Professional Documents
Culture Documents
1. INTRODUCTION
Classical Theory of K: A law concerned with objective agreements (not parties’ private thoughts) to allow
people to contract freely as they chose and to maximize their private advantage.
Neoclassical Theory of K: Not all parties are equal, and some are vulnerable and can be taken advantage of.
This theory balances individual ideals of classical contract with communal standards of responsibility.
Elements of a K:
o Consensual agreement (offer and acceptance)
o Consideration (something of value to law exchanged for promise)
o Intention to create legal relations
o Requirements of form (legality) – more important in civil law
o Maturity (age), capacity (mental health), and consent
2. REMEDIES
Remedy: Common law = damages (restitution, reliance, expectation). Equity = specific performance,
injunction.
Policy Rationale: Protect plaintiff’s reasonable expectations w/out unfairly burdening/surprising defendant.
Fuller & Perdue [1936]: Define 3 kinds of damages below (aim is compensation, not punishment).
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d) Promotes market ordering (assigns present value to exchanges projected into the future)
Bargain Theory of K: Views contracts as bargains between rational, autonomous individuals, reached
through a back-and-forth process of negotiations like a tennis match.
Issue: When do communications give rise to legal obligations?
Policy Framework: Balance the need to enforce promises (reasonable expectations) with the need to avoid
surprising parties with unanticipated liabilities (unfair surprise).
Legal Framework: Courts look to rules in bargain theory of K – namely, offer, acceptance and consideration.
Test: Courts adopt an objective (reasonable person) standard.
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- In Christie v. York, policy rationale of freedom of K was upheld. The display of beer prices was a mere
advertisement; the offer only existed when he asked to buy a beer. A merchant has freedom of K and
was allowed to discriminate on this basis (today, human rights legislation responds to this)
Offer: What communications are elevated to the status of “offer”? (Serious, binding consequences):
a) Manifestation of an intent to be bound (mere advertisement/invitation to treat isn’t enough)
b) Offer must be specific/comprehensive enough to identify the terms (problem of uncertainty)
c) An offer ceases to exist if rejected or if it expires after a reasonable time (depends on context)
d) An offer can be revoked anytime before being accepted (notice of revocation may be required)
e) An offer is binding once accepted and cannot thereafter be revoked.
Unilateral v. Bilateral K: Bilateral K – offer is accepted by a return promise. Unilateral K – offer accepted by
performance. These are very rare.
- Classic example: reward contracts. K isn’t accepted until performance, i.e. finding/returning lost dog. If
you do not find lost dog, there is no breach of K b/c you haven’t yet accepted.
- You cannot have a contract with the world, but you can have an open offer to the world
Policy Considerations: What courts will consider in determining if there was a contract (circumstances, policy
context, social/political values) unjust enrichment, reliance, deliberation, evidence, social utility
CASES
- Usually, notification of acceptance of offer necessary, but here offeror implied notice was not necessary
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- Generally ads aren’t offers, but here strong language constituted offer to the public, which plaintiff
accepted on the terms proffered, and her acceptance was communicated by her conduct. There was
consideration in the inconvenience sustained by plaintiff (not to the Court to judge the adequacy of
consideration – simply that it existed to form a valid K)
- Consumer protection policy rationale (strong cannot take advantage of weak – must be held to promise)
Tenders: Often in business, the buyer seeks tenders for a certain project (often construction). The call for
tenders sets out the terms/conditions of the actual contract to be completed.
- Call for tenders creates contract A (a unilateral K – offer to the world, which is accepted via performance,
i.e. submitting tender) which then binds the successful bidder to contract B (whatever K the tenders
refer to). Two contract analysis set out in R v. Ron Engineering
- Often a “privilege clause” saying the owner need not accept the lowest priced tender. Usually the owner
can only accept compliant bids, and must treat all bidders fairly.
- BUT – contract A does not always arise - depends on call for tenders – may just be an invitation to treat
(looking for expressions of interests for the project) (MJB Enterprises)
- Implied terms: Contract A has implied term to accept only compliant tenders, but not to accept the
lowest tender (MJB Enterprise)
CASES
- Court finds implied term based on business efficacy and officious bystander tests (objective)
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- The privilege clause did NOT override the implied term to accept only compliant bids
General rule: Offer must be explicitly and intentionally communicated in order to be valid (Blair v. Western)
Rewards: Notices for rewards constitute a unilateral offer. Whoever has knowledge of the offer and fulfills
stated requirements gets the reward, regardless of motive (Williams v. Carwardine).
- Exception: if a party doesn’t act on reliance of offer (not aware of it, or give no regard to it) then not
entitled to reward (R v. Clarke)
CASES
- An offer must be deliberately communicated to offeree (makes no difference if they find out about it
by other means)
- There can be no communication of assent if there is not assent itself. You can’t accept an offered
contract if you do not know of the offer
- Per Carwardine, the motive inducing consent may be immaterial, but consent is vital
2.4: ACCEPTANCE
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Counter-offer is a rejection of the original offer and kills the original offer. Replying to an offer with modified
terms is a counter-offer, not acceptance. An offer that has been rejected cannot later be accepted except
with consent of the offeror (Livingstone v. Evans).
Battle of the Forms: When each party tries to assert dominance of its own standard form contract on
whose terms & conditions is the offer accepted?
1. First shot rule – unless clear disagreement, first set of terms governs
2. Last shot rule (Common Law adopts this) – last set of terms governs (Butler Machine Tool)
a) Seller’s form will be the last one, usually supplied with delivery of goods/services, so
this rule generally favours the seller (tho this didn’t happen in Butler)
b) In cases of dispute, must look at totality of correspondence (all shots fired, not just first
or last) – Denning in Butler Machine Tools
c) Terms added during battle of forms that are not central to the K may not be binding if
there was no attention drawn to their importance (Tywood Industries v. St. Anne)
3. Reconciliation approach – if terms contradict, court replaces with implied reasonable terms
(Denning’s approach in Butler – not accepted by common law)
Objective test: Contract formation viewed from an objective perspective (Smith v. Hughes)
Acceptance can be implied based on parties’ conduct and the circumstances (Saint John v. Irving)
An offer imposes no obligations on the offeror until it is accepted. Offerror can expressly or impliedly dictate
the mode of acceptance, since they are master of the offer (Eliason v. Henshaw).
Unsolicited goods: Consumers have NO legal obligation to accept unsolicited goods unless they expressly
acknowledge their intention to accept (Consumer Protection Act). Supplier must show goods were solicited.
- Same applies to negative billing (consumer must have consented to change – inaction isn’t enough)
- Does not apply to a continuing service (e.g. book club)
CASES
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$1600.” Evens responded: “Cannot reduce price.” Plaintiff then accepted original offer of $1800, but
defendant no longer wanted to sell.
Issue: Did the intervening telegrams end the original offer so that plaintiff could not later accept it?
Held: Finding for plaintiff. Defendant saying “cannot reduce price” was a renewal of original offer.
Principle: An intervening counter-offer rejects and thus terminates original offer. However, this doesn’t apply
here because “cannot reduce price” revived the original offer, which plaintiff then accepted.
Tywood Industries Ltd. V. St. Anne-Nackawic Pulp & Paper Co. (1979, Ontario HC)
Facts: Various purchase orders going back and forth, with different terms/conditions. Defendant’s purchase
order had an arbitration clause – plaintiff delivered goods but never filled out defendant’s purchase order.
Issue: Under whose conditions was the contract formed?
Held: Finding for plaintiff.
Principle: Defendant never drew attention to arbitration term, and did not complain when plaintiff failed to
fill out/return the purchase order. Conduct indicates that neither party considered this term important, so
the court holds it is not a binding term. Departure from formality/strict application re: wording of K.
- Policy consideration - unconscionable bargain: unfair bargain where one party takes advantage of
another (e.g. adds a term in fine print & doesn’t draw attention to it)
ProCD v. Matthew Zeidenberg and Silken Mountain Web Services (1996, US Court of Appeal)
Facts: Zeidenberg purchased ProCD’s product and began selling their database online at a lower price,
contrary to “shrinkwrap” (enclosed) license of product.
Issue: Was shrinkwrap licence enforceable (esp. given it was not on external packaging of product)? Are
‘clickwrap’ licences offers and does clicking OK constitute acceptance?
Held: Finding for ProCD.
Principle: Shrinkwrap licences are enforceable. Software is accepted when buyer agrees to licence, at which
point buyer is bound by license terms (and can return goods for refund if he doesn’t accept licence).
- Often, exchange of money precedes communication of terms (e.g. insurance). Same applies here; ProCD
proposed a K which Zeidenberg accepted (by clicking OK) and could later read the license at his leisure
(& if he didn’t accept, could return for refund)
- Reasonable notice of terms: You may not know exactly what the terms are, but you know there are
terms, and you are bound by them if you don’t return the product and thereby terminate the K
- Respondent argued unilateral K to be accepted by performance (i.e. Dawson locating claims) and could
therefore be revoked before performance was complete.
Issue: Was there a valid offer and acceptance to form a K?
Held: Finding for plaintiff. Bilateral K existed. Plaintiff never intended to abandon his rights under the K.
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Principle: Where possible, courts will find bilateral K for business efficacy purposes and policy reasons
(protect offeree’s reliance/prevent offeror from revoking offer at last minute, prevent defendant from acting
opportunistically by unilaterally excluding Dawson).
A) Mailed Acceptance
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Recipient rule: Contract is formed when acceptance of an offer is communicated by offeree to the offeror,
and is formed where that acceptance is communicated to the offeror (Brinkibon v. Stahag).
- Postal acceptance rule doesn’t apply to instant forms of communication, like telex or email.
CASES
Household Fire & Carriage Accident Insurance Co. v. Grant (1879, UK)
Facts: Def. made application to buy shares in plaintiff company. Plaintiff confirms sale by letter mailed by
post; letter never made it to defendant; plaintiff company goes under and plaintiff seeks payment from def.
Issue: Does posted acceptance (even if it does not arrive) constitute acceptance of the offer?
Principle: Establishes postal acceptance rule once letter of acceptance is delivered to post office,
acceptance is deemed to be communicated, and K is binding (even if letter is never actually received)
Holwell Securities v. Hughes (1974, UK)
Facts: Hughes sent a letter by post to exercise an option to purchase property; letter was never received. It
was expressly stated in the offer that acceptance must be received in writing.
Issue: Does the postal acceptance rule always apply?
Held: No – appeal dismissed.
Principle: Postal acceptance rule does not apply if leads to inconvenience/absurdity, or (as in this case) if the
offer explicitly states that the acceptance must actually reach the offeror.
- Policy rationale: courts cannot give legal effects to some clauses but not others – would result in
commercial absurdity and chaos in the market place. Would undermine important electronic commerce.
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Offeror can revoke offer at any point prior to acceptance. Offeree must have knowledge of the
revocation, but explicit communication is not required (Dickinson v. Dodds)
Offeror has no obligation to keep the offer open (unless consideration provided in an option K);
offer is a nudum pactum which creates power of acceptance in offeree, but no right against offeror
Uncommunicated revocation is no revocation at all. Postal acceptance rule does not apply to
revocation of offer. (Byrne v. Van Tienhoven)
o Policy considerations: unjust reliance, business efficacy. Would be unjust and inconvenient
if defendants always had to wait a reasonable time to make sure revocation wasn’t being
mailed before acting in reliance on the accepted offer
A unilateral K cannot be revoked once performance has begun (Errington)
o Careful here: has been held by BC courts, but runs counter to traditional K theory that offer
can be revoked before acceptance (i.e. revocable until performance is completely done)
Other forms of rejection (by offeree) or revocation (by offeror):
o Explicit rejection or silence
o Counter-offer (terminates original offer)
o If offeror dies then offer dies with him/her (obiter in Dickinson v. Dodds)
o Time lapse (see next section)
o If offeree does not comply with terms of offer (see Eliason v. Henshaw above)
B) Lapse
An offer that is expressly stated to last for a fixed time cannot be accepted after that time
If an offer contains no express provision limiting its duration, it terminates after lapse of a
‘reasonable time’ (Barrick v. Clark)
CASES
- Offeror can withdraw offer at any point until offeree has accepted it. Offeree must have knowledge of a
revocation, but explicit communication is not required (offeree can learn of it indirectly).
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offeree (and not from the moment it’s posted in the mail).
- Denning’s fictional 2K approach: K1 (pay mortgage and house will be yours), K2 (as long as you pay
mortgage you may remain in possession – an implied promise not to revoke K1)
Certainty: Parties must agree to the same thing for K to be properly formed consensus ad idem
If it is not possible to identify the terms upon which the parties have agreed, there will be no K.
Remedy rationale: Uncertainty relates to the formation of a K, and also to its enforcement. How can the
court grant a remedy (e.g. expectation damages) when it isn’t clear what the parties actually agreed to do?
Intention: If it is clear the parties intended to contract, the court will attempt to resolve any uncertainty.
In K law, the question of intention is approached objectively: what can the parties reasonably be
viewed to have intended given the language, conduct, circumstances, and aim of the transaction?
Judicial balancing act: Tension between fulfilling reasonable expectations by “filling in the blanks” versus
defeating reasonable expectations by improperly imposing an agreement that was not intended.
A court will not enforce an agreement that has gaps or is missing an essential term; not all commercial
agreements are binding contracts.
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3.1: VAGUENESS
In deciding whether a K exists, courts will make every effort to find definite meaning in vague terms,
especially if parties intended to enter into a binding commitment, or if there was part performance. (R v Cae)
Policy considerations: Partial performance, public interest (would enforcing the K hold the govt to obligations
which would be contrary to public interest?)
CASES
R v. Cae Industries Ltd (1986, Canada Federal Court of Appeal – leave to SCC refused)
Facts: Crown sold Air Canada base to Cae; Crown made vague assurances about hours of work Cae could
expect (would make “best efforts” for more hours); the workload diminished and Cae sued for breach.
Issue: Were the assurances binding in contract?
Held: Yes. Despite vague terms, court enforces K terms based on conduct of parties.
Principle: Court uses objective approach to determine party’s intention to enter into K (there was a K here).
- If terms so vague as to be unenforceable then K is no good; but if court can give terms meaning based on
intent of parties, then K binding on those meanings; court considers nature of legal relationship between
parties, and whether there has been partial performance
- Court will generally make every effort to find meaning in words used by parties to determine whether
an enforceable K exists
An agreement to agree is not a contract. Courts can’t read terms into an incomplete K. (May & Butcher)
General rule: All essential terms must be settled to conclude valid K – agreement to agree not binding (May
& Butcher). However, to soften this – courts will try to save K by giving reasonable meaning to vague terms –
meaning must be based on some benchmark, formula or mechanism in the K (Hillas v Arcos)
Exception: Actions/intentions of parties can be enough to enforce a K missing essential term like price (Foley)
May & Butcher and Hillas are hard to reconcile – each case must be decided on the facts (Foley)
CASES
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- Policy rationale: business efficacy – court will construe “fairly and broadly” to give effect, even if
contract/language itself isn’t perfect
- Softens finding in May & Butcher
- Policy consideration: defendants’ contention “not an honest one” (opportunism), unjust enrichment
- NB: References the fact that Hillas and May & Butcher are hard to reconcile (come to opposite
conclusions). Ultimately, decision must be based on the particular circumstances and context.
Implied terms: Look to officious bystander test, or to give business efficacy to a K – but courts will not imply
terms simply b/c they seem reasonable or satisfactory (Manpar)
CASES
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- If rent simply to be agreed, can’t be enforced. If rent to be established by formula (market value) but no
mechanism, court can supply mechanism (good faith)
- Courts try, wherever possible, to give effect to clauses which the parties intended to have legal effect
- Duty to negotiate in good faith is a rule based on agreement of parties, not a common law obligation
- Looks to specific context of the case – officious bystander test – business efficacy concerns – can imply a
term if a) both parties would likely agree the term should be implied, or b) give business efficacy to the K
- Here, Crown was aware of fiduciary duties to Band – wanted ability to refuse to renew permit (in case
Band was opposed to renewal) – court therefore can’t imply that the renewal clause was binding.
Wellington City Council v. Body Corporate (NZCA, 2002) – NOT IN OUR MATERIALS
- “The law regards the task of reconciling self interest with the subjective connotation of having to act in good
faith as an exercise of such inherent difficulty and uncertainty as not to be justiciable. The ostensible
consensus is therefore illusory.”
Ratio: No duty to negotiate in good faith
Textbook, Chapter 4 – The Enforcement of
Promises
Consideration: The “price” paid for a promise (can be lots of things – anything of value, or giving up a
right/forbearance on a claim) but cannot be illusory
Consideration is a legal formality. Serves numerous functions:
1) Evidentiary function (evidence of the existence of a K)
2) Cautionary function (ensure parties deliberate before entering into a K!)
3) Channeling function (simple, external test of enforceability)
General policy framework: Balance between reasonable expectation and unfair surprise
Factors to assess whether a promise will be enforced:
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CASES
- There must be a bargain with consideration. Here, the promise to pledge to charity is unenforceable b/c
there is no consideration.
- Rejects arguments from older cases (consideration arising from similar promises of other subscribers,
promise not revocable once charity relies on $ and incurs expenses, subscription for a specific purpose
was an implied undertaking by charity to spend money for that intended purpose)
- Here, there was no negotiation with other subscribers, no request to carry out specific works (so the
$5000 wasn’t attached to a specific purpose), etc
- Courts go to great lengths to “squeeze” parties’ relationships into classical bargain templates in order to
enforce contracts that deserve it (here, to protect commercial agreements that project exchange into
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the future – important policy consideration. “Implied promise” furthered business efficacy).
Exception: Doctrine does not apply if the past act/performance was done at the request of the promisor
(Lampleigh v. Brathwait)
If person A requests a service, person B performs the service, and later person A promises to pay for
the service and then reneges on the promise – the doctrine rejecting past consideration won’t apply
CASES
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Peppercorn theory: A very small or nominal amount can still be consideration. As long as the consideration
has some value in the eyes of the law, the courts will not enquire into the adequacy of the consideration.
(Thomas v. Thomas).
Policy considerations: Courts strain to find consideration where there is good reason to enforce a promise
- Social utility of agreement, parties clearly intended to enter into K, no good reason not to enforce
CASES
- Respect for the wishes of the dead husband is not good consideration, but the widow’s promise to pay 1
pound yearly in rent, and to maintain property, was good consideration (though nominal).
- Policy considerations: this is the kind of bargain the courts want to protect (husband clearly intended to
enter into agreement, widow clearly relied on it, and no good reason to not enforce it)
Forbearance: If there is honest and serious intention to sue, forbearance or settlement can be valuable
consideration at common law.
Exception: Forbearance is not good consideration in cases where the claim is invalid (D.C. v. Arkin)
CASES
- If Zellers had reasonable grounds to believe they might succeed, then that would be okay, but judge says
he doesn’t believe Zellers ever thought they had a reasonable chance of success
- Policy considerations: Zellers would be unjustly enriched otherwise
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General rule: Traditionally, courts held that promising to do that which you’re already obliged to do is
not good consideration. However, this reasoning has lost favour in modern courts
Public Duty: Traditional view that if, in exchange for a promise, the promisee agrees to perform a public
duty (e.g. cop, teacher), there is no consideration – they are simply doing their job.
Duty owed to a third party: Unlike public duty, the performance of a duty owed to a third party has
traditionally been viewed as good consideration (Pao On)
- Even if you’re obliged to perform a duty, making that same promise to a third party opens yourself
up to liability, etc – so making the same promise to a third party is good consideration
- Tri-partite relationship here: plaintiff had an obligation to corporation (A) not to sell, but also made a
promise to defendant shareholders (B) not to sell. Was the promise to B good consideration, since the
plaintiff had an existing contractual obligation to party A to do the same thing?
Held: Consideration was valid and there was not undue duress.
Principle: Promise to perform a pre-existing contractual obligation to a third party can be good consideration.
- No economic duress – this was simply commercial pressure as per the nature of the market. There was
no unfair use of a dominating bargaining position.
General rule: promises made on the basis of existing contractual duties are not binding – there must be
new consideration to support new promise (Stilk v. Myrick)
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Pre-existing legal duty owed to the promisor may be valid consideration for a subsequent
promise if the promisor derives a practical benefit from the agreement, and if not given under
economic duress (Williams v. Roffey)
Courts move away from traditionally strict rules (Stilk v. Myrick) to hold that consideration
could simply be from some benefit or advantage (Williams v. Roffey) to holding that contract
variations can be unsupported by consideration entirely (Nav Canada).
- NB: Gilbert Steel is still good law, but Nav Canada has been out for 6 years and is being cited more
and more frequently – will the SCC overrule Gilbert Steel and accept Nav Canada?
Problem: Parties to contract modify K obligations on an ongoing basis (i.e. one party agrees to pay more
and then claims is not bound by modification).
Doctrinal issue: Contract modification is not enforceable unless “new” consideration.
Policy: To enforce (party autonomy, reliance, reasonable expectations, business efficacy) or not enforce
(exploitation, ransom and duress – concern that one party will hold the other party “ransom” and not
complete work unless paid more – e.g. sailors in Harris v. Watson)
How to avoid the problem in the first place: Price adjustment mechanism in K; clause that provide for
renegotiation of obligations based on objective standards.
Techniques to make contract modification enforceable:
i) Seal
ii) Courts find new consideration (peppercorn theory)
a) Courts can latch onto anything as consideration – may be nominal (Williams v.
Roffey). In Nav Canada, judge argues against this “hunt and peck” theory
b) Consideration may be forbearance on a right to sue (unless invalid claim; DC v Arkin)
c) A promise to a third party to perform an existing contractual obligation owed to
another is good consideration (Pao On v. Lau)
d) Paying more for an existing contractual obligation where the promisor obtains a
benefit or obviates a disbenefit, as long as no economic duress (Williams v. Roffey)
More flexible approach – departure from rigid approach in Stilk v. Myrick
iii) Terminate K1 and enter into K2
iv) Doctrinal change (argument in Nav Canada – valid policy reasons to change the law around
consideration and allow for contract modifications unsupported by consideration)
v) Estoppel (but cannot be used as a cause of action to enforce a promise to pay more –
Gilbert Steel)
CASES
Principle: No consideration. Crew didn’t give anything up for the promise of extra wages; simply fulfilling
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duties under the original K. Performance of a pre-existing contractual duty is not sufficient consideration.
- NB: if they had been at liberty to quit and had chosen NOT to quit in return for extra wages, then that
would have been good consideration
- Plaintiff’s arguments:
a) their promise to give a “good price” on the next project was consideration – court rejected this
(vague statement, falls short of consideration, too uncertain to enforce)
b) Changing an essential feature like price implies the original K is deleted and new K is made – court
rejects this, the change in price was clearly a variation and parties did not intend to enter into new K
c) Creative argument: increased price led to plaintiff affording increased credit to the defendant,
therefore consideration – court noted the ingenuity here, but ultimately rejected the argument
d) Estoppel: Plaintiff argued that defendant kept accepting invoices with higher prices – therefore, they
had acquiesced to the higher price and should not be allowed to repudiate it. However, court rejects
this argument b/c estoppels can never be used as a sword but only as a shield – plaintiffs cannot
found their claim in estoppels. Further, plaintiffs failed to show detrimental reliance
- NB: Could have protected themselves by adding a price escalation clause (for future price increases)
- Refines principle in Stilk v. Myrick, but doesn’t contravene it (modern/flexible approach to consideration)
- Policy considerations: commercial advantage to both parties by plaintiff being paid more to finish work
Greater Fredericton Airport Authority v. NAV Canada (2008, New Brunswick CA)
Facts: Fed. govt. & Nav Canada entered into an agreement, wherein Nav Canada assumed responsibility for
some services at Canadian airports. Dispute re: who should pay for new equipment. Nav Canada refused to
make a runway operational until GFAA agreed to pay for the equipment. So GFAA capitulated and agreed to
pay – Nav Canada then acquired the equipment, but GFAA subsequently refused to make the payment.
Issue: Was GFAA’s promise to reimburse Nav Canada supported by consideration?
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Held: Appeal dismissed. GFAA’s promise was given under economic duress and therefore unenforceable.
Principle: Court examined the traditional rule re: consideration, judiciary’s unwillingness to enforce a rigid
classical approach in Stilk v. Myrick (“finding” consideration in Roffey Bros, for example) and argued valid
policy reasons to move away from the strict application of the rule in Stilk v. Myrick:
General rule: Agreement to accept lesser sum in satisfaction for whole amount is not good
consideration (in creditor/debtor situations) (Foakes v Beer, Re Selectmove)
Forms of payment other than cash can be ‘new’ consideration for agreements to repay debts (Foot v.
Rawlings)
Rescission argument: Parties intend to terminate the original K and substitute a new one (traditionally
only available where the obligations of both parties are partially unperformed).
A party cannot extinguish an existing contractual obligation in return for partial performance of
that obligation
Courts have adhered to more rigid/traditional approach here (unlike in promises to pay more)
Cannot pay $5 now as consideration for a debt of $10; but you can enter into an accord and
satisfaction (i.e. debt release agreement – an accord – as long as there is satisfaction – nominal
consideration, the peppercorn). E.g. I can give you $5 and my old shoes as consideration
However, due to legislative reform, this is mostly irrelevant. Law and Equity Act in BC: agreement to
accept partial payment is enforceable if expressly accepted by creditor in satisfaction of the debt.
CASES
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Issue: Was there sufficient consideration in the partial payment of the existing debt to find a binding K?
Held: No. Unenforceable for want of consideration.
Principle: Selectmove tried to rely on Williams v. Roffey Bros (i.e. that Crown received “practical benefits”
from accepting partial payments, and this counted as good consideration)
- Court rejected this argument and used the Foakes v. Beer precedent instead, i.e. partial payment of a
debt is not sufficient consideration
- NB: General rule in Canada concerning pre-existing legal duty to promisor is set by Gilbert Steel – but be
aware of English cases (if creditor/debtor situation, apply Foakes; if goods and services contract
situation, apply Williams v. Roffey Bros)
Reliance is not consideration. Therefore, estoppels emerged to protect the potentially injurious reliance
of the promisee, even if the promise is not supported by consideration.
Promissory estoppels: Question of estoppels as to future conduct (i.e. a promise is made about future
conduct: “I will not take that action”) representation as to future conduct (equitable remedy)
- In High Trees, Lord Denning established the modern concept of promissory estoppels as relating to
future conduct (prior to this, representations as to future conduct could only be in a contract)
- Therefore, a promise to accept a smaller sum in discharge of a larger sum, if acted upon, is binding
notwithstanding the absence of consideration
NB: Estoppel closely related to waiver – not always clear what the courts are referring to.
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CASES
- Implied promise that the 6 month period would only count after negotiations finished. This triggers
estoppel; tenants relied on this promise and it would be inequitable to do otherwise.
- Different from Gilbert Steel, where it was an agreement to pay MORE (offensive action) versus an
agreement to accept LESS (defensive action) – sword versus shield
Friendly indulgence is not the same as intent to waive strict legal rights.
Policy rationale: Would not be fair if a party felt they had to insist on the letter of the law, for fear that
any friendly indulgences could be conceived as them waiving their rights to enforce the K on its terms.
The Equities
At common law, a creditor could say, “Yes, I accept $300 instead of the full $480”, and then the next day
turn around and sue the debtor for the balance. This is harsh and has been highly criticized, so equity
emerged to counterbalance this.
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- But the debt settlement/accord must be true and voluntary. Not so, here – Mrs. Rees held them at
ransom (nascent doctrine of economic duress) so promissory estoppels is not applicable
- Equitable principle: “He who comes into equity must come with clean hands”
The Notice
Waiver is a unilateral act (unlike promissory estoppel, which is bilateral) which requires:
a) Unequivocal and conscious relinquishment of rights; and
b) Full knowledge of rights. (Saskatchewan River Bungalows)
Retracting a waiver: where a party relies on waiver, waiver can only be retracted if there is reasonable
notice, to protect the reliance by the person in whose favour the waiver operates (Saskatchewan River
Bungalows, Int’l Knitwear)
A party that waives rights can only later insist on them by a) giving reasonable notice, or b)
making it plain in his conduct that he will thereafter insist on them (Alan v. El Nasr)
But withdrawing a waiver is sometimes not possible
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Waiver is a manifestation of the broader principle of promissory estoppel. Lord Denning defines waiver
as follows, in Alan v. El Nasr: “If one party by his conduct, leads another to believe that the strict rights
arising under the contract will not be insisted on, intending that the other should act on that belief and
he does act on it, then the first party will not afterwards be allowed to insist on the strict legal rights
when it would be inequitable for him to do so.”
In Alan v. El Nasr, Denning also held there is no requirement for detrimental reliance
This position has NOT been accepted. There must be detrimental reliance (Societe Italo-Belge)
- Sometimes withdrawal is not possible (either too late, or cannot be done w/out injustice to other party)
- No need for detrimental reliance – simply reliance is enough
- NB: NOT ACCEPTED in Canada. Must show some sort of prejudice/detrimental reliance.
- If there is not sufficient reliance on a promise, or it would not be inequitable to revoke promise, then the
promise can be revoked
Sword or Shield?
Promissory estoppel is a shield, not a sword. It cannot be used to create new causes of action where
none existed before. This would eliminate the doctrine of consideration, which is still a cardinal
necessity in the formation of a contract (though not of its modification or discharge). (Combe v. Combe)
Promissory estoppels cannot be used to enforce every promise – it can only be brought where a
contract or legal rights exist already
However, a plaintiff can invoke promissory estoppel. Doesn’t matter if promisee is plaintiff or
defendant – if there is injurious reliance, they can invoke estoppel (AS LONG as there was an
existing legal relationship) (Robichaud v. Caisse Populaire)
Exception: estoppel used as a sword absent an existing legal relationship, as long as there is a
reasonable assumption or expectation of a legal relationship (Waltons v. Maher)
BC courts upheld that promissory estoppel doesn’t apply if no pre-existing legal relationship or
no expectation as to a legal relationship between promisor and promisee (NM v.ATA)
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- Denning cautions against stretching the principle in High Trees too far – cannot be used to create new
legal obligations between parties where none existed before
- “The doctrine of consideration is too firmly fixed to be overthrown by a side-wind.”
- Here, estoppel used as a sword; can’t encourage (even by silence) other party to act to their detriment
based on your representation when unconscionable outcome will result
- NB: This precedent used in Canada but only in proprietary estoppel cases; it is persuasive but not highly
so; not followed yet in England.
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Held: No. Though Mr. M made the promise and Ms. A relied on it to her detriment, not enforceable b/c no
pre-existing legal relations and no reasonable expectation of legal relations.
Principle: BC decision upholding Denning’s view that estoppel not intended for use as a sword where no legal
relations pre-exist; Court said, “a necessary element of promissory estoppels is the promisee’s assumption
or expectation of a legal relationship.”
Traditional, doctrinal use of promissory estoppels as a shield (a promise to accept less is binding,
per High Trees, and a promise to pay more is not binding, per Gilbert Steel). But is shield/sword
distinction incoherent? Is there a real difference? Can they be functionally equivalent?
Summary: Waiver
1. Principle of waiver (Denning): “If one party by his conduct, leads another to believe that the
strict rights arising under the contract will not be insisted on, intending that the other should act
on that belief and he does act on it, then the first party will not afterwards be allowed to insist
on the strict legal rights when it would be inequitable for him to do so.”: Alan v. El Nasr
2. Must have (1) a full knowledge of rights, and (2) an unequivocal and conscious intention to
abandon them; Saskatchewan River Bungalows Ltd v. Maritime Life Assurance
3. Can retract waiver and revive waived rights if not inequitable and give reasonable notice:
International Knitwear v. Kabob, Petridis v. Shabinsky (not enough notice)
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General rule: Not all agreements are contracts – the parties must have intended to create legal relations
Intention can be seen as a 4th criterion for enforceability (w/ offer, acceptance & consideration)
The rule is applied using factual presumptions
o Presumption that commercial agreements are intended to create legal relations
o Presumption that social, domestic and family agreements are not intended to create
legal relations (absent clear evidence to the contrary)
Contract law does not exist in family relations; love & affection are not consideration (Balfour)
Commercial parties can agree that a business relationship will not give rise to legal relations
(Rose & Frank v. Compton)
Comfort letters (issued by a parent company who does not wish to guarantee formally the debts
of a subsidiary) do not impose indemnity obligations on the parent company (TD Bank v. Leigh)
CASES
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General rule: Sealed documents are enforceable because they are sealed: seal is a formality that serves
functional purposes--evidentiary, cautionary and requiring deliberation
A seal does not “import” or provide consideration (it is not a “stand-in” for consideration. A sealed
document is a non-bargain promise. Pre-dates doctrine of consideration.
Sealed documents have a variety of names: deed, covenant, formal contract, specialties.
A promise can be made enforceable if done by way of a deed – a promise that is: in writing, signed by
promisor, sealed, and delivered.
Dissent in Royal Bank v. Kiska – Laskin J. argues to preserve the formality of seal. In other cases,
courts have said that the modern test of whether a document is sealed depends on intention.
CASES
The Statute of Frauds (1677) imposed writing requirements on various kinds of contracts. The Statute of
Frauds has largely been repealed and replaced by Sale of Goods Acts, Consumer Protection acts, etc.
This rule survives in some jurisdictions, but not in BC or Ontario. BC does require a writing requirement
for land contracts not including leases of 3 years or less. Also, the BC Law and Equity act requires a
written guarantee and indemnity promises (i.e. gratuitous promises which must be in writing).
- NB: indemnity = liable for another person no matter what, regardless of whether they default.
Guarantee = liability is conditional on the default or non-performance of someone else
Either the agreement itself can be in writing or there has to be a sufficient note or memo evidencing the
agreement. Sufficiency only needs to mean mention of party, property, and price.
Electronic Contracts
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A signature in e-mail format where the sender types their name at the bottom is considered valid.
CASES
- Courts struggle to effect party’s wishes, undeterred by poor language used in writing requirement
Doctrine of privity: contract can neither confer rights nor impose obligations on a third party.
This prevents two types of people from enforcing a k:
a) Complete strangers to the K (uncontroversial)
b) Third party beneficiaries to the K (controversial – abolished elsewhere except Canada)
o 3P has no rights under K & cannot enforce K, even when purpose of the K is to benefit them
Historically, this was the rule because third party beneficiaries were “strangers to the consideration”.
Policy rationales behind privity of K: 3P not a party, no consideration, and 3P could prevent
modification, since 3P rights could be seen as having crystallized
- Economic: freedom of K, encouragement of market-based concepts, supported nascent capitalism,
self-reliance, minimizes liability
Tweddle v. Atkinson established common law maxim of privity of K (overturned Provender v. Wood)
Controversy: Privity of K is seen as not theoretically sound – many arguments to abolish it.
CASES
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Held: Court held that the party to whom the benefit of a promise accrues may bring the action (i.e. third
party beneficiary).
Principle: This shows that early common law courts did allow third party beneficiaries to bring action.
Reversed in Tweddle v. Atkinson. Privity is a more “recent” doctrinal rule.
Avoiding the Contractual Box: If a K is designed to benefit a 3P, how do we include them?
Trust or assignment: categorize the 3P as beneficiary (trust) or assignee (assignment)
Agency: If K between A and B, view B as contracting as an agent for 3P, so that 3P is in a direct
contractual relationship with A
Law and Equity Act, s. 36: Allows an absolute assignment, i.e. to pass/transfer the legal right to
the debt – brings assignee within the K to bring action directly. You can assign your debt to
someone else, but you can’t assign an obligation to someone else.
Beswick v. Beswick: Lord Denning’s failed attempt to overrule the rule in Tweddle
London Drugs relaxed rule of privity of K. Creates an exception to privity of K based on intention
of parties.
Edgeworth: again, looks to intention of parties (unlike London Drugs, here there was no
intention for the exclusion of liability clause to cover the third parties)
Fraser River: further relaxation of privity of K (extends beyond employer-employee situations)
The fate of the employee: not protected in Greenwood, but protected in London Drugs. What problems
continue? Employee only obtains 3P benefits if employer has insurance, and even if employer has
insurance, employer might not ensure it extends to employees.
What can employees do? Self-insure, obtain indemnity from employer, ensure insurance
coverage extends to employees, ensure employee benefits from waiver of subrogation.
Fraser River v. Can-Dive extends the London Drugs test beyond employer-employee situations. 3P rights
should be enforced once their rights have developed into an actual benefit.
Further relaxation of rule of privity: if 3P was expressly given rights under K, cannot take them
away so quickly. Potentially restricts freedom of K, but is worth it.
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CASES
- HoL says privity of K is defective, but we can’t change a rule we made – leave that to Parliament.
- NB: Scathing criticisms of this. Employees least able to bear cost/don’t expect to be personally liable..
- Policy concerns around unfair surprise, distributive justice, disrupts risk allocation, inefficiency (requires
double insurance for employees?), too formalistic (fails to consider consequences of judgment)
London Drugs v. Kuehne & Nagel (1992, SCC)
Facts: KN was storing a transformer for LD. Storage K included a limitation of liability clause, which
referenced warehousemen and limited their liability to $40. Warehousemen damaged the transformer. LD
brought action for damages. BCSC held the two warehousemen personally liable for the full amount of
damages, while limiting KN’s liability to $40.
Issue: To what extent can employees benefit from their employer’s contractual limitation of liability clause?
Held: Relaxation of rule regarding privity of K.
Ratio: Employees may benefit from limitation of liability clause if it:
a) Expressly or impliedly extends its benefits to employees seeking to rely on it, and
b) Employees act in the course of their employment and perform services provided for in the contract
when loss occurred.
- Policy considerations: Privity in this case would frustrate commercial reality (ignores reality of insurance
coverage, assumption of risk), common sense (inconsistent with reasonable expectations), and justice
- Distinguishes London Drugs – no inference (that the clause provided protection for the engineers) can be
made here – the clause protected the province alone from liability, and was neither expressly nor
impliedly meant to cover the engineers as well
- Also, the engineering firm, unlike employees in London Drugs, could have taken steps to protect itself
but did not insure itself accordingly (policy considerations)
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Condition Precedent:
This arises when a party wants to contract, but certain information is not yet available, or a state
of affairs has not yet materialized (e.g. waiting on financing to buy a house)
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e.g. “I will sell you my scooter if you like the colour.” This is illusory – courts will not enforce
Condition Subsequent: A condition that discharges parties from contractual obligations or their
agreement (e.g. you agree to buy my scooter; if the electrical system malfunctions within two months
you can return for a full refund) Rights of return.
CASES
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was “cancelled”. P didn’t accept cancellation, successfully sold his Port Moody property, and tried to close
the sale on D’s property.
Issue: Is the interim agreement a form of option that could be cancelled, or is it a binding agreement?
Held: Judgment for plaintiff. Condition precedent; binding K; defendant could not simply back out.
Principle: P argued it was a binding K (there was consideration, contractual obligations, and obligations were
merely in suspense until the Port Moody property was sold.) D argued it was merely an option that could be
cancelled (deposit could be returned, lacked consideration).
- How to differentiate between condition precedent to the formation of a K, and condition precedent
which suspends obligations in an otherwise complete k? Look to intention of parties and related events
- Sets out general rule in real estate contracts: a condition precedent usually results in a binding
agreement where the obligation to complete the contract is in suspense (unless there was never an
intention for the parties to bind themselves)
1) Conditions so imprecise and subjective that the contract process must still be regarded as an offer
(e.g. “subject to the approval of the president of the company)”;
2) Conditions that are clear, precise and objective, meaning the contract is completed (e.g. “subject to
John Smith being elected mayor in the municipal election this year”);
3) Conditions that are partly subjective and partly objective (e.g. “subject to department approval of
the attached plan”) looks objective, but has a subjective aspect
- Argues that in this case, the condition precedent falls into the first class (was unclear, didn’t address
whether the plaintiff must sell at any price, etc – fails for uncertainty). Therefore, a contract was NOT
formed, and the defendant was allowed to withdraw the offer
- Problem could have been addressed by stating the price and essential terms upon which the Port Moody
house must be sold
Primary obligations: The parties’ contractual obligations which must be performed once the condition
precedent is satisfied (basically, the contract’s ultimate objective)
Subsidiary obligations: Any obligations the parties must fulfil in the meantime (if none specified, then
simply the obligation to refrain from withdrawing from the contract).
But usually there are subsidiary obligations required to bring about the condition precedent
To prevent unfairness, courts usually find an implied subsidiary obligation to require a party to
take steps that bring about the state of affairs required to satisfy the condition precedent
Most common examples: zoning or subdivision approval
Example in Wiebe v. Bobsien purchaser had an implied subsidiary obligation to make
reasonable efforts to sell his Port Moody home by the required date
Remedies for breach of subsidiary obligations: Remedy may either be damages or specific
performance, but damages are far more common. Specific performance order is unlikely where
damages will suffice to compensate plaintiff (Dynamic Transport is an exception here).
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Risk: in specific performance, genuine efforts to carry out the condition as ordered by the court
may fail – the plaintiff therefore risks having neither performance or damages.
CASES
- In a purchase and sale situation, the intending vendor should be the person to carry out the subdivision
of the land (would be difficult for purchaser to do this – would have to be in vendor’s name).
- Policy considerations: unfairness, business efficacy
Facts: Anatal agrees to sell to Eastwalsh 147 lots to build homes on in Mississauga, Ont. Agreed condition was
that Anatal would use best efforts to have the plan of subdivision registered by closing date of the sale. Plan
not registered in time and Eastwalsh sues for specific performance or damages for breach.
Held (Trial Level): Judge finds Anatal did not use reasonable efforts to achieve registration, therefore Anatal
in breach. Damages: 50% chance of subdivision being registered on time, so judge ruled Anatal liable for 50%
of the difference in property value since contract formation to repudiation.
Appeal Level: Upholds trial judge that Anatal in breach, but differs on remedy. Court holds that even with
reasonable efforts, no probable chance of registration in time, therefore damages only nominal.
Often, conditions are included to benefit one of the parties (usually the purchaser) – i.e. the real estate
deal is subject to the purchaser obtaining financing or a satisfactory building inspection, etc.
Issue: Can this condition be waived by one of the parties? What if one party wants to waive the
condition (so the contract can be given effect) while the other does not?
General rule established in Turney v. Zhilka: A true condition precedent can’t be waived by either party.
Problem: Strict application of this rule can allow one party to exploit the non-fulfilment of a condition as
an excuse to escape from the obligation to perform.
Legislation: Common law rule in Turney v. Zhilka no longer relevant, b/c of legislation (below)
Law and Equity Act, s. 54: A party may waive the condition precedent if
a) The condition precedent benefits only that party to the contract;
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b) The contract is capable of being performed without the fulfilment of the condition precedent;
c) If time is stipulated for fulfilment of the condition precedent, the waiver must be made within
the stipulated time period, or within a reasonable time.
CASES
- Here, waiver means a party may forgo a promised advantage (or dispense with part of the promised
performance of the other party) which is simply and solely for the benefit of the first party, and
severable from the rest of the contract.
- In this case, it was a true condition precedent – an external condition upon which the existence of
the obligation depends. Neither party has promised it will occur. One party cannot now make the
other party liable simply to suit his own convenience, in spite of the non-performance of the
condition. “This is not a case of relinquishment of a right but rather an attempt by one party,
without the consent of the other, to write a new contract.”
- If parties, aided by legal advisors, make a contract subject to explicit conditions precedent, the Court
can’t simply introduce implied provisions allowing waiver – this would be rewriting the agreement
- Can’t put the purchaser in a position to either rely on the conditions precedent or waive them,
depending on which course is to his benefit
- Hard to determine to which party’s benefit the condition operates, and whether it is severable
We turn now from the formation of a contract to the terms of a contract. Pre-contractual statements
may or may not become terms of the contract. There are three broad categories:
1) “Mere puffs” (meaningless statement to encourage sale - sales talk, no liability)
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2) Mere representations (not terms of the K, but if untrue, can be a misrepresentation and can
have legal limited consequences) – statements that induce you to enter into a K
a. Innocent misrepresentation
b. Negligent misrepresentation
c. Fraudulent misrepresentation
3) A statement may be an term of the K (serious legal liability)
a. Conditions (fundamental term – goes to the ‘root’ of the K)
b. Warranties (term of the K, but not so important as a condition)
c. Intermediate/innominate terms (hybrid)
Rescission is an equitable remedy used by a court to “set aside” a K because of a defect in its formation
(misrepresentation, duress, undue influence). Equitable remedy: courts have discretion
Distinguish rescission from:
a) The termination of a K by agreement of the parties, or in accordance with the terms of the K
b) The right of a party to repudiate when the other party breaches (i.e. is no longer bound by
the K and can have an action for damages)
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Courts rescind; parties terminate (together or unilaterally) and repudiate (unilaterally, when
one party breaches).
Expectation damages substitute money for what should have happened under K, while
rescission determines the contract ought not be enforced, thus damages are to restore parties
to their pre-contract position
Limits to Rescission
1) In real estate contracts, execution of a contract constitutes a bar to rescission. Rescission must
be sought before performance or execution of K.
Innocent Misrepresentation
An erroneous, false statement, but the speaker did not know it was false, and may even have thought it
was true. Conflicting considerations about what to do with such statements:
- No relief? (caveat emptor; if a fact is important, then it should be made an express term of the K)
o Many statements made in K formation – can the speaker realistically guarantee them all?
- Relief? (unjust enrichment)
- Remedy: Limited to rescission innocent party can apply to have K rescinded; no damages, but
benefits will be transferred back (parties in pre-K position). No reliance or expectation damages.
o No rescission if the K is executed (too late!), or restoration to original position not possible
- Doctrinal requirements for innocent misrepresentation:
a) Representation of fact turned out to be false;
b) Must be material (important);
c) Must induce the making of K (this will be presumed);
d) Innocent party did not know the correct facts.
Non-disclosures as misrepresentations: General rule that a party negotiating a contract is not subject
to a duty to disclose material facts. Silence/non-disclosure is not usually misrepresentation. (Hard to
reconcile with Bank of BC v. Wren).
- Half-truths
- Active/deliberate concealment
- Changing circumstances which affect the truth of an earlier statement
- Contracts arising out of fiduciary relationships, or contracts “of utmost good faith” (e.g. insurance
contracts - active duty to disclose)
CASES
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- False representations are not displaced by contributory negligence (i.e. that he could have
discovered true value but failed to do so)
- Inference of law: a material representation calculated to induce a party to enter into a K did
induce, unless there is evidence to the contrary (either that the party knew facts contrary to the
representation, or showed clearly by his conduct that he did not rely on the representation)
- Burden of proof is therefore on the person who made the representation to prove that it did not
induce the other party to enter into the contract.
- Disparity of knowledge is an important factor (different from situation where both parties know facts
equally well, and one party is simply expressing an opinion). Courts will ask, “Who knows best”?
- Level of expertise will often be considered in distinguishing warranty vs. opinion vs. representation
- NB: Difficult to reconcile this case with general rule that there is no duty to disclose. May be better
viewed as based on doctrine of mistake (unilateral mistake on the part of Allan, which was induced by
the misrepresentations of the Bank in failing to disclose material facts to him)
- Takes broad approach to equity and says that it can require compensation.
- Policy considerations: unfair for the defendant who, guilty of fraud, then prevents restitution by selling
part of the property he has acquired by fraud (prevent unjust enrichment)
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Warranties: A term of a contract that parties intend to be binding (a contractual promise), the breach of
which gives rise to damages (expectation damages).
Collateral contract/warranty: Courts sometimes adopt a two-contract approach (especially when part
of the K is written and part of the K is oral)
e.g. Sale of a horse, which is sold as a “racing horse”. K1 = contract for sale of horse. K2 = if you
enter into K1, I promise it is a racing horse (unilateral K, performance is entering into K1)
A way of avoiding the “written contract rule”, i.e. a way to bring oral statements into the K if
we can enforce K1, then we can enforce the oral terms as a collateral contract/warranty
This is collateral to the main contract (which was put in writing). If it is made after the main
contract is concluded, it is a contractual modification.
Strict approach taken to establishing warranty/collateral contract in Heilbut
Lambert discusses in Gallen v. Allstate Grain: This approach is for LEGAL ANALYSIS only.
Modern doctrinal test for a warranty (Dick Bentley): A warranty is a representation made in the course
of dealings for the purpose of inducing the other party to act, and it does induce entry into a contract
(reliance), and the reliance is reasonable.
Sale of Goods Act: Once a good has been accepted and after the period of reasonable inspection, a
condition may only be treated as a warranty (relevant in Leaf v. Int’l Galleries).
Before you accept goods and you discover a breach of a condition, you can repudiate the
contract. Otherwise, once you’ve accepted the good, such breach can only be a warranty and
you can only sue for damages (too late to repudiate)
Policy: Once you’ve had something for a while, you can’t go back and return it – only damages
This is very important, because innocent misrepresentation gives rise to rescission, whereas
warranty gives rise to damages
The test is an objective assessment of the intentions of parties, based on the totality of the evidence
(Heilbut). Did they intend the statement to be a binding promise? Following factors will be considered:
1. Timing of Statement: The earlier the statement was made in the negotiations, the less likely that it
was a warranty, or indeed even a misrepresentation (puffery in early stages is okay)
2. Importance of statement: How important was the statement to the person to whom it was made –
to what extent did it induce formation of the contract?
3. Was the speaker aware of the importance of the statement (foreseeability of reliance)?
4. Relative knowledge and skills of the parties: Does the person making the statement have a special
skill or knowledge of the facts upon which the other relies? (can work in reverse).
5. Content of Statement:
a. How specific or vague is the statement?
b. Opinion or Fact: Was the statement merely and obviously an expression of opinion, or was it offered
as a statement of fact? Obvious statements of opinion are usually not warranties.
6. Context: Formal statement, or offhand/casual opinion? Central role in negotiations or not?
7. Have the parties taken the trouble to reduce the contract to writing? If yes, then the parties had an
opportunity to incorporate the statement as a term of the contract. (Courts reluctant to add oral terms to
written agreements)
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8. Disclaimers: Did the speaker say anything as a disclaimer? Was there an exclusion clause?
9. Price/consideration: What does the price tell us? (e.g. buying a “gemstone” for $5.00 is different
from buying the same stone for $5000).
Statutory Reform
Arguments to allow for better remedies (i.e. damages) in cases of misrepresentation, to better
protect the buyer (innocent misrepresentation is inactionable in contract and tort law)
Arguments to remove execution of K as a bar to rescission and give court discretion to award
damages in cases of rescission
CASES
- The sale of painting as a “constable” was a condition, i.e. a fundamental term of the K
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Tort of negligent mispreresentation: Established in Hedley Byrne case (1964, UK), thereby opening door
to concurrent liability in contract and tort (controversial).
Elements of negligent misrepresentation:
- Duty (special relationship between speaker and receiver) – speaker provides “info, opinion, advice”
- Representation false and provided negligently (doesn’t meet standard of care)
- Reasonable reliance, and damage
Nunes Diamonds (1972, SCC): represents older view that contractual liability ousts tort
- “The basis of tort liability in Hedley Byrne is inapplicable in cases where there is a contract”
However, newer cases allow for concurrency in contract and tort (Sodd Corp, Checo)
Damages
If concurrent claim in tort and contract, what damages may be recovered?
Tort reliance (loss of opportunity)
Contract expectation damages (loss of profits)
Often, these are functionally equivalent (i.e. your reliance on lost opportunity is functionally
equivalent to the expected measure of loss of profits)
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CASES
- Defendant’s negligent misrepresentation also constituted a collateral warranty, which induced the
plaintiff to submit its tender.
- Policy considerations: allow a person who has suffered a wrong access to all relevant legal remedies.
Parol evidence rule: excludes oral or written statements preceding or contemporaneous with the
written contract from being admissible as evidence.
Strong presumption that a written contract includes all the terms of the agreement
Frequently, there is an oral representation that either conflicts with the written contract or is
excluded in the “entire agreement” clause
Entire agreement clause: Example – “this agreement constitutes the entire agreement of the parties and
supersedes all prior agreements, negotiations, representations and warranties, written or oral.”
Signature rule: Signed contract is binding (reflects historically high deference to the written contract).
So, the parol evidence rule tells us extrinsic evidence is inadmissible to alter the contract, as long as the
language is clear and unambiguous.
Bauer v. BMO and Hawrish v. BMO: Two SCC cases which uphold the parol evidence rule (oral
statements in both cases were found to be inadmissible) where oral statements contradict written
contract, written contract wins.
Policy rationales:
Administrative/ajudicative ease (easier to look at one written document that cross-examining
witnesses, examining thousands of emails, etc)
Prevent fraud/perjury (always a concern about fraud in the context of oral warranties)
Enhance certainty/predictability (strong market value on reliability/predictability in regards to
future exchanges), plus reflects efficacy of commercial documents
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Rebuttal: All these rationales run up against the inherent injustice of the person who heard those
statements and relied on them when they entered into the contract. Leads to many exceptions.
What if a specific representation on key issue is inconsistent with standard form contract?
Specific oral representation overrides the standard form contract (J. Evans & Son)
A general exclusion clause will not override a specific oral representation on a key point, unless
the exclusion clause was brought directly to the party’s attention (Zippy Print v. Pawliuk)
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Legislation: Consumer protection legislation says parol evidence rule does not apply.
CASES
- Must look at totality of the evidence to determine what the contract was – here, the contract was partly
oral, partly in writing, and partly by conduct. Interpreting the contract means the exemption clause
cannot be applied, b/c this would render the oral warranty irrelevant, and that promise overrides any
question of exempting liability
- Oral statements and written K should be interpreted harmoniously, to the extent possible
- The parol evidence rule is a strong presumption but need not be strictly applied. In case of conflict,
there is a presumption towards written K, but is not absolute – if there is evidence that oral warranty
was meant to prevail, then it will prevail. Strength of presumption depends on circumstances.
- Strength of presumption in favour of written K strengthens from adding a term, to varies, to contradicts.
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Sarah Chaster – Law 108A Contracts Outline (Midterm)
Main question: is a party invariably bound to perform a contractual undertaking, whether or not
the other party has performed their end of the deal?
This will depend on whether the breach is a condition or a warranty
Considerations:
1) The order of performance
2) The consequences of one party’s failure to perform
3) Whether the other party can refuse to perform, or if they are obligated to continue
performance and the only remedy is to sue for damages.
General solution: Inference that, in appropriate cases, the performance of one party’s obligation was
contingent upon the completion of performance by the other party, and therefore a condition
- In that case, if B is required to continue performing only if A fulfilled obligation to pay, then a
condition of B’s obligation to perform is A’s duty to pay (i.e. a condition of the agreement)
- If B is obliged to perform in any event, A’s obligation is merely a warranty
Test for repudiation, established in Hong Kong Fir: “Does the occurrence of the event deprive the party
who still has undertakings to perform of substantially the whole benefit which he was intended to obtain
as consideration for performing his obligations?”
Innominate or intermediate term: Contractual term the breach of which may give rise to a right to
repudiate, or only to damages, depending on the severity of the consequences of the breach.
Parties may expressly make any term a condition, but should make it clear that a breach of that
condition will entitle the other party to repudiate the contract
How to determine if something is a condition, the breach of which “deprives the party of substantially
the whole benefit of the contract?”
No easy answer
Courts use a variety of terminology: “a fundamental term”, “a term that goes to the root of the
contract”, etc
Basically, does the breach deprived the person of what they bargained for (i.e. the fundamental
commercial purpose of the contract)?
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Sarah Chaster – Law 108A Contracts Outline (Midterm)
Policy considerations: prevent opportunism (prevent parties from easily repudiating a contract
if they realize it was a bad deal – Hong Kong Fir) while also balancing reasonable expectations
and not making it too hard for a party to get out of a contract
Intermediate/innominate terms are a flexible way for courts to look BACK on events in their full
context and then make a decision as to whether a party ought to be able to repudiate the K
CASES
- Differentiates between warranties (collateral to the main purpose of the parties) and conditions
(mutually dependent – non-performance by one party excuses the other from performance)
- The test for repudiation: is the party deprived of substantially the whole benefit of the k? Look back
on the events to determine whether the contract was frustrated (thereby relieving both parties
from their obligations), etc.
- Policy considerations: charterer wanted to get out of K b/c price had fallen (opportunistic). Concern
for the courts – if too easy to get out of a K, allows for opportunism, but if too hard to get out of a K,
puts severe burden on contracting party and their reasonable expectations
- The test is one of reasonableness; conditions in Clause 7 are so onerous that it would be unreasonable
to hold that a breach of that condition on a single occasion would allow Schuler to repudiate the entire K
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