Intention to form a legal relationship

• Family/Friend relationships
o General rule: Rebuttable presumption that family members do not intend a legal
consequences when they make agreements (Balfour)
Exception: To rebut this presumption we apply an objective reasonable
person test (Merrit). Onus is on party alleging there was intention. Factors
which can rebut the presumption can be:
• Lack of amity (Merrit)
• Detrimental reliance (Padavattan)
• Lawyers involved (Padavattan)
• Agreement put in writing (Merrit, Parker v Clark)
• Informal syndicate for profit
• Certainty of terms of agreement
• Agreement is commercial in nature
• Demonstration of sincerity (Carlill)
Exception: Commercial deals between families is presumed that there was
intention to form a legal relationship (Brewster v Roufus)
o Political speeches
General rule: Presumption is no intention (Canadian tax payer’s federal
v Minister Finance of Ontario)
o Spiritual relationships
Presumption is no intention (Ermogenous)
• Commercial relationships
o General rule: Rebuttable presumption that there is intention to form a
relationship (Carlill)
o Rose and frank clause: An agreement can include a clause that says there is no
intention to form a legal relationship and this will rebut the presumption (Rose
and Frank Co)
Courts strongly uphold Rose and Frank clauses (Vernon Pools)

Offers
Offer mechanics
• Types of offers
o Bilateral: At the time a contract is formed both parties still have to perform.
o Unilateral: Only one person is required to perform the contract. Acceptance
occurs by performing a requested overt act.
• Test for offers:
o Test to determine if an offer exists is a reasonable person objective test (Harvey v
Facey)
Certainty of terms (Johnson Bros)
 Volatility of market (Johnson Bros)
• What are not offers:
o General rule: A display price is an invitation to treat (Boots)
o General rule: A price list is an invitation to treat and not an offer (Boyer v Duke)
Exception: A price list can constitute an offer if the terms complete
enough to give a reasonable person the perspective there is an offer
(Eaton)
o General rule: A quote is an invitation to treat (Harvey v Facey)
Exception: A quote may constitute an offer if the language with the quote
would lead a reasonable person to conclude there was an offer (Johnson
Brothers v Rogers Brothers)
• Unilateral contracts:
o Contracts made to the world at large. Only one party has to perform.
o Offers to the world at large (Carlill)
o Offers that are made to more than one party and in which only one side has to
perform (Satanita)
• Collateral contracts
o A second contract that comes about as a result of a main contract (MJB
Enterprises LTD, R v Ron Engineering; Satanita)
o Term of every collateral contract involving bids for tender that the selection
process be made in a reasonable manner and in accordance with terms of tender.

Duration of offers:
• An offer can end in four ways:
o Revoked
o Rejection
o Counter offer (constitutes a rejection)
o Lapse of time (At some point the offer goes stale)
• Revoking offers:
o General rule: Revocation of offers has to be formally communicated by the
offeror to the offeree before acceptance (Dickinson v Dodds)
Exception: Revocation can occur if the offeree finds out that the offeror no
long intends to be bound by the offers (Dickinson v Dodds)
o Offer can still be revoked even if offeror says they will leave the offer open
(Dickinson v Dodds) unless consideration has been given for keeping it open
(Option contract)
o Offer can be revoked up until the time of acceptance.
o Revocation of unilateral contracts:
General rule: An offer of unilateral contract can be revoked right up until
the time it is accepted (Patterson)
 • Exception: A unilateral contract cannot be revoked once
performance begins (Errington)
o There is an implied collateral contract that the offeror
allows performance and not make it impossible to complete
performance until a reasonable time has lapsed (Daulia Ltd
v Four Millbank)
General rule: A unilateral offer can be revoked by using same or similar
means that offer was made through (Exception to general rule that
revocation must be communicated to the offeree) (Shuey v United States)
• Counter offers: A counter offer will terminated an offer duration
o A counter offer will constitute a rejection and thereby kill the offers (Livingstone
v Evans)
Offer can be worded to withstand counter offer rejection and can be made
to come alive again through response to counter offer (Reasonable person
test is used to determine if offer made alive again)
• Lapse of time: Lapse of time can result in an offer’s duration ending.
o Two types of lapses
Stipulated lapse dates (Stated in the offer when the offer will die. The
offeror can still revoke the offer prior to the stipulated date)
Un-stipulated lapse dates (Lapses after the passage of a reasonable period
of time
o Un-stipulated lapse dates
When there is no stipulated lapse date the offer will lapse after a
reasonable period of time and be revoked (Barrick v Clark). What is
reasonable period of time will depend on:
• Nature of the contract (Barrick)
• Circumstance of the offer (Barrick)
• Conduct of the parties during negotiation (Barrick)
o Lapse and unilateral contracts:
A unilateral offer can lapse and whether it has lapsed will be measured by
considering
• Circumstance of the offers (Loring v Boston)
• Rejection:
o A rejection will end the duration of an offer

Acceptances
Acceptances
• General rule: An offeror cannot place a duty on an offeree through offer to provide
notice of rejection. Silence is not acceptance unless conduct amounts to acceptance
(Felthouse)
• General rule: Acceptance has to be communicated by the offeree to the offeror and good
when received (Felthouse v Bindley)
o Exception: An offeror can revoke their right to be told of an acceptance
(Felthouse; Carlill)
o Exception: Course of conduct may amount to an acceptance (Cole McIntrye-
Norfleet v Holloway). To determine if conduct amounts to an acceptance
consider:
Past conduct between parties (Cole-McIntrye)
Industry customs known to both of the parties (Cole-McIntrye)
Wording of offer specifying offer does not need acceptance to be notified
(Cole-McIntrye)
Postal acceptance rule
o Exception: If by no fault on the part of the offeree acceptance does not get
through then acceptance is good when communicated (Entores)
• Postal acceptance rule:
o When acceptances are mailed once the acceptance is put into the mailing service
box the acceptance is considered complete (Household insurance v Grant)
Applies when there is an intermediation of a third party
Cases of non-instantaneous communication
Applies, unless by fault of the offeree the acceptance did not get through
to the offeror
Offer it made through the post and no terms specify that acceptance cannot
occur through post
o Exception: Can be overridden by stipulated manner in which acceptance must be
made (Howell securities LTD v Hughes)
o Exception: Postal acceptance rule cannot be used if it is not an implied means of
acceptance (Henthorn v Fraser). To determine if it is implied:
Is acceptance by post reasonable under the circumstances
Offer is communicated by post
Previous conduct of parties
o Postal acceptance rule does not apply for revocation of an offer
• Electronic Commerce Act, 2000-Instantaneous electronic communication
o S. 22(3): Electronic information or document is presumed to be received when:
Sent if the addressee designates the use of the system (This can be
designated by explicitly writing it in the offer, it can also be implied by
conduct of the parties, past relations) OR
Received (i.e., when they became aware of info/doc not when they open it
or read it) if the recipient did not indicate precise method of
communication.
o Presumption is rebuttable. Onus is on offeror to prove that it was not received and
not his fault
o If instantaneous but not electronic: instantaneous communication is good when
received (Entores)
 • Manner and place of acceptance
o General rule: When offeror stipulates a location and manner in which an offer
must be accepted by, acceptance must be made through the stipulated manner and
location (Eliason v Henshaw)
Stipulated means can override the postal acceptance rule (Howell
Securities LTD v Hughes)
o Where offeror prescribes a method and not a stipulation of acceptance, acceptance
made by any other method which does not disadvantage the offeror will be
deemed communicated (Manchester DC)
To rebut this, offeror would have to show they were inconvenienced
(Manchester DC)

Acceptance of unilateral offers

• General rule: Acceptance must still be given but acceptance does not have to happen
before performance. (Carlill)
• General rule: acceptance is given at the same time of notice of performance (Carlill)
• General rule: Offeree does not need to give notice of intention to perform (Bishop v
Eaton)
o Exception: If offeror is not going to get notice of acceptance contemporaneously
with notice of performance the offeree has to give notice of acceptance (Bishop v
Eaton)
• General rule: To accept a unilateral offer one must have intention or partial intention to
perform and claim reward (Crown v Clark)
o Exception: One can perform with more than one motive and intention and still
claim reward (Williams v Cowardine)
• General rule: To accept unilateral offer you must have performed the conditions of the
offer with knowledge of the offer (Fitch v Snedaken)
• Discretionary unilateral rewards: (Smirnis v Sunlight Publishing)
o Under discretionary rewards, court have discretion in determining the amount a
person who performs under a unilateral contract is entitled
o Collateral contract that in consideration of what one is entitled to, the offeror is
required to act fairly and reasonably in determining what to reward.
o Character of a person does not factor into award allotment
 Consideration
Consideration
• General rule: For a contract to be good there has to be consideration which is an action
moving from the promisee to the promisor or detriment incurred upon the promisee at the
request of the promisor (Tobias v Dick)
o Exception SEAL rule: If promise was made under seal, even without the element
of exchange (promisee exchanging benefit to promisor) was not present, the
promise under seal could still be enforced (Linton v Royal Bank of Canada)
• Consideration must be contemporaneous with promise (Roscorla)
Sufficiency of consideration: What is good consideration?
• 1. Consideration must be real and not illusory (Eleanor Thomas v Benjamin Thomas)
• 2. A moral obligation is not good consideration (Kenyon v Eastwood)
• 3. Promising someone something one does not have a right to is not good consideration
(White v Bluett)
• 3. A promise for a promise is good consideration so long as both promises are
enforceable (Dalhousie v Boutilier Estate)
• 4. Past consideration is not good consideration for future promises. Must be
contemporaneous (Roscorla v Thomas)
o Exception: Past consideration is good only if it was understood by the parties that
there will be some reward prior to performance (Lampleigh v Braithwait)
• 5. Promise to do what you’re already under obligation to do is not good
consideration (Stilk v Myrick)
o Exception: Performance of existing duty can be good consideration if former
contract which duties existed was discharged (Harley v Ponsonby)
o Exception: Performance of existing duty can be good consideration if agreement
to do the same act for a third party (New Zealand Shipping v Satterwaite;
Scotson v Pegg)
o Exception: Performance of existing duty can be good consideration if an
amendment would result in practical benefit to the promisor or if disbenefits
to the promisor are diverted (Roffey Bros Ltd v Williams) and amendment
was not made under duress (Greater Fredericton Airport Authroity Inc v
Nav Canada)
This may not be the law in Ontario
• Amending agreement is not enforceable if the effect of the
amending agreement is simply to increase the price with nothing in
return (Gilbert Steel v University Contracts)
o One can still be estopped from reverting to original agreement after amendment
(Hightrees)
• 6. Agreement for payment of a lesser sum, unless under seal, is not good
consideration (Foakes v Beer)
 o Exception: Amending agreement to accept a lesser sum can be good
consideration if payment of a debt is given in a different location requested or
earlier (Pennell)
o Exception: Amending agreement for a lesser sum can be good if practical benefit
is given to primsor (Roffey Bros Ltd v Williams) (Might not be law in Canada
so apply Mercantile Law Amendment Act or seek Promisory Estoppel
o Exception: Section 16 of the Mercantile Law Amendment Act states that part
performance where expressly accepted, extinguishes the obligation
• 7. Promise to not do what you have a legal right to do is good consideration (Hamer)

Estoppel
Common law estoppel
• When the conduct of ones actions constitutes acceptance a person will be estopped from
demanding original conditions (Cole-McIntyre)
Promissory Estoppel
• When we argue promissory estoppel we always have an original valid legal agreement
and an amendment to the legal obligations with no valid consideration
• Stops a party from insisting in their original legal rights.
• General Rule: If you (1) make a promise, without consideration, to amend an agreement
and (2) the promise is intended to be acted upon and (3) is in fact acted upon to
detriment, you are estopped from going back and insisting on the terms of the original
agreement. (Central London Property Trust Ltd v High Trees House Ltd). In order
to argue promissory estoppel there
o Relied on promise to detriment (Ajayi v Bristoe)
o Party seeking to bring about estoppel must have acted equitably (D and C
Builders Ltd v Rees)
o Amending agreement has to have been negotiated, and be not merely forbearance
for promissory estoppel to apply (Burrows Ltd v Subsurface Surveys Ltd)
• Promissory estoppel cannot be used to bring a new cause of action (Combe v Combe)
o Exception: Proprietary estoppel allows estoppel to bring new cause if public
authority represents that they will create an interest in the land promissory
estoppel kicks in and makes that public authority provide the promise (Crabb v
Arun D.C)
o Exception: If there is active encouragement of assumption of intention to create a
future contract and it is relied upon to detriment, person who made the implied
promise can be estopped from not creating new contract (Waltons Stores Ltd v
Maher (NOT CANADIAN LAW)
 Capacity
Capacity:
• General rule: To enforce a contract parties must have capacity to contract (One may be
bound)
Minors:
• Anyone under the age of 18 absolutely lacks capacity to enter into a contract
• General rule: Minors are not bound by contract but other adult party is bound by the
contract.
o Exception: Contracts for goods to minors is valid when goods provided under the
contract are necessities (Nash)
Necessities are goods suitable to (1) conditions of the life of the child and
(2) current requirements.
Minors only bound to pay fair market value not contract price (Sale of
Goods Act)
o Exception: Contract for services valid when (1) beneficial to minor for entire
duration and (2) benefit is apparent (Tonelli)
o Exception: If the minor affirms the contract upon reaching the age of majority
then contract enforceable (Sale of Goods Act)
• General rule: If a minor affirms the contract upon reaching the age of majority then
contract is enforceable (Sale of Goods Act)
• Contract is voidable including after reaching age of majority
Mentally incapacitated
• Mentally incapacitated can be permanent or temporary
• General rule: Mentally incapacitated people cannot enter enforceable contracts
o Exception: Contracts for goods is valid when goods provided under the contract
are necessities
o Exception: Contract can be enforceable if ratified after temporary incapacity
 Certainty or ascertainability of terms
Introduction
• General rule: Courts will make the effort to make the contract certain and enforceable
where the terms are (a) certain or ascertainable or (b) complete or complete-able pursuant
to a mechanism that works (Scammel).
• General rule: Courts will not create entire contracts for parties (Scammel)
Three types of contracts where issue will arise:
• Complete contract but imprecise terms
o Generally rule: Courts will interpret the meaning of terms from the document-
parole evidence rule
Exception: Only when there is genuine ambiguous language will courts
go behind the contract to determine meaning.
• Factors considered in ascertaining terms (Hillas; Scammel)
o Past dealing between parties
o Industry standards or meanings known to both parties
o Correspondence and circumstances between the parties in
coming to an agreement
o Plaining meaning of the language
o General rule: Contract is not enforceable where terms are not ascertainable
pursuant to mechanism (Scammel)
• Incomplete terms, agreement to negotiate
o General rule: Agreement to agree-if mechanism fails (both parties don’t agree on
terms) is unenforceable (Walford)
o General rule: Agreement to negotiate in good faith, if fails, is unenforceable
(Empress)
Exception: Obligation to negotiate in good faith only enforceable when
obvious one negotiated in bad faith (Edpar)
o General rule: Where determination of terms is agreed to be done by 3rd party, it
is enforceable if 3rd party is available and determines the terms. Using 3rd parties
as your mechanism can provide certainty of terms and complete terms (Calvin)
• Pre-contractual document
o Memorandums of understanding or letters of intent (Embryonic agreements)
o General rule: If pre-contractual agreement is complete (contains all elements of a
contract) it may be held to be an enforceable contract (British American
Timber)
Exception: If there is a Rose and Frank Clause saying “subject to formal
contract” then this will not be enforceable (Ainsmore)
Exception: the more complicated or unique the agreement, the less likely
it will be binding (Bawiko)
 Terms of the contract
Interpretation of written contract
• General rule: Begin with Parole evidence rule
o Parole Evidence rule states that when determining meaning of contract, the court
looks at the document and interprets the words and terms of the document (four
corners doctrine). It excludes oral or other written agreements from being used to
interpret what parties bargained.
Exceptions (When extrinsic evidence can be used)
• 1. Document isn’t a memorialization of an agreement-Extrinsic
evidence allowed to show document isn’t a contract (Pyn v
Campbell)
• 2. Document is void (mistake) or voidable (duress,
misrepresentation) and thus it is argued contract doesn’t exist-
extrinsic evidence allowed to show contract doesn’t exist (Raffles
v Whitchelhoss)
• 3. Words are ambiguous- extrinsic evidence allowed to clarify
terms of contract (Southern Resources Ltd)
o Patent ambiguity: Parole evidence that can be used to
determine the meaning of words that are on their face
ambiguous
o Latent ambiguity: Means language in contract is clear but
party alleges there is special meaning of words. Only time
latent ambiguity can be proven is to identify the subject
matter of the contract
• 4. There is a collateral contract –Extrinsic evidence can be used to
show there is a collateral contract (Morgan)
o Conditions: Cannot be used if collateral contract conflict
with main contract (Hawrish)
o Condition: An “entire agreement” clause sets the
presumption that there was no collateral contract;
rebuttable if clear collateral contract (Gallen). Can get
through entire agreement clauses (doesn’t mean it conflicts
with main contract)
• 5. Sattva exception: Even with clear language should use factual
matrix to determine meaning but can’t overwhelm words of
contract (Sattva).
o Only applies to negotiated contracts, not standard form
ones (Ledcor)
Implied terms of contract
• While the Parole Evidence Rule generally suggest that terms of the contract are only the
ones put in writing implied terms exist.
• Difficult to imply a term of contract
• In implying terms courts say they are interpreting what the parties to a contract meant.
• Terms implied in fact
o Terms that should be added to the contract to reflect the obvious intention of
parties.
o General rule: In order to imply a term in a contract the following conditions have
to be met: (Codelfa)
1. Term implied must be reasonable and equitable
2. Term must be necessary to give efficacy to the contract-contract would
not function without the implied term (Gabriel v Hamilton Tiger-Cats)
3. The term must be so obvious as to go without saying (The Moorcock)
4. The term must be capable of clear expression
5. The term cannot conflict with the written words of the contract
• Terms implied in law
o Implying a term in a contract because the law requires this term to be put into a
contract of a particular type.
o General rule: Courts may imply terms necessary to give business efficacy to the
contract, even where the parties clearly did not intend such terms (Liverpool City
council v Irwin)
• Terms implied by statute
o Implying a term as a matter of policy/legislation
o Sale of Goods Act
For every contract of sale of goods three statutorily implied warranty that:
• 1. Vendor warrants title (have the right to sell the good)
• 2. Vendor warrants that the goods are of merchantable quality
• 3. If purchaser makes purpose of good known, vendor warrants
goods are fit for the purpose
o Consumer Protection act
Anything that attempts to negative the implied warranties from the Sale of
Goods Act is void when transaction between non-commercial consumer
and business for sale of goods
Duty to perform in good faith: Honesty
• General rule: It is a general organizational law of contract to perform contract in good
faith which means one does not lie (Bhasin)
o 1. Not an implied term of contract (Cannot contract out of this; can be relaxed
with explicit language) (Bhasin)
o 2. Does not require positive disclosure (but cannot lie or act maliciously or
capriciously or arbitrarily) (Wastech; Bhasin)
 o 3. Does not require person to act against their own interest (Wastech)
• General rule: In exercising of discretion there is a duty to perform in good faith which
requires that discretion be exercised for fair and reasonable purposes and not arbitrarily
(Styles)
o Bid for tenure requires you to, by virtue of a collateral contract, to make selection
in a fair and reasonable manner.

Exclusion clauses
What can exclusion clauses restrict?
• Can completely exclude liability (McCutcheon)
• Can limit liability or restrict the remedy in case of breach (Parker)
• Can exclude right to pursue a remedy after breach/completion of performance
• Can set a limited period of time to pursue a remedy after breach/completion of
performance
Special circumstances for when exclusion clauses do not apply
• Consumer Protection Act does not allow Sale of Goods Act warranties exclusion between
business and consumer
When an exclusion clause is part of the contract
• General rule: If you sign the contract, even without reading it, exclusion clause is part of
the contract (L’Estrange v Graucob)
• General rule: If not signed the exclusion clause can apply if proof exists that there was
assent to agreement (Parker)
• General rule: If no signature or assent you have to prove knowledge of the clause for it
to be part of the contract. To do this you have to show
o Actual knowledge
Past dealing may be relevant but only if past dealing show knowledge or
assent (McCutcheon). Just because there was past dealings doesn’t mean
the clause stands. You have to show that in the past the person knew of the
clause, if you can’t do this then clause won’t stand.
• General rule: Exclusion clause is only part of the contract when it is presented to you at
the time you made the contract (Thorton v Shoe Lane Parking; Olley v Marborough
Court Hotel; Dillon v Baltic Shipping)
• General rule for tickets: If one claims the exclusion clause is not part of the contract
they must satisfy two layer test: (Parker)
o 1. Nature of the ticket and who I am makes me unaware the document contained
conditions including exclusion clauses
 o 2. The person selling the ticket did not take reasonable steps under the
circumstance to bring notice of the exclusion clause to the other party’s attention.
(Union Steamships v Barnes)
How to deal with enforcement of exclusion clauses
• General rule: In general for an exclusion clause to be enforceable it must be clear and
precise (Tercon)
• General rule: The exclusion clause will not be enforced if it is unconscionable (Tercon;
Hunter Petroleum v Syncrude).
o A contract is unconscionable if at the time of the contract formation there is
inequality of bargaining power and a grossly unfair contract (result) (Tercon)
• General rule: An exclusion clause will not be enforced if there are public policy
consideration to prevent enforcement (Tercon)

Misrepresentation (Defect 1)
Misrepresentation: What, how and remedy
• Representations made in the course of the formation of the contract may be part of the
contracts.
• General rule: Misrepresentations make contract voidable. For this to apply four
conditions
o 1. Representation is a positive statement (not a failure to speak)
Exception: A fiduciary relationship or a contract of utmost good faith
(insurance)
o 2. Misrepresentation must be material to make contract voidable-test is a
reasonable person test: Would misrepresentation have induced a reasonable
person to enter into contract? If yes presumption misrepresentation induced
person to enter contract.
Rebutted if D shows the Plaintiff (a) knew the falsehood OR (b) clearly
didn’t rely on the misrepresentation (Redgrave)
o 3. Representation must have been false when acted upon
o 4. Representation must be of fact, not opinion unless made by a lawyer (Bisset)
• Remedies
o General rule: For misrepresentations remedy is Rescission (contract s voidable
and set aside)
Exception: Rescission is not an option when there are bars to rescission
such as:
• Inability to restore parties back to their original position
(O’Flaherty)
 •Intervening third party rights to property such as when property is
passed (Redican)
• Reasonable period of time has passed after closing a contract for
the sale of a good (Leaf)
• Affirmation of contract-a decision to keep the goods, expressed or
implied through conduct, despite the knowledge of
misrepresentation removes the right to rescission
• Delay in exercising remedy after discovering misrepresentation
o General rule: For misrepresentation when there are bars to rescission then
damages
When rescission is not possible or appropriate, damages are possible if
misrepresentation can be converted into term of a collateral contract.
Must show real intention to create two contracts (Heilbut)
Collateral contract must not conflict with main contract (Hawrish)
If contract has entire agreement clause there is a presumption of no
collateral contract (All-State)
Varieties of misrepresentation
• 1. Fraudulent misrepresentation-a tort
o Occurs when (1) knowingly false statements OR (2) statement made recklessly
without care to whether it is true or false AND not with a genuine belief that it is
true (Redgrave)
o Remedy:
Rescission (revocation) unless bars to rescission.
Damages
• 2. Negligent misrepresentation-a tort
o Occurs when someone makes a representation and other relies on it to their
detriment
o Person is in a special relationship OR has special knowledge and skill and makes
a representation to plaintiff/class of plaintiffs with the expectation that they would
reasonably rely on it, which they do to their detriment-duty to exercise reasonable
care to ensure information is correct (Esso)
o Collateral contract-contractual damages (damages in respect to representation)
In consideration of one party agreeing to enter into the contract, other
party warrants that the representation they made was correct/reasonable
(Esso; Morgan v Griffith)
o Remedy:
In contract recession, collateral contract giving you damages
• 3. Innocent misrepresentation-not a tort
o If a representation is neither fraudulent nor negligent
o Only way to get damages is by collateral contract. We have to show the parties
inherently entered into two contracts (Simons)
 Mistake (Defect 2)
Introduction
• General rule: If someone enters into a contract under an actionable mistake it is viewed
as never having contractual intention and the contract is void. (Property cannot be
passed-people pursue this when third party has the property).
• Mistake has to be fundamental-the fundamental nature being that there was no contract
(1) Common mistake
• Both parties share the same mistake (Courturier)
• General rule: Actionable common mistake needs fundamental mistake to substance of
contract, not quality (Sherwood)
o Mistake as to the existence of the subject matter of the contract goes to the
substance (Cooper)
• Two types
o Common law mistake (both parties share the same mistake)
Results in there being a void contract (Great Peace Shipping)
Test for common law common mistake (Great Peace Shipping)
• 1. A mistake that goes to the existence of a vital attribute of a
subject matter of the contract
• 2. The mistake has to have rendered performance impossible
• 3. Must not be fault of party pleading it (McCrae)
• 4. As a matter of construction of the contract, neither party
accepted the risk of the mistake
o Equitable common law mistake
Parties are fundamentally mistaken on the basis that if they didn’t have the
shared mistake they wouldn’t have made the contract (Solle)
• Affirmed in Ontario (Miller)
Remedy is voidable contract subject to bars on rescission (Solle).
(2) Mutual mistake
• General rule: Mutual mistake occurs when two parties have a different view of
fundamental facts/terms, are aware of each other’s differing views and each view is
reasonable (Raffles)
• General rule: When there is mutual mistake there was never consensus for contract and
it is void (Raffles)
o Exception: Unless the circumstances are such that one party is denied from
precluding that he was agreeing to different facts because his view of the facts
were unreasonable (Smith v Hughes)
(3) Unilateral mistake
 • One party knows of other’s mistaken view. In this case the contract is void.
• General rule: Unilateral mistake occurs when other party either caused mistake OR they
know the contract is so good that they had to have realized the other party was mistaken
OR they actually knew of the mistake (Ron Enigneering) and makes a contract void.
• Types of unilateral mistake
o 1. Known mistake not induced by fraud
Cases where there is an amazing offer
Cannot “snap up” a mistaken offer (Hartog)
If offer is so good that you had to have known it was a mistaken offer you
cannot enforce it (Hartog)
If mistake was made known by the offeror to the offeree you cannot snap
up the offer (Ron Enginerring)
o 2. Mistaken identity induced by fraud
General rule: If you are mistaken as to the identity of the member to the
contract, and that understanding is fundamental to the contract, this is a
unilateral mistake and voids the contract (Cundy v Lindsay)
o 3. Face to face correspondence leading to unilateral mistake (Difficult to
prove)
General Presumption that you must have intended to contract with the
person standing before you (Ingram v Little; Lewis)
• Only if the mistake was truly fundamental to the creation of the
contract will there be a unilateral mistake and contract made void
(Ingram v Little)
• Showing you made an independent investigation into the identity
of the person before you can aid in rebutting the presumption
(Ingram)
(4) Mistakes as to document (Non est Factum)
• One argues they signed a document but the nature of the document is so radically
different than what they thought they were signing and therefore they can argue they are
not bound.
• General rule: If Non est Factum is argued then contract is void
• General rule: To argue Non est Factum you need to show:
o You were not carless in signing the document (Thoroughgood; Harris)
o The document is of a different class than what was intended (Prudential v
Cugnet) OR document is radically or fundamentally different from what was
intended, not whether it was the same class (Saunders; Harris supports the idea
we are moving towards this second option instead of different class standard)
 Illegality (Defect 3)
Introduction
• General rule: A contract that is illegal is not enforceable (Voidable so property passes)
• In an illegal contract you lose right to recover property unless not blameworthy and the
illegality arises to protect you (Singh)
• Three types of illegality:
o Common law illegality-Contracts that are not enforceable
1. Contract to commit a crime or tort (causes benefit out of commission of
a crime/tort) is not enforceable (Oldfield)
• Insurance policy still has to pay family of criminal if criminal dies
while committing an offence (Oldfield)
2. Contracts to defraud revenue are not enforceable (Rayson)
3. Contracts to promote corruption in public office are not enforceable
(Parkinson)
4. Contract for an immoral purpose is not enforceable (Andrews)
• Public policy is unruly course (Richardson) but can be used for
justice (Enderby)
• Test for immorality is what are the governing principle which
community as a whole has already adopted (Wilkinson)
o While public policy is supposed to be a reflection of
society, the determination is in the eyes of the judge (Baby
M)
o Contracts in restraint of trade (Contract doesn’t fail but clauses fail)
General rule: Some clauses (non-competes clauses and tied selling
agreement) which are a restraint of trade are contrary to public policy are
generally not enforceable
• Exception: Some non-compete clauses might be enforceable so
long as (Shafron):
o 1. Construe provisions strictly against the party that is
relying on them (non-compete was meant to apply)
(Shafron)
o 2. Clause is reasonable as between the parties (Ferguson)
More reasonable for sale non-compete than for
employment non-compete
If someone can hurt you if they leave your business
than this might make the non-compete reasonable.
o 3. Not more broad than necessary to protect valid business
interest (Ferguson)
Test: What is the valid business interest and how do
we protect it. We consider geography and time; if
too broad then not enforceable.
 o 4. Not contrary to public interest (Ferguson)
Such as creating a monopoly or stopping doctor
from practicing.
• Exception: Tied selling agreements (I loan you money to fix bar if
you exclusively sell my beer) cam be enforceable so long as:
o 1. Reasonable between the parties
o 2. Has to be protected by legitimate business interest
o 3. Can’t be contrary to public policy.
o Statutory illegality
Illegality in formation:
• General rule: Contracts explicitly prohibited by statute are non-
enforceable
• General rule: A statute which implicitly prohibits a contract is
non-enforceable. This will depend on what the purpose of the
statute is, who the statute is meant to protect and if there is a
penalty for the contract (Bank of Chicago)
Illegality in performance
• General rule: If the contract is willfully performed illegally it will
be non-enforceable by the breaching party (St John)
o Exception: If they didn’t intend illegal performance then
they can still enforce.
• General rule: Party acting good can enforce a contract performed
illegally (St John)
• General rule: Neither party can enforce if they knew, or ought to
have known, the performance was illegal (Dawson)

Unconscionability and undue influence

Capacity making contract voidable
• General rule: Contracts unenforceable if a party did not have capacity
Duress making contract voidable
• General rule: If contract made under duress (duress means threat of physical violence to
party/family member) then contract is voidable subject to bars of rescission.
o Bars to rescission
Inability to restore parties back to their original position (O’Flaherty)
Intervening third party rights to property such as when property is passed
(Redican)
Reasonable period of time has passed after closing a contract for the sale
of a good (Leaf)
Undue influence making contract voidable
 • General rule: A contract made under undue influence will be unenforceable (Royal
Bank)
• General rule: Undue influence arises when there is a special relationship such as
between spouses, children and parents, doctors, fiancés OR it is a nature by which trust
and confidence is placed onto one party (Royal Bank)
• General rule: When there are these special relationships the law presumes there was
going to be influence in person’s ability to form an independent judgment to enter into a
contract and the contract is presumed voidable.
o Exception: This presumption can be rebutted if stronger party can show that:
(a) weaker party was able to look after themselves OR
(b) the bargain was fair (Rowatt)
• General rule: Undue influence can be cured if there was independent legal advice
(Etridge)
o Exception: You can’t cure undue influence if there is actual knowledge of real
undue influence
Unconscionability making a contract voidable
• General rule: A contract is unconscionable when there is gross inequality of bargaining
power and as a result of that there is an overreaching by the stronger party that results in
an unfair bargain (Bundy; Marshall; Mundinger; Pridmore)
o Onus is on the one alleging unconscionability to show there was a gross
inequality of bargaining power
o Onus is on the stronger party to show that it is a fair bargain (McCauly)
• General rule: Independent legal advice can balance gross inequality of bargaining power
(Bundy) For this to work:
o Lawyer has to explain documents after they have all the relevant information;
explain risk and consequences of default, advice in absence of other party, give
you choice (Etridge)
o Independent legal advice means a lawyer completely disconnected from any of
the parties to the agreement (Bartoli)
 Enforcement: Privity
Privity
• Privity deals with who can enforce an otherwise proper contract
• General rule: Only those who have given consideration to the contract can enforce it
• General rule: Third parties can’t enforce the contract, only immediate parties to it who
gave consideration are privy to enforce it even if contract says they can (Tweddle v
Atkinson)
o Exception: Third parties can enforce a contract if the terms of the contract made
it clear that the third parties would be able to enforce the contract (New Zealand
Shipping). For this to occur;
1. Contracts must have clear intent for the benefit to a third party
2. Contract must make it clear that the parties to the contract are
contracting on two capacities (as principals on their own behalf and as
agents for someone else)
3. Third party has to later ratify contract OR have given authority for it to
be made on its behalf
4. Third party has to give consideration to the other party to the contract
• Doing what you’re already bound to do is not good consideration
unless for a third party (Scottson)
o Principle Exception: Third parties can enforce a contract if employees are
implicitly or explicitly stated to be beneficiaries to limitation/exclusion clause
AND the employees are acting in the course of their employment and providing
the very services intended under the contract (London Drugs)
o Exception: Third parties can enforce a contract if the benefits of a contract are in
deed of trust and third parties are made the trust beneficiaries.
If I have a benefit and no exclusion clause use this method
If I have no pre-existing relationship use this method
 Breach: Frustration
Frustration: When does it occur
• Frustration occurs when, something happened after entering into the contract which so
fundamentally changes the contractual situation that performance is excused (i.e., breach
is okay).
• It is a term implied at common law that the contract does not have to be performed if
performance becomes impossible (Tatylor; Krell)
o Judge Reid argues that frustration is not an implied term (Davis)
• General test for when frustration occurs: (1) Is the result of the event that occurred the
making of a new and different obligation entirely outside the intention of the parties when
the contract was formed and (2) when considering the surrounding circumstances did
either party know, or reasonably have known, of the risk and accept that risk? If no,
performance is excused (Davis; Cadelfa )
o Exception: Not if parties intended one party should bear this risk.
What happens when a contract is frustrated?
• Frustration Contract Act (doesn’t tell you how frustration happened but what the result
is)
o Rules:
If deposits or sums were paid then give money back less the amount spend
on expenses of contract
If benefits conferred-receiver should pay fair value of the benefits
If performance is severable-pay contract price for everything performed
• E.g., if three machines are to be delivered for $X/machine but only
one was delivered pay $X.
o Rules only apply in the absence of express rules in the contract (you can contract
out of the statutes.
• How to contract out of Frustration Contract Act
o “Force majeure clause”
Says something life “if these events occur the contract will be brought to
an end this is what will happen”
If we create this we set out in a contract the things we will treat as not
frustration events and describe what will happen.
We can say in this clause what things can be considered frustration events
 Remedy: Damages
Remedy introduction
• Goal: Put non-breaching party into position they would have been in had there been no
breach (Victoria)
• General rule: Law does not enforce penalties if they’re unconscionable/unfair and no
punitive damages
o Exception: Unless the breach was exceptional, malicious, egregious (Whitten v
Pilot Insurance Co)
Damages
• Onus is on P to establish and quantify the value of their damages
• Three types of damages which can be recovered
o Restitution interest: Party in breach has to make good on any deposits/sums
already received
o Reliance interest: Money spent in anticipation of performance of contract, if
without value without the contract, has to be reimbursed
o Expectation interest: Lost profits/value of a benefit/expectation of performance
• Measurement
o General rule: If contract is for the sale of goods seller can recover for loss of
profits even if there is a continuous market for the product (Thompson and s. 48
of Sale of Goods Acts)
o General rule: You can include a liquidated damages clause which states damages
in contract.
Condition; Liquidated damages clause will only be enforced if they are a
genuine attempt to pre-estimate damages.
o General rule: If the contract is commercial then the damages owed is the
difference between the value of property with the performance and value of the
property without the performance (Ruxley)
o General rule: If performance is not commercial and the party has a personal
interest in the performance, the plaintiff is entitled to compensation to allow for
personal performance, unless it is completely unreasonable (Rose)
o General rule: Simply being unable to establish the value of damages does not
disentitle you from damages. In these cases courts assess damages (Howe)
Special types of damages which can be recovered
• Loss chances:
o General rule: You can recover for loss chances. If you can’t calculate them court
will consider all relevant evidence to quantify damages (Howe)
• Loss due to mental distress
 o General rule: You can recover for mental distress so long as they were within the
reasonable contemplation of the parties at the formation of the contract by being
either naturally arising or they were specially communicated (Sunlife; Jackson)
Can recover for damages to family members (Jackson)
• Punitive damages:
o General rule: One can get punitive damages when there is a breach of contract, a
failing to perform in good faith when there is a duty to perform in good faith, and
there is a social interest to prevent this type of breach (Pilot insurance)
Mitigating damages
• General rule: Once there is a breach of contract, P is required to take reasonable steps to
limit the amount of damages. Test is how a reasonable person would have acted (Payzu)
o This includes an obligation to re-contract with D as a way to limit the damages
(Payzu)
Exception: Do not have to try to re-contract with D to mitigate damages if
there are
• 1. Continuous defaults
• 2. Good reason to believe in the inability to D to perform the next
time
• 3. Prior breaches have resulted in complete lack of trust OR
• 4. An employment contract and employer has treated the employee
reprehensively
• General rule: As part of mitigation I have to stop performance once contract is breached
and can’t sue for contract price (White and Carter)
o Exception: If it is shown that one had a special interest in performing the contract
to protect AND they can perform the contract without the involvement of the
breaching party you can sue for contract price (White and Carter)
Remoteness of damages
• General rule: Damages which fairly and reasonably arise from the ordinary course OR
unique damages which may be reasonably supposed to be contemplated by both parties at
the formation of the contract can be recovered (Hadley v Braxendale)
o For first recoverable damage (naturally arising) it does not matter what someone
knows but rather what someone should have reasonably foreseen. Objective test
used to determine this (Victoria Laundry LTD)
o For second recoverable damages (special ones) objective test is used to determine
if someone reasonably should have known the special circumstances from what
they were told. Special circumstances have to be communicated before contract in
order to be recoverable (Hadley; Victoria)
 Remedy: Equitable remedies
Introduction
• Equitable remedies are only available when damages is not a good remedy.
• Equitable remedies include specific performance and injunction
o Specific performance: Court orders person to perform the contract
o Injunction: Court will order people to stop from breaching their negative
stipulations in the contract.
• Equitable remedies are only available if damages is not good. Such as when
o There are unique skill sets that can’t be obtained elsewhere
o When the subject matter of the contract is unique
o Damages are not quantifiable
Specific performance
• General rule: Court won’t order specific performance for a contract of personal services
(Warner Bros)
• General rule: Court will only grant specific performance for positive covenants so long
as they are not person servitude (Warner Bros)
• General rule: Negative covenants won’t be enforced if it has the same effect as forcing
someone to perform a positive stipulation (Warner bros)
• General rule: Court will not grant to compel the performance of a contract to run a
business (Argll)
Injunction:
• Will order people to stop from breaching their negative covenants in the contract
• General rule: An injunction can be awarded in cases where damages are not a more
appropriate remedy and where the enforcement of an injunction will not result in the
enforcement of a positive covenant and whereby a person will not be forced to perform
the contract or remain idle (Warner bros)