on the facts that the party did not intend for it to be an entire contract, then the
rule for entire contracts does not apply
Policy Considerations
• freedom of contract if the parties intended for this to be there deal then we should allow
them to have that deal
• Problems:
o There is potential unfairness that the person who stops performing does not get any
compensation for his work and costs that he has already put in
o There is potential for unjust enrichness to the owner who gets the benefit of whatever
work was done for the cost of nothing
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Fairbanks Soap Co. v. Sheppard (1953) SCC

Facts:
• A soap company has a contract with Sheppard to build them a soap machine
• The machine is nearly completed and Sheppard stops working
• Sheppard asks for $3000 more upfront to finish
• The soap company says no, and tells him they are not interested anymore
Issue:
• Can the soap company treat the contract as repudiated and walk away?
Rule:
• For entire contracts, if the specific thing is not fully completed, then the person can walk away
without paying (sumpter and hedges)
• Doctrine of Substantial Completion: If the job is substantially completed, the contract remains
in force – the innocent party cannot just walk away (but they can sue on this – as breach)
• The effect of this doctrine is that it mitigates Sumpter and Hedges
• Substantial completion is:
o An empirical matter look at what is done and what hasn’t been done (%)
Is the benefit there? Does it serve the purpose?
If it is substantially complete, then goto next threshold
o Behaviour of the breacher why is it incomplete?
abandonment vs. trying to finish
incomplete performance vs. bad performance
Analysis:
• Court endorses Sumpter and Hedges as a starting point

• The court says there is a doctrine of substantial completion
• If it is something minor or trivial left to be done, then Sumpter and Hedges should not apply
• Was there substantial completion here?
• The machine was nearly complete, but it couldn’t make soap chips
• There was complicated engineering work that needed to be done still
• Empirically, it is not substantially complete
• Further, Sheppard abandoned the contract, refusing to finish till he was paid more
Conclusion:
• Contract is terminated, they can walk away
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b) When can the guilty party get some of their performance back?
Simple Answer:
1. Maybe, If Guilty Party gave Money (Howe v. Smith) (Stevenson v. Colonial Homes)
a. Yes, if Down Payment
b. No, If deposit
2. No, If Guilty Party gave Goods or Services
Howe v. Smith (1184) UK CA

Rule:
• Down payment: if it is a part-payment, the purchaser (guilty party) can get it back
• Deposit: the purchaser cannot get it back
• We must look to the intention of the parties to determine which it is (objective)
o Words that were used, context (the word alone is not enough)
o Purpose for which the money was given
Analysis:
• How is the payment characterized?

• Did the parties intend that the money would be returned?
• The language was mixed
• The court said it was a deposit
Stevenson v. Colonial Homes Ltd. (1961) Ont. CA

Analysis:
• On contract, the words down payment were printed directly on the contract in the portion the
purchaser signed
• Beside that, in a different box, the word deposit was written on the contract
• The court said that the signed part was the intent
• It is not a deposit, it’s a down payment, so purchaser can get the money back
• If it says both, there will be a strict application of the contra preferendum rule, meaning it will
be interpreted in favour of the party that did not draft the document
If the Guilty Party gave Goods or Services
• Traditional Rule is that goods or services are not recoverable (Sumpter vs. Hedges)
• This rule has received heavy criticism for making an artificial distinction
• However, there is unjust enrichment law that conflicts with this
19
Standard Form Contracts and Exclusion Charges
a) Implied Terms
Machtinger v. Hoj Industries Ltd. (1992) SCC
Three Ways You Can Imply Terms into a Contract
1. Custom or Usage
• General custom in industry that is always used regarding that specific type of contract
• Look at parties presumed intention in light of general customs
• We assume that they intended the general custom as they would be aware of it and they
didn’t exclude it
• Narrow Rule; Outward Looking
2. Business Efficacy or Bystander
• In the circumstances the party must have intended the term to exist; Inward Looking
• Bystander: They clearly intended it as it is so obvious
• Business Efficacy: commercial sensible reading given to deal
• Examples in tendering contract what was implied? What was rational?
3. Implied by Law
• Rejects Lord Denning’s Approach: that it can be implied if reasonable
• Endorses HL approach that it must be necessary, necessary in a practical sense
• Necessary to ensure the fair functioning of the contract
• Nothing to do with intention of parties
• Because it is a deviation from freedom of contract, it is extremely narrow usage
20
b) Standard Form Contracts and Exclusion Clauses
Standard Form Contracts
• Can take many forms

• It is a contract where all the terms have been filled out already (not negotiated)
• Commercial reality
o Negotiating a contract for every transaction is costly and timely
o Necessary for commercial reality
• Policy Problems
o There is no negotiation
o There is no meeting of the minds
o Detrimental to the customer
Exclusion Clauses
• Excludes liability – can’t sue at all

• Different than limited liability
• Most standard form clauses have these
• Commercial Reality
o Risk Allocation
o Enables companies to lower there risk and insurance costs
o This allows them to charge less for services
• Policy Problems
o They can be oppressive and unfair to customer
o Can be complex and hard to understand
o Can destroy point of contract if company has no obligations or duties
o How can judges act on unfair exclusion clauses while respecting freedom of contract?
Three Important Questions:
1. Issue of Incorporation
o Is the exclusion clause incorporated into the contract?
2. Scope of Clause
o What types of liability does it exclude?
3. Policy Considerations
o Are there any overriding policy considerations that would invalidate exclusion clause?
21
c) Unsigned Documents
Thornton v. Shoe Lane Parking (1971) UK CA

Issue:
• Incorporation: Is the exemption clause part of the contract?

• When was the contract formed is the central question.
Rule:
• exclusion clauses won’t be incorporated into the contract unless it’s brought to the customers
attention before the contract is formed
• The customer is bound by an exempting clauses in two ways:
1. Customer subjectively knows about the clause
o If you know the ticket has exempting conditions
o How would the defendant prove this? Not likely
2. Assuming Customer doesn’t know, it can still be incorporated if the company did
what was reasonably sufficient to give notice of clause to the customer
o The more powerful the clause, the more detrimental to the customer, the
more you have to do to bring it to the customer’s attention
o McGaw: Have to look at practicality of the situation
Analysis:
• Offer: Ticket Machine sitting there, ready to take money

• Acceptance: Put money in and get ticket
• Exclusion clauses are on back of ticket
• These clauses are not part of the contract as the clauses come after the contract is made
• the sign was not sufficient for bringing notice as the clauses where very important to the
customer, they excluded the parkade of all liability
McCutcheon v. David MacBrayne Ltd. (1964) HL

Issue:
• Is the exclusion clause part of the contract? Can they imply the exclusion clause?
Rule:
• It is possible to imply these terms into the contract for such dealings
• This can happen when there are consistent past dealings that include these terms
Analysis:
• Risk forms are always signed between parties, but not done this time
• Defendant argues that the Plaintiff knew this was part of the deal
• Here there was not consistent dealings between the parties
22
d) Signed Contracts
Signed Contracts
• General: you are bound by what you sign (L’estrange)

• Exceptions:
1. Material Misrepresentation or Fraud inducing the signature (L’estrange)
2. Non est factum (talk about it later in Mistakes– p. 28)
3. The party who creates the document knows or ought to have known that the
signing party is mistaken with terms (Tilden and Silver Star)
Karroll v. Silver Star Mountain Resorts Ltd. (1988) BC

Issue:
• Does it matter if the plaintiff reads the contract and the exclusion clauses?
Rule:
• If the other party knew or should have known that you were mistaken with what you signed,
and the other party failed to take reasonable steps to bring it to your attention, then they
cannot rely on that clause.
• Factors the May Indicate Party Was Mistaken
1. The exclusion clause is not contrary with the nature of the contract (Tilden)
2. How onerous the clause is (hugely destructive of rights or not)
3. Time and opportunity available to read the contract (consider contract qualities)
Analysis:
• In normal commercial situations there is a strong presumption you are bound by what you
sign
• This is not that kind of situation, but the presumption still remains in general
• Here the exclusion clause was incorporated into the contract as plaintiff not mistaken
o The purpose of the exclusion clauses is standard for this type of dangerous contract and
associated event
o Given plenty of time and opportunity: document was short and obvious
• Even if she was mistaken they took sufficient efforts to bring notice to plaintiff
Tilden Rent-A-Car Co. v. Clendenning (1978) BC CA

Analysis:
• Exclusion clause is contrary to nature of contract, it was hidden in the contract with small
print on the back, it was significantly onerous and rigid, and agent knew he didn’t read it
23
e) Exclusion Clause is Incorporated

England
• Dennings approach to exclusion clauses was assuming it’s incorporated, if the breach that
actually happens is of such a magnitude that it goes to the root of the contract then he isn’t
going to enforce the contract. This was called the doctrine of the fundamental breach
• House of Lords rejected Dennings approach and created a new approach which was a pure
construction approach which meant they would look at the contract and exploit every ambiguity
to find the clause wasn’t applicable but if they couldn’t find an ambiguity, it would cover the
breach and it was enforceable
Canada
• Canada didn’t know which approach to apply so there was a lot of conflict initially
• It became the “all things fairness approach” in Canada; if it was unfair to enforce it wouldn’t be
• Everyone is following different approaches
Hunter Engineering Ltd. v. Syncrude Canada Ltd. (1989) SCC

Analysis:
• All judges agreed that the HL “pure constructive approach” would not be accepted
• All judges agreed that judges should have some ability to exert judicial control over exclusion
clauses given policy considerations
• But they didn’t agree on how this was to be done
• Wilson: court can strike out the exclusion clause if at the time of the actual breach it would be
unfair to enforce it – fundamental breach
o What does unfair mean?
• Dickson: you can invalidate an exclusion clause if upholding it would be unconscionable
o What does unconscionable mean? In the contractual sense or normal sense?
o Contractual sense: if there is an inequality of bargaining power during the time the
contract is formed, and one party exploits the other parties weaker position, then that
would be unconscionable (learn more about this later)
o If he means it in this sense, which is likely:
i) It is an extremely narrow way to eliminate exclusion clauses
a. Limits judges ability
b. For Commercial parties, often have equal bargaining power
ii) There is a timing difference compared to Wilson
a. Focuses at time of contract formation, not the breach
Tercon comes along and becomes the new law.
24
Tercon Contractors Ltd. v. British Columbia (2010) SCC

Facts:
• There is a tendering system, with 6 pre-approved bidders

• Contract A is formed with the gov’t upon submission of tenders
• Gov’t has an exclusion clause that says, “no bidder shall have any claim or any compensation of
any kind whatsoever, as a result of participating in this process”
o Obviously to allow the gov’t to accept non-compliant bids
• An approved bidder joins together with another company, who is not approved, and this is the
bid the gov’t chooses
• Tercon says that this new company is not approved, so their bid is not a compliant bid
Issue:
• Is the exclusion clause binding? Does it cover the actual breach?

• Does it override the duty to only accept compliant bids?
• Are there any policy considerations to apply that would result in throwing out exclusion clause?
Rule:
1. Does the clause actually cover the breach? (Step 2 from 3 steps process – nothing new)
2. Was it unconscionable at the time the contract was made? (Like Dickson in Hunter)
3. Should the court nonetheless refuse enforcement based on an overriding issue of public
policy? (Like Wilson in Hunter)
Analysis:
• For step 2 and 3 we look at Hunter to see how they are applied
• Step 2:
o Look at the time the contract was made, not the breach
o Still narrow circumstances
• Step 3:
o This is at the time of the breach, not formation
o Examples given: serious criminality, egregious fraud i.e. selling adulterated baby milk
o Very narrow circumstances
• But the courts don’t even reach these steps
• It fails at step 1, as they say it doesn’t cover the breach
• Took an extremely narrow interpretation of the clause and said it only applies to the pre-
approved bidders, of which the new company was not
• Perhaps indicating a “super enhanced” contra preferendum rule
Conclusion:
• Appeal dismissed
25
f) Summary – Steps to Take
1. Is the exclusion clause incorporated?
2. Does the exclusion clause apply to the breach?
o Contra Preferendum Rule: If there is ambiguity in the clause it is interpreted in favour of

the non-drafter.
Seen in Hunter Engineering and Scott v. Wawanesa
3. Should we nevertheless not enforce the exclusion clause for policy reasons?
o In general, we should enforce the exclusion clause that is in the contract
o Lord Denning did not like exclusion clauses, so through his court decisions he rewrote
the rules for exclusion clauses
If the breach that happens is of such a magnitude that it goes to the very root of
the contract, then he is not going to enforce the clause: “doctrine of
fundamental breach”
Based on fairness and flexibility
o House of Lords did not like what Denning was doing, so rejected his rulings
“Pure Construction Approach”: they would try to exploit every ambiguity that
may be present, but if they couldn’t find an ambiguity then it was enforceable
Based on commercial reality and freedom of contract
o In Canada, judges were confused what approach to follow
Problem 1: Both approaches accepted in Canada in various cases
Problem 2: Denning’s approach started to change into something else through

Canadian law; an exclusion clause can be excluded if it is unfair to enforce; “all
things considered approach”
Hunter Engineering (1989) tried to make things clear – but still had difficulties
Tercon (2010) came along and it is now the standing law
26
II. Avoiding Performance: Mistakes and Frustration
Unilateral Mistake as to Terms
Party X knows that Party Y is mistaken about what X is promising, a term, if the first party X
nevertheless snaps up the contract.
With unilateral mistake the contract is void ab initio.
• Void ab initio means the contract is void from the beginning

• We are not talking about breach of contract, because there is no contact
Remedies
• What if benefits have been exchanged under the belief a contract existed?
o Everything that as been given will be returned – restitution
o The benefits must be returned because of unjust enrichment law
Smith v. Hughes (1871) UK

Facts:
• Hughes was a racehorse trainer, who wanted to buy oats

• Smith brought him a sample of oats, and Hughes ordered oats from Smith
• The oats arrived and Hughes refused them as they were new oats and he wanted old oats as
these are the kind of oats racehorses can eat
• Hughes refused to pay and Smith sued for breach of contract
Issue:
• How do we determine if a unilateral mistake exists?

Rule:
1. One party must actually be mistaken as to the terms of the contract.

2. Other party must know that the first party is labouring under a mistake as to the terms.
3. The second party decides to snap up the offer nonetheless.
• Point 1: The mistake must be in regard to the terms, the promise.

• An assumption of the terms is not enough; the first party must show that the other party is
indeed promising the term. Assumptions are not actionable.
• Point 2: The second party must have subjective knowledge. (In Canada)
27
R. v. Ron Engineering (1981) SCC

• Tender case (looked at earlier in year)
o A bid was submitted with deposit
o Bid was significantly lower than it should have been due to error
o Bidder realizes his mistake and wants to retract his bid – doesn’t want it to be accepted
o Owner says that if you retract he gets to keep the deposit
• Contract A and Contract B analysis was invented so that they can find a contract, so that they
can imply obligations – they want to protect the integrity of the bidding process
• Some obligations:
o On Owner: Treat all bids fairly
o On Bidder: Not to revoke bid once it is tendered
• These obligations would not be possible without Contract A and Contract B, because under the
old law a call for tenders was considered and invitation to treat
• Before Ron Engineering, the law was simply Smith v. Hughes
Unilateral Mistake Argument
o Bidder Argument: bidder informed the owner of his mistake, so he can’t accept it
o Court: because contract A is completed upon submission of the bid, contract A is over – so
the owner cannot snap up the bid as it is already complete
o Conceptually, the owner doesn’t have to do anything to accept as the act of submission is
the completion of the contract
o Practically, it would be impossible for a bidder to argue Smith v. Hughes
Solution
o If the owner subjectively knows about the mistake in the bid, then Contract B could be void
ab initio
o This would mean Contract B cannot be accepted – problem remains that A is still not
actionable and could not get deposit back
o How would you show the owner subjectively knows there is an error?
Commercial reality – if the bid is grossly low compared to the others
Obvious error
The bidder tells the owner
o Can Contract A ever be void ab initio? Yes, if it doesn’t meet requirements of A, meaning it
is non-compliant (in a non-trivial way)
28
Agreements Made Under Mistaken Assumptions
Both parties are mistaken, and they share the same mistake/assumption – it is a common mistake. For
example, a set of facts are believed by both to be true, but turn out not to be.
Historically, common mistake was govern by common law. If you had an actionable common mistake
then it was void ab initio. In Solle v. Butcher, Denning decided that he did not like void ab initio, so he
narrowed the circumstances where a void contract situation can arise and broadened the circumstances
where a voidable contract situation can arise. He also made it an equitable mistake instead of a common
law mistake, allowing the judge to have more options as to how to deal with the common mistake. A
common mistake at common law is still void ab initio, it is just less likely to come about. A common
mistake at equity is voidable.
Why does Denning make these changes? What are the policy rationales?
1. Consider the effect that rendering a contract void has.

o The party may have wanted to have a contract, and thought they had a contract. Now
they don’t have one.
o There are serious implications from this. For example, a contract party may have already
passed on goods to a third innocent party, who would no longer be entitled to those
goods as the contract party was never entitled to them.
o The common law is rigid, so there is no discretion to try and make the contract work – it
is just void
2. Freedom of Contract
o Parties should be able to engage in the contracts they wish to
3. He doesn’t like the all or nothing approach.
o At common law it is either void or good
o In equity, the contract can be voidable and put aside, or other remedies can be pursued
Recall:
Void – contract never existed, as looked at last class
Voidable – contract can be set aside (rescinded), subject to certain fairness constraints
29
In England there are four stages of progress for common mistake:
1) Pre Solle v. Butcher

o Bell v. Lever Brother Ltd. – governing decision in England
o One type of mistake, common law mistake
2) Solle v. Butcher
o Significantly narrows common law mistake
o Invents the wider equitable mistake
o Now there are two types of common mistake
1. Common mistake at common law – run this first
2. Common mistake at equitable law
3) Post Solle v. Butcher
o Lord Denning’s doctrine gets developed by Denning and entrenched
4) Great Peace Shipping
o Lord Phillips dismisses Lord Denning’s equitable mistake
o Said he made it up and it is no longer available in England
o In English Law, there is now only one type of mistake – common law
In Canada:
1) Post Solle v. Butcher

o Canada accepted Denning’s doctrine for common mistake
2) Great Peace Shipping
o Notes that it was rejected in England
o The Canadian courts rejected Lord Phillips decision in Great Peace Shipping
o We still hold Denning’s doctrine – two types of mistake
30
Bell v. Lever Brother Ltd. (1932) UK HL

Facts:
o The company has two executives, and the company wants to get rid of them
o They sign an agreement to terminate them, with severance
Employment Law: you can get rid of people in two ways
I. With cause. If there is good reason to fire them.
II. Without cause. You give them severance, don’t need a reason.
Corporate Law: there are fiduciary duties
The directors and executive have a duty to the company
o It turns out, after the fact, that the employees breached their fiduciary duties so they could
have been fired with cause – neither party knew this
o The company said that there is a common mistake/assumption – there was the assumption that
they were good employees and that there was no cause to fire them
o Had they known, they would not have paid them severance and would have fired them
Rule:
o Common mistake at common law test

• Parties both share a mistaken assumption
• Mistake is to the existence as to some quality which makes the thing without the quality
essentially different from what it is believed to be
• Lord Atkins: The thing actually contracted for is different in kind from what the party
assumed they were contracting for
Analysis:
o Is an agreement to terminate a broken agreement (bad employee) different in kind from

terminating an unbroken agreement (good employee)?
o Lord Atkins said no, and decided that this is not a common mistake as it is essentially the same
o What they contracted for was a termination agreement, and that is what they got
o The test is deliberately narrow as they don’t want to find contracts void – there needs to be
commercial certainty when it comes to contracts
Other Examples given in Bell v. Lever
• X and Y contract for the sale of a horse. They both assume the horse is sound. It turns out the
horse is not. But, no common mistake. The contract was for a horse and a horse was received.
• X and Y contract for the sale a piece of art. They both assume that it is a genuine masterpiece. It
turns out that it was a mistake, it is a fake. For Lord Atkins, there is no common mistake. The
contract was for a piece of art and that is what was given.
• Lord Atkin’s does not consider the value, even though that there is a huge difference in value for
the examples and in the case at hand
31
Solle v. Butcher (1949) UK CA

Facts:
o Landlord rents a flat to a tenant for seven years at a certain rate

o When arriving at the price the parties discussed if there were applicable rent controls
o They thought they weren’t, but they were wrong – there was a limit for how much you can
charge which was less than the charged rate
o When tenant found out about the rent controls he asked for a rebate for the past rent
o The landlord replied that the contract is void ab initio as there is a common mistake
o So the tenant has no contract to stay there, and can be kicked out
Rule:
1. Apply Lord Atkin’s formulation - take the extremely narrow approach to the common law
approach to common mistake. If it doesn’t apply, go to 2.
2. Equitable mistake for common mistake.
i. A contract that is valid at common law can be set aside in equity whenever the court is
of the opinion that it is un-consciencous for the contract to stand and setting aside the
contract won’t harm innocent third parties who have relied on the contract.
ii. If the parties were:
a. under a common misapprehension either to the facts or their rights,
b. that misapprehension was fundamental, and
c. the party seeking to avoid the contract was not at fault,
then the contract is voidable.
Analysis:
o The parties agreed on the same terms as to the same subject matter – the fact that they both
assumed the rent controls did not apply is not enough to satisfy the common law approach –
they wanted a flat and they got a flat
o There was an operable mistake – both parties believed the property was not subject to rent
controls, and neither party was at fault
o The mistake is fundamental to the contract – the rent price was important to the parties
o 250/year is a big difference from 140/year and is fundamental – a difference in value
o This equitable approach is very different from Lord Atkin’s common law approach
32
McRae v. Commonwealth Disposals Commission (1951) Aust. HC

Facts:
o Commonwealth sells McRae a sunken tanker so they can salvage it

o When McRae gets there the tanker is not there
o The reason McRae thinks there is a tanker is the gov’t said there was
o The reason the gov’t thinks there is a tanker is the gov’t heard there is one
Rule:
o If it can be said factually that one of the parties has impliedly promised that the mistaken thing
is true, then the doctrine of mistake does not apply.
o This is a way to avoid the common mistake doctrine – implied promise – cannot be void
Analysis:
o Court said there is no common mistake, Bell and Lever Brothers doesn’t apply
o The contract is not void, and they give McRae expectation damages
o The gov’t sold the salvage rights to McRae, and in doing so it impliedly promised that the thing
to be salvaged (the tanker) exists
o The tanker does not exist, so this is a breach of contract, not common mistake
o The court wanted to avoid the common mistake doctrine, because the gov’t was lazy and didn’t
look into the tanker when they should have – McRae benefits from contract
Great Peace Shipping v. Tsavliris Salvage(2002) UK CA

Facts:
• There is a ship stranded of the coast

• A salvage company is called for help, and they find and hire a tugboat (Great Peace) to come
help save the stranded ship
• The salvage company enter into a contract with Great Peace
• The parties thought the Great Peace was 35 miles from the stranded ship, when in fact it was
410 miles away
• The salvage company, upon learning this, finds someone else to do the work
• The salvage company refuses to pay anythin, despite 5 day cancellation fee in contract
• The salvage company claims the contract is void because of the common mistake
Analysis:
Equitable Mistake
• Lord Phillips rejects equitable mistake

Common Law Mistake
• Lord Phillips purports to follow Lord Atkins test in Bell v Lever Brothers
33
• He reformulates the test from Bell

1. There must be a common assumption to the existence of the state of affairs.
2. There must be no warranty be either party that the state of affairs exists.
3. The non-existence of the state of affairs must not be attributable to the fault of either party.
4. The non-existence of the state of affairs makes performance of the contract impossible.
The Test Broken Down
1. There must be a common assumption to the existence of the state of affairs.

2. There must be no warranty be either party that the state of affairs exists.
o Warranty means terms here – a contractual promise
o Incorporates point from McRae
o If either promise impliedly promise the fact, then the doctrine of mistake does not
apply
3. The non-existence of the state of affairs must not be attributable to the fault of either party.
o If the reason the thing does not exist is the fault of a party (eg. they destroyed it),
then common mistake does not apply
o It is extremely narrow – can’t destroy the subject matter and then say that you were
mistaken about its existence
4. The non-existence of the state of affairs makes performance of the contract impossible.
o Synonymous with the difference in kind test that Lord Atkins uses
o The promise is essentially different than the kind agreed upon in the contract, such
that the contractual promise cannot be carried out as agreed – the assumption is
confounded and renders the contract impossible to perform – the contract is devoid
of purpose (p. 578)
Application of Test in Great Peace Shipping
• Performance is not impossible in this contract – it is not devoid of purpose

• The purpose of the contract is to save the ship, and despite the difference in distance the ship
can still be saved – despite taking more time and costing more money
• An important fact is that they didn’t cancel the contract until they found another ship,
suggesting that they were willing to accept the Great Peace if they couldn’t find another ship –
evidence suggest the salvage company still thought the contract had value
34
Miller Paving Ltd. V. B. Gottardo Construction Ltd. (2007) ONCA

Facts:
• Miller believes Gottardo has paid all its bills and gives them a release statement
• Miller later finds out that they are owed more money from Gottardo
• They want to get that money from Gottardo but there is a contract releasing them
• Miller says that there was a common mistake
Rule:
1. Run the common mistake at common law test. If no mistake is found, proceed to
equitable mistake.
o Court endorses McRae’s implied promise rule, making common mistake not
available in certain circumstances where risk is allocated by one party
o Court endorses Great Peace’s impossibility of performance
o Court endorses Great Peace’s not at fault portion
2. Run the common mistake at equity test.
o Court takes Great Peace’s not at fault portion and applies it to the equitable test as
well
Analysis:
• There is no common mistake, the release contract is binding

• There is no doubt that a mistake was made but it is not recognized at law
• Both types of mistake, common law and equitable, are entrenched in Canada
• The court states that they both should continue in Canada (rejecting Great Peace)
• The court endorses the structure from Solle with modification
• The court said that the risk was allocated to Miller, as it stated this in the contract and in
commercial reality the risk is typically placed on the supplier
• So, Miller can’t rely on the mistake to void the contract
• Also, Miller was at fault for the mistake – they made a sloppy accounting error
*fault here is different than fault in Great Peace, which is different from fault in Solle*
Denning = sneakiness; Phillips = destroying; Miller = careless or sloppy
• Further, the release contract is not essentially different now than it was before – a release
agreement was signed and a release agreement was got
•
35
a) Summary – Steps to Take
General Points:
• There are different types of mistake

o Bell and Lever – common law mistake
o Solle – equitable mistake
• There are different remedial consequences that fall from this
o Common law mistake – void
o Equitable mistake – voidable: could be set aside, could be partial rescission
• There is tension existing between what Canada does and what England does
o Solle well established for a long time in both countries
o Great Peace dismissed equitable mistake in England
o In Canada, Great Peace was considered and not followed
o In Canada, we affirmed Solle but modified common law and equitable mistake
o Is ONCA binding on all of Canada? What should BC do? Policy considerations?
Lord Phillips wants a narrow and certain approach, in favour of commercial
certainty
Lord Denning doesn’t like the automatic voiding of contracts, and wants
remedial flexibility
Steps
1. Threshold Question: Has one party allocated risk?

o Seen in McRae, Great Peace, and Miller
2. If no, apply common law mistake.
o Discuss Bell v. Lever brothers
o Examples of how it was applied
3. If common law mistake doesn’t apply, go to equitable mistake.
o Apply Solle v. Butcher
o If it succeeds, discuss remedial options
36
Mistakes as to Identity
• Mistakes as to Identities fall under Unilateral Mistakes as to Terms, but it is a separate sub-
entity so we will treat it as its own thing
• If there is a Unilateral Mistake as to Identity the contract is void ab initio
Two people, A and B, enter into a contract for a title, but B is a fraudster. A finds out B is a fraudster but
by that time B has entered into a contract with C for that title.
Shogun Finance Ltd. v. Hudson (2003) UKHL

The Test for Mistakes as to Identity:
1. A intended to contract with a specific person – B.

2. The mistaken party, A, must show that the other party knew the first party is mistaken.
3. At the time of the contract, the identity of B was crucially important to A.
4. A must have taken reasonable steps to verify the identity of B at the time of contract.
If these four things are proven then the contract is void ab initio.
Application to Shogun:
1. Shogun intended to contract with Mr. Patel. The contract required Mr. Patel to sign, and the
fraudster signed as Mr. Patel.
2. The rogue knew that the car dealer was mistaken as he used the stolen id to pose as Mr. Patel.
3. The identity was crucially important. The contract depended on the credit of the purchaser, and
the credit is tied to the person. They also made him sign to finalize the contract, signifying it was
important.
4. ID was taken, a background credit check was made with the bank, they checked his name
against the electoral role and Mr. Patel was a real person living at that address.
• All four elements were met

• No title was passed, because the contract was void ab initio
• Mr. Hudson is out of luck
• The 4th element is new to Shogun. In the old confusing cases it tended to be that the person who
was careful would win while the non-careful person would lose. Lord Phillips brought it into the
test.
• Between A and C, one of them is going to lose. So if one of them was careless, then they are
slightly more guilty than the other and should bare the burden of loss.
37
Non Est Factum
Non est factum = “it is not my deed”
• I didn’t know what I was signing, it was not the agreement I thought I was agreeing to
• Historically, the person was illiterate and signed the document which they were told was a
certain kind of agreement when it was actually not
• If non est factum is proved the contract is void ab initio
Saunders v. Anglia Building Society (1971) UK HL
Two key factors:
1. The document must be fundamentally different (totally different) than what it was thought to
be.
2. The person who signs the document can’t be careless in the signing.
Marvco Color Research Ltd. v. Harris (1982) SCC
• Marcvo endores Saunders for the test in Canada

• The factors are extremely narrow
• There are two policy considerations for this:
o Commercial Certainty: if everyone could get out of a signed contract by saying they
didn’t read it there would be no commercial certainty
o Competing Innocence: both parties are innocent, but the careless party is more guilty so
should bare the loss
• Carelessness is fact-dependant – the magnitude and extent of carelessness should be
considered – A tiny bit of carelessness may not be enough
• If you sign a document without reading it, that is sufficiently careless
• Motivations are irrelevant when assessing carelessness
38
Rectification of Mistake
It is an equitable remedy that arises from a transcription error. The parties agree to something orally,
and a mistake is made when writing the agreement down. A party will appeal to the court to rewrite a
contract to what it was supposed to say. It is a very narrow remedy.
In order to succeed, evidence is needed to prove that the agreement was different than what was
written. Oral evidence (parole evidence) is available to present as evidence, but there are complications
with this which we have looked at with the parole evidence rule. However, if the sole reason for
presenting oral evidence is for rectification of the contract then the parole evidence rule does not
apply.
Bercovi v. Palmer (1966) Sask. CA

• There is no limit on the types of extrinsic evidence that can be used to support your claim
o Incl. Oral evidence, written evidence, party conduct
• Extrinsic evidence from before and after the contract can be used
Bercovi v. Palmer (1966) Sask. QB
Analysis:
o The court looks at the conduct after the written agreement was made
The behaviour of the parties suggested that it was not meant to be included
o The court looks at pre-contractual discussion and written discussions
Both suggested that it was not meant to be included
o The contract is not rectified as the purchaser asked.
o Rather, the erroneous reference was struck out.
39
Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd. (2002) SCC
There are four things that need to be proven:
1. There is an oral agreement between the parties.

2. The written document is different than the oral contract and that they knew or should have
known at the time that the written document did not correspond with the oral agreement.
o There is an inequitable fraudster. They knew the written agreement was not the same
as the oral agreement, but now they try to enforce the written agreement as the real
agreement the whole time. “sneakiness”
3. Plaintiff must show the precise form in which agreement can be rectified.
o The court will not reopen the document.
4. Establish the first three to a standard of convincing proof – higher standard.
• The court rejects a 5th requirement, regarding carelessness.

• Carelessness is not one of the hurdles, but the court will consider carelessness as a factor.
• If fraud is established, carelessness will not block a claim to rectification.
• If there is no fraud, then the amount of carelessness is considered and whether or not they were
commercial parties.
Analysis:
• The oral agreement was for 110 yards of land.

• The written agreement states 110 feet of land.
• The plaintiff wants the agreement corrected, which the court did.
• The court found there was an oral agreement.
o There was extrinsic evidence to support this claim
o A key piece of evidence included a correspondence between the two
• The court found that the defendant was a fraudster.
o The defendant wrote down the wrong unit of measurement on purpose
• There was a specific and clear change asked for.
• The convincing proof included the correspondence, other witnesses, and the fact that the
plaintiff was more credible as the defendant was a fraudster.
40
Frustration
What is frustration?
• A defence – an excuse for non-performance

• A contract is frustrated when a supervening event occurs after the formation of the contract but
before the performance date, which makes it nearly impossible to perform the contract.
• Generally speaking, the parties assume that the state of affairs present at the date of formation
will carry on and continue till the date of performance
e.g. Taylor v. Caldwell
o A contract to rent a dance hall is made – fire destroys the dance hall
o Doctrine of Frustration applies because renting the dance hall is impossible
Frustration vs Common Mistake
Common Mistake
• Assumption that a state of affairs exists at the time of the contract, but then it turns out the
state of affairs didn’t exist at the time of formation of the contract
• At common law: renders the contract void
• Equitable: renders the contract voidable
Frustration
• Assumption that a state of affairs that is present at formation of contract will continue on to the
time performance occurs/completes, but then an unforeseen event happens that makes this
state of affairs impossible to continue
• Similar principles apply to both situations – but they are different
• Frustration has nothing to do with void, void ab initio, voidable, bars to rescission
Principles of Frustration
o Rick allocation: Who should the blame fall on? Does one party assume the risk?
If one of the parties assumed the risk that the state of affairs might change before
performance, then they cannot use frustration as a defence
Remedial Effects of Frustration
o Both parties are relieved of performing their future obligations

o Any past performance that has already been exchanged is not returned
41
Three Stages of Development for the Doctrine of Frustration

1. Pre-Frustration
• Paradine v. Jane
o Takes a very strict approach to the doctrine of frustration
o Rejects idea that an unforeseen event can change a contract
o Frustration is not really possible
2. Implied Terms Analysis
• Taylor v. Caldwell
o There is an implied term that the very thing contracted for has to exist up and to
the date of performance
o There is an implied term that if that thing ceases to exist, then the contract is
excused
o Benefit: Had the parties turned their mind to it, it would have been an obvious
term to the contract – considers intention of parties
o Problem: It is a legal fiction – the parties didn’t turn their minds to it – if the
thing is unforeseen how can we say they intended to include it?
3. Modern Approach
• Davis Contractors v. Fareham UDC
o It clearly rejects the implied term analysis
o It replaced that approach with the construction approach
Look at the nature of the promise
Has there been a supervening event such that it is radically different
circumstances now compared to what is envisioned?
Not possible to do what was contracted – then frustration
o Not excused due to intention, but because of judicial policy
o Also, look to whether parties have allocated the risk
Stage 1: Pre - Frustration
Paradine v. Jane (1647) UK

Analysis:
• Radically changed land:

o Invading armies came in and took over the land
o The armies drove him out
• He contracted to use the land, and even though he can’t use the land he has to pay for it
• The deal could have turned out good or bad, but the renter assumed this risk
o The defendant could have protected himself in the contract, but didn’t
42
Stage 2: Implied Terms Analysis
Taylor v. Caldwell (1863) UK

Analysis:
• The thing that they contracted for, the hall, was destroyed – by no fault of either party
• It is an implied term of the contract that the thing contracted for exists and can be used
• You can’t use the dance hall if the hall no longer exists
• The contract is frustrated
Stage 3: Modern Approach
Davis Contractors Ltd. v. Fareham UDC (1956) UK HL

Rule:
• rejects implied term approach

• Construction Approach
o Frustration will apply if performing the contract now calls for something radically
different from that which the parties intended at the time of formation
Construct the contract at time of formation – what is the deal about?
Consider nature of the unforeseen circumstance that has arisen
• There are two key limits:
i. The change in circumstances must not be the fault of either party
ii. Neither party must have born the risk that the circumstance will change as
they have
• Risk allocation (from ii) – Implicit in Davis Contractors:
o relates to how foreseeable or unforeseeable the event is
o the event must be truly unforeseeable for frustration to apply
o If the event is foreseeable, the court will work harder to place the risk on a party
o If the event is foreseeable, reasonable parties would allocate the risk
Analysis:
• A contractor wanted to build a bunch of houses in 8 mths

• Material and labour shortage resulted in the contract being completed in 22 mths
• The court says the contract is not frustrated
• The circumstances were not unforeseen, it was obvious at the time of the contract that these
kind of things could arise – sophisticated commercial parties in post-WWII period
• In the context of the contract, it seems the contractor would bare the risk
o The contractor submitted a bid to work, and calculated a fair price
o The contract specifically said there was a fixed date for completion, and there was a
penalty clause for being late
o This indicates the parties meant for the contractor to bear the risk
43
Capital Quality Homes Ltd. v. Colwyn Construction Ltd. (1975) Ont. CA

Analysis:
• A change in zoning requirements prevents the contractor from performing his side by the time
completion was agreed on
• The purchaser wants out of the contract and states the contract is frustrated
• The court agrees
• Do the limits apply?
o Was the change in legislation the fault of either party? NO.
o Risk allocation: was change foreseeable? NO.
• Frustration Test (Construction Approach):
o Examine contractual promise in context of formation.
The promise was to create 26 lots
o Compare this to the change in circumstances in light of the supervening event.
The legislative change
o Are the new circumstances such that requiring the party to perform the deal requires
them to do something radically different than what they first promised?
YES – there is frustration
26 lots is not impossible, now only one big lot is possible
This is radically different in the context of the commercial venture that was
contracted for
Edwinton Commercial Corporation v. Tsavliris Russ - The Sea Angel (2007) UK

• Not required to read – but explains what foreseeability means
• Not the same meaning as in tort – not any possibility
• Foreseeability: Ordinary person of ordinary intelligence would think it is likely to occur
o Shifts depending on nature of parties – i.e. sophisticated parties, professional…
Maritime National Fish Ltd. v. Ocean Trawlers Ltd. (1935) PC

• Example of self-induced frustration – so they are at fault and frustration does not apply
a) Summary – Steps to Take

1. State the test: Construction Approach
2. Set the test out, from Davis Contractors
3. Set out the two limits.
4. Apply the test and then the limits.
44
III. Relief for Weaker Parties to Contract
Undue Influence
One party’s free will to contract has been overborne by another person’s will.
Remedy
• It is voidable – you can get rescission

• The parties can be put back into the position they were in prior to the contract
• Bars to Rescission then apply
o Restitutio
Applied here as it is applied in fraud context – flexible, not strict
As such, It doesn’t really act as a bar
Court will probably award money rather than the return of property
Like fraud, it is not an innocent behaviour
o Affirmation
Once you have freed yourself from the influence, regaining your own will
If, at this point, you choose to accept the contract then it is affirmed
o Innocent BFPV
Undue Influence can be proven in two ways:
1. Actual Undue Influence (often referred to as Type 1 situations)

o The plaintiff has to prove on B of P that they were unduly influenced in regards to the
contract – i.e. I signed it but I didn’t want to
o Historically (Aboody), have to show that plaintiff’s will was overborne with respect to
the particular transaction, and you must show that the deal was a manifestly
disadvantageous
o The second element no longer exists – just have to show undue influence
2. Presumed Undue Influence (Type 2)
o For certain types of transactions that are suspicious given the situation, the
presumption will rise and the defendant will have to rebut it.
o Type 2A: Presumption arises because the relationship fits into a recognized class of
influence. (+ suspicious transaction)
Pg. 682 provides list of influence (includes: Doctor-Patient, Parent-Child,
Teacher-Student *Husband-Wife relationships are not on this list*)
o Type 2B: Presumption arises because this history of facts about these people shows a
relationship of influence. (+ suspicious transaction)
Look for Trust, confidence and influence
45
Geffen v. Goodman Estate (1991) SCC

Facts:
• The mother dies and leaves everything to her daughter – residue to daughter’s kids
Issue:
• When does undue influence exist? (2B situation)

Rule:
• Traditional English test endorsed (Dominating Influence)

1. Potential for persuasive influence.
2. Suspiciousness of the transaction.
Wilson and Cory: Endorse manifest disadvantageous approach
o P must show they were manifestly disadvantaged or D was
manifestly benefited
McLachlin and La Forest: Express doubt on manifest disadvantageous
o Why does the deal have to be scrutinized?
Sopinka: Does not weigh in on it – says it is obiter
• Look at Wilson’s decision (683-684): explanation of what dominating influence means

persuasive influence – focus on the potential for influence
Analysis:
• The court said there is a potential for influence
• She was vulnerable as her mother had just died and she trusted her brothers for advising her on
her affairs
• She also had bi-polar disorder which may have made her more easily persuaded
46
Royal Bank of Scotland Plc v. Etridge (No.2) (2001) UK
• Criticisms to Manifest Disadvantageous Approach

i. It is vague and used inconsistently. How disadvantageous does it have to be?
ii. Conceptually, it should not be required. We are looking at consent to the contract. It
shouldn’t matter whether the deal is a good one or not.
iii. Type 1 situations do not use it, so why should Type 2 be different?
• Court does not reject this approach, but they replace it with a different standard
o Not rejected – there has to be some scrutinizing standard or the presumption would be
too broad (all type 2A relationships would carry presumption)
• Part 2 of the Test now in England

o Is the transaction itself not readily explicable for the type of relationship?
Look at degree of disadvantage
Look at how vulnerable the party was
Rebutting the Presumption
• One way is you could show they received independent advice

o Was the situation explained to them?
o Were options laid out for them?
o Need to understand the advice
• Need to show that they made the decision by their own will
47
Unconscionability
Unconscionability is where there is an inequality of bargaining power in the formation of the contract
and an unfair deal has resulted.
This can be broken down into two parts:
• Procedural Inquiry
o The inequality of bargaining power
o Look at the procedure surrounding the formation of the contract
• Substantive Inquiry
o Whether the deal was actually unfair or not
How is it different from Undue Influence?

Undue Influence
• Concerned with consent – or lack of – because the will was overborne
• Dealing with the relationship between the parties (trust and influence)
Unconscionability
• There doesn’t have to be a relationship – it can arise between strangers
• Concerned with fairness – or lack of – due to unequal bargaining power
Issues with Unconscionability:

i. Freedom of Contract
o If they consent (agree) to the deal then it shouldn’t matter if it was fair or not
o There was a meeting of the minds and the courts should respect this
ii. Certainty
o How do we know what the court will or will not uphold?
o How unequal does it have to be before the doctrine applies?
o How unfair does it have to be before the doctrine applies?
48
Remedy
• If unconsionability is found then the contract is voidable – rescission
• Bars to Rescission apply

o Restitutio: applies like in the context of fraud – loosely and flexible
o Affirmation: If the party is told it is unfair but agree to it anyways.
• Bars apply in theory, but in reality they don’t really take place
o The court wants to provide a remedy to the unfairness – not bar it
• Tercon allowed for partial rescission
Two Important Notes from Tercon:

1. Tercon test (step 2) is about unconscionability so today’s class will apply to that test
2. Tercon permitted partial rescission (throwing out a clause) due to unconsionability
o Problem: creates more uncertainty
o Problem: courts are rewriting the contract on fairness grounds (pick and choose)
o Problem: Tercon provides no justification for why you can do this
49
Morrison v. Coast Finance Ltd. (1965) BC CA

Facts:
• Old lady mortgaged her house, and gave the money to some strangers, her tenants, on their
request
Rule:
• Test for Unconscionability:
1. Serious inequality of bargaining power
o Ignorance, distress, advanced age
2. Substantially unfair deal.
• If these two are proven, on B of P, there is a presumption of unconscionability and the onus
turns to the other party.
• The other party must show that it was fair and reasonable.
Analysis:
• The court said there was inequality of bargaining power
o The lady is old, she lacked experience in mortgaging a property
o The old lady sought legal advice but the lawyer could not giver her advice without
knowing more
o The bank is a sophisticated party
• The court said the deal was substantially unfair
o She took on a big mortgage and had no way to pay it back
o She didn’t receive any benefit out of it – the money wasn’t for her
o The bank knew this was a terrible deal
Conclusion:
• Mortgage is set aside in equity – she didn’t have to pay
Marshall v. Can. Permanent Trust Co. (1968) AB

Facts:
• Old man living in a retirement home sells a ½ acre of his land
• The old man has a stroke and is committed to a hospital – no longer has capacity
• A committee, on behalf of the man, says that they are not going to allow the deal to go through
Rule:
• Endorse test from Morrison vs. Coast Finance
• Both elements of the test need to be satisfied
• Court states that the stronger party is not required to know that they have the stronger
bargaining power or that it is a bad deal
Analysis:
• There is clearly inequality
o He is an old man and doesn’t really understand contracts
o He had some disorders prior to the stroke
• The deal was unfair
50
The next two cases differ from the first two. They are controversial, and they are not the law.
Lloyds Bank v. Bundy (1975) UK CA

Rule:
• Denning unites many of his doctrines under one big principle
• Inequality of bargaining power

o Whenever there is an inequality of power equity can step in
o They can rescind
Analysis from Morrison test:
• Is there a serious inequality of bargaining power?

o Perhaps, but not as strong as the other cases
o He had no legal advice and he wasn’t given much time to think about it
o Bundy is a mild mannered, agreeable man
• Was the deal unfair?
o Yes, Bundy had no other assets than his house and tree farm
o The deal was for more than his assets were actually worth
o The bank just extended the son’s line of credit – Bundy didn’t get direct benefit
Harry v. Kreutziger (1978) BC CA

Analysis from Morrison Test: (MacIntyre)
• There is serious inequality

o The man is not educated – gr. 5 level
o He has no experience in selling boats
o He is a meek gentle guy
o The buyer was an aggressive businessman who approached him repeatedly
• The deal is unfair
o The market value of the boat with the license is worth $16 k and it was sold for $4500
o The purchaser assured him it was not a big deal – he can get another license, which was
not the case
Analysis: (Lambert)
• Agrees with Lord Denning in Lloyd Banks

• Says one test is required:
o Is the contract sufficiently divergent from the standards of commercial reality?
o If yes then rescission (or partial rescission) applies
51
Business Practices and Consumer Protection Act (S.B.C.2004, c.2) ss. 4-10 (*)
• s.7 explicitly says it doesn’t eliminate the common law

• If the legislation applies you can choose between the legislation or the common law
• You’d want to choose the legislation because it offers certain procedural advantages over the CL
because s.9 establishes a reverse onus if you just throw unconscionability out there, the
other party has to prove they’re not this is nice
• It only applies to consumer transactions so doesn’t protect businesses
Application of this Division

7 Nothing in this Division limits, restricts or derogates from a court's power or jurisdiction.
Unconscionable acts or practices

8 (1) An unconscionable act or practice by a supplier may occur before, during or after the consumer
transaction.
(2) In determining whether an act or practice is unconscionable, a court must consider all of the
surrounding circumstances of which the supplier knew or ought to have known.
(3) Without limiting subsection (2), the circumstances that the court must consider include the
following:
(a) that the supplier subjected the consumer or guarantor to undue pressure to enter into the
consumer transaction;
(b) that the supplier took advantage of the consumer or guarantor's inability or incapacity to
reasonably protect his or her own interest because of the consumer or guarantor's physical or
mental infirmity, ignorance, illiteracy, age or inability to understand the character, nature or
language of the consumer transaction, or any other matter related to the transaction;
(c) that, at the time the consumer transaction was entered into, the total price grossly exceeded
the total price at which similar subjects of similar consumer transactions were readily obtainable
by similar consumers;
(d) that, at the time the consumer transaction was entered into, there was no reasonable
probability of full payment of the total price by the consumer;
(e) that the terms or conditions on, or subject to, which the consumer entered into the consumer
transaction were so harsh or adverse to the consumer as to be inequitable;
(f) a prescribed circumstance.
52
Prohibition and burden of proof

9 (1) A supplier must not commit or engage in an unconscionable act or practice in respect of a
consumer transaction.
(2) If it is alleged that a supplier committed or engaged in an unconscionable act or practice, the
burden of proof that the unconscionable act or practice was not committed or engaged in is on the
supplier.
Remedy for an unconscionable act or practice

10 (1) Subject to subsection (2), if an unconscionable act or practice occurred in respect of a consumer
transaction, that consumer transaction is not binding on the consumer or guarantor.
(2) If a court determines that an unconscionable act or practice occurred in respect of a consumer
transaction that is a mortgage loan, as defined in section 57 [definitions], the court may do one or
more of the following:
(a) reopen the transaction and take an account between the supplier and the consumer or
guarantor;
(b) despite any statement or settlement of account or any agreement purporting to close
previous dealings and create a new obligation, reopen any account already taken and relieve the
consumer from any obligation to pay the total cost of credit at a rate in excess of the prevailing
prime rate;
(c) order the supplier to repay any excess that has been paid or allowed by the consumer or
guarantor;
(d) set aside all or part of, or alter, any agreement made or security given in respect of the
transaction and, if the supplier has parted with the security, order the supplier, to indemnify the
consumer;
(e) suspend the rights and obligations of the parties to the transaction.
What does the legislation do?
• You can choose to rely on the common law or the legislation

• The legislation offers procedural advantages over the common law (s. 9)
• It shifts the onus on the defendant to show no unconsionability
• It only applies to consumer transaction
It creates a list of factors that must be considered (s. 8) – some must be satisfied in order for it to
53
IV. Remedies
The Interest Protected by Law: Expectation Interest, Reliance Measure,

Restitutionary Response
Expectation Interest
• The “essential, core remedy”

• The ruling principal in breach of contract cases is to put the victim into the position they would
be in if the contract had been performed p.791 (Sally Worthime)
• Give the victim the monetary value of the other side’s performance – of what they promised –
lost profits that they would have received, or even replacement costs in some cases
• Seen as a “natural” remedy
• Read excerpt on p. 783 – provides theoretical justification
o The possibility of expectation damages makes parties more motivated to fulfill their
obligations/promises
Reliance Measure
• An alternative claim to the general expectation interest – used way less frequently
• Compensating the victim for the losses they have actually suffered as a result of relying on the
contract
Restitutionary Response
• It is most relevant to unjust enrichment law (which is not taken up in this class)
• We are focusing on one type of restitutionary response: gain-based damages
• The compensation is based on the profit that the wrongdoer made
54
McCrae v. Commonwealth Disposal Comm. (1951) Aust. HC
Facts:
• The sunken ship never existed, so it is impossible to determine expectation damages – there is
no way to determine what value would have been found/gained
• McRae wants the money he lost during his attempts to find this non-existent boat and loss of a
chance to profit
Rule:
• To get reliance damages:
1. Must have in fact incurred a loss and must have incurred that loss because of
reliance on the contractual promise
2. The expenditures must have been expended in a reasonable way
• Limits on what can be recovered:
o To be recoverable the expenses that you incurred must be relying solely on this
contractual promise and they must now be wasted (of no value)
• Two different rationales for these limits:
i. Some people see this as a about causal-reliance: if you would have spent this money
anyways then the loss is not attributable to the other side’s wrongdoing
ii. Some people see this as about economic waste: if the money is wasted while relying on
the promise then you should get that money back – but if it is still useful, still of
economic value, then this money should not be recoverable as the benefit is still
retained
• Loss of chance is theoretically possible to obtain under the reliance damages
Analysis:
• McRae could recover the expenses to do with specialized salvage equipment, wages, fuel –
theses were expenditures that relied solely on the promise
• McRae could not recover capital expenditures that he would have expended anyways, and were
still of value to him – i.e. running lights, general boat maintenance, etc…
• These expenditures would have been made sooner or later anyways and the benefit holds
• McRae argues that loss of chance (reliance) damages should be awarded, as by relying on this
contract they passed up other salvaging opportunities – it passed on other profits
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Bowlay Logging Ltd. v. Domtar (1982) BC CA
Facts:
• Bowlay contracts to log an area
• Domtar contracts to deliver the trucks to ship out the logged material
• Domtar doesn’t supply the trucks so Bowlay sues for reliance damages
• However, Bowlay was a poor logger and was already losing money in their business – it was a
bad deal and Bowlay was incompetent in this logging venture
Rule:
• You cannot claim reliance damages if the contract, had it been performed, would have resulted
in a loss
• Court affirms McRae – that you cannot recover capital expenditures – BUT states that you can
get the depreciation of the value of the capital expenditures (p.799)
o If the equipment, for example, was used during the contractual activity, you can
recover the difference in value from the start of the activity (i.e. new equipment) to
the breach (used equipment value), as otherwise you would have still had new
equipment
Analysis:
• Domtar breached the contract, so normally expectation damages would be awarded, but their
breach actually prevented Bowlay from losing more money – so there is none
• Bowlay wanted to sue for reliance damages instead – to recover some money
• But Domtar’s breach didn’t actually cause the losses – Bowlay was out of money because of
their incompetence
• Further, the breach actually saved Bowlay lots of money – stopped them from bleeding money
• The court did not want to reward Bowlay for their losses as their losses were incurred due to
their own incompetence, not due to breach of contract
Sunshine Vacaction Villas Ltd. v. Governor and Company of Adventurers (1984) BC CA

Facts:
• They claimed lost profits (expectation damages) and reliance damages
Rule:
• You can’t claim both – they are alternatives
• Expectation damages are the general way to go, while reliance damages are an alternative when
expectation damages are not available
56
Summary for Reliance Damages

• The test is McRae
o Must have incurred a loss
o Must have incurred that loss because of reliance on the contractual promise
o The expenditures must have been reasonable
• There are limits
o Can’t have reliance damages if the contract was a losing contract – reliance damages
can’t be more than expectation damages (Bowlay)
o Can’t claim both expectation damages and reliance damages (Sunshine)
o Can’t have reliance damages for capital expenditures (McRae)
You can get reliance damages for depreciated value of capital expenditure
Attorney General v. Blake (2001) UK HL

Facts:
• Blake is a MI-5 agent – is a traitor

• Owed $90k from a publisher
• Attorney general says that they want the $90k as Blake is a traitor
Rule:
• You can have gain-based damages

o Only available in exceptional circumstances
o All other remedies must be inadequate on the facts of the case
o The victim must have a legitimate continuing interest from preventing the wrongdoer
from getting profits in this way
Analysis:
• Contract was a confidentiality agreement – no disclosure

• Blake breached this contract
• One justification is to prevent or discourage people from acting in this wrongful way
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Loss of a Chance, Cost of Completion, Loss of Enjoyment, Punitive Damages,

Liquidated Damages
a) Loss of Chance
Chaplin v. Hicks (1911) UK CA

Facts:
• Out of the Top 50, organizers were to choose a Top 12 for a beauty contest
• They sent the woman a letter that to be interviewed for the Top 12, but they sent it to the
wrong place
• She says she was deprived of the chance to be in the Top 12
• At trial, they jury awarded her 100£ - arbitrary award
Rule:
• The fact that damages cannot be assessed with certainty does not relieve the wrongdoer of the
necessity of paying (this case is cited all the time for this reason)
• There has to be some evidential foundation for loss of chance
Analysis:
• Her chance of be selected for the Top 12 was 1 in 4 (roughly)

• Problem: if she would have been picked for the Top 12, how would they evaluate that
• CA agreed with TJ and that this arbitrary amount was appropriate
b) Cost of Completion
Cost of Completion vs. Difference in Value
• The problem when you have something built is evaluating it – i.e. difference between what you
want and what was received
• Cost of Completion: owner can sue for the cost of building it right (to the promised state)
o More usual practice – give them what they actually wanted
o Problem: sometimes this is not desirable because it can create an injustice to the builder
The defects are minor but costs to rectify them are major – not proportionate
The owner doesn’t go ahead with the change – happy with current state
• Difference in Value: owner can sue for the difference in value between what is given and what
should have been given
• Both are expectation damages but are different ways of quantifying it
58
Groves v. John Wunder Co. (1939) US CA

Facts:
• The contract was to level an area of gravel – grate it

• Instead, the contractor came in and took the good gravel and nothing else
• This made the area even more un-level and all that was left was bad gravel
• Groves is suing to have the land returned to the state that was promised (cost of completion)
• The contractor argues that it would cost $60k and the house/land is not even worth 1/5 that
Rule:
• The cost of completion is the ordinary measure (the starting point)

• If the wrongdoer’s conduct was deliberate and outrageous, it will be more likely that cost of
completion is awarded
Analysis:
• It doesn’t matter what the value of the house or land is

• Just because the house is worth little does not mean that the conduct can be excused
• Here, the conduct of the contractor was deliberate and outrageous
• It would be unfair to deny the owner what was promised
Nu-West Homes Ltd. v. Thunderbird Petroleums Ltd. (1975) AB CA

Facts:
• TJ awards $4k instead of $16 k – the difference in value

• It wasn’t strictly necessary to put it right
Rule:
• Cost of completion is the ordinary measure

• There are limits on the scope of this:
o Has the person acted reasonably in the costs they will occur? Yes – cost of completion
o If the cost of the completion (rectifaction) is great compared to the difference in value
then you don’t get the cost of completion
• Limiting Example: If you contracted for a certain type of granite (New Hampshire) for your
house, but instead you get a different kind of granite (Vermont), you cannot expect to get
rewarded cost of completion. This would require ripping up the entire foundation of the house
for a minor difference in value.
Analysis:
• They were acting reasonably, and on the advice of experts

• Experts told them how to fix it properly and the costs
• CA awards the owner $16k – cost of completion
59
c) Loss of Enjoyment
Loss of Enjoyment and Other Intangible Benefits
• Historically you couldn’t get compensation for this

o Impossible to quantify – no evidential grounds
o It doesn’t resonate with any of the core categories of remedy
• In Swan Tours case, Denning didn’t like that and overturned it
Jarvis v. Swan Tours (1973) UK CA

Facts:
• Jarvis wanted a good holiday

• He expects sweet cakes, house parties, and skiing
• He does not get this, so he sues
• TJ gave him ½ the costs – determined he got ½ what he paid for
• Jarvis Appeals
Rule:
• You can get damages for loss of enjoyment

• (novel to contract law – but seen in tort law)
Analysis:
• Denning states that the cases which say awarding damages for loss of enjoyment is not allowed
are outdated and not relevant
• He paid £60 for a good holiday and instead received a bad holiday
• Awarded him twice as much - £120
60
d) Punitive Damages
Punitive Damages
• Focus on wrongdoer - have to pay more money for their wrong – punishment
• Test:
1. Must be proof that an actual wrong is committed.
2. The wrong must have causes some injury to the plaintiff.
3. The defendant’s conduct is deserving of condemnation.
• Opposed to aggravated damages – focus on plaintiff – the breach caused the plaintiff to get
upset more and should be awarded for this (not taken up in this course)
• Punitive damages are extraordinarily rare in Contract (even rare in Tort)
• Historically, they were never available in Contract – its not what contract law is about
o Tort is connected with morality – confers judicially imposed duties to not interfere with
other citizens – deters socially invaluable behaviour
o Contract is not based on morality, it is based on giving effect to deals (consent and
intention) – there is nothing inherently immoral for breaking a promise in contract law
Whitten v. Pilot Insurance Co. (2002) SCC

Rule:
• To get punitive damages you must also commit an independent actionable wrong (along with
the breach of contract)
o The manner of the breach must be malicious, reprehensible, high-handed
o A tort, duties of confidence, fiduciary duties, duty of good faith in insurance
Analysis:
• Duty of Good Faith in Insurance – all insurance contracts have this
• Insured must disclose all material facts relevant to the insurance
• Insurer is obligated not to deny the insured’s claim in bad faith – they must behave in good faith
• The insurance company here had a strategic denial of his claim which constitutes an
independent actionable wrong
61
e) Liquidated Damages
Penalty Clauses Damages vs. Liquidated Clauses Damages
• Pre-assigned damage awards for if there is a certain kind of breach
• Designed to save significant money in legal costs
• Historical reluctance by Courts to enforce these:
o Suspicion that if there is a pot of money set aside it might have a punitive purpose,
which doesn’t resonate in contract law remedy categories
o Contracts is not about punishing immoral behaviour
• Pros: Freedom of contract, commercial certainty, economic reasons
• Cons: punitive
Shatilla v. Feinstein (1923) Sask. CA

Facts:
• Defendant had a business in wholesale dry goods, and sold it to the plaintiffs
• It had a non-competition clause
• Defendant purchased shares of a competing company later
• $10 000 owed if you breach the restrictive covenant
Rule:
• To determine what kind of clause it is we look at the intention of the parties
• Is it a Liquidated Clause or a Penalty Clause?
o Just because it says it is one or the other does not mean that is determinative on what
kind of clause it is, but it will be a relevant factor ~ not necessary or sufficient
o If it is a genuine pre-estimate of the damages that are likely to be suffered, then it is
most likely a liquidated clause
o If it will be imposed irrespective of the actual damages suffered, then it will most likely
be a penalty cause
o If the amount of money set aside is grossly extravagant in relation to the nature of the
breach, then it is most likely a penalty clause
o If the clause itemizes different breaches and the money set aside applies the same to all,
then it is most likely a penalty clause
Analysis:
• Covenant covers a wide range (wording) – effectively can’t be involved in anyway with dry goods
• If any of those things are done, and every time a single thing is done, then you owe $10 k
• It is specifically applicable to lots of specific acts, with a range of severity, but same penalty
• Court says it is a penalty clause as it can’t be a genuine estimate of damages for this reason
62
Equitable Remedies: Specific Performance
Injunctions (not on exam)

• They matter in civil litigation – lots of types
• An injunction is to tell somebody to do something (mandatory) or not do something
(prohibitory)
Specific Performance
• It is discretionary, like any equitable remedy
• It means the court forces you to specifically perform your obligations
• Alternative to substitutional performance – where you get money (the value) instead
• Can’t have both
• Specific performance is never awarded to personal service contracts
o Offensive to right to autonomy
o Courts do not like to supervise remedies
• Specific performance is rarely ever used for other kinds of contracts, outside of land contracts
o Historically, equity remedies come from the Courts of Chancery – equitable remedies
are discretionary and only given when the common law remedies (monetary ones) were
seen as inadequate
o Law and Economics – specific performance is inefficient as it allows the party to wait
and sue, rather than trying to mitigate losses by looking for another party
Hunt says this seems backwards
o Courts do not like to supervise remedies – have to make sure performance is completed
• Specific performance is readily allowed in Land Contracts
o Historically, land has always been considered unique – money or value of the land is not
the same as that very piece of land
o Dodge Holdings: it must be shown that the land is unique
• Defences to specific performance in text (Read them)
o The last one is really important – clean hands doctrine
63
John E. Dodge Holdings Ltd. v. 805062 Ontario Ltd. (2003) SCC

Facts:
• Plaintiff purchases a piece of land beside Canada’s Wonderland that he wants to turn into a
hotel
• The seller terminates the agreement
• The seller wants to give the plaintiff damages for terminating the contract
• The plaintiff doesn’t want damages, he wants that specific piece of land
Rule:
• To get specific performance:
1. The purchaser must demonstrate that the land is unique
o Must have a quality that cannot be readily duplicated in the vicinity
o The quality must be something that mattered to the purchaser – i.e. he was
going to use the land because it had that quality
2. The seller must terminate the contract.
Analysis:
• This land was unique, there was no reasonable alternatives in the vicinity in light of his purpose
• It was next to Canada’s Wonderland, but it also had superior access, visibility, location – also it
was already approved to have a liquor license what was really important (difficult to get)
64
Boundaries to Recovery: Certainty, Causation, Remoteness
These are limiting devices on the availability of damages.
Certainty:
• Damages must be certain

• What you want to obtain should be something you can ascertain with some certainty
• McRae: if damages were purely speculative then lack of certainty barred expectation damages,
so they went to reliance damages
• Chaplin & Hicks: Court took a flexible approach to expectation damages – very speculative but
deemed not uncertain
• Technically it is a requirement, but it is not practically used
Causation:
• This is not a very important aspect in reality

• See Hodgkinson v. Simms
• In tort: causation is a control mechanism for cutting down indeterminate liability
• In contract: there is no question as to who the parties are because they are in the contract
• So causation is not as big of a deal in contract – there is no indeterminacy
Remoteness:
• It is a control mechanism
• See Hadley and Victoria Laundry and Scyrup
• Is the loss so remote from the breach?
• Concerned with foreseeability
• An innocent party should only be able to claim for foreseeable losses
65
Hodgkinson v. Simms (1994) SCC

Facts:
• H went to S for real estate advice
• S recommended a certain investment
• The investment went poorly and H lost tons of money
• It turned out that S received a kick back for recommending H to invest in this investment
• Defendant says that H cannot claim damages because
o he would have invested in something anyways, regardless of the recommendation
o the defendant didn’t cause the loss
Rule:
• Once a breach of contract is established you can assert that the loss was caused by the breach.
Then the defendant must show that the loss was not caused by the breach.
• From a policy perspective it is unjust to place the burden on the innocent plaintiff
Analysis:
• There is a fiduciary relationship between the investor and advicor
• There is a contractual relationship as well – duty to disclose any personal interests
• By not disclosing his own interest in the investment he broke his fiduciary duty and contractual
duty
•
• Go over this case.. confusing in class
66
Hadley v. Baxendale (1854) UK

*important*
Facts:
• The plaintiff is a mill owner with a broken crank
• They give it to a carrier (the defendant) to deliver it to a repair shop
• The carrier did not deliver it on time (supposed to take about a day – took a week) so the mill
lost profits
Rule:
• One rule, two branches
• To recover:
o The loss suffered must have been a probable result (General)
Is this the kind of thing that would happen in the great multitude of cases?
Was it likely to happen in the majority of the cases?
o It should nevertheless be foreseeable because of the specific circumstances and the
specific knowledge the parties (Specific)
Analysis:
• Are these lost profits within the reasonable contemplations of the parties that the mill would
shut down if the crank was no delivered on time?
o NO – it is not
o A common carrier would not at that moment think that the mill would close for a week
if delivery of the crank was delayed
o Lots of mills have alternate crank shafts, they close for many reasons
• Were there any specific circumstances communicated between the parties such that the carrier
should have known the losses would occur?
o No
• So, it is not foreseeable – too remote
• Plaintiff cannot obtain the damages it claims
Tied to the intention of the parties. If the loss is foreseeable, then the parties can take protective
measures at the outs. (allocate risk, insurance, exclusion clause, liquidated damage clause). If it is
totally unforeseeable then they can’t take protective measures. It would be unfair to find a party
liable for these damages.
67
Victoria Laundry (Windsor) Ltd. v. Newman Indust. Ltd. (1949) UK CA

*important*
Facts:
• The boiler breaks, so they can’t wash laundry
• They contact Newman – he is a boiler maker
• Newman makes a boiler but breaks it when he tries to ship it
• Takes 20 weeks longer than they agreed to get them a new boiler
• Vic. Laundry sue for
o Ordinary lost profits due to delay of boiler
o Special Contract damages
Rule:
• Affirm the test in Hadley
• In regards to the first limb of Hadley
o Deals with imputed knowledge – would a reasonable persons have foreseen it
• In regards to the second limb of Hadley
o Deals with actual knowledge – would make it foreseeable to a reasonable person
• Without the doctrine of remoteness as a control mechanism, the expectancy principle would
lead to harsh results because the breacher would be reliable for all damages that flowed from
the breach, even if they were completely unlikely
Analysis:
• Ordinary lost profits were recoverable under the first limb
o The parties, particularly the boiler maker, would know that the delay of the boiler maker
would cause a loss to Vic. Laundry
o A boiler is central to the business of Vic. Laundry
o Unlike Hadley, the boiler maker is different than a delivery man, as he knows about the
implications of not having a boiler to Vic. Laundry
• Special Contract damages with gov’t
o Under first limb it is unforeseeable to the reasonable person that Vic. Laundry would
have this contract.
o Under second limb, no knowledge of this was given to the boiler maker
68
Scyrup v. Economy Tractor Parts Ltd. (1963) Man. CA

Facts:
• Tractor guy contracted with a tractor company for a special part
• He wanted a hydraulic dozer to help lift heavy gravel
• He told the company he needed it for this job that was coming up
• The company delivers a broken one, and even after attempts to fix it it never works
• He sues for lost damages
Analyis:
• The court says he can have the lost profits – satisfies both limbs
• Under first limb
o It is foreseeable to a reasonable person that the tractor could not be used to move
gravel without this
• Under second limb
o The company had specific knowledge for why the part was important
• DISSENT
o Possible profits were not known in enough detail to the tractor company
o Didn’t know how much the contract was worth – deprived of availability of protective
measures – so shouldn’t have to bare all the loses, which are significant
Koufos v. Czarnikow (C) The Heron II (1969) UK HL

Analysis:
• Reinterprets Vic. Laundry using Hadley
• What Hadley meant is not whether we can foresee it, or even that it was simply likely, but that it
was likely in the great multitude of cases (75/100 cases?)
• It was the normal thing that would happen
69

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Contract Law Final – 13’ James Wegener

Sumpter v. Hedges (1898) UK CA ........................................................................................................17

Non Est Factum ........................................................................................................................................38

a) Loss of Chance .............................................................................................................................58

I. Content of the Contract

Misrepresentation and Rescission

Test for Innocent Misrepresentation (Redgrave)

i. X makes a statement of fact to Y.

II. Fraudulent Misrepresentation

Test for Fraudulent Misrepresentation

i. Same test as innocent misrepresentation, and

Redgrave v. Hurd (1881) UK CA

• Test for innocent misrepresentation (above)

Smith v. Land House Property Corp (1884) UK CA

• Seller sells hotel to another

b) Do Bars to Rescission Apply?

Kupchak v. Dayson Holdings Ltd (1965) BC CA

• Property swap contract

c) Summary – Steps to Take

1. Has there been a statement of fact that was false?

Representation and Terms

Did the parties intend for this to be a term of the contract?

o Context of each case determines the outcome

Heilbut, Symons & Co. v. Buckelton (1913) UK HL

• Famous rubber company wants to bring out a subsidiary company

• Court says it is a representation

Bentley v. Motors (1965) UK CA

• Bentley buys a car from Mr. Smith

• Court says it is a term of the contract

Leaf v. International Galleries (1950) UK CA

• Man buys a painting described as an original painting by Constable

• Court says it is a term of the contract

b) Summary – Steps to Take

1. There is a difference between terms and representations.

2. The test tells us the difference.

Concurrent Liability in Contract and Tort

II. Tort Liability

Can you pursue both claims?

• Historically, no – could not sue in tort if there is a contract

BG Checo v. BC Hydro (1993) SCC

• Written contract between parties

• Plaintiff can pursue both tort and contract liability

Sodd Corp v. N Tessis (1977) NS CA

Parole Evidence Rule

Parole Evidence means:

a. evidence tending to support the existence of an oral contract, or

a) Can the oral statements be added to the contract?

Policy Reasons for the Rule

o For misrepresentation we are not looking to add a term to the contract

Hawrish v. Bank of Montreal (1969) SCC

• Hawrish went into the bank to sign a guarantee

• Can Hawrish rely on the bank manager’s statement of a fixed term?

• The oral evidence contradicted the written contract

• Historically collateral contracts are complicated and confusing

Bauer v. Bank of Montreal (1980) SCC

• The oral statement directly contradicts the written statement

Gallen v. Allstate Grain Co. (1984) BC CA

o Problem: it is not a presumption in the first place

• The oral “collateral contract” is made up, it is not real

b) Summery – Steps to Take

1. There is a common law exception

2. There is a statutory modification

4. The parole evidence rule does not apply to misrepresentations.