Winter Term

PART III – Conditional Agreements

Chapter 8: “Subject to” Contract
 Have the parties created an agreement? Or not until the written document?
o b/c earlier, we have established that contracts can be verbal too. Not just written.
 When verbally fine-tuning possession date etc, getting close to the contract.
o when that agreement contemplates a formal document, we must ask whether that is simply a step in carrying out an
already enforceable agreement; or
o is it a prerequisite for creating that formal agreement?
 The court will look at the intention of the parties.
 If it is reasonable for one party to think they are already in a verbal agreement, if the court sees that, they will try to give it effect.
o particularly when there has been reliance and the parties have already taken action.

Masters v Cameron
1954 High Court of Australia
Facts:
 Masters – purchasers & appellants
 Cameron – vendor & respondent
 Cameron negotiating the selling of farmland to the Masters, (husband & wife).
 Parties signed memorandum that sale was to take place; specified price and conditions.
 A Dec. 6 agreement in writing:
o Cameron - “This agreement is made subject to the preparation of a formal contract of sale which shall be acceptable to
my solicitors on the above terms and conditions.” – signed by Cameron.
 Masters paid a deposit of £1750 to Cameron’s real estate agent.
 Masters changed mind, and refused to proceed with transaction.
o Requested a refund of deposit
 Trial judge ruled a binding contract.

Issue:
 Was the Dec. 6 agreement a binding contract, or only conditional upon the execution of the formal document.
 Can the Masters get their deposit back? Was the deposit a purchase deposit or was it held conditionally upon the completion of
contract?

Ratios:
1. When language such as “subject to contract”; “subject to preparation of a formal contract” and similar expressions are used, these
words prima facie create an overriding condition that there is no binding agreement unless and until the formal document is
executed. [para 15]

2. When parties have agreed to all the essential terms, whether there is an enforceable contract will depend upon the intention
disclosed by the language that the parties have employed. There is no specific form of words or formula that can be used to
indicate there shall be no binding contract before the execution of a formal contract. (SKIP para 14)

3. There are three possible scenarios when the words “subject to contract” (para 10)
I. Restatement: Have reached finality and intend to be bound immediately, but plan to draw up a formal contract later.
II. Performance: Intend to be bound immediately with only Performance of the agreement subject to the drawing-up of a
formal contract.
III. No intention to contract unless and until the formal contractual document is made.

Analysis:
 In this case, it was III.
o agreement required approval of the solicitor.
 This was a condition precedent to the formation of the contract.

 Even though they used language suggesting there will be a formal agreement that does not mean contract is yet to be formed ->
depends on intention of the parties
 1. Restatement – parties agree to be bound immediately and will finalize terms and restate them (not in a different way, just more
precise) in a formal document; in that case they will be immediately bound whether or not the formal document comes into
existence = binding contract
o (Rossiter v Miller (1878): formal agreement to be prepared does not necessarily show parties still in negotiation;
contract completed if formal agreement will not vary the terms already settled)
o When there is agreement—meeting of the minds—then there is a contract
o “it may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be
immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form
which will be fuller or more precise but not different in effect.”
 2. Performance– only performance is subject to formal contract; parties agree on all the terms but when they sign is when the
contract starts to be performed and comes into play; in this case parties obligated to follow through with the formal document no
matter what = binding contract (essentially a CPP)
o It may be a case in which the parties have completely agreed to all the terms of their bargain and intend no departure
from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or
more of the terms conditional upon the execution of a formal document
o Bound once agreed, but don’t need to start performing until execution of formal document
 3. Where intention of the parties is to have no contract unless and until formal document; different than first 2 cases– court
cannot enforce (essentially a CPF)
o May be that intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal
contract
o This is the case here
o Prima facie, language “subject to contract” means what has been agreed is not yet a contract
o Often the case if lawyers are involved in still modifying contract
o This must be a question of intention of parties rather than language
o Here, intention was to have solicitor look at the contract, which shows they did not yet intend for it to be binding
– no binding contract yet (!!!!!)
 Not signing anything typically does not matter! You should get it in writing, it is far better to do so. But not a requirement to form
a contract.

 Only the first two are contracts; if there is negotiation that needs to happen, there is no contract
 Court then decides issue of the deposit being paid
o Money paid would take on the character of a deposit on the making of a contract, but in the meantime should not become
the seller’s possession
o Was an “anticipatory payment” – should be returned because they never made a formal contract for the purchase that the
deposit was involved with
 Paragraph 10:
o If there is agreement—meeting of the minds—then there is a contract

Conclusion:
 No binding contract.
 As the $1750 was to be treated as a deposit for the prospective land purchase, it should be returned to Masters.
o Until a contract, that deposit stays in possession of the would-be purchasers.

Megill-Stevenson Co. Ltd. v Woo (not required)

 Notes: About solicitor approval.
 Court says solicitor’s approval may mean there is no deal until approval by lawyer.
o until there is, no concluded contract.
 Ratio: If agreement is subject to approval of one party’s lawyer, there is no binding contract even where there appears to be
agreement on all material terms

 Shariff example:
 We have a sale “subject to my solicitor writing up a formal document”.
o Starts with Prima Facie – no agreement. But… b/c not subject to solicitor’s approval; just capturing essence of their
verbal deal; and no plans to add provisions – it is a simple RESTATEMENT – Valid Contract.

Chapter 9: Conditional / Contingent Contracts

 Fall Term – looking at formal elements of contract.
 This part of the course – looking at different terms in the contract. Primary obligations – buy & sell; but then conditions – don’t
want to buy until X.
 o we are trying to understand the nature of those conditions.

1. Actual promises, obligations, undertakings: Parties agree to do X, or they are promising that a certain statement is, or will
continue to be, true;
o eg an exchange of promises: buyer agrees to buy for x and seller agrees to sell for x
2. Conditions: terms that require a certain state of affairs in order to make those promises enforceable;
o e.g. can’t enforce sale unless subdivision approval is obtained
o In such situation, neither party can promise that city will grant subdivision approval; if city refuses, then neither
party will be bound and won’t be in breach of their obligations
- so need to determine whether condition prevents formation of contract or whether the condition simply suspends the performance
of the contract until it’s fulfilled, respectively:
 Condition precedent to formation: non-fulfillment of condition prevents formation of contract
o may impose obligations to take reasonable steps to fulfill the condition (e.g., seller should take reasonable steps to seek
subdivision approval)
o also need to consider, if looks like condition may not be satisfied, if it’s possible for the condition to be waved if buyer
still wants to go through with K (e.g. purchase property)
o true condition precedent: impossible to waive condition: even if for the benefit of one side, and may not actually affect
other side, not allowed to wave it; this doctrine only arises in certain situations and is often ignored
 Condition precedent to performance: parties in a binding contract, but enforceability suspended until condition fulfilled;
doesn’t challenge existence of contract

 Obligations in a contract:
o Promise – agree to do certain things in the future.
 ex. builder agrees to build a house for 500K.
 promise by builder to build, and a promise by buyer to pay 500K.
 Conditions in a contract:
o Have promises, but may have conditions in the contract before these two promises are enforceable.
 Need to ask what effect the conditions have on the contract.
 1. does it prevent the formation of the contract? (CPF)
 2. or does it simply suspend performance of the contract? (CPP)
 ex. not enforceable until a building permit has been issued.

 in this case, neither party promised the building permit.

o if the city does not issue the building permit…what happens?
o What is the effect of the condition on the parties?
 1. does it prevent the formation of the contract? (CPF)
 2. or does it simply suspend performance of the contract? (CPP)
o important to know which so we know what to do if a party tries to waive the condition.
 can they waive? still have a contract??

These cases are about:

 1. Condition Precedent to Formation [CPF]
o prevents the creation of a contract (Wiebe)
o a non-fulfillment of the condition will indicate no existence of contract.

 2. Condition Precedent to Performance [CPP]

o merely suspends performance of some or all of the obligation set out in the contract until the condition is met. (Wiebe)
o a non-fulfillment of the condition only impacts some of the undertakings of the parties, but the contract still exists.
 may imply further obligations on the parties to fulfill that condition.
o Contract just held in suspense until contract is fulfilled.

A. Conditions Precedent to Formation or Performance

Wiebe v Bobsien (BCSC)

1984
Facts:
 Wiebe – Purchaser & Plaintiff
 o seeking to compel Bobsien to perform his obligations as set out in the contract of June 22, 1984.
 Bobsien – Vendor & Defendant
o Argues no agreement was ever reached b/w the parties.
 The parties sign an agreement on June 22 for Bobsien to sell his home to Wiebe, on the condition that Wiebe sells his own home
by August 18.
o $1,000 deposit
o Sale was subject to plaintiff selling his own Port Moody residence on or before Aug 18.
o Pending sale of plaintiff’s Port Moody home, defendant retained right to sell his home to a third party if one turns up:
 In the event defendant received “bona fide offer from a third party”, plaintiff had 72 hours to remove the
“condition precedent” from the interim agreement so that it was no longer subject to sale of plaintiff’s Port
Moody home.
 July 22: Before plaintiff was able to sell his house, defendant decided he did not wish to go through with sale – told plaintiff
interim agreement is cancelled.
 Wiebe did not accept this cancellation – ignores it and continued to try to meet condition of sale of Port Moody home & on Aug
18 he found a buyer and sold his Port Moody home.
 ie filled the condition
o On that day, he notifies the defendant that “subject clause” is removed
o Bobsien refused to close the deal, while Wiebe was ready to complete.
 Bobsien says no agreement was ever reached
o (condition precedent to formation – could withdraw)
 Wiebe said June 22 signed agreement was a binding contract
o (condition precedent to performance; merely suspends contract until condition fulfilled)
 Usually, when one side is trying to say there is a CPF, it’s because they have a better deal, or want to back out of the contract for
any reason

Issue:
 Is the interim agreement a form of option that could be cancelled by the defendant prior to August 18, or is it a binding agreement
for sale and purchase of the property?

Ratio:
 Whether a condition precedent is of a nature that creates no binding agreement (CPF) or simply acts to suspend performance
(CPP) depends upon the intention of the parties as expressed in the contract itself and as shown by surrounding events.
o 1. Condition precedent to formation
 where parties do not intend to bind themselves
 – i.e. when the condition precedent is illusory and demonstrates subjective whims, fancies, tastes, likes, and
dislikes.
 “I will buy the hotel, if upon further inspection, my president likes it.”
o 2. Condition precedent to performance
 where there is an intention to be bound
 ie when the condition precedent is objectively determinable (like in this case).
 A real estate contract containing a condition precedent will typically result in a binding agreement of sale and purchase.
o The obligation to perform the contract is merely in suspense pending the occurrence of the event that constitutes the
condition, and there is a duty to take reasonable steps to fulfill that condition.

Analysis:
 NOTE: consideration was the bilateral contract—I promise to buy, you promise to sell. Exchange element!
 Condition precedent was the sale of the Port Moody property by plaintiff
 Condition precedent operates in one of two ways:
o 1. Prevents the creation of a contract (CPF), OR
o 2. Merely suspends performance of some or all of the obligations set out until the condition is met (CPP)
 1. Circumstances where condition precedent prevents formation of a contract:
o Court looks at 3 cases & says these conditions represent that when there is no firm agreement between the parties,
agreements are just “illusory”.
 Those are cases in which the purchaser only promised that he would buy the vendor’s house if he decided that
he wished to.
o They involve the “fancy or taste” of parties and lack of intention to be contractually bound
o “Subject to inspection and approval” is an example of illusory
 2. Circumstances where condition precedent suspends performance of a contract:
 o Smallman v Smallman (1971 C.A.): Denning says agreement subject to approval of the court does not mean no binding
agreement, but rather a duty/obligation on parties to take reasonable steps to fulfill condition – if they take reasonable
steps & fulfill condition, then contract binding
 Parties released from obligations if they take reasonable steps & conditions fail to be fulfilled and to act in good
faith
 If they do not take reasonable steps, breach of contract
 Summary:
o 1. Real estate contract with condition precedent will usually result in binding agreement, where obligation is
merely suspended until occurrence of the condition
o 2. However, in some instances, condition may prevent formation of contract if it was never the intention of the parties
to bind themselves
o 3. In this case, contract + surrounding events indicate parties “intended to reach a consensus” with June 22 agreement
o 4. Completion of sale was suspended pending Port Moody sale -> plaintiff had duty to take all reasonable steps to sell
home (otherwise would be in breach of agreement)
o 5. When Port Moody residence sold Aug 18, defendant was contractually bound to sell his home to the plaintiff
because the agreement was no longer in suspense
 Defendant had no legal right to cancel by telegram in July
 Party has to wait for the other to take reasonable steps here to sell home – could not withdraw; court orders specific performance
 (Lack of sympathy for defendant – Shariff says he could given him 72 hour notice clause, for plaintiff to remove condition or else
allowed to accept other offer-> did not do this because plaintiff would have accepted this and defendant would not have got the
high 3rd party offer; majority finds conditions precedent to performance is a better way to address this)

Conclusion:
 Binding contract – CPP. Wiebe wins – order of specific performance.
 The intention of the parties was to be immediately bound. Bobsien had to wait until Wiebe sold his home.

Wiebe v Bobsien (BCCA)

1985
 Notes:
o Bobsien tries to argue his case on uncertainty – Says Wiebe’s condition of selling his house was uncertain.
o Court says “reasonable efforts” to sell his home was enough to cure uncertainty. Also acted as consideration to hold that
offer open until house was sold.

Ratio:
 (main takeaway) understanding difference condition precedent to formation and condition precedent to performance.
 Court considers uncertainty aspect (specifically, indefiniteness), whereas previous decision looked at whether the condition was
precedent to formation or precedent to performance

Analysis:
 “Subject to” clause – subject to sale of Port Moody property
 “72 hour clause” – defendant retained right to sell to a third party – if defendant received offer, plaintiff would have 72 hours to
remove the condition precedent so agreement was no longer subject to sale
 Agrees with the TJ – court of appeal endorses decision that it was a condition precedent to performance
 Plaintiff’s promise to try to sell house was adequate consideration
 Court overcomes uncertainty on the part of plaintiff by agreeing with TJ that condition contains implies term that reasonable
efforts will be taken by Wiebe to sell home and that Wiebe would act in good faith to take all reasonable efforts to sell his home
(he did, this cures uncertainty and constitutes good consideration for defendant holding the offer open)
 Cures the uncertainty (specifically, indefiniteness) with implying term that Wiebe was to take reasonable efforts, afterwards

Conclusion:
 Upheld BCSC decision.

Pietrobon v McIntyre
1987 BCLR
Facts:
 McIntyre – Defendant and purchaser
 Pietrobon – Plaintiff and vendor
 Parties entered into an interim agreement on August 16 for the sale of Pietrobon’s Vancouver property to McIntyre.
 Agreement for sale is subject to the purchasers obtaining “satisfactory personal financing” by August 21.
o Condition was put in for sole benefit of the purchaser
o Purchaser paid $10,000 deposit, which was put into interest bearing account, but could be returned if condition not
fulfilled.
o Purchaser was required to remove the condition by August 21, otherwise the deal was null and void and the deposit was
to be returned to the purchaser.
 On August 21, purchaser wants to back out of deal because they find that basement is leaking.
o They use the “subject to” clause about personal financing to request their deposit back .
o Failure to find “Satisfactory Personal Financing” was not the real issue – They backed out b/c of the leaky basement.
o Purchaser point to uncertainty of the condition to try to get out of contract
 Pietrobon (vendor) commenced legal action against purchasers for breach of contract – seeking the deposit.

Issue:
 Was the condition precedent clause uncertain, and thus, in law, no contract ever came into being?

Ratio:
 Where an agreement of purchase and sale of real estate has a condition precedent contingent upon the purchaser obtaining
“satisfactory personal financing” (or similar wording), the law will refuse to enforce such provisions on the basis that it is not
possible to identify appropriate standards by which financing could be determined to be “satisfactory”. (Curran)
o language of “satisfactory personal financing” is similar to “suitable financing”, both of which are too discretionary and
therefore too uncertain to be valid.
o This was a condition precedent to formation and was too uncertain/discretionary to enforce.

 Satisfactory financing is the same as suitable mortgage

 Reductionist analysis:
o In Chan, suitable financing was held to be not enforceable

Analysis:
 Followed decision of Bouck J in Chan v Hayward
o Similar clause was too uncertain to form the basis for a binding contract of purchase and sale
 Purchaser says there was no contract in existence due to uncertainty in “subject” clause
 Court looks at case law to determine which category the condition fits into
o Griffins v Martens (1987 – cites trial level case*): language of satisfactory financing found to be sufficiently certain
 More objectivity – implies test of reasonableness to cure uncertainty
o Court finds Chan v Heyward (1983 BC case) where agreement uses language of suitable financing, and found it to be
too uncertain to be binding = Condition Precedent to Formation
 More subjectivity – no way to enforce – too uncertain to form contract
o Lee-Parker v Izzet (1972 England) – subject to obtaining “satisfactory mortgage” void for uncertainty too
o Court ignores Griffins v Martens and follows Chan/Lee-Parker decisions, finding the words “satisfactory personal
financing” to be similar to “suitable financing” and “satisfactory” – all of which is too discretionary and therefore too
uncertain
o The uncertainty means there was never a contract at all

 Notes: Combination of the contract being so vague and uncertain that…

o uncertainty – court can’t enforce contract b/c they cannot give effect to the intention of the parties.
 always trying to give effect to intention.
o Now we are looking at the conditions.
o P v M is saying that the condition itself is really vague – may touch on “whim, fancy, or taste”.

Conclusion:
 Finding for the purchasers (McIntyre).
 No contract as the condition was too uncertain.

Griffin v Martens
1988 BCCA
Facts:
 Martens: Purchaser, defendant, and appellant
 Griffin: Vendor, plaintiff & respondent
 There was the following condition precedent clause in an interim agreement for the sale of land:
o “Subject to purchaser being able to arrange satisfactory financing on or before May 31.
o This subject is for the benefit of the purchaser and shall be removed in writing on or before May 31, otherwise this offer
is null and void.”
 Purchaser wants out of interim agreement.
 Purchaser said he could not obtain a satisfactory financing commitment in the time period
 Vendor argues the purchaser did not try hard enough, and intended to let the interim agreement lapse, and then make a lower
offer.
 Trial judge ruled in favour of vendor/Griffin.

Issue:
 What does the condition “satisfactory financing” mean?

Ratio:
1. As long as an agreement is not being constructed by the court to the surprise of the parties, the courts should try to retain and give
effect to the agreement that the parties have created for themselves.

2. Where an agreement of purchase and sale of real estate has a condition precedent contingent upon the purchaser obtaining
“satisfactory financing” (or similar wording), the law will enforce such provisions and interpret them to mean that the purchaser
must use her best efforts to obtain financing that is satisfactory to her, and she is not to withhold satisfaction unreasonably.
o Contract not void with uncertainty
 The court can imply a reasonable standard like “best efforts” to satisfy the condition. [para 10].

 We can include the condition even though there is some discretion – discretion did not prevent formation of
contract, rather discretion where performance was suspended to decide whether the condition has been met or
not
o Overlap between the 2 concepts – understand cases in the order we learned them, then can look for the overlap between
issues
 opposite result to Pietrobon and McIntyre.
 Griffin is Court of Appeal though!

Analysis:
 It is not the function of the courts to set interim agreements aside for uncertainty because they contain a clause that is not
precisely expressed
 Courts should try to retain and give effect to the agreement that parties have created for themselves
 ‘Sole benefit of the purchaser’ does not release the purchaser from the requirement that he use his best efforts to obtain
‘satisfactory financing’
 Four rational interpretations of ‘satisfactory financing’ - ranking from most objective to most subjective
o 1. “Satisfactory to a reasonable person making the purchase about whom nothing else is known (reasonable purchaser)”;
o 2. “Satisfactory to a reasonable person in the objective circumstances of the purchaser”;
o 3. “Satisfactory to a reasonable person with all the subjective but reasonable standards of the particular purchaser”; and
o 4. “Satisfactory to the particular purchaser with all his quirks and prejudices, but acting honestly”.
 Favours the 3rd interpretation as it best expresses the actual intention of the parties.
o Gives the most accurate interpretation to the words they chose to express their intention.
o Gives ‘satisfactory’ a full and subjective significance but also retains the commitment of the purchaser to use his best
efforts to obtain financing (not letting purchaser entirely off the hook)

 Interim agreement not void for uncertainty

 Relied upon finding of fact at trial level that purchaser didn’t use his best efforts to obtain financing

Conclusion:
 Appeal dismissed – vendor/Griffin wins.
 There was a contract – purchaser/Martens did not use best efforts to arrange satisfactory financing.
o the condition did not prevent the formation of the contract or render the contract uncertain because the uncertainty can be
cured based on the intention of the parties to form the contract.

Marshall v Bernard Place Corp

 2002 ONCA
Facts:
 Marshall – Purchaser, respondent & plaintiff
 Bernard Place Corp – Vendor, appellant & defendant.
 On August 11, 1998: Purchaser and vendor finalized agreement of purchase and sale of residential property in Toronto
 Purchaser paid deposit of $150,000 to listing broker
 Agreement provided for closing date of Jan 29, 1999
 Agreement contained following condition precedent:
o “This Agreement is conditional upon the inspection of the Property by a home inspector of the Purchaser's own expense,
and receipt of a report satisfactory to him in his sole and absolute discretion. Unless the Purchaser/Co-operating Broker
gives notice in writing, delivered to the Vendor/ Listing Broker on or before 3:00 p.m. Wednesday, August 19, 1998,
that this condition is fulfilled, this Agreement shall be null and void and the deposit shall be returned to the Purchaser in
full, without interest or deduction.”
o Condition is for the “sole benefit” of the purchaser and could be waived at the purchaser’s “sole option”
 At the subjective end
 Purchasers paid for a professional property inspection
o Inspection report identified various deficiencies relating to the construction, design and condition of the house
o Overall, the inspector described the property as a ‘well built house’ requiring no major repairs
o Property scored ‘above average’ at 7 out of 9
 After considering the report, the purchaser decided to rely on condition by neither waiving it nor delivering notice that the
condition had been fulfilled
 Purchaser’s agent informed the vendor’s agent of this two days before expiry of notice period
o and requests return of deposit
 Vendor refused, and purchaser commenced legal action
 At trial, judge ruled that purchaser was entitled to return of deposit
 Vendor appealed

Issue:
1. What is the requisite standard for the exercise of discretion by the purchaser under the inspection condition?
2. Who has the onus for demonstrating compliance with the standard?

Ratio:
 The standard that must be met when you have a sole discretion clause can fall into two categories: subjective or objective or both.
 Look to the contract, the language of the condition, and the subject matter of the condition to determine whether that standard in
exercising discretion is subjective, objective, or both.
 Conditions that are subjective and have a discretionary judgment element to them must always be exercised honestly and in good
faith.

Analysis:
 Greenberg v Meffert (1985 ON C.A.) said sole discretion clauses must be exercised honestly and in good faith.
o Parties disagree as to whether good faith/honesty exercised
o Discretion level must be reasonable so it is not unfair or unjust to either party
 Court draws line about how to properly exercise discretion w/r/t whether condition was met
 Different categories of discretion – laid out in Greenberg
o 1. Subjective – taste/preferences/judgment etc.
o 2. Objective – discretion involved of objective things like mechanical utility, operative fitness, structural status – things
measured more objectively (here the inspection looks at these things)
o 3. A blended subjective/objective elements
 Contract itself determines which category condition falls into:
o Determination is based on intention of parties in the circumstances
o Always requires honesty and good faith, regardless of whether discretion is to be measured subjectively or
objectively
 Court finds contract had sole discretionary clause related to property inspection (imports an objective standard under which
Marshall exercises discretion)
o Objective subject matter (inspection of a home – mechanical)
 Even though condition and subject matter are objective, the language of “sole and absolute discretion” is
subjective
o Language gives them a great deal of latitude (subjective elements)
o This case is a mix of subjective/objective elements
 Marshall met obligation to act in good faith and honesty, and was allowed to exercise discretion
o Good faith illustrated here:
 A. Inspection report detailed objective facts on which purchaser was entitled to and did base the exercise of
discretion upon the inspection condition.
 There were objective, physical factors in the inspection regarding the structural integrity of the home
that formed part of the decision
 B. No evidence of bad faith.
 No evidence of collusive conduct; purchasers were serious purchasers
 C. No concept of materiality was embodied in the inspection condition.
 Was not an exclusively objective standard of reasonableness; expansive language of inspection
condition allows subjective perspective
 Court also discusses an onus of proof issue – BPC challenges that the onus put on them; court rejects argument
 Condition did not prevent formation – question was whether, once contract formed, what are the conditions to deem condition not
fulfilled to let party walk away
 Language of “sole and absolute discretion” does not prevent formation of contract – still must act in good faith while exercising
discretion

Conclusion:
 Purchaser wins; vendor’s appeal is dismissed.
 The inspection condition did not have objective language- the wording allowed the purchasers to walk away.
 They did act honestly and in good faith.

B. Unilateral Waiver / Wavier of Conditions

Intro to Unilateral Waiver:
 Generally, you can waive a condition that is for your benefit.
 True Condition precedent – a condition where fulfillment of the condition is dependent on a future uncertain event entirely
dependent on a third party.
o happens when one side wants to waive and the other side does not – unilateral waiver
o read dissent in Barnett very carefully.

Unilateral Waiver/Waiver of Conditions

 Waiver: generally accepted that the party who benefits from a condition should be able to waive that condition and continue with
the agreement, provided the waiver does not prejudice the other side (e.g., Manchester Diocesan re: communication of
acceptance)
 BUT SCC held that waiver is not allowed if there is a true condition precedent (Turney)
o In these cases, the fulfillment of the condition is dependent on a future uncertain event within the control of a third party.
 It is difficult to determine whether the condition is a true condition precedent or just a condition precedent.
 NB to know this doctrine exists and can be used if a party doesn’t want agreement enforced.
 Logic underlying: court sees fulfillment of condition itself as triggering the obligations of the parties, so it cannot be waived.

Turney v Zhilka
1959 SCC
Facts:
 Zhilka – Purchaser
 Turney – Vendor
 Zhilka (purchaser) makes offer to purchase property; Turney (vendor) accepts
o Deal was for “all and singular the land and not buildings situate on the East side of 5th Line west in the township of
Toronto, and known as 60 acres or more....”
 Vendor refused to sell because the purchaser failed to comply with following condition of the contract:
o “Providing the property can be annexed to the Village of Streetsville and a plan is approved by the Village Council for
subdivision”
 Parties themselves cannot control approval of subdivision – controlled by third party
 Date of completion of the sale is fixed to “60 days after plans are approved”
 Neither party undertook to fulfil this condition
o Not obvious that either party is actually responsible for doing this
 Neither party reserved power of waiver
 o Purchasers lawyer should have said the condition precedent was for the benefit of purchaser and the purchaser can
waive it and proceed if wanted
 Purchaser decides to waive condition
o Claimed solely for his benefit even though not explicit in contract; claimed it was implicit
 Vendor refuses to sell – required village approval
o (Vendor received a higher offer and then he decides he will not let the purchaser waive it)
 Purchaser sues for specific performance

Issue:
 Under what circumstances can a condition be waived?
o Can the purchaser unilaterally waive the condition? – it is supposed to benefit them

Ratio:
 Unilateral waiver by the party who the condition is supposed to benefit will not be permitted when the condition relates to a future
uncertain event entirely dependent on the will of a third party.
o (Where there is a true condition precedent)
o in this case we do not know if the plan is going to be approved by the Village Council.

Analysis:
 Here there is no right to be waived
 Obligations in this case (and other similar ones) depend upon a future uncertain event, the happening of which depends entirely
on the will of a third party
o This is a true condition precedent.

 3 conditions for a true condition precedent: (that is thus not subject to a unilateral waiver)
o Dependent on the will of a third party
o Neither party has undertaken to do it
 Can’t waive your own default (can’t waive the fact that you didn’t perform—can’t waive a condition that you
failed to fulfill)
o Neither party has reserved a power of waiver
 A power of waiver can be written into a contract—if it is not, then it can be a true condition precedent
 If it is clear that it is only for the benefit of one party, that party can waive!
o When something is purely for the benefit of one side, there is an implied power of waiver
o Court isn’t going to work very hard to give you a power to waive—needs to be pretty clear

 1. Retention issue
 Parties never actually agreed to 10-acre retention around buildings – purchaser will accept it though and pay the full purchase
price and waive condition
 HOWEVER purchaser can only get the land if parties have made an enforceable contract, and here they have not done so and the
Court cannot do it for them
 Contract here did not give right to choose land to be retained/conveyed - no right to be waived
 2. Date of completion
 Neither party can waive performance 60 days after completion term – made little progress on this and then purchaser purported to
waive the term saying it was solely for his benefit and was severable
 Case law suggests no right to be waived
o Hawksley v Outram (1892) – purchaser right to carry on under the old name of business and vendors could not compete
within certain area; purchaser waived these rights
o Morrell v Studd (1913) – purchaser to pay vendor within 2 years; vendor waived this term and was entitled to do so
o In these 2 cases, party may forego promised advantage when simply for their benefit and severable from rest of contract
o BUT no right to be waived – obligations in this case depend on future uncertain event controlled by 3rd party (village
council)
 Court calls it a “true condition precedent” – an external condition upon which the existence of the obligation depends
o Not exact, but court here says this is a true condition precedent
o Until condition occurs, no right to performance on either side – parties have not promised it will occur, and thus there
can be no breach of contract until event does occur
 This was not an attempt to waive, but rather a party trying to write a new contract
 Note: unclear exactly which factors is the critical indicator of a true condition precedent – test difficult to see – is it future
uncertainty of events OR reliance on 3rd party OR both?
 Village county is the third party
 The condition in the contract is for the purchasers, benefit is related to the obligations of party A.
 In this case – the court says there is no advantage or right being waived by the purchaser, rather those obligations under the
contract are determined by the third party. It’s an external condition upon which the parties obligations towards each other are
extinguished. [para 11]
o ie the obligations that party A & B have towards each other are conditional on an external condition.
 if we allow one party to waive that without the consent of the other, you are basically writing a new contract.
 cannot allow it to be waived because you are binding the other party to a new contract.
 cannot be waived unilaterally.
o This is a true condition precedent.
 This case is not entirely clear whether it applies to CPFs or CPPs
o likely applies to both CPF and CPP if it is true condition precedent.

Conclusion:
 Vendor wins – no contract; Purchaser cannot unilaterally waive because this is a true condition precedent.

Barnett v Harrison
1975 SCC
 Basically upheld/reached same ratio as last case, but was a strong dissent.
 More complicated case to read. Boils down to: I don’t give a crap about the zoning, I want to buy this thing, because I will make
money regardless as long as I buy anything on this land.
Facts:
 Contract of sale entered into on February 10, 1967
 Land in Stoney Creek, Ontario
 Price of $350,000
 Deposit of $5,000
 Vendor mortgage for a portion

 Relevant provisions here:

o 1. Condition for benefit of purchaser – purchaser to have site plan from town within 4 months – subject to necessary
approvals of Ontario municipal board + town of Stoney Creek– vendors to assist purchaser in executing necessary
documents
 Date to extend if “any adjournment results from opposition beyond the control of the purchaser”
 Purchaser to obtain approvals from board (Approval must be attained at purchaser’s effort and expense – this
is where it differs from Turney)
 If conditions not complied with – agreement null and void and deposit returned to purchaser
o 2. Sale conditional upon:
 A. Lands being serviced with water/sewer facilities to accommodate purchaser plan
 B. No additional charges for services
 C. No capital contribution required by town other than the usual 5% for land dedication
 (argued that this was the “true condition precedent”) – if not complied with, purchaser shall have the option to
declare agreement null and void or accept the changes and complete agreement
o Was offer and acceptance of these conditions
 Closing was to occur 60 days after date of final approval (linked to the time of granting of approval, with no specific closing date)
o So entire thing was contingent upon that happening—clock doesn’t start to run until zoning approval in place
 Purchaser was seeking property for an apartment project; submitted plans to municipal authorities
 After 15 rejections; became obvious purchaser was not going to succeed in obtaining necessary approval for project – they
purport to waive condition instead and are willing to close within 60 days’ time of waiver.
 Vendors got a better offer for their land and tried to back out of contract with purchaser
 Trial judge said was true condition precedent

 purchaser can pay for the property by securing a mortgage or paying in cash.
 number of conditions related to zoning
o so the purchaser can transform empty land into apartment complex.
 if one were to waive the approvals, how could you tell when the sale could take place?
 condition relates to something beneficial to the purchaser
 Purchaser attempts to waive condition; would buy regardless
o Vendor says no
  only reason is that they received a better offer and want out of the contract.

Issue:
Does the general principle from Turney need to be modified?

Ratio:
 Court applies Turney principle.
o A party cannot unilaterally waive a true condition precedent– one that relates to a future uncertain event entirely
dependent on the will of a third party.

 Dissent gives more info on factual analysis

o says Turney principle is good, just applied incorrectly in the case at bar.
o key distinction b/w two cases is whether the condition is beneficial to only one of the parties, or whether to both and/or
dependent on the third party.
 In Barnett – it is clear it is for the sole benefit of the purchaser.
 but court still strictly applies Turney principle
 why? Court says if you want to waive something, put it in express terms – the court will not write a
contract for you.

Analysis:
Majority - Dickson
 The approval was a future uncertain event
 General principle from Turney applies
 Focus on the need for certainty and predictability of law (and precedent)
 General rule from Turney stands for 4 reasons:
1. The distinction made between two different kinds of conditions (for only one side’s benefit and true condition benefit) is
valid
2. Need to preserve predictability of Turney rule
3. Purchaser is put in an unfair advantage, in that they can play the real estate market if unilateral waiver is allowed
4. Court can avoid thorny issues of severability and determination of benefit

 Shariff says it’s unsatisfying

 Dickson says there is a difference b/w waiving the default for the other party…and you / 3rd party?
 Words of the parties should be honoured.
o if there should be an option to waive, the language should say so.
 Said it is difficult who the condition is supposed to benefit.
 Thinks it’s a rewriting of the contract.

Dissent - Laskin
 In Turney v Zhilka, condition was fixed by contract without reference to any obligation of performance placed on vendor or
purchaser
 In the present case, the condition did not depend “entirely on the will of a 3rd party”
 Purchaser to prepare and seek approval of plan, and obtain necessary rezoning (purchasers responsibility)
 So can assume condition was solely for P’s benefit - kind of a leap - says here it doesn't meet requirement of true condition
precedent
 Fact that the conduct or action of a 3rd party is involved does not necessarily make it a “true condition precedent”
 In Turney v. Zhilka, a condition which was applicable to the duty of both parties
 Construe condition as being for the benefit of both parties, and therefore not open to unilateral waiver

 says it the condition is for the sole benefit of the purchaser (unlike Turney)
o just b/c both parties may have an interest in the condition does not mean that the condition cannot be for the sole benefit
of one of the parties.
 if express term of the contract gives carriage of the condition to one party, that forms the basis for that party being able to argue it
is for their sole benefit.
 says not rewriting the agreement.
 Severability
o As long as the waived provision can be extracted / severed then there is no issue.
o in this case, if we did that, the completion date is not up in the air b/c the purchaser can pay by cash.

Conclusion:
 SCC applies Turney principle – it was a true condition precedent.
o cannot unilaterally waive, even if it appears for your own benefit.

Summary:
 True condition precedent – can never waive.
 Dissent strong in saying if it really is the benefit for one side, and it can be severable, it should be able to be waived.

Part IV – The Enforceability of a Contract

Chapter 10 – Intention to Create a Legal Relationship
Ch. 10 not examinable
Intention to Create a Legal Relationship
 Courts only want to enforce contracts where there is an intention to be bound.
 Courts assume that there is an absence of an intention to create a legal relationship between family members and close friends.
 Objective test – even if it is in the mind of a promisor not to create an arrangement, ultimately that private intention is not going
to prevail if the conduct and the words of the promisor are such that the promisee reasonably believes a binding agreement is
intended.
o look at it as a reasonable person would
 Doctrine of intention is like the doctrine of consideration – aimed at distinguishing promising behaviour and agreements that the
court will enforce.
 Court will do its best to look for intention.
 Would a reasonable person regard the agreement as intending to be binding?
 Consensus Ad Idem (meeting of the minds) is different than Animus Contrahendi (Intention) because you can be of the same
mind, but no have intention to be bound.

A. Family, Domestic, and Social Agreements

 most arrangements between families are not enforceable
 if it does come to court, the test of intention is objective.

Balfour v Balfour
1919 UK – King’s Bench
Facts:
 Couple was married in 1900 in UK.
 Mr. Balfour, a civil engineer, worked for the British Gov’t in Ceylon (now Sri Lanka)
 In 1915, both came back to England following Mr. Balfour’s leave
 Mrs. B gets arthritis, has to stay in England because it is better for her condition—on Doctor’s advice
 Husband sails away, gave her a cheque and promised to give her £30/month until she returned to Sri Lanka.
o Living in amity at this time - happily married
 But over time, they got into disagreements
 Afterwards, he suggests it was better they remain apart
o They had not agreed to live apart until after the agreement was made.
 They were divorced, and she got an alimony order.
 Mrs. Balfour (his wife) sues him, claiming he owed her an allowance of £30/month
 Trial judge says parties had a contract
 Husband appeals

Issue:
Is there an enforceable contract between spouses?

Ratio:
1. In order for a legally enforceable contract to arise, the parties must demonstrate an intention to be legally bound.
2. There is a general presumption (a presumption of fact) against an enforceable contract with respect to agreements between parties
in amity (e.g., spouses, mother and child- natural love and affection) because they do not intend for their agreements to have legal
consequences (and they do not bargain keenly).
 In short, domestic arrangements are not usually intended to create binding, enforceable legal relationships.
 Don’t have the intention!
Analysis:
 Onus on party rebutting the presumption that there is no contract
 There are many agreements where the parties don’t want there to be a legal arrangement- such as between husbands and wives
 Presumption that family members don’t intend to create a legal relationship, even if there is consideration- don’t believe that the
other side is going to sue them

 There can be offer and acceptance, but no contract, even if there is consideration-- (which can include right, interest, profit, or
benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered, or undertaken by the other) =
good preliminary definition of consideration)
o No contract if the parties did not intend that they should be held to legal consequences
 Small courts would have many more cases if these agreements enforceable
o Promises between husband and wife
o “the consideration that really obtains for them is that natural love and affection which counts for so little in these cold
courts” -> floodgate of litigation – Policy reasons!
o Must intend legal consequences
 Here, it is plainly established that legal consequences were not intended
o (Parol evidence/letters not enough for a contract – legal consequences never intended)

Conclusion:
 Appeal allowed – no contract because no intention for legal agreement.

Merritt v Merritt
1970, UK Court of Appeal
Facts:
agreement between husband and wife who are NOT in amity
 Mr. and Mrs. Merritt married in 1941
 Bought a house in 1949 in England
 Originally, large mortgage & was in husbands name
 Early in 1966, house was put into joint names
 “But, unfortunately, about that time the husband formed an attachment for another woman”
o husband left wife and children for another woman.
 May 25th – they make an oral agreement to transfer the mortgage to wife
o husband agrees to pay her £40 a month and she had to pay outstanding mortgage - £180
 Same date, wife gets the husband to sign a further written agreement:
o “In consideration of the fact that you (wife) will pay all charges in connection with the house until such time as the
mortgage repayment has been completed, when the mortgage has been completed I will agree to transfer the property
into your sole ownership”
 The wife paid off the mortgage, and adhered to other terms of mortgage.
 She askes for the transfer of property to her name.
 Husband refused to transfer house into her sole ownership
o argues he had no intention
 Trial judge orders husband to transfer
o husband appeals

Issue:
Whether or not a domestic arrangement is binding or not binding in law.

Ratio:
 the presumption against the creation of a legal relationship in a domestic arrangement will not apply/ be rebutted when the parties
are not living in amity, because they bargain keenly. In such situations it must be assumed that the parties do intend to create a
legal relationship.
o Test of intention is objective:
o The court does not try to discover the intention by looking into the minds of the parties. It looks at the situation in which
they were places and asks itself; would a reasonable person regard the agreement as intended to be binding?

Analysis:
 Difference from Balfour case is that this is not a relationship in amity.
 o There was intention
 In cases of amity, the domestic arrangements are ordinarily not intended to create legal relations. It is altogether different when
the parties are NOT living in amity but are separated, or about to separate
o They then bargain keenly.
o They don’t not rely on honourable understandings.
o They want everything cut and dried.
o It may safely be presumed that they intend to create legal relations

 Also: there was consideration and no lack of certainty

o Wife paid the outstanding amount to mortgagee (consideration), then she would get house

Conclusion:
 Wife wins – valid contract.
o husband must transfer title of the house to the wife.

Fobasco Ltd v Cogan

1990, Ontario High Court
Facts:
 Plaintiffs are Fobasco (the Fingolds) and Sher-Jay Holdings Ltd. (Shermans)
 Defendants are Edwin Cogan and Cogan Corp.
 The MLB came to Toronto in 1976
o Cogan made arrangement to get 8 season tickets through business contacts.
o His long-time friends and business associates, Fobasco & Sher-Jay, were also interested.
 They knew they could not get as good of seats as Cogan could get.
o So Cogan would get the tix and give some to his buddies
 disagreement on whether or not Cogan would have gotten 8 tickets regardless; or only got the 8 b/c of his
buddies.
 Season tickets for Blue Jays obtained annually by Cogan by renewal subscription
o Started renewing annually in 1976 when the Jays came to town.
o Cogan’s office would get tix and be compensated by Fobasco and Sher-Jay for their share.
 By 1986, Cogan’s relationship with the Fobasco had changed
o Minimal contact
o No business dealings
 Cogan claims ownership of all 8
 According to plaintiffs, …
o Cogan owns 2 tickets
o Sher-Jay/Sherman owns 2 tickets
o Fobasco/Fingolds owns 4 tickets
o Parties entered into an enforceable agreement in 1976
 According to defendants, …
o Deny a contract regarding ownership of tickets
o Cogan is owner of all 8 tickets
o Cogan permitted use of tickets as a favour to friends and business associates
 Friends say Cogan should continue to provide tickets
 Cogan said wanted to be good to business associates but didn’t want for there to be a legal effect
 plaintiffs argue breach of contract

Issue:
 Was there an enforceable contract for the provision of the tickets?
o Fingolds argue yes, Cogan argues no

Ratio:
 when you have a social arrangement with friends who are also businessmen, and they do not outline their respective rights,
leaving an arrangement vague or uncertain, the court will assume the parties have no intention to create a binding legal
arrangement.

 The following are indications of an agreement where there is a lack of intent to create a binding contract (even though parties do
business together):
 o Social context
o No obvious consideration
o Failure to carefully outline the respective rights and interests under the contract
 No contract was entered into, as the parties did not intend to create a legal relationship in entering into this agreement
o Above are some indicators of when parties did not intend to do so

Analysis:
 Offer and Acceptance is not enough – need intention. para 16.
 These guys were businessmen

 Offer and Acceptance – Clear here (para. 17), but the agreement was not clear that the defendant intended to relinquish ownership
of the tickets.
 This was a social relationship not intended to be enforceable in a court of law (paragraph 20)
 Oral contracts are enforced, but there is still no contract
o For there to be a contract, we need a meeting of the minds/consensual element, using the objective test—here it is
sufficiently vague and no meeting of the minds/consent/intent to enter legal relations
 1. Test of whether a promise is legally enforceable is an objective one
o Depends on the way promisor’s conduct would strike a reasonable person in position of the promisee
o The agreement was sufficiently vague that a reasonable person in promisee’s position would only have understood an
offer to supply baseball tickets
o It is not clear that a reasonable person would think ownership was relinquished
 2. ALSO, no consideration passed
o Motive is not consideration—the business relationship is still considered to be no benefit from the transaction.
 Plaintiffs argues their business relationship was the consideration, but the court did not agree.
o No consideration as their business relationship appears to be the reasons or motive behind Cogan’s offer – and motive is
distinct from consideration.
 3. Parties did not intend to create a legal relationship
o Parties failed to outline their respective rights and obligations
o Was a social arrangement, unenforceable in the court of law
o Sophisticated businessmen; mere favour for a friend
 (Obiter: promissory estoppel doctrine does NOT come to play here -> requires legal relationship where one will not enforce his
strict legal rights thereunder – here there was no legal relationship)
 (Basically: no transfer of ownership, with alternative reasoning of no consideration/no intent)

Conclusion:
 Plaintiffs failed to establish contract.
o it was a social relationship that was not intended to be enforceable.

B. Commercial Agreements

Edwards v Skyways Ltd.

1964, UK Court of Appeal
Facts:
 Captain Edwards: Plaintiff, employee of Skyways, entitled to 3 months notice of termination.
 Skyways: Defendant, employer, in financial difficulties
 January 1962: Plaintiff given 3 months notice that his job is ending
o Edwards represented by British Air Line Pilots Association
 February 8, 1962
o Meeting between association and company
o Agreement that redundant pilots would be given an ex gratia payment (essentially allowing pilots to receive payment to
not complain)
o Decide to make payments to pilots, equivalent to the company’s contribution to the pension fund
 Skyways later says no legal obligation created by this
 Plaintiff decided to take this deal (instead of waiting his three months)
 May 2, 1962:
o Defendant passes resolution purporting to rescind agreement (apparently due to financial difficulties)
o Defendant denied that there was an intention to enter into legal relations
Issue:
 Whether this is an enforceable contract or just a moral obligation.

Ratio:
 In commercial arrangements, there is a presumption of legally binding (objective) intent (para 15)
o Parties intending not to act in a legally binding way must express this clearly;
 i.e., there is a heavy onus to deny binding intent.
o Expressed honour clause or other clear words can be used to show that no intention was present, but it is an objective
test:
 Would a reasonable person in the position of the parties’ have thought that this was a legal
relationship/contract?
 look to facts and the language of the agreement

Analysis:
 There was a meeting of the minds and business context – therefore a valid contract
 court found intention

 1. The parties intended to enter into a legal relationship. Thus, the agreement is binding. “In the present case, the subject matter of
the agreement is business relations, not social or domestic matters. There was a meeting of the minds—an intention to agree.
There was, admittedly, consideration for the defendant company’s promise.”
 2. The words ‘ex gratia’ do not negate the parties’ intention to enter into a legal relationship.
o Ex gratia means “no admission of liability”, but that does not mean that the arrangement is unenforceable.

 Subject-matter in this case = business relations (not social/domestic matters—court distinguishes it from Balfour)
 Heavy onus on party who asserts no legal right was intended in business relations
o Intention not to be legally binding must be expressly shown in contract with clear words
 The test for intention to create legal relations is objective
o Uncertain what that means in this case
o Court notes problems applying objective test because company is negotiating with a trade union (rather than individual
people)
o Court overcomes issue – instead looks at wording
 *Words like “ex gratia” do not carry likely implication that agreement lacks legal effect
o Difference between pre-existing liability and enforceability of settlement
o Key to this case – words show objective intent to be bound legally
o Likely chose words to show they were doing a favour/that it was a settlement
o They had been working on a labor settlement – circumstances suggest enforceability

Conclusion:
 Plaintiff / Edwards wins – there was a valid contract
o Objective test shows legal enforceability.

Chapter 11 – Consideration

 Definition:
o “Consideration is something of value in the eyes of the law, flowing from the promisee (usually but not exclusively) to
the promisor, in exchange for the promisor’s promise.” Thomas v. Thomas, 1842.
o Consideration must be given by each side—mutual

 Concept that some promises can simply be gratuitous and other promises are bargains
 Examines the difference between a bargain and a gratuitous promise
 Promises will only be enforced if they form part of a bargain in contract law
 How do we know if there is a bargain?
o By determining whether or not the promise sought to being enforced has been supported by consideration.
 To be enforceable, a promise must be bought by the promise - must be purchased
o The promisor’s promise is given in return for something of value from the promisee
 Doctrine of consideration enforces the promises that have been purchased by the promisee

 A promise for which no consideration has been given in return is considered gratuitous/bear promises/naked promises.
o thus, not a binding contract
 Keep in mind that a formal promise can be given without consideration with a seal.
o When something is put under seal there is formality that demonstrates intention for that promise to be
binding/enforceable
o Useful tool because all you have to do it put something under seal to solemnize it
 useful alternative to consideration
 makes non bargains enforceable
 First identify the promise that is sought to be enforced
o the promise that is being argued that is binding
 Second identify the promisor
 Third ask “what did the promisor request as the price for which that promise is bought”?
o The request can be expressed or implied
 The act or promise in return /response of request is the price for which the promise is bought
 A promise can be consideration
 Consideration can be anything
 In commercial arrangement agreements are usually in bilateral form- a promise in exchange for a promise
 Sometimes the act will also be an act of forbearance
o withholding from taking action on a particular right that you might have
 For unilateral- reward setting- Pay $50 if you find my dog
o There is no request to find the dog but it is implied

 Promisee has to give something of value

 Consideration definition from our handout:
o

A. Introduction: Bargain and Gratuitous Promise

Re Boutilier Estates
1933, NSSC
Facts:
 Dalhousie University: Plaintiff
 Arthur Boutilier: Defendant; Deceased
 In June,1920, a fundraising (subscription) campaign was begun to raise money for the University and subscriptions were solicited
to that end. Mr. Boutilier was canvased with the result that he signed a subscription card with a promise in the following terms:
o “For the purpose of enabling Dalhousie College to maintain and improve the efficiency of its teaching, to construct new
buildings and otherwise to keep pace with the growing needs of its constituency and in consideration of the
subscription of others, I promise to pay Dalhousie $5000, payment as follows:”
 “Terms of payment as per letter from Mr. Boutilier”
 There is no evidence that Mr. Boutilier followed up the subscription card with any letter as to the terms of payment.
 Boutilier made no payments and the University wrote a letter to him in March 1926 reminding him of his promise of $5000.
o April 12 – Boutilier replied stating that he had “suffered some rather severe reverses” since making his promise, but
expects “before too long” to be able to redeem his pledge.
o April 23 – University thanked him for not losing sight of his promise, and hoped his financial situation would resolve
itself soon, for both their benefits.
 Boutilier died in October,1928 without paying any portion of the $5000.
 Dalhousie University filed a claim against Boutilier’s estate.

 The Registrar in the Probate Court allowed the claim of Dalhousie, and the Judge of Probate confirmed that decision at appeal.
 It has now been appealed to NSSC
o (NSSC overturns – not a valid contract)

Issue:
 Was there consideration for the defendant’s promise to pay $5,000, which would make it legally binding? Or was it just a
promise?

Ratio:
 A promise to pay in the absence of consideration is unenforceable.
o Consideration must flow from the promisee; not from a third party.
o In the absence of an express or implied promise by the promisee to do specific acts (ie no promise in return), reliance on
the promiser’s promise will not make a charitable subscription enforceable unless the promisor has somehow
participated in the act performed by the promisee by requesting, participating, or authorizing the act.
 request can be express or implied

 If a donor authorizes a definite expenditure which is incurred in reliance on his making good on a promise, there will be
sufficient consideration to support a contract. (There is none in this case)

 Promise was gratuitous.

Analysis:
 It is trite law that a mere promise to pay is not sufficient in the absence of consideration.
 Not consideration because:
o “in consideration of the subscription of others” is not good enough consideration—because the donors did not talk to
each other and the promise was not made between the donors
 the relationship was b/w Boutilier & Dalhousie.
 Also, Dalhousie could not sue them for this b/c not party to the contract
o there was no task for which it was allocated—not adequate reliance
o they claimed the money had already been expended, but the court laughed at this
 Shariff:
o 1. For a subscription or promise of this nature to be enforceable, it must be supported by a consideration.
o 2. Mr. Boutilier was not liable in law for his subscription because there was no consideration for the subscription. “When
the card was signed and delivered by Boutilier, the promise was gratuitous; it was without consideration and
unenforceable.”
 Charity giving is voluntary and is generally unenforceable
o But when two (or more) parties agree to both give, they can bind each other
o “I am bound to say that this is an attempt to turn a charity into something very different from a charity (para. 25)”
 There can be consideration in these cases:
o if “there must be either a benefit to the maker of the promise, or a loss, trouble or inconvenience to, or a change or
obligation resting upon, the party to whom the promise is made.”
 On reliance:
o Dalhousie said they suffered a detriment b/c they relied on the payment.
 Court disagrees
o There must be some ground for saying that the acts done in reliance upon the promise were contemplated by the form of
the transaction either impliedly or in terms as the conventional inducement, motive and equivalent for the promise.
 No contemplation of a bargain
 No specific expenditure

 The promises of others to donate is not adequate consideration for several reasons:
o Other donors are not party to the contract b/w Dalhousie and Boutilier
o Past consideration is not adequate consideration
 Necessary to find consideration in liabilities assumed and the expenditures made by the University following making of promise
o Needs to be evidence university relied specifically on promise of this particular donor to make a particular expenditure -
no evidence of this
 A definite and unequivocal promise to contribute is little more that the expression of an intention to contribute
 Quote from Chitty on Contracts:
o A distinction is to be taken between the case of a mere gratuitous promise, and that of a promise on the faith of which
one party is induced to do some act which, but for such promise, he would not have done.
o And, therefore, although if an uncle promises to buy a house for his nephew, that is nothing; yet, if the uncle promise to
buy a house for his nephew, but requests the nephew to enter into the contract to purchase in the nephew's own name,
and the nephew does so, the law implies a promise on the part of the uncle to reimburse the nephew any part of the
purchase-money which he may be called upon to pay
 There can be a mere gratuitous promise (in this case), but case would be different if Dalhousie could have established that they
relied on promise to make expenditure
 The purposes named in the subscription card are general
o Likely the aims of every institution of higher learning
 The card cannot be read as a request to make any definite expenditure
 No request to do something definite in this case
 Defendant’s promise is gratuitous
o Without consideration and unenforceable

 Just a charitable donation- no consideration- naked promise

 Policy perspectives- courts don’t want to discourage giving to charity by locking people into contracts

Conclusion:
 Appeal allowed – no contract; defendant / Boutilier wins
o lack of sufficient consideration

Combe v Combe
1951, UK Court of Appeal
Facts:
 Mrs. Combe claims maintenance (support) from Mr. Combe
 Married in 1916, separated in 1939, “Decree nisi” (interim decree) 1943.
 Solicitors write back and forth
o There is an agreement to pay Mrs. Combe £100/year for “maintenance”
o Mrs. Combe’s solicitors request quarterly payments
 Mrs. Combe makes more money than her husband.
 Mr. Combe never made any payments
o Mrs. Combe waited 6 ¾ years, then brought action in King’s Bench (general civil court) rather than Divorce Court.
 Wife can only enforce husband’s promise if there was consideration for it.

Issue:
 Was there sufficient consideration to support the husband’s promise?

Ratio:
 Forbearance from taking action can only be consideration when it is requested or intended by the other party.
 Forbearance can be consideration but only if it is at the request (express/implied) of the promisor.
o An act of forbearance will only be consideration for a promise if done on the faith of a promise, or at the request of
promisor, express or implied

Analysis:
 Wife’s consideration was her promise not to sue (an act of forbearance)
o Act of forbearance must be at the request of the promisor
 husband was promisor
 wife promisee – she was the one “promising” to forbear – but it was worthless because the husband did not
request for her to do this.
 She was doing it for her own self-interest b/c she would not have won in divorce court with her argument.
 husband did not ask her to forbear!

 Definition of forbearance:
o The action of refraining from exercising a legal right, especially enforcing the payment of a debt OR giving further time
for repayment of obligation or agreement not to enforce claim on its due date.
 Wife says she would not bring action, in exchange for maintenance (clearly was forbearance)
 BUT, no consideration for the forbearance here—was no binding contract
o No evidence of husband’s request/intention that wife should forbear from applying to court for maintenance -> Wife’s
forbearance was not done at his request

No consideration:
 Was consideration benefit wife but wife did not give up anything of value
 If she promised to forbear from applying for maintenance, court can over-ride
 No evidence of Mr. Combe’s intention that Mrs. Combe should forbear from applying to the court for maintenance
 Mrs. Combe’s forbearance was not done at his request

 Shariff:
o 1. The wife can only enforce the promise if there was consideration for it
o 2. The wife’s forbearance could be consideration if it is done on the faith of the husband’s promise, and at the request of
the promisor, express or implied
 o 3. The wife’s forbearance was not on the faith of the husband’s promise to pay the money. Thus, it was not
consideration.
 “I cannot find any evidence of any intention by the husband that the wife should forbear from applying to the
court for maintenance, or, in other words, any request by the husband, express or implied, that the wife should
so forbear. He left her to apply, if she wished to do so. She did not do so, .... Her forbearance was not intended
by him, nor was it done at his request. It was, therefore, no consideration.”

Conclusion:
 Husband wins – no valid contract.
 No consideration for this promise
 This should be dealt through the Divorce Court, not the King’s Bench Division

Royal Bank of Canada v Kiska

1967, ONCA
Facts:
 RBC - Plaintiff; Promisee
 Joseph Kiska – defendant; operated Pee-Wee Pizzeria; Promisor
 Joseph Kiska owned Pee-Wee-Pizzeria; Kiska’s brother, (John), had a hairdressing business.
o RBC was the John’s banker
o In connection with credit extended to brother, RBC held demand note for $6K & certain securities pledged to them by
the brother
 March 1963 “First guarantee”
o Defendant signed a document in the form of a guarantee of $3K of the brother’s indebtedness to RBC.
 he was aware that RBC was threatening to realize the security it held for the brother’s indebtedness.
o he believed that the security held by the plaintiff was sufficient to satisfy the plaintiff’s claim against the brother and that
he himself would not be called upon to pay anything.
o No seal – word “seal” written instead
o Note: a seal can substitute for consideration
 May 1963, Kiska goes to RBC branch – discussed program of payments
o Defendant realized that the security was inadequate to cover brother’s indebtedness – gets mad
o He decides to eat the paper on the first guarantee
 RBC calls the cops
 Makes a “Second guarantee” in presence of the police officer
o Identical terms to the first one, but with a seal this time.
 In June 1963 about half the debt is paid to RBC
o Over next year, defendant makes about $200 in payments to RBC towards his brother’s loan (half-assed – not nearly
enough to cover brother’s loan)
 Feb. 1965 - RBC sues defendant
o Kiska’s argument: there was no consideration

Issue:
 Was there consideration for the guarantees?
o (1. Is forbearance good consideration?)
o (2. Is it OK that direct benefit was to brother?)

Ratio:
 A request to act or forbear will be implied if the promisor sought to accomplish it.
 Consideration can be found in the detriment, inconvenience, or act of forbearance suffered by one party if it is at the request
(implied or express) of the promisor, but it does not have to be directed back to the promisor. It can be directed to a third party.

 Either a promise of forbearance or an act of forbearance for an undefined period is sufficient consideration for a guarantee of a
third person’s indebtedness to the promisor
o Even if the benefit goes to someone else (it doesn’t matter that the consideration was flowing to the brother instead of
the defendant)
o Also, if it had been signed under seal would be binding, as a seal is a valid substitute for consideration
o When the bank forbore at the request of the brother on the defendant, this was sufficient consideration to turn what
would otherwise be a gratuitous promise into a contract
 No time period need be specified for forbearance
Analysis:
 RBC forbore at Kiska’s implied request
Majority - Kelly
 Kiska admits first guarantee was destroyed unlawfully (HE ATE IT)
o Destruction did not constitute cancellation or recession of obligation
o Rights to be determined as if first guarantee still in existence
o Second guarantee sets out exact terms of first guarantee anyways
 Had the guarantee been executed under seal, no consideration would be necessary
 Good summary of consideration:
o “It is the mutuality of the parties in settling their respective rights and obligations which gives rise to the contract's
binding effect and its enforceability: the quid pro quo is that without which the obligation which one party is prepared to
assume, remains the gratuitous willingness to assume a burden, a gift, something the enforcement of which cannot be
compelled. But when he to whom the voluntary expression of willingness to be bound is conveyed, performs some act or
forbears from some act, the performance of, or forbearance from, which was what the party making the proposal sought
to accomplish, there is the required mutuality which converts the promise offered gratuitously into an enforceable
obligation”
 Defendant:
o First guarantee not under seal (if it was – then binding because seal replaces consideration)
o Second guarantee signed under duress (i.e. presence of police officer)

 Defendant argues:
o 1. Plaintiff gave no promise or act which could be qualified as consideration.
o 2. Even if there was consideration, it did not pass from plaintiff to defendant, but instead to defendant’s brother.
 1) First guarantee was an offer of what defendant was prepared to do IN EXCHANGE for future action by RBC, and it was
offered for the purpose of inducing RBC to do some act or refrain from doing some act (forbearance can be consideration)
 Subsequent to first guarantee...
o RBC refrained for 2 ½ months from realizing upon the security it held
o RBC refrained from taking legal action against brother when he declared bankruptcy
o “It is obvious that some forbearance did occur after the offer was made”
 It is a reasonable inference from the conduct of the plaintiff that there was forbearance
o RBC’s forbearance was good consideration
 Guarantee was a promise offered for an act of forbearance
o Unless the offer be withdrawn before the act be performed, upon the performance of the act of forbearance, the contract
was complete and enforceable against Kiska.
 Defendant also argues that since there was not an agreement by the plaintiff to forbear for a specified time, there was no
consideration.
o This does not matter – no specified time needed for forbearance
 2) If consideration be found in detriment suffered by RBC – then it is immaterial that the direct benefit of RBC’s forbearance
went to someone other than defendant (i.e. to his brother)
o Therefore, good consideration for the first guarantee (even though for brother)
o (Unilateral contract still good here – forbearance = consideration)
 Forbearance = different from a promise to forbear; forbearance can be consideration!

Dissent - Laskin
 Summary:
o The Bank did not promise forbearance. It never had forbearance in mind when the Def. signed the guarantee
form.
o Thus, “it cannot rely on the subsequent fact of forbearance to bind the Def. (who expected but did not get a
promise of forbearance in return for his guarantee).” [para.35].
 Admits that a promise of forbearance for no defined period is sufficient consideration for a guarantee of a third person’s
indebtedness to the promisor
o Guarantee, when given in writing, enforceable even though benefit of promise runs to principal debtor (RBC) only
o HOWEVER, act of forbearance without a promise is not enough
 Written guarantee must be a bilateral contract
o Cannot just be a unilateral contract calling for an act of forbearance
o Bank cannot have it both ways, by avoiding the promise to forbear AND then suing
o Here simply unilateral -> not good consideration on the bank’s part (no promise!)
 (Also says non est factum is no issue here)
 (Also says was 21-year-old man dealt with “casually” by bank; was not sealed – words “seal” not enough, even though
regulations w/r/t seals have relaxed with time – formality serves a purpose, and seals cannot be added after the fact)
 Here, Laskin makes it bilateral because he says the promise of forbearance was never made or fulfilled—thus there was no
contract
 The contract of guarantee specifically says that there need not be any forbearance.

Conclusion:
 Plaintiff wins – appeal allowed
o There was valid consideration for the first guarantee.

B. Past Consideration
Earn v Kohut
2005, MBCA
Facts:
 Earn: Plaintiff/Respondent; Victim
 Kohut: Defendant/Appellant; shooter
 Highschool party June 20, 1987
o Kohut shoots Earn in the hip.
o Kohut goes to jail from 1988-1991.
 Before the criminal charges were resolved, there was a tentative civil settlement for $35K (a contingent agreement)
o Defendant offered to pay $35K to settle the civil suit (which hadn’t yet been filed) – plaintiff did not respond—but
defendant brought this up in his Criminal case “look how remorseful I am, I offered him money”
 Conditions of settlement:
o Defendant’s dad funding; agreement with crown prosecutor for joint recommendation on criminal sentence; judge
accepts sentence
 Conditions are never satisfied:
o Before sentencing: shooter’s lawyer gave consent to judgment of $35K to plaintiff’s lawyer
o During sentencing of criminal trial: shooter’s lawyer used consent (from the civil settlement) as evidence of plaintiff’s
remorse even though settlement was not accepted
 Offer of settlement was not accepted until after limitation period under Limitations Act expired (2 years) in 1990.
 The plaintiff and defendant each got new lawyers and the defendant’s lawyer suggested that the claim was statute-barred
 On June 3, 1991, plaintiff accepted shooter’s offer of settlement.
o 1994 – plaintiff commenced this action
o Cause of action was the defendant’s breach of the agreement to pay the plaintiff $35K in consideration of the plaintiff
not suing the defendant for assault and battery.

 At 2002 trial – plaintiff/victim obtained judgment of $35K in damages for defendant’s breach of agreement to settle victim’s
claim.
o Defendant appeals

Issue:
 Was there consideration supporting the shooter’s promise to pay $35,000?

Ratio:
 Generally, past consideration is no consideration.
o Great example – a guy snow-blows your driveway. You then see it and say, “Thanks, I will give you some money.”
 not enforceable because you did not buy the promise – he did it before you were aware.
 However, there is an exception:
o An act, like forbearance, done before a promise is actually made can be consideration for the later promise if:
I. the act was requested by the promisor.
II. The parties understood that the act was to be remunerated either by a payment or the conferment of some other
benefit.
III. The payment or conferment of a benefit was legally enforceable had it been promised in advance.

 An act, like forebearance, done before a promise is actually made can be consideration for the later promise if the act was
requested by the Promisor.  

Analysis:
 Shooter argues strenuously that the limitation period has expired, which affected this case by:
 o Causing the offer of settlement to come to an end before purported acceptance; either by revocation or lapse.
o By eliminating forbearance to sue for assault as consideration for the defendant’s promise to pay damages.
 then P could no longer sue.
 1. Was the settlement offer open to acceptance? (not main issue here)
o Not revoked
o Not lapsed
o (Offer still open for acceptance, so limitation period issue goes away)
 2. Was there consideration?
o Victim argues there was consideration
o Shooter argues:
 1. When consideration existed, there was no acceptance of offer
 Consideration here being the forbearance of civil lawsuit for battery (i.e. delaying suing for battery)
 But that claim is now outside the limitation period, so the consideration no longer exists!!!!!
 2. When the offer was accepted, there was no consideration
 Because limitation period had expired
 And b/c it was past consideration
 Argument assumes past consideration is no consideration
o Court relies on exception to the general rule (that past consideration is no consideration) in old case of Lampleigh v.
Brathwaith
 Generally, past consideration is no consideration
 Where the initial benefit is requested by the promisor, however, consideration is valid—act done before the
promise itself can be consideration if it is at the promisor’s request
 para 22
 As long as at the time, it would have been legally enforceable consideration, it is good
 The exception endorsed in modern cases like Pao On v Lau Yiu Long (1980 PC)
 Uses this rule to get around past consideration general rule
 Thus, it was good consideration
o Forbearance of the victim was initially requested by the shooter (defendant was the promisor who was going to pay the
$35k)
o Both parties understood forbearance was to be rewarded (even though past consideration)
o Shooter’s promise to pay $35k would have been enforceable if it had been promised in advance of victim’s forbearance

Conclusion:
 Appeal dismissed; plaintiff wins
o valid consideration.
o enforceable contract

C. Compromise / Settlement Agreements

Not examinable
B (D.C) v Arkin & Zellers
1996, MBQB
Facts:
 JB (age 14) stole the following items from Zellers
o Star Wars, lion king, boxers, two hats
 J.B.’s Mom: Plaintiff; Promisor
 Zellers: Defendant; Promisee
o Had implemented a loss recovery programme
o Wanted to recover additional costs of shoplifting, including costs of specialized equipment and of loss prevention
officers
o In the case of child shoplifters, decided to go after parents for these additional costs
 Arkin: Defendant; Lawyer for Zellers
 Arkin sent letter to plaintiff
o “It is alleged that on May 26, 1956, J.R.B., a young person for whose supervision my client holds you legally
responsible, took unlawful possession of merchandise from Zellers … to the value of $59.95.”
o “In accordance with the Court of Queen's Bench Act of Manitoba and/or The Court of Queen's Bench Small Claims
Practices Act of Manitoba, Zellers as a legal right to claim Civil Restitution from you.” (outside of any criminal charges
that may come through Crown prosecution).
o “In order to eliminate additional expense to you, Zellers is willing to settle the Civil Case only out of court, providing
you pay the following amount by August 25, 1995 … $225.00”
 Mother paid as she thought Zellers had a strong case, and that she would lose in court and have to pay more money.
o She later sought legal counsel and realized Zellers did not have a strong case to sue her
 She was not negligent in her child’s theft nor committed any tort in her personal capacity
 therefore she did not owe Zellers money.
 She then sued Zellers wanting her money back.

Issue:
 Is Zellers’ forbearance (by not suing, delay in suing) adequate consideration to support the settlement agreement?
 Can you go back on your settlement?

Ratio:
 It is a general rule that a promise to forbear is good consideration, even if that claim is doubtful, unless:
o The forbearing party knows its claim is invalid;
o deliberately conceals information that would defeat the claim.
o Or does not seriously intend to pursue the claim.
 If a claim is known by a party to be invalid, then a promise made on that basis is not valid.

 forbearance form suing is okay, even if that claim is doubtful. It is only not sufficient consideration when you believe it to be
invalid.

Analysis:
 Summary: Bad claim—no consideration for it
 Parents are not strictly liable for torts of their children
o (Parents only liable if they are negligent or commit tort in personal capacity)
o Mom was not personally liable in this case

 Only consideration in this case was forbearing from claim that Zellers knew was invalid, so the promise was not binding because
the promise is not giving anything of value to the promisor.
o Zellers’ lawyer knew or ought to have known that Zeller’s had no claim against the mother.

 Zellers argues: whatever the validity of our underlying claim, the mom voluntarily paid
 Zellers argued there was a valid contract with consideration:
o Zellers claims that in exchange for Zellers forbearance to sue, mom voluntarily paid $225
o Zellers says this reflects consideration moving each way
 General rule = forbearance to sue is good consideration, resulting in enforceable contract)
o Thus, like a gift, money paid by mom would not be returned
o para 11- forbearance okay even if doubtful…
 Exception:
 A forbearance or promise of forbearance is NOT valid consideration if the claim is invalid and is not believed by the forbearer to
be valid
o Not discussed, but court would likely use some objective standard here for what a reasonable lawyer should know,
 In this case, it was objectively invalid
 Zellers claim was not merely a doubtful claim – it was an invalid claim
o Zellers did not believe their claim would succeed, and did not intend to pursue the matter in court
 Mom believed the claim was a serious one, and that is why she paid.
o Mom is entitled to a full refund, because the monies were paid under a mistake
 (And proof of mistake, of fact or of law, has been held to be grounds for returning money)

Conclusion:
 Plaintiff/mother wins – consideration not valid.
o she can recover the money.

D. Promise to Pay More Than is Due

Stilk v Myrick
1809, UK
Facts:
 An action for a seaman’s wages on a voyage from London to the Baltic and back.
 It was agreed that the plaintiff was to receive £5/month
o Before they sailed from London, the crew had undertaken to do all that they could under all the emergencies of the
voyage to get the ship back to London.
 In the course of the voyage, two crew members deserted
o The captain could find no replacements and entered into an agreement to split their wages with the remainder of the crew
to entice them to stay.
 Upon returning, the captain refused to do so.
 Plaintiff sues for the extra money

Issue:
 Was the promise to pay higher wages enforceable?

Ratio:
 Performance of an existing or antecedent duty is no consideration for a promise to pay more.
o Always the starting point when someone is under a pre-existing contract

 The promise to perform a pre-existing duty is not valid consideration

 Generally, agreements involving one-sided variations of existing contracts fail on the basis of this pre-existing duty rule

Analysis:
 The agreement is void for want of consideration
 There was no consideration of the ulterior pay promised to the crew who remained with the ship.
o Before they sailed from London, the crew had undertaken to do all that they could under all the emergencies of the
voyage to get the ship back to London.
o Their services were bought for the full trip.
 It would be different if the crew were at liberty to quit the vessel
o or if the captain had fired the deserters instead
 Desertion, similar to the death of two crewmen, constitutes an emergency that the men had agreed to.

 Important in case is the term that said sailors will have to stick with ship no matter what and help in emergency
o plaintiff obligated to respond and work harder as result (regardless of whether there was promise of additional money)

Conclusion:
 Defendant wins – no contract
o Crew did not provide consideration for the captain’s promise.
o There was no consideration because the crew were already bound by their original contracts to work the ship home.

Gilbert Steel Ltd v University Construction Ltd.

1976, ONCA
Facts:
 Gilbert Steel: Plaintiff & appellant
o steel supplier
 University Construction: Defendant
o builder
 Written contract of September 4, 1968:
 Supplier to deliver fabricated steel for apartment buildings the Builder was erecting at 3 sites
o Flavin, Tectate, University
 $153 per ton for “Hard grade”
 $159 per ton for “Grade 60,000”
o Deliveries for Flavin and Tectate projects completed in August 1969 and October 1969
o Paid for at agreed-upon prices
 Prior to construction commencing at University site:
o Steel mill (supplier to Supplier) announced price increases for unfabricated steel
o Steel mill warned of a further increase
 October 22, 1969: Supplier and Builder negotiated a new written contract
o $156 per ton for “Hard grade”
o $165 per ton for “Grade 60,000”
 These price increases did not reflect the full amount of initial increase announced by steel mill
 March 1, 1970
o University project far from completion
o Steel mill announces second increase
 Meeting between Supplier and Builder
o Oral agreement between the parties to increased price
 $166 per ton for “Hard grade”
 $178 per ton for “Grade 60,000”
o Written agreement drafted by Supplier, with two additional terms
o Builder refused to sign written agreement
 From March 12, 1970, until the completion of first building of University project
o Builder accepted deliveries of steel
o Supplier invoiced at increased prices
o Builder paid invoices, but rounded down
 Essentially, the University accepted the first increase in price, but not the second (which would have been the third contract).
 plaintiff sues for failed payment

Issue:
 Whether the oral agreement was legally binding or whether it should fail for want of consideration.

Ratio:
 A promise to do what one is already contractually bound to do is not valid consideration.
o A variation to a contract to pay more will not be binding when the purported consideration is a pre-existing obligation.
o There is no consideration to support a promise to pay more when a supplier has an antecedent (pre‐existing) obligation to
supply goods.

Analysis:
 Gilbert Steel (Supplier/Plaintiff) argues an implied rescission (cancellation) of the written contract, and the creation of a whole
new contract
o Says the consideration for this new oral agreement was the mutual agreement to abandon the previous contract and to
assume obligations under new one
o Said price is such a fundamental term for goods, that new price must mean new contract and implied rescission of the old
contract
 [Court does not accept the implied rescission = consideration argument here, but suggests it is a possible
exception to the pre-existing duty rule]
 New agreement effected the variation of written contract, not a new contract that replaces in toto the original contract
o Found that evidence indicates the parties did not intend by their March 1970 discussions to totally rescind original
contract and replace with new one
 Only price change was discussed, not new contract)
 Need mutual rescission to replace previous contract
 Here, cannot find that there was mutual agreement to abandon earlier contract and assume obligations under the new oral one
 Lacks the quid pro quo of consideration going both ways
 Court rejects other arguments of other possible consideration too:
o No specific evidence of alleged promise for GS to give UC a “good price” on a future project
 No consideration; promise too vague to have effect of consideration
o (Also says inherent credit that comes with a price increase is not consideration)
 too vague, not requested
o (Acquiescence to the increase not a valid argument – PE “can never be used as a sword, but only as a shield” &
plaintiff cannot discharge burden for estoppel)
o (Gilbert Steel would have had to use promise to pay more as a cause of action which is not allowed in Canada -> if it
was using it as a defence, PE could be used -> depends on the facts/the situation)

Conclusion:
 Defendant / University Construction wins.
 Lacks new consideration; oral agreement fails.

Williams v Roffey Bros

1990, UK CA
Facts:
 Williams: Carpenter, plaintiff
 Roffey Bros: Building contractors, defendants - refurbishing a block of flats (27)
 Carpentry Facts:
o The first fix carpentry
• refers to structural work
o The second fix carpentry
• finishing work

 January 21, 1986: Written Contract

o Plaintiff to do carpentry work on roof
o Plaintiff to perform first and second fix carpentry work required in each of flats
o £20,000
o Implied term that defendants would make interim payments, for work done, at reasonable intervals
 By April 9, 1986
o Plaintiff finished roof work
o Plaintiff finished first fix to all 27 flats
o Plaintiff substantially completed second fix to 9 flats
o Defendants paid £16,200
o Plaintiff in financial difficulty; judge found this for two reasons:
• 1. the contract price was too low to enable plaintiff to operate satisfactorily at a profit; and
• 2. the plaintiff failed to supervise his workmen adequately
 On April 9, 1986
o Defendants promised to pay an extra £10,300
o Paid at rate of £575 per flat
o Defendants made promise on advice of their “surveyor”
 By end of May 1986
o Defendants had only paid an additional £1,500, despite their promise on April 9.
o Plaintiff’s ceased work
 Defendants engaged other carpenters to complete work.
 Defendants incurred a lateness penalty on the project.
 Carpenter then brings action, while the defendants make counterclaim for plaintiff’s breach.

Issue:
 Was the promise to pay an additional £10,300, at the rate of £575 per flat, supported by consideration?

Ratio:
 Relaxation of the rules on paying more than is due
 There is now a specific exception to the rule in Stilk v. Myrick (which is still good law)

 A promise to perform a pre‐existing obligation can amount to good consideration in the form of a practical benefit to the
Promisor, so long as the promise is not given under duress or fraud.
Present state of the law: para 40.
1. If A has entered into a contract with B to do work for, or to supply goods or services to, B in return for payment by B, and
2. at some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or will
be able to, complete his side of the bargain, and
3. B thereupon promises A an additional payment in return for A’s promise to perform his contractual obligations on time, and
4. as a result of giving his promise B obtains in practice a benefit, or obviates a disbenefit, and
5. B’s promise is not given as a result of economic duress or fraud on the part of A, THEN
6. the benefit to B is capable of being consideration for B’s promise, so that the promise will be legally binding.

 a promise to perform an existing obligation can amount to good consideration if it is a practical benefit, or obviates a disbenefit,
to the promisor, as long as the promisor’s promise is not given under duress.

 Key aspect of this case that differentiates it from Stilk v. Myrick (note that the relationship between these two is important for
exam):
o in Stilk v. Myrick, no substantial benefit flowing to the captain (except maybe avoiding them revolting—but that is not
valid consideration)
o in Roffey bros, there is a benefit flowing to Roffey bros (Williams changed the way that he was constructing to allow the
other workers to do work—do all of his work on each before moving on, rather than same part of each)
Analysis:
 Stilk case would say no new agreement—still good law, but this case provides an exception
 First, court deals with payment for partial completion;
o unless completion was a condition precedent, substantial completion is enough to require some payment to worker,
minus costs of defects or omissions

 Court then moves to consideration issue

 Defendant’s benefits arising from agreement to pay extra £10,300
o A) Seeking to ensure plaintiff continued work and did not stop in breach of sub-contract
o B) Avoiding the penalty they would owe for the delay
o C) Avoiding the trouble and expense of engaging with other people to complete the carpentry work
 [Otherwise, would be against their best practical interests]
 Applying current law (ratio) to present case:
o 1. Entered into contract? - Was contract for payment √
o 2. Doubt of completion? - Financial difficulties arise √
o 3. Promise of an additional payment? - Additional payment of £10,300 promised √
o 4. Defendant obtains a benefit? - Counsel for defendants accepts that defendants secured benefits for their promise √
o 5. Duress? - No suggestion of fraud/duress as carpenter acting in good faith √
o 6. All criteria satisfied. Defendants’ promise to pay extra £10,300 was supported by valid consideration √
 Legally enforceable
 This is consideration as a result of the exception
 Para 40:
o The accrual of a benefit to a person, or the avoidance of a problem, is enough to constitute consideration provided there
is no underhandedness
 So when Roffey Bros came to Williams and suggested this, that was enough

Conclusion:
Plaintiff wins – the defendant’s promise to pay the extra $10,300 was supported by valuable consideration, and thus constituted and
enforceable agreement.

E. Pre-Existing Legal Duty

Generally, doing what you were bound to do by pre-existing duty = NO consideration; here, an exception

Ward v Byham
1956, UK CA
Facts:
 Mother claiming the sum of £1 per week in ‘maintenance of a bastard child’

 Father and mother lived together unmarried for 5 years from 1949 until May 1954
o They had a daughter born in 1950
 Whilst the father and mother lived together, the father ‘went to work and maintained the household’
o In 1954, the father ‘turned the mother out’
 Father puts child ‘into the care of neighbour’ and paid the neighbour £1 per week.
 Mother starts working as a housekeeper for another man, who was willing to let the child come along.
 Mother writes letter to father
o Asks for child, and £1 per week in maintenance
 Father agrees to pay £1 “providing you can prove that she will be well looked after and happy and also that she is allowed to
decide for herself whether or not she wishes to come and live with you.”
o Child lived with mother thereafter
 Father keeps up weekly payments.
 Mother then marries the man she was housekeeping for.
 Father ceases payments upon the marriage.
 Mother claims child support of £1 per week

Issue:
Was there consideration for the promise by the father to pay £1 per week?

Ratio:
 Performance of a pre‐existing duty in not consideration.
 o However, consideration can be found when performing an act that exceeds the strict legal duty whereby the Promisor
gains a practical benefit.
 A promise to perform an existing duty, or the performance of it, should be regarded as good consideration, because it is a benefit
to the person to whom it is given.
o Ex – in this case, it was as much a benefit for the father to have the child looked after by the mother as by a neighbour. If
he gets the benefit for which he stipulated, he ought to honour his promise and he ought not to avoid it by saying that the
other was herself under a duty to maintain the child.

Analysis:
 Pre-existing statutory duty: law requires her as mother of child born out of wedlock to take care of child; father is not so obligated
by law
o Court found that agreement required more of her than was required by law
Denning:
 Father argued that when mother looked after the child, she was only doing that which she was legally bound to do
o No consideration in law
 By statute, the mother of an illegitimate child is bound to maintain it
o Father has no such obligation
 Agreed that, in looking after child, mother is only doing what she is legally bound to do
 Sufficient consideration to support promise
o A promise to perform an existing duty, or performance of it, is good consideration, because benefit other party (obiter
dicta?)
o As much a benefit for father to have child looked after by mother as by neighbour
o If he gets benefit for which he stipulated, he ought to honour promise
 Can’t avoid by saying existing duty
o Father’s promise is unilateral contract
 Once mother started looking after the child, there was a binding contract
Morris:
 Father’s position:
o Irrespective of what may be the strict legal position, I’m willing to pay for you to keep the girl happy and she decides for
herself that she wants to live with you, I’ll pay you support
o Ample consideration to support the promise
 Parker, LJ, also concurred

Conclusion:
 Mother wins - good consideration for father’s promise to pay support, above pre-existing legal duty

F. Promise to Accept Less Than is Due

 Sometimes a creditor may take less from a debtor
o May have bought the debt from someone else
o Trying to get something sooner than later
o If they file for bankruptcy you might not get anything at all
o If taking less; it is not consideration, because it is promising to do less than what was promised.
o Partial performance of a pre-existing duty is not consideration

Foakes v Beer
1884, UK House of Lords
Facts:
 Foakes – appellant / debtor
 Beer – respondent / creditor
o John Foakes was indebted to Julia Beer
 August 11, 1875:
o Creditor received judgment against the debtor for £2077 for debt and £13 for costs
 On December 21st, 1876
o Memorandum of agreement
 Debtor agreed to pay-off sum in installments, but agreement did not include interest, which the creditor wanted.
o Payment of £500 now
o Payment of £150 every six months
o Until “the whole of the said sum of £2090 shall have been fully paid and satisfied”
 o Creditor “hereby undertakes and agrees that she, her executors, administrators or assigns, will not take any proceedings
whatever on the said judgment.”
 Debtor pays £2090 in instalments

 June 1882: Creditor sues, claiming interest

 Trial judge ruled that the creditor was not entitled interest.
 Court of Appeal reversed decision and entered judgement for creditor - interest, with costs

Issue:
 Did the creditor receive consideration from the debtor for the Dec 1876 agreement?
o is this agreement to accept a lesser amount than that which she was originally owed legally enforceable?

Ratio:
 A promise to discharge an existing obligation by part performance lacks consideration.
 A payment of a smaller sum of money for a larger sum of money is not adequate consideration
o in paying less, the promisor is not fully satisfied and the promisee is only doing what he’s already obliged to do.

Analysis:
 Partial payment of a debt does not provide consideration
 Court assumed that Foakes was always obligated to pay interest

 There is the matter of whether you can imply obligation to pay interest into December agreement
o [Note: interest not agreed, BUT is only an issue if agreement is supported by consideration]
 Since no seal, must be consideration (which may be replaced by accord and satisfaction)
 Debtor’s argument:
o Agreement with creditor was an accord and the making of the payments constituted satisfaction, thus resulting in a
binding release of debt
 Court says doctrine of accord and satisfaction DOES NOT create exception to the requirement of consideration
o Could not be any satisfaction here; nothing in consideration for the forbearance and deferred payments
 Relying on Lord Coke’s statement in Pinnel’s case, court here says creditor’s claim for interest should be allowed
o Cannot accept less money for a greater sum (unless with an acquittal using a seal)
 Invalid consideration:
o The sort of benefit which a creditor may derive from getting partial payment due from a debtor who might otherwise
keep him at arm’s length (or possibly become insolvent)
o (Partial performance not enough & lacked consideration here – need new consideration)
 Valid consideration requires some independent benefit, actual or contingent, of a kind which might in law be a good and valuable
consideration for any sort of agreement not under seal

Conclusion:
 Appeal dismissed.
o No consideration; debtor has to pay interest.

G. Modernization of the Doctrine of Consideration

Greater Fredericton Airport Authority Inc v Nav Canada

2008, NBCA
 Don’t take this case too far—it doesn’t obliterate consideration
o When there are sophisticated parties, and there is already a contractual matrix which is going to consider, these people
have to deal with each other
o AND, there is a variation for a very limited purpose of the contract
o Should we give effect to the gratuitous promise where consideration was at issue?
 Usually… (but not here)
 Why? – because of economic duress
 The role of this case: we don’t know if it’s good law, SCC has not decided on this in a long time
 Don’t use this case to overrule all of the other law on consideration – don’t pay it too much mind

Facts:
 Nav Canada (appellant) had exclusive right and responsibility to provide aviation services and equipment due to federal
regulations (Aviation and Services Facilities Agreement/ASF)
 Greater Fredericton Airport Authority (GFAA) (respondent)
 GFAA decided to extend runway at cost of $6M
o Requested that Nav Canada move their landing system.
o Nav Canada concluded that it made better economic sense to replace that navigational aid with a new one.
 Disagreement about which of parties should pay for new equipment related to this move ($223k)
 Nav Canada possessed the exclusive right to decide whether to replace the navigational aids, and nothing in that agreement
entitled Nav Canada to claim reimbursement for the cost of acquiring new equipment.
o But Nav Canada refused to make a provision in its fiscal budget for the upcoming year unless GFAA agreed to pay the
$223K.
o GFAA eventually indicated that it would pay, but “under protest”.
 to make sure they got a navigational system!
 This is a “post-contractual modification” – is it a new contract??

 After work completed, Airport Authority refused to pay (But allegedly previously said it would pay)

Issue:
 Is the variation to the existing contract enforceable?
o A. Was it supported by fresh consideration?
o B. If the promise was gratuitous, was it enforceable so long as it was not procured under economic duress?
 was GFAA’s promise to pay for equipment supported by fresh consideration? Was the variation procured under economic duress?

Ratio:
 A post contractual modification, unsupported by consideration, may be enforceable if the variation is not procured under
economic duress.
 Situations that allow for post contractual modification supported by fresh consideration include:
1. Finding on the facts that P has agreed to do more than originally obliged for;
2. Finding that the circumstances have changed after the initial contract was formed so that the promise to do exactly what
was agreed is consideration for a promise of more;
3. Accepting the plea of detrimental reliance on the basis of equity;
4. Holding that the original contract was mutually rescinded and replaced by a new one that incorporated a variation of the
original.

Analysis:
A: Classical Contract Law Overview
 Was GFAA’s promise to pay supported by “fresh” consideration?
 (Had been up to Nav Canada to decide whether to relocate or purchase new equipment and chose to purchase new – so Nav
would be required to pay for the move without being compensated)
 Need to determine whether Nav Canada had agreed to do more than originally promised by federal regulations (ASF)
o In return for the agreement to modify the contract
o Need a consensual bargain—a meeting of the minds—a promise for a promise
o Something more provides consideration necessary to enforce an otherwise gratuitous promise
 GENERALLY: Performance of a pre-existing obligation IS NOT fresh or valid consideration (Stilk)
o If this is applied, Nav Canada was under pre-existing obligation + airport will win
o The classic view of consideration is that a promise to pay for the same activity that has already been promised is not
generally valid consideration.
 Nav Canada’s pre-existing contractual obligation was to pay for new equipment
o Nav Canada promised nothing in return for the GFAA’s promise to pay for new equipment
o Work itself was just fulfilling previous obligation – was NO CONSIDERATION
o Cited Gilbert Steel: Lead decision in Canada on unenforceability of gratuitous promises; mutual rescission there did not
apply
 There was no new separate and valid contract supported by fresh consideration, so under old rules Nav Canada will lose

B: New Important Contract Law Stuff:

 Should Nav Canada lose on “failure of consideration” issue?
 Notes that courts have recently tried to avoid the rule in Stilk, including:
o i. Plaintiff promised to do more than originally obliged to do
o ii. Finding that circumstances have changed so that plaintiff’s promise to do what was agreed to is consideration for a
promise of more from defendant
o iii. Accepting the plea of detrimental reliance on basis of justice & equity (see future cases)
o iv. Holding that original contract was mutually rescinded and replaced with new agreement
 o (This has been a trend – courts moving away from rigid approach)
 Discussed Williams v. Roffey Bros, which found mutual benefits and declined to apply Stilk
o Court is prepared to “relax the tenets of the consideration doctrine in order to enforce a gratuitous promise to pay more”
– found to be good consideration via avoiding penalty
o There are valid policy reasons for refining consideration doctrine
 Offers 3 reasons for incremental change in law (which they apply here to avoid ‘old rules’):
o 1. Rule in Stilk v. Myrick is an unsatisfactory way of dealing with enforceability of post-contractual relations
 Existing contracts are frequently varied and modified by tacit agreement in order to respond to contingencies
not anticipated or identified at the time the initial contract was negotiated
 PRACTICAL
 Matter of commercial efficacy: Necessary at times to adjust the parties’ respective contractual obligations and
the law must then protect their legitimate expectations that modifications will be lived with and enforced
o 2. Doctrines of consideration and promissory estoppel work in together:
 Impose injustice on promisees where detrimental reliance
 (Consideration is one trigger for the law to make it reasonable to enforce a bargain, and promissory estoppel is
another way to enforce a promise)
 (If we adopt law this way, courts can avoid “fictional” attempts to find consideration)
o 3. Consideration developed centuries before economic duress

 New Rule: A post contractual modification, unsupported by consideration, may be enforceable if the variation/modification is not
procured under economic duress
o This new rule constitutes “incremental change” (B.S. term to make new rule)
o Does not throw away Stilk, just modernizes doctrine
 Adds that if the contractual variation is supported by fresh consideration, the argument for economic duress less convincing
(Because fresh consideration lends evidence to consent)
 (Ultimately, here, was economic duress)
 Variation requires less proof of consideration than does the creation of a new contract

Conclusion:
 No fresh/new consideration but still possible for a modification to be enforceable without it -> modernizes consideration idea
 BUT Airport Authority wins because variation happened under economic duress
 Mindful that the Supreme Court has cautioned that it is not the role of the courts to undertake "major" reforms in the common law
or those that may have "complex ramifications".

Chapter 12: Promissory Estoppel

 Shariff went back to discuss Promissory Estoppel: recommends reading Mcanus text to clarify.
 Doctrine of Waiver – gives us some flexibility to interpret what is actually going on with the parties.
o outside the harsh common law of contracts
o expands into estoppel
 Promissory Estoppel are techniques to overcome a lack of consideration.
o parties must act reasonably
o most important aspect
 you cannot use estoppel to commence an action to enforce a gratuitous promise (cannot use it as a sword).
 promissory estoppel does not allow you to transform a gratuitous promise into an enforceable promise.
 it is not a substitute for consideration – it is a way to enforce the reasonable expectations of the parties.
 PE is a defence to an action, brought by a party trying to exert their strict legal rights.
o Can be used when you are within a contractual arrangement, and then a party grants some kind of concession.
 ex. Rent is due on May 1 by strict rule of contract.
 Landlord says, “May 1 is a stat holiday, so payment by May 2 is fine”
o that is a concession.
 so promissory estoppel can be used as a defence if the landlord later says, “no, actually I do need it on May 1.”
 PE can be used as a shield! never as a sword.

 Key points are that there was an existing relationship, and a concession made.

 Gilbert Steel
 o cannot use promissory estoppel as a shield.
 Gilbert Steel could not bring promissory estoppel against the University to make them pay more.

 For purposes of Canada, we assume promissory estoppel is only used as a defence.

o we see it most often with gratuitous contractual obligations.
 It is only a concession; the strict legal aspects of a contract are still in play.
o just use a ‘shield’ to stop something unfair – doesn’t change strict contractual rights.
 The concession can end – the party must give notice and let the party that is receiving a concession know that the concession will
be ending soon.

 Difference between common law estoppel and promissory estoppel:

o CLE
 is when a representor makes a statement or representation as to an existing fact (expressly or impliedly), and the
representee relies on that statement and acts to their detriment.
 The representor cannot then deny that representation.
o PE – most cases are in PE, but important to know difference so we can quote the correct cases in the exam.
 is a representation about what will be, or what is intended in the future.
 ex. in the future, you can pay less rent.

 NN’s summary of doctrine: some promises, even ones that don’t have consideration, are meant to be enforced and legally
binding, because they were made in such a way that the parties viewed them as legally binding, and one party relied on the
promise in making decisions/taking action.
 Doctrine of consideration:
o Apart from promises given under seal, promises will not be enforceable unless they are given as part of a bargain or
exchange (consideration)
o Doctrine of consideration usefully identifies a category of promises that ought to be enforced
 Gratuitous promises are generally unenforceable
o E.g. gratuitous promises to enter into contracts in the future may give rise to hardship
 (E.g. building contractors quoting on basis of promises from subcontractors)
 *(Problem is one of detrimental reliance – will be of detriment if promisor is not bound to live by their
promise)
 The doctrine of promissory estoppel is an attempt to provide a solution
 Anglo-Canadian version of PE:
o First appeared in its modern form in Central London Property Trust v High Trees House

Shariff intro to NN; she was absent for our class.

 Equitable doctrine of promissory estoppel precludes a party from retracting a promise on which the other party has relied, if the
promise was intended to be acted on or relied on, even though there is no consideration for the promise
 “... where one party has, by his words or conduct, made to the other a promise or assurance which was intended to affect the
legal relations between them and to be acted on accordingly, then, once the other party has taken him at his word and acted on it,
the one who gave the promise or assurance cannot afterwards be allowed to revert to the previous legal relations as if no such
promise or assurance had been made by him, but he must accept their legal relations subject to the qualification which he himself
has so introduced, even though it is not supported in point of law by any consideration, but only by his word.”
o Lord Denning, in Combe v. Combe [para. 5].
 In Anglo-Canadian jurisprudence, promissory estoppel can only be deployed as a defence (it is a shield but not a sword) – not
a cause of action
 Doctrine of promissory estoppel- cannot be used to bring an action to enforce what appears to be a gratuitous promise
o Can only be used as a shield or a defence to an action brought by a party to prevent them from insisting on their strict
legal rights under a contract- concession
o Party grants a concession to the other side
 For the doctrine to apply, certain conditions must be met:
o 1. Representation: a promise or assurance could be by words or conduct; must be clear and unambiguous.
o 2. Intention: the representation must be intended to be relied on or acted on. Intention could be actual or presumptive.
o 3. Reliance: the party to whom the representation is made must have acted or relied on the promise. (Note: some cases
have held there must be detrimental or prejudicial reliance).
o 4. Pre-existing legal relations: there must be a pre-existing “legal relation between” the parties.
 NOTE: promissory estoppel does not make an otherwise unenforceable promise or contract enforceable. Rather, it is an equitable
principle meant to prevent an injustice where one party has been induced by the representation of the other party to alter their
position.
 Does promissory estoppel apply where there is no pre-existing contractual relations between the parties?
o The general rule is that there must be existing “legal relations between” the parties. Lord Denning in Combe v. Combe
o A notable exception is proprietary estoppel.
 A promise to vest interest in property cannot be retracted if the promisor intended it to be relied on and the other
party has acted on the promise.
o So, the party who relied on the promise can sue to enforce the promise even though there is no existing contract
between them.
 The High Court of Australia appears to have departed from the Anglo-Canadian position that: Promissory Estoppel does not
create a cause of action. There must be a pre-existing legal (contractual) relations between the parties. See Waltons Stores v.
Maher

Hughes v Metropolitan Railway Co

1877 House of Lords, UK
Facts:
 Hughes – landlord, appellant
o Owned property
 Metropolitan Railway Company – tenant, respondent
o Leased property
 Term of lease: Landlord is entitled to compel the tenant to repair the buildings within six months of notice.
 October 22nd, 1874:
o Landlord provides notice to tenant to make repairs
o Tenants had six months to finish the repairs
 (April 22, 1875)
 November 28:
o Tenant acknowledges notice, and that the repairs will be “forthwith commenced”, but also proposes, instead, that the
landlord buy out the tenant's leasehold interest.
o “We propose to defer commencing the repairs until we hear from you as to the probability of an arrangement such as
we suggest.”
 Negotiations began and continued until 30 December,
 On December 30th, tenant made an offer of £3,000
o Landlord rejects offer, saying it is too low. Asks tenant to make a better offer.
o Tenant made no additional offer; negotiations end.
 Then, after “six months” had elapsed in April, the landlord sued the tenant for breach of contract (by not making repairs) and tries
to evict
 Repairs made by late June 1875

Issue:
 Was the landlord taken to have waived the strict enforcement of the notice provisions, despite engaging in negotiations?

Ratio:
 The concept of “waiver” introduced as a matter of fairness:
o Where one side leads the other to believe that the strict legal rights of the contract will not be relied upon, the side
making this representation will not be permitted to enforce the strict legal rights as it would be inequitable.

Analysis:
 Repairs were completed within the time required by the lease; tenant wins
o The six months started running from end of December, 1974
 This date chosen because that is when negotiations between parties ended
 Negotiations were ongoing; parties trying to reach agreement
o “It is the first principle upon which all Courts of Equity proceed, that if parties who have entered into definite and
distinct terms involving certain legal results—certain penalties or legal forfeiture afterwards by their own act or with
their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that
the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the
person who otherwise might have enforced those rights will not be allowed to enforce them where it would be
inequitable having regard to the dealings which have thus taken place between the parties ” (para 10)
o Frames it as an issue of fairness
 Look at the circumstances -> the parties, by entering into the negotiations, made it inequitable that the repair period should
expire on April 22nd, 1875
 Lapse of time from October to December had been waived as parties were negotiating.
Conclusion:
 Tenant wins:
o Would be inequitable to require repairs by April – concept of waiver.

Central London Property Trust Ltd v High Trees House Ltd

1947, King’s Bench – UK
Facts:
 Central London Property – Landlord / plaintiff
 High Trees - tenant
 In 1937, landlord leased a new block of apartments to tenant
o Rate of $2500/year for 99 years
 WWII breaks out and the occupancy rate were drastically lower than normal.
o Only 1/3 of the apartments were full.
 January 1940 - the parties made an agreement in writing to reduce rent by half.
o It was intended simply as a temporary expedient to deal wit he exceptional conditions then prevailing, under which the
block of flats was only partially let.
o The arrangement had no reference to events in which the block of flats was wholly let, if they subsequently occurred.
o Period of reduced rent not stipulated.
 Over the next 5 years, tenant paid the reduced rate while the flats began to fill.
 By 1945, flats hit full occupancy.
o Landlord wrote demanding 2,500/year going forward and in arrears
 Tenant argued that it should stay at 1250/year forever, OR that 2500 should only start by Sept. 1945.

Issue:
 Was the promise to accept less rent binding, in absence of fresh consideration?
 Was the adjusted lease only in effect during the war time? Can back-rent be claimed during the time of the lease?

Ratio:
 Promissory estoppel is applicable where the new promise was intended to be binding, intended to be relied upon, and was relied
upon, even though there was no consideration.
 ie - when a Promisor represents a future promise to take less than that which is owed, and the Promisee in reliance ACTS on that
representation – the Promisor will be Estopped from going back on that promise, despite a lack of consideration.
 Sword/shield issue – PE can be used as a defence but not a cause of action.
 5 elements present to apply promissory estoppel:
1. An existing contractual relationship
2. A promissory statement that certain legal rights will be held in abeyance (suspended) about a future state of affairs.
3. Intention that is both intended to be binding and acted upon (a promise re: the future)
4. Promise was in fact acted upon
5. It would be inequitable to allow promisor to renege on its promise, and go back and enforce the strict rights of the
original contract.

Analysis:
 Landlord argues that the undertaking to accept reduced rent did NOT preclude it from later reasserting entitlement to full rent.
 The following kinds of promises must be honoured:
o Promises which were intended to create legal relations and which, in the knowledge of promisor, were going to be acted
upon by the promisee, and have in fact been acted on, even if there might be absence of consideration
o Courts have not made these a cause of action: PE is a shield NOT a sword; PE cannot be used to found a cause of
action, but only as a defence)
 Corollary: promise to accept a smaller sum in discharge of a larger sum, if acted on, is binding
 Here, the promise was that rent should be reduced in half as a temporary expedient
o While block of flats was not fully let, due to conditions prevailing
 Conditions impacting occupancy had completely passed away by early 1945- Rents for last two quarters are fully payable ---->
Ruled that full rent payable from early 1945
 In OBITER: if they went back to collect before 1945, Promissory Estoppel prevents them from collecting rent
o They could only collect 2500 once conditions went back to normal in 1945

Conclusion:
 Landlord wins (partially); full rent to be paid from the point that apartments filled up – in early 1945.
o but did not need to pay arrears from 1941-1945
 John Burrows v Subsurface Surveys Ltd
1968, SCC
Facts:
John Burrows: Appellant
Subsurface Surveys & Whitcomb: Respondents
 Burrows lends $42,000 to Subsurface (supposed to make monthly payments)
o Issue: Clause in contract says that if Subsurface is 10 days late making payments, the entire amount becomes instantly
payable.
 Parties are on friendly terms.
o Subsurface is repeatedly late on payments - which seem to be accepted without a problem by John Burrows
o By October 1, 1964, 11 payments had been accepted as late
 November 23, 1964: Falling out between Burrows and Whitcomb (who works with Subsurface)
 On Dec 7, the November 1 interest payment was 36 days overdue
 Burrows demanded immediate payment of $42,000 plus interest.
o Claim commenced for this amount

Issue:
 Is the appellant estopped from demanding the immediate payment of loan, as he had previously accepted late payments without
invoking those “immediately pay” clauses.

Ratio:
 Mere indulgences granted to one party over time do not create the basis for a promissory estoppel. Promissory estoppel must arise
from a form of negotiation, and can be inferred if the evidence shows that the purported promisor has an intention to suspend
strict terms of the contract.
o In Canada, you can only use promissory estoppel where there is negotiation, or evidence of negotiation, that caused the
plaintiff to assume rights would be held in abeyance.

An incident, such as a falling out between friends, should put parties on notice that relationship has changed and rights may be more
strictly enforced.

Burrows was just being a nice guy – equity doesn’t give a shit; only interested in whether they had negotiations about letting the
payment slide.

Analysis:
 Defendants argue that Burrow’s was not relying on strict terms of contract; and so it was Promissory Estoppel.
o SCC disagrees
 PE does not apply to the facts of this case
 Burrows’ conduct (not taking action for late initial payments) was not estoppel, but a friendly gesture—between friends

 SCC rejects estoppel- no negotiation

o No evidence showed promisor has intention to give up its legal rights
 need to show more than that debtor took advantage of indulgences

 Promissory estoppel is an equitable defence, but PE cannot be invoked unless:

o 1. One of the parties entered into a course of negotiations; and
o 2. Had the effect of leading the other to suppose strict rights would not be enforced (in the future); and
o 3. First party intended that the legal relations created by the contract would be altered because of the negotiations
 Not enough to show that one party has taken advantage of indulgences
o Don’t want holders to have to always insist on enforcing strict legal rights (give them latitude) – JB did not intend to
lead W to think strict compliance was now not possible
 *Key*: The appellant didn’t enter into any negotiations with the respondents which led them to suppose that the appellant
had agreed to disregard the right to claim the pledged shares on default
o There were no formal negotiations, so Subsurface should not have relied on it.

Conclusion:
 Appellant (Burrows) wins – trial decision restored.
o Promissory Estoppel does not work in this case.
o Respondent must make full payment.
 Walton Stores
Australia – did not ask us to read.
 Aussie case that allows promissory estoppel to be used as a sword.

Chapter 13 – Privity of Contract

 Basic concepts:
 You have a contract between two parties. Ex. Between Joe and David
o Joe pays David, David washes windows
 David owes money to his mom Gail
o So Joe pays money directly to Gail
o Gail is a third party – not part of the contract
 she is a beneficiary of the contract
 Doctrine of Privity says Gail is not a part of the contract – no consideration b/w Gail and Joe.
o only a party to the contract can sue to enforce the contract
 A couple exceptions – agent and trust

Beswick v Beswick
1968, House of Lords
Facts:
 (Denning wrote Court of Appeal summary – “Old Peter Beswick” and his nephew)
o (Denning had questioned doctrine of privity; HL reaches same result while upholding the traditional principles of privity)
 Wife of Peter – respondent
 Nephew – appellant

 Agreement b/w old Peter and Nephew of March 14, 1962:

o Old Peter assigned his nephew the assets of the business.
o Nephew undertook to pay old Peter £6,10s per week for the remainder of Peter’s life
o And then upon old Peter’s death, the nephew was required to pay an annuity to the wife for £5 per week.
 Old Peter dies November 1963
 Nephew made one payment to wife; refused to pay anything further
 Wife sues for £175 in arrears and an order for specific performance of the continuing obligation to pay the annuity.
 She sues as both the:
o 1. Administratrix of the husband’s estate; and
o 2. Personally

 Court of Appeal gave judgment for the wife (respondent).

Issue:
 Can the wife sue for breach of contract, even if she wasn’t party to the agreement?

Ratio:
 General privity rule:
o Only parties to a contract can sue upon it. Third party beneficiaries cannot sue for the receipt of a benefit under the
contract
 (Executors of wills can sue for specific performance)

 this case is here to teach us the basics of privity of contract

 Reaffirms the doctrine of privity of contract:
o contract between A & B confers no right on X
o X has no standing to enforce B’s undertaking
 o X is a mere 3rd party beneficiary of B’s undertaking
o X is not truly party to the agreement
o “Only a person who is a party to a contract can sue on it”
 But, A (here, Peter’s estate) can sue B for specific performance as administratrix

Analysis:
 It was clear that the parties intended the wife should receive the weekly sums of £5 in her own capacity
o Should not be accountable to estate for them – money going to wife “in her own behoof”
 Common view under traditional doctrine of privity of contract
o Contract between A and B confers no right on X - X could not sue for £
o Obligation of B must be enforceable either by X or by A
o Court assumes this is accurate and decides case on different grounds
 1. Wife, in personal capacity, has no right to sue
 2. Wife, as administratrix (acting for A), has right to …
o a. Nominal damages of 40 shillings (common law remedy) to acknowledge Peter’s wishes for his wife to be paid have
not been fulfilled; low amount because breach of contract has caused no loss to the estate (Peter’s estate itself has lost
nothing!)
o b. ALSO require nephew to perform agreement (specific performance, an equitable remedy)

 In a contract between A and B for the benefit of X, X cannot sue A for performance of the contract, even though it is to
X’s benefit
 Two big exceptions to privity:
o Trust
o Agency

Conclusion:
 Appeal dismissed – wife wins as administratrix.
 Reaffirms privity of contract; wife cannot sue personally as she was not privy to the contract.
o However, the wife can sue as administratrix and court orders specific performance.

Jackson Case from 1975

 Jackson books a holiday from Holiday Company
o J’s wife and kids are third party.
 holiday is supposed to be in a 5 Star hotel.
o a week before J goes on holiday, the hotel isn’t ready, Hol Co. says they booked a second hotel which is just as good.
 Second hotel is complete shit.
 J sues for damages in respect of the holiday for inconvenience.
o Holiday accepts liability, but does not think it should pay damages to the entire family
 They think it should only apply to J, because he was the only one privy to the contract.
 Trial - Strict privity rule would say it only applies to J – not wife and kids.
 On appeal, Denning overturned.
o Where a holiday contract is made for the benefit of a third party, the contracting party can recover all the losses
the third party could recover as if the contract made with the third party themselves.
o Only applies to holiday contracts.

Greenwood Shopping Plaza Ltd v Beattie

1980, SCC
What is a subrogation claim on insurance?
o In the event of an insurance claim, “subrogation” refers to the process by which your insurance company collects money
from the party at fault (or their insurance company) in order to recover funds you or your insurance company have
already paid, including your deductible.

Facts:
 Involving a lease between Greenwood Shopping Plaza (appellant, lessor) and Canadian Tire (respondent, lessee)
o Cdn Tire employees - Beattie and Pettipas.
 Terms of lease:
1. Insurance: The lessor shall insure the buildings in the mall against fire.
 2. Subrogation: Both lessee and lessor were to arrange with their insurers not to grant subrogation rights for the recovery
of any loss through fire.
 (Subrogation is when you let insurance company sue other people on your behalf – e.g. Bruce had fire
insurance on house, and Bruce’s evil nephew burns it down, then insurance company has the right to
“subrogate” and step in for Bruce and pursue money they had to pay Bruce from the nephew – sue in tort in
Bruce’s shoes to recoup the money that insurance company had just lost)
 Right of subrogation = right for insurer to sue against other people that the insured might have been able to sue
(eg. the people that actually did the damage)
 “No subrogation” means that you cannot sue the person who committed the wrong.
 Parties did not follow the terms
o Lessor did not obtain coverage or waivers of subrogation
 Lessor did not get full fire insurance, but did insure the buildings minimally
o so there was no getting rid of subrogation right for insurance company.
 Fire caused by the negligence of Beattie and Pettipas (employees of Cdn Tire)
 Greenwood and its insurers sued Beattie and Pettipas

 Trial judge finds employees to be negligent.

o employer vicariously liable.
o but, there is a limitation on the amount of damages available, b/c GSP was supposed to get fire insurance.
o and the employees were covered by the waiver of subrogation.
 therefore, employees not liable.
 Court of Appeal
o I think Court of Appeal overturned – ruled damages against employees.

Issue:
 Can the employees rely on the no subrogation clause?
o Even though the no subrogation clause was given to the company, not its employees

Ratio:
 No one but the parties to a contract can be bound by it or be entitled under it, unless the third party beneficiary falls into an
exception such as an agency or trust.

 GSP were not considering the employees when they signed the lease with Cdn Tire, they were only dealing with Cdn Tire.

Analysis:
 Privity doctrine applies: no one but the parties to contract can be bound by it or entitled under it.
 While there was an awareness that a fire was possible, employees weren’t parties to the lease agreement: can’t sue on it or benefit
from it unless can bring them into exception like agency or trust

 Express clause preventing subrogation was between insurer/employer – no direct right for employee due to traditional rules of
privity of contract:
o Consider privity under 2 headings:
 (1) the imposition of liabilities upon a third party, and
 (2) the acquisition of rights by a third party.
o We shall see that the general rule of the common law is that “no one but the parties to a contract can be bound by it, or
entitled under it” (Privity)
 Mall and CT Franchise fully aware of kinds of uses of premises/risks of fire
 We have a contract where A and B entered into certain covenants for their mutual protection
o Certain benefits were to flow to C and D (i.e. CT’s employees)
o C and D can’t enforce benefit under the contract
 In Canada, traditional privity rule has generally been followed, BUT with exceptions, including:
o 1. Agency
 Where a principal authorizes the agent to enter into contracts on the principal’s behalf with third parties, result
is that principal has direct contractual relationship with third party (Acting on one person’s behalf – like sports
agent)
 (Consider Wood v Dyck later)
o 2. Trust
 Court of equity developed
 Rights of third party beneficiaries were recognized
  Property being held by trustee is subject to an obligation to deal with the property for the benefit of the
beneficiaries (Trustee is holding property for beneficiary)
 (Vandepitte v Preferred Accident Insurance Co of New York – trustees an exemption)
 1. Can’t find agency here
o Not enough evidence of a contractual link between CT Franchise and employees
 Employees were not acting as agents for employer regarding entering into lease agreement.
 2. Can’t find trust here
o Not enough evidence that the CT Franchise was contracting with Greenwood as trust for its employees.
 No intention to create a trust here, as employer could alter terms of contract without consent of employees.
 must prove that there was intention to create a trust – did not here.
 Employees can’t rely on lease provisions related to insurance & are liable for damages of the fire

Conclusion:
 Damages upheld against employees for the losses and against the employer for the losses in excess of what was actually insured
or should have been insured
o Only employer can benefit from terms of lease agreement; employees excluded because not privy
o But practically, only employer pays; vicariously liable.

Dyck v MB Snowmobile Association (Man CA)

1982, MBCA
Facts:
 Dyck: Snowmobiler, plaintiff, appellant
 Manitoba Snowmobile Association: Defendant
o Wood: co-defendant, official starter for MSA, respondent
 Wood came onto the course at the end of the race to give the checkered flag to the first place finisher.
o Dyck was in third place, and as he neared the finish line, saw Wood in the middle of the course and swerved to avoid
him.
o Dyck hit Wood, and then careened into the exterior bank of the track.
o Wood was not seriously hurt, but Dyck was seriously hurt.
 Trial judge ruled that Wood was 1/3 responsible and Dyck was 2/3 responsible
o awarded Dyck $90,000 in damages
 (Court of Appeal decided that Wood was negligent and 100% responsible for the accident.)
 Main issue for Dyck was that he signed an “indemnifying release” on the day of the race, absolving his right to sue the MSA and
their agents etc.
o “In consideration of acceptance of this entry… I agree to save harmless and keep indemnified the MSA and/or the
MSA, its organizers, and their respective agents, officials, servants and representatives from and against all claims,
actions, costs and expenses and demands in respect to death, injury, loss or damage to my person or property,
howsoever caused, arising out of or in connection with my taking part in this event and not withstanding that the same
may have been contributed to or occasioned by the negligence of the said bodies, or any of them, their agents, officials,
servants or representatives.”
 Trial judge found that both MSA and Wood could rely on the indemnifying release.
o (Court of Appeal finds that the release definitely applies to the MSA.)
 More contentious with Wood, as his name is not in the contract.

Issue:
 Is Wood entitled to rely upon the limited liability clause in the contract even though he is not named as a party to it?

Ratio:
 Agency is an exception to the privity rule regarding third party beneficiaries;
o a third party beneficiary can rely on a limited liability exemption clause if the party entering into the contract does so as
an authorized agent of the third party.
To know this, we must apply the 4-fold Agency test:
1. Does the contract make it clear that the third party beneficiary (ex: volunteer) is intended to be protected by the
limitation of liability clause?
2. Does the contract make it clear that in addition to contracting on its own behalf, the potential agent is also contracting
as agent for its third party beneficiaries? (ie the party’s organizers, agents, officials, etc)
3. Does the potential agent (the contracting party) have the authority to act on behalf of the third party beneficiary?
4. There must be consideration.
 Any difficulties about consideration moving from the 3rd party are overcome
 Here, he thinks the court is playing fast and loose to get where they want to go.
o how it would have to play out: MSA is the agent, 3P is Dyck, Wood is principal
o Seems highly dubious that Wood was ever actually a principal that ever empowered the MSA as his agent
o Principal exception – generally only comes up when you are seeking something to protect you

Analysis:
 In order to rely on the release, Wood needs to establish that the MSA had constituted itself as a trustee for him of the contractual
rights obtained by the MSA under the release; or if the MSA were acting as agent for him in entering into the contract.
 Trust
o No trust existed.
o MSA did not assert rights as a trustee on behalf of volunteers (such as Wood) and others.

 Agency – Scruttons Ltd. v. Midland Silicones 4-part test to establish agency:

1. Contract makes it clear that the 3rd party (eg. employee or volunteer) is intended to be protected by the provisions in it
which limits liability.
2. Contract makes it clear that potential agent, in addition to contracting for these provisions on his own behalf, is also
contracting as agent for the 3rd party that these provisions should apply to the 3rd party.
3. Potential agent has authority from the 3rd party to do that, or perhaps later ratification by 3rd party to suffice.
4. Any difficulties about consideration moving from the 3rd party are overcome.

 Application of Scruttons test to Greenwood (previous case):

1. Nothing in the lease to indicate that employees were to be protected by the limitation from liability
2. No indication in the lease that the tenant, in addition to contracting on its own behalf, was also contracting as agent for
its employees;
3. No indication, (nor any subsequent ratification) that the tenant had the authority to act as agent for its employees;
4. No evidence of consideration moving from the employees to the landlord, in exchange for the benefit of the limitation on
liability.

 Application of Scrutton Test to this case:

1. There is a clear indication in the release form that “organizers, agents, officials, servants, and representatives” of the
MSA are to be protected by the limitations of liability.
 Wood, in carrying out his duties as starter on that day, would fall within one of the descriptive words.
2. The wording of the document indicates that in addition to contracting on its own behalf, the MSA was also contracting as
an agent for its organizers, agents, officials, servants, and representatives.
3. There was an evidentiary basis for concluding that Wood had authorized the MSA to act as his agent in requiring
prospective race participants to complete an entry form, including the waiver of liability as a pre-condition for
participating.
 Wood stated he was well aware that prospective participants were required to execute a waiver and that the
waiver was a required prerequisite for the protection of both the M.S.A. and its officials.
 Wood stated that the purpose of the waiver was, “to protect us from being sued.”
 Wood stated that he acted as starter for a fee of $25, knowing that accidents do happen in the course of racing,
but also knowing that the race participants had executed releases.
 In short, Wood relied upon the M.S.A. to obtain the release form from participants in terms sufficiently broad to
provide him with protection.
4. There was consideration moving from Wood to Dyck in exchange for benefits which Wood claims under the release
document.
 That consideration was the anticipation that the M.S.A. would provide officials who would conduct the races.
 This test suggests there was an agency relationship – MSA as an agent / Wood as principal
o Wood entitled to rely on release, even though he was not a party to the contract

Conclusion:
 Wood falls under the agency exception and is entitled to rely upon the release form, and cannot be held responsible in this action
against him by the plaintiff Dyck.

Dyck v MB Snowmobile Association (SCC)

1985, SCC
Facts:
Same.
Issue:
 Plaintiff arguing that the waiver is unfair.
o Does a waiver worded in the form of an indemnity, rather than a release, have a different result? NO.

Ratio:
 validated Court of Appeal ruling & ratio.
 The doctrine of fundamental breach is confined to the questions of construction, that is; whether certain contractual
arraignments are so manifestly unfair and unreasonable as to be unenforceable.

Analysis:
 Waiver was not unreasonable because racing is a dangerous sport, and Wood’s negligence was just the type contemplated by the
limitation clause.
 A release is clearly what the parties had in mind.
 There is reference to waiver of claim, which underline the intention of the parties.
 Further, Dyck clearly knew that snowmobiling was a dangerous sport and the harm was not unlikely.

Conclusion:
 Affirms MBCA decision from 1982; short judgment; adopts reasoning
 Agrees that waiver clause allowed Wood to escape liability
 SCC says document was clearly a release (waiver)
 Appeal dismissed

London Drugs Ltd v Kuehne & Nagel International Ltd

1992, SCC
 A narrow exception to the doctrine of privity.
 A good area to EXAMINE on!!!
 When reviewing this case – could probably just re-read facts & from para 74 on.

Facts:
 London Drugs (appellant) delivered a transformer to Kuehne & Nagel for storage.
o The transformer was purchased by its manufacturer, Federal Pioneer Limited.
o It was to be installed in a new warehouse facility being built by London Drugs.
 The contract of storage included the following limitation of liability clause:
o a. “The responsibility of a warehouseman in the absence of written provisions is the reasonable care and diligence
required by the law.” and;
o b. The warehouseman’s liability on any one package is limited to $40 unless the holder has declared in writing a
valuation in excess of $40 and paid the additional charge specified to cover warehouse liability.
 London Drugs chose not to obtain additional insurance from K & N, but arranged for its own all-risk coverage.
o At time of the contract, London Drugs knew that K&N’s employees would be responsible for moving and upkeeping the
transformer.
 Two employees of K&N, Brassart and Vanwinkel (respondents), caused damages in excess of $33K to the transformer.
o They had orders to load the transformer onto a truck which would deliver it to London Drugs new warehouse.
o They lifted it using forklifts instead of using the brackets attached at the top of the transformer.
 The safe practice would have been to use the brackets – they were negligent in their actions.
 Appellant sued for breach of contract and negligence against K&N, Federal Pioneer, and the 2 employees.
 Trial
o held that employees were personally liable for the full amount of damages.
o limited K&N’s liability to $40.
o dismissed claim against FP.
 Court of Appeal
o reduced employees’ liability to $40.
 Now at SCC
o London Drugs appealing against CoA ruling
o employees’ cross-appealing, arguing they should be completely free of liability.

Issue:
 To what extent can employees claim the benefit of their employer’s contractual limitation of liability clause?
o Should the doctrine of privity be relaxed?
 1. Did the employees, acting in the course of their employment and performing the very essence of their employer’s contractual
obligations with London Drugs, owe a duty of care to London Drugs? YES – as such:
o 2. Can the employees obtain the benefit of the limitation of liability clause contained in the contract of storage between
their employers and the appellant so as to limit their liability to $40? YES!
 As such – Court of Appeal’s ruling is upheld
o both appeal and cross-appeal dismissed.

Ratio:
 Already have exceptions for agency and trust – now a third exception:
o Employer’s “identity of interest”:
 Two-part principled exception test:
1. The employer’s limitation of liability clause must, either expressly or implicitly, extend its benefit to the employees
seeking to rely on it; AND
2. The employees seeking the benefit of the limitation of liability clause must have been acting in the course of their
employment AND must have been performing the very services provided for in the contract between their
employer and the customer when the loss occurred.
 Shariff say people always forget the second part of step two in the exam.
o understand distinction b/w this case and Greenwood.

Analysis: - Iacobucci – focuses on limitation of liability clause

 Trust nor agency were applicable to this case – created third exception.
o Employers “identity of interest”

 Part 1: (differentiates this case from Greenwood: Employees in Greenwood were strangers to the contract.)
o para 89.
o Parties intended that the benefit of the clause extended to K&N’s employees
o Employees are implied 3rd party beneficiaries
o Take all circumstances of case into account
 Nature of relationship
 Identity of interest (employer/employee share interest) with contractual obligations
 “Warehouseman” = “warehousemen”
o “Considering the nature of the relationship between employees and the their employer, the identity of interest with
respect to contractual obligations, the fact that the appellant knew that employees would be involved in performing the
contractual obligations, and the absences of a clear indication in the contract to the contrary, the term “warehouseMAN”
must be interpreted as meaning “warehouseMEN”.
 the respondents are not complete strangers to the limitation of liability clause.
 rather, they are implicit third party beneficiaries with respect to the clause.
 Part 2: Intention of employees was to move the transformer – the employees were acting in the course of employment when the
transformer toppled over.
o They were performing the very services provided for in the contract.

o Advisable to allow a 3rd party to obtain the benefit directly from the contract by resorting to a “contract analysis” (rather than, for
instance, a tort analysis)
o Employees were 3rd party beneficiaries to the limitation of liability clause
o Policy considerations:
 Commercial reality and common sense require reconsideration of privity
 Allocations and assumptions of risk (economically makes sense to let actors decide whether to get insurance or
not/allocate risk); practical realities of insurance coverage
 Would allow party to unilaterally modify contract by circumventing expressed intentions
 Also, exceptions have already developed and many jurisdictions have already reformed
o Difference between being able to benefit from contract, versus being able to insert oneself as a party to a contract after it has been
made.
o Jus quaesitum tertio = right vested in a third party (not created by traditional privity doctrine)
o Canadian General Electric case: strangers can’t claim benefits; doesn’t add relevant third-parties

o Iacobucci’s 4 observations about Greenwood Shopping Plaza (why this is distinguished from that previous case)
 1. That was a lease, rather than this, which is a contract for services (more direct part of the contract is involved here)
  2. The provisions of the contract which the employees were seeking to obtain a benefit from were not general limitation
of liability clauses – they were stipulations containing mutual undertakings by the lessor and the lessee with respect to
insurance of the premises and the granting of subrogation rights.
 3. There, little evidence to support that parties intended to confer benefit onto employees.
 4. There, parties seeking to obtain benefits were complete strangers and not 3rd party beneficiaries.

o Iacobucci chooses to relax doctrine of privity:

 Has happened in other jurisdictions – need for incremental change
 Major reforms to the doctrine should be taken on by legislature
 Where revision is major and its ramifications complex, courts should be cautious

o When the contract was signed, London Drugs knew that it contained a clause limiting the liability of the “warehouseman” to $40.
 It also knew that K&N employed many employees, and that these employees would be directly involved in the storing of
the transformer
 The appellant chose not to obtain additional insurance from K&N.
 When the damages occurred, the employees were acting in the course of their employment and were performing services
directly related to the contract of storage.

o A strict application of the doctrine of privity would allow London Drugs to sue K&N’s employees without the limitation of
liability clause.
o There are few principled reasons for upholding the doctrine of privity in this case
 OK to relax in cases like this one, where 3rd party beneficiary is relying on contractual provision as a defence in an action
brought by one of the contracting parties
 No concerns about double recovery/floodgates of litigation/reciprocity
 Little impact on the rights of contracting parties to rescind or vary their contracts
o What about consideration from employees?
 Identity of interest between employer and employee (By employer providing benefit, employees were providing it too)
 Term “warehouseman” was intended to cover employee
 Employees do not reasonably expect to be subject to unlimited liability for damages

o 2 requirements for new exception to privity; must be used as a shift for third parties
 1. The limitation of liability clause must, either expressly or impliedly, extend its benefit to the employee(s) seeking to
rely on it (i.e. not strangers to contract)
 2. Employees(s) seeking the benefit of the limitation of liability clause must have been acting in the course of their
employment and must have been performing the very services provided for in the contract between their employer and
the plaintiff (customer) when loss occurred
 (Performing the services also indicates consideration)
o This is an “incremental change,” similar to the 4 part test outlined by Lord Reid in Scruttons
o Permitting employees to use employers’ limitation of liability clauses as “shields” (limited right)
o (Traditional recognized exemptions of trust and agency still maintained)

o Application of new exception in the present case:

 Part 1 met (intention) – they were not strangers to contract
 Parties intended that benefit of clause extended to K&N’s employees
 Employees are implied 3rd party beneficiaries
 Take all circumstances of case into account
o Nature of relationship
o Identity of interest (employer/employee share interest) with contractual obligations
o “Warehouseman” = “warehousemen”
o Part 2 met (look at employees)
 Employees acting in the course of employment when transformer toppled over
 Performing the very services provided for in the contract
o Employees win – can rely on limitation of liability clause; owe LD $40 (rather than thousands!)

Conclusion:
 Court of Appeal’s ruling is upheld - employees can rely on limitation of liability clause;
o owe London Drugs $40 (rather than thousands!)
 Employees owed a duty to their employer’s customer.
 Employees fall under their employer’s limitation of liability clause.
 o Seems like the two go together; if employees are going to be part of their employer’s duty then it only makes sense that
they also have the benefit of the employer’s contract.

Fraser River Pile & Dredge Ltd v Can-Dive Services Ltd.

1999, SCC
 Understand both London Drugs AND Fraser for exam
o may need to use both – depending on whether about employer/employees or not.

 This case is an insurance contract – Fraser River agreed to waive its rights of subrogation.
What is a subrogation claim on insurance?
o In the event of an insurance claim, “subrogation” refers to the process by which your insurance company collects money
from the party at fault (or their insurance company) in order to recover funds you or your insurance company have
already paid, including your deductible.

Facts:
 The “Sceptre Squamish” sunk on November 16, 1990.
 It was owned by Fraser River (appellants), but under charter to Can-Dive (respondent).
o Can-Dive was responsible for towing the barge to and from work, and for maintaining the safety and condition of it.
o Barge sank on a stormy night.
 When the Sceptre Squamish sank, Fraser River was insured under an insurance policy.
o Fraser River recovered $1.1 million from the insurers.
 $1.1 million was the fixed amount stipulated by the insurance policy.
 Fraser River and insurers entered into a further agreement, setting out their joint intention to sue Can-Dive in negligence for the
sinking of the ship.
o Can-Dive held liable for damages at trial – amounting to $950K – less than what Fraser River got from their insurance!
 Can-Dive argued that the action was a subrogated action conducted by and for the sole benefit of the insurers.
o ie – Fraser River had received the specified $1.1 million from the insurance policy, which exceeded the actual value of
the loss.
 Can-Dive argued that accordingly, the insurers were precluded from proceeding against Can-Dive on the basis that the company
was included within the category of “Additional Insureds” as defined in the terms of the policy:
o It is agreed that this policy also covers the Insured, associated and affiliated companies of the Insured, be they owners
subsidiaries or interrelated companies and as bareboat charterers and/or charterers and/or sub-charterers and/or
operators and/or in whatever capacity.
o Notwithstanding anything contained in the Additional Insureds Clause above, it is hereby understood and agreed that
permission is hereby granted for these vessels to be chartered and the charterer to be considered an Additional Insured
hereunder.
 Trustee Clause:
o It is understood and agreed that the Named Insured who obtained this Policy did so on his own behalf and as agent for
the others insured hereby including those referred to by general description.
 Subrogation and Waiver of Subrogation Clause:
o It is agreed that the Insurers waive any right of subrogation against any charterers and/or operators.

 Can-Dive does not dispute its own negligence, but contends it cannot be held liable due to the subrogation clause.

Issue:
 Can we use principled exception in this case?
 Can the employees (third party beneficiaries) benefit from their employers’ limited liability clause?
o Is Can-Dive, a third party beneficiary under the insurance policy pursuant to the waiver of subrogation clause, entitled to
rely on that clause to defend against the insurer’s subrogated action on the basis of the principle exception to the privity
of contract doctrine established by the Court’s decision in London Drugs? - YES

Ratio:
 The London Drugs principled exception to the doctrine of privity applies, and thus waiver of subrogation (or other benefit) can be
extended to 3rd parties if the reframed two-part test is met: same test as London Drugs, STRONGER version of London Drugs

 Third party beneficiaries can be privy to a contractual benefit when:

1. the third party was intended to benefit from the contractual term, impliedly or expressly, and
2. when the third party beneficiary’s reliance on the waiver arose out of activities within the contemplation of the contract
and scope of the waiver.
 Opens up exceptions for third parties - not limited to employer/employee relationships.

 Both steps of the test from London Drugs relate to the intention of the parties.
o Both steps are critical and they’re cumulative
o If don’t meet first threshold, there’s no further analysis (on the exam too)
o But if there’s a chance your interpretation could be wrong, continue to the second step

Analysis:
 both branches of the test met.
 #2 para 39

 Necessary to consider the legal status of waiver of subrogation clause in light of London Drugs
 Not SCC’s intention in London Drugs to limit application of principled approach to situations involving only employer-employee
relationship (refers to his decision in London Drugs)
 Reframed the two-part test in London Drugs:
o 1. Did the parties to the contract intend to extend the benefit in question to the third party seeking to rely on the
contractual provision?
o 2. Are the activities performed by the third party seeking to rely on the contractual provision the very activities
contemplated as coming within the scope of the contract in general, or the provision in particular, again as determined by
reference to the intentions of the parties?
o 3. Policy Reasons

 1. Intention of the Parties:

o Yes, parties intended to extend waiver of subrogation clause to charterers
 Express reference to “charterers” in subrogation clause
 In London Drugs, only implicit reference to employees
o (This is true regardless of Fraser River’s new agreement with insured; third party right had crystalized, and third party
itself would have to consent to any further alterations in this context)
 2. Are the Third Party Beneficiaries Performing the Activities Contemplated in the Contract?: Yes
o para 39: The relevant activities arose in the context of the relationship of Can-Dive to Fraser River as a charterer, the
very activity anticipated in the policy pursuant to the waiver of subrogation clause.
 (Not a boat rented to a movie company to film the explosion of a boat)

 3. Policy Reasons
o Commercial reality – sophisticated commercial parties are allocating risk
o Incremental development to improve the law

Conclusion:
 As a third-party beneficiary to the policy, Can-Dive is entitled to rely on the waiver of subrogation clause as a shield.

PART V – Vitiating Factors

 Shariff provided us with some legislation, and the “bars to rescission” outline.
 What she is providing comes from Mcanus.
 Discussing big picture of contracts:
 Formal elements, certainty, intention.
 Consideration: what promises should be enforced?
o only contracts that are actually bargains should be enforced.
 past-consideration doesn’t count etc.
o strict necessity of consideration is not followed in certain cases.
o can use estoppel
 Doctrine of Privity is a corollary of Consideration.
o must be a party to sue.
Now Volume II:
Vitiating Factors:
 Setting aside contracts which may otherwise be deemed to be valid
o Court is looking at the factors of a contract and asks whether it should be enforced if it is unfair.
Chapter 14 – Misrepresentation:
Misrepresentation
 Four situations that create difficulty for the courts when determining whether or not to enforce a contract:
1. Misrepresentation: when a bargain is introduced by misstatements.
2. Mistake: when one or both of the parties is under a serious mistake.
3. Pressure: court considers how much pressure in marketplace is acceptable.
4. Unfairness: the terms seem quite uneven; court considers whether to police such arrangements.

 A misrepresentation is a pre-contractual statement that is wrong.

o not talking about terms of the contract – talking about misstatements prior to entering the contract.
o those misstatements may be important, or not
 looking for material misrepresentations
o The statements are false, they are factually material to the party receiving them (rely on them), and induce that party to
enter into the contract.

3 fundamental elements to misrepresentation:

1. Must be a statement of fact that is false; can’t be an opinion, puffs, or sales talk
2. Must be material; i.e. relates to a matter that would be reasonably considered relevant to the decision to enter into the contract
3. Must induce other party to enter into the agreement

Can silence be a misrepresentation?

 Prima facie, when parties are negotiating, they’re not under an obligation to disclose facts, so silence/ nondisclosure typically is
not a misrepresentation
 Exceptions:
o Fiduciary relationships: one party places trust and confidence in other party, expecting that party to act in its interests;
power imbalance exists- e.g. lawyer-client, teacher- student, doctor-patient
o Contracts uberrimae fides: contracts requiring utmost good faith- e.g. contract between insurance companies and policy
holders: holders need to disclose all elements of their health
o Act of concealment: when conduct considered to be actively concealing the truth – e.g. a crack in the foundation of your
house that you try to conceal from buyer with matching bricks, considered on a spectrum
o Other: where courts have also found a duty to disclose- e.g. tendering contracts: government has to be forthcoming
about job requirements

If the court chooses to provide relief, it has two options:

 Relief: (from enforceability) court can declare the contract either 1. void ab initio (void) or 2. voidable
 1. Void = void ab initio – stems from common law
o renders a contract null from the start– no contract
o Puts parties back to status quo ante (SQA) – parties are restored to their original position prior to the contract.
o Harsh remedy – draconian
o Creates serious problems for third parties
 2. Voidable – stems from equity – more equitable form of relief because it gives the remedy of rescission
o If something is declared voidable, it gives the remedy of rescission.
 it is capable of becoming void, but only at the option of the party.
 the agreement is considered enforceable until a rescission is achieved.
o If you achieve rescission, it will be the same result as voiding the contract – sets aside the contract.
o Rescission is a self-executing remedy.
 the consequence of rescission is the same as void
 it will take you back to the status quo ante
o Can only achieve rescission if the other side actually agrees to the rescission.
 If the other side does not agree and then sues you for breach of contract, you can raise the issue of
rescission as a defence.
o The court will then uphold rescission if exercised properly.

 Rescission is equitable relief – seeks justice for parties.

 Can take a pre-contractual statement that is false and make it a term of the contract and then sue for/ argue breach of contract and
get damages.
 Statutory remedies – legislation has statutory remedies
 o Sale of Goods Act – description of goods
 If one is induced to enter an agreement on the basis of a false statement of fact, might be able to sue for the tort of deceit.
o Previously was the only tort for misrepresentation – misstatement had to be at the level of fraud.
o Also, torts related to negligent misstatements – compensation can be much broader than under contract law.

Bars to Rescission: - Shariff’s notes: - only applies to misrepresentation.

1. Rescission will not be available IF it is NOT POSSIBLE to effect the mutual restoration of benefits conferred by the parties to
each other.
 restitution is not possible – ie perishable goods.
i. ie cannot return old bananas to their previous condition – so you cannot return parties to status quo ante.
2. Affirmation – when a party elects to affirm the transaction and treat the contract as void.
3. Reasonable time – after too much time has passed, it will be too late to rescind.
 an unreasonable delay in bringing a claim for rescission will be a defence to a claim for rescission.
4. Third Party Rights – Until such time as rescission occurs, title in an asset might pass to a bona fide purchaser for value without
notice of the underlying problem with the title.
 Once a third party has relied or becomes involved, you cannot rescind.
5. Execution – Performance of a contract has been held to constitute a bar to rescission in a variety of contexts:
 including real estate deals, sales of securities, and sales of goods.

 Bars to rescission all seem to touch on cases where third parties are involved.
 it is NOT a damages remedy.
 If you achieve rescission, you cannot get damages – if a contract never exists, damages cannot flow from it.
 If it is a misrepresentation, the contract will be voidable – can get the remedy of rescission.

 Shariff provided us with some legislation

 The Consumer Protection Act & the Business Practices Act
o can help in situations from misrepresentations.
o They capture certain misrepresentations not provided for in common law.
 ie – innocent misrepresentation may not be covered by common law, but are by statute.

Derry v Peek
1889, House of Lords
Leading case on the tort of deceit
Facts:
 Derry – Defendants
 Peek – Plaintiff

 By statute, the Plymouth, Devonport and District Tramways Company was authorized to make certain tramways.
o Generally, the carriages used on the tramways were to be powered by horse.
o Or, with the consent of the Board of Trade, powered by steam or any other mechanical power.
 Defendants were a tramway company.
 Defendants released a prospectus to induce people to buy shares:
o “by the special Act of Parliament obtained, the company has the right to use steam or mechanical motive power,
instead of horses, and it is fully expected that by means of this a considerable savings will result in the working
expenses of the line as compared with other tramways worked by horses.”
 Peek (plaintiff) bought shares in the Company
o Relied upon representations, believed that the company had an absolute right to use steam or mechanical power.
 Board of Trade refused to consent to use of steam except on certain portions of the tramways.
 Plaintiff brought action of deceit against company: claimed damages for fraudulent misrepresentation.

 Trial – dismissed action

 Court of Appeal – reversed decision; defendants were liable.

Issue:
 Was the company guilty of fraudulent misrepresentation? – NO.

Ratio:
1. Where rescission is claimed, it is only necessary to prove that there is misrepresentation of a material fact, however honestly it has
been made.
2. However, no action in deceit is supportable, (from which damages would flow) unless you can show fraud.
3. Fraud is proved when it is shown that a false representation has been made:
i. knowingly,
ii. without belief in its truth, or
iii. recklessly, careless whether it is true or false.
 Whether a misrepresentation is made fraudulently or not is determined by an objective test:
o Under the circumstances, would a reasonable person believe the statement he was making to be true?

Analysis:
 An action of deceit is a common law action.
 An action of deceit differs from an action brought to obtain rescission of a contract on the ground of misrepresentation of a
material fact.
o Where rescission is claimed:
 You only need to prove that there was a misrepresentation.
 Then, however honestly it may have been made, the contract, having been obtained by
misrepresentation, cannot stand.
o In an action of deceit:
 It is not enough to establish misrepresentation alone.
 there must be proof of fraud.

 Defendant raised the defense of honest belief: that they truly believed in the truth of what they said in the prospectus
 A man who forms an honest belief without care may be blameworthy but he is not fraudulent (this is the case here!!!)

 Fraud elements – para 19

1. In order to sustain an action for deceit, there must be proof of fraud.
2. Fraud is proved when it is shown that a false representation has been made:
1. Knowingly,
2. Without belief in its truth, or
3. Recklessly, careless whether it be true or false
 To prevent a false statement being fraudulent, there must always be an honest belief in its truth.
3. If fraud is proved, the motive of the guilty person is immaterial
o it matters not that there was no intention to cheat or injure the person to whom the statement was made.

 In this case, the Company and its directors might well have believed what was stated in the prospectus and consider that the
representation was substantially true.
o They are not guilty of deceit (can use reasonable man standard to ascertain belief)

Conclusion:
 Company was not guilty of fraudulent misrepresentation.
o Court of Appeal decision reversed.

Smith v Land & House Property Corp

1884, Court of Appeal
Trying to determine when mere puffery becomes something more that has a weight of material fact.
Facts:
 Case involved sale of hotel by auction
 Smith – Vendor; Plaintiff
 Land & House – Purchaser; Defendant
 Smith offered a hotel for sale, stating it was currently leased to Fleck
o Smith called Fleck a “most desirable tenant”.
 On that basis, Land & House agreed to buy the hotel.
o Shortly after, Fleck went into bankruptcy. (ie – not a desirable tenant).
 had a history of late rent payments.
o Land & House refused to complete the sale
 Land & House defended Smith's suit for specific performance on the basis that the description of Fleck's virtues was grounds for
misrepresentation.
o Plaintiff’s argued that the reference to Fleck was a mere expression of opinion and not a statement of fact.

Issue:
 Was the vendor liable for misrepresentation?
o Was their representation a mere statement of opinion, or a statement of fact?

Ratio:
 A representation of a material fact that can give rise to a misrepresentation can be implicit in an opinion, if the opinion is given by
a party who would have superior or special knowledge regarding that information.

 (Opposite effect is…Where the facts are equally well known to both parties, what one of them says to the other can be nothing but
an expression of opinion.)

Analysis:
 In a case where the facts are equally well known to both parties, what one of them says to the other can be nothing but an
expression of opinion.
 But – if the facts are not equally known to both sides, then a statement of opinion by the one who knows the facts best involves a
statement of material fact, for he impliedly states that he knows facts which justify his opinion.

 A landlord knows the relations between himself and his tenant – other persons do not know them at all or do not know them
equally well.
o Therefore, the facts the landlord presents are a reasonable opinion of the tenant.
 In this case, the vendors said that the tenant is “most desirable”
o It is prima facie that the vendors know ‘everything’ and the purchasers know ‘nothing’ regarding the tenant.

 The statement provided here about the tenant’s past “amounts at least to an assertion that nothing has occurred in the relations
between the landlords and the tenant which can be considered to make the tenant an unsatisfactory one.”
o however, the tenant had a history of paying his rent late, in small portions, and under pressure from the landlord.
o “In my opinion a tenant who has paid his last quarter’s rent by driblets under pressure must be regarded as an undesirable
tenant.”
 Land & House entered the contract under the impression that Fleck was a “desirable tenant”.
o This was a case of misrepresentation, and L&H wins.

Conclusion:
 Sale was rescinded.
o Opinion was misleading based on special knowledge; no specific performance allowed.

Ennis v Klassen (majority)

1990, MBCA
Facts:
 Case involved sale of a BMW 728.
 Ennis – plaintiff; purchaser
 Klassen – defendant, seller
 Klassen was the owner of a BMW 728. (thought it was a BMW 733 and advertised it for sale as such)
o The vehicle was imported illegally into Canada by Klassen’s predecessor to the vehicle.
o That individual changed the numbers on the back of the car to that of a BMW 733
 The BMW 728 does not conform to Canadian standards, but the BMW 733 does.

 Klassen bought the car in November 1986.

o parts had to be ordered from Germany
o he soon took it to a BMW dealer for repair, who advised him that it was a 728.
 but the evidence as to what was said was not precise. The trial judge accepted Klassen’s version and concluded
that Klassen had been told that the vehicle was referred to a 728 in Europe, but might be a 733 in Canada.
 thus; not fraud
 After the repair work was done, he tried to get the dealer to purchase the BMW.
o Dealer declined b/c the vehicle had been illegally imported, and had concerns about whether it was insurable as a 728
model.
 So Klassen tried to sell it himself.
o he advertised it as a 733i in Auto Trader
o Ennis noticed the BMW did not have an ‘i’ after the number 733
 Klassen told him it stood for fuel injection, but this car did not have it.
o Klassen told him it was a European model
 o Ennis inspected the car and test drove it
 But - plaintiff was not told the model was a 728 rather than a 733.
o was not told the vehicle did not comply with Canadian safety standards
o Did not know of the difference in engine size and horsepower
o did not know that parts may need to be brought from Germany
o Did not know that these factors would limit its resale value
 August 18 – Ennis purchased the car.
o Bill of sale described the car as a 733.
o On August 22, Ennis brought the car to the BMW dealer, who advised him it was a 728 rather than a 733.
 Ennis tried to rescind the contract, but Klassen would not allow it.
o Ennis drove the car 250 miles in the few days he had it, before he learned it was a 728.
 he then parked it in his driveway where it has remained.

 Ennis claims rescission on the basis of a fraudulent misrepresentation inducing the plaintiff to enter into the contract.
o Trial judge dismissed claim
o Now at Court of Appeal – no fraud, but there is misrepresentation, so question becomes…

Issue:
1. Whether the misrepresentation was of a character and made in circumstances to support the plaintiff’s claim for rescission.
2. If rescission is appropriate, is that remedy lost once the contract has been executed and delivery to the purchaser completed?

Ratio:
1. Misrepresentation must be a statement of fact that is false, substantial or material in nature, and must have constituted an
inducement to enter into a contract.
 cannot be a statement of intention or promises as to the future, “sales talk”, puffs, or opinions.
2. If a misrepresentation is fundamental or substantial such that it goes to the root of the contract, an inspection may not be enough
to dislodge the misrepresentation.
 If the inspection does not dislodge the misrepresentation, the representor must correct the initial misrepresentation.
3. In the absence of fraud, the only remedy available for a misrepresentation is rescission, not damages.
 but the court might be able to award some amount for loss incurred as a result of the misrepresentation.
4. Innocent misrepresentation will give rise to a rescission remedy even if the sale and delivery of a chattel has taken place, as long
as the right to rescind is exercised with reasonable promptitude.
 the test for reasonable promptitude “is a question of fact to be determined according to the circumstances of each
individual case”.

More notes for point 2:

o Test: is it a sale by description or a sale by inspection? But what if it’s both?
o Ask: would the misrepresentation induce a reasonable person to enter into the contract?
o Test pivots around whether misrepresentation dislodged by inspection.
o Must examine on the facts of each individual case: consider length of inspection, dialogue between parties, representations, etc.

Analysis:
case of innocent misrepresentation.

 Issue 1. May the purchaser rescind?

o Purchaser neither knew about nor accepted misrepresentation.
o Klassen (Vendor) induced Ennis (Purchaser) to enter into a contract to buy a car significantly different from what was
thought.
o The misrepresentation of the car was held throughout the inspection of the car.
 Vendor left the misrepresentation substantially uncontradicted.
o The law is clear that where there has been an innocent rather than a fraudulent misrepresentation, the plaintiff may still
be entitled to rescission
 In the absence of fraud, however, the misrepresentation is innocent and the plaintiff is not entitled to additional
damages.
o Innocent misrepresentation must still be fundamental or substantial in nature
o In the present case:
 misrepresentation was of a fundamental nature.
 inspection was not enough to overthrow this misrepresentation.
 misrepresentation does go to the root of contract.
 Ennis was led to believe that he was buying a BMW model 733 at a fair retail price
  Ennis received nothing of the kind
 Plaintiff may rescind

 Issue 2. Is the right to rescind for innocent misrepresentation lost where the contract is executed and delivery completed?
o Execution of the contract is not always a bar to rescission provided that the right to rescind is exercised with reasonable
promptitude.
 As soon as the contract is executed, you have time to rescind – must be done in a reasonable time.
o Where contract involves sale of goods, the purchaser retains the right to rescind so long as exercised with “reasonable
promptitude” after execution
 Reasonable time frame is a question of fact according to circumstances of case.
 (After all, will be limited opportunity to determine whether representations true or not – cites Denning cases
that say it is fair to rescind within reasonable time after execution)
o Common law provides no remedy for innocent misrepresentation.
o Equity, however, supplied the remedy of rescission, but not damages, where the circumstances are appropriate
 (here, court gives $ back + interest)
o In this case, the purchaser acted within a reasonable time, and did not forfeit his right to rescind by adopting the contract
after learning of the misrepresentation
 Also: purchaser immediately stopped using and took immediate steps towards rescission once aware of the
misrepresentation (even though he had paid the tax + registration)
o no affirmation
o “Denning position” is a reasonable application of equitable legal principles
 Equitable remedy (rescission) available in spite of execution

Conclusion:
 Allows appeal and grants the order of rescission.
o This was misrepresentation; purchaser is allowed to rescind contract (no damages, but got his money back).

Chapter 15 – Mistake
 Deals with past or present circumstances; not future.
 Mistake is the only vitiating factor that immediately makes a contract void (Void ab initio)
 It is a narrow doctrine applied rigidly and strictly because the court does not want to introduce uncertainty to the markets; especial
in respect to the third parties that may innocently become involved.

Five categories of mistake:

 Common Mistake – Both parties have made the same mistake;
o they share a common mistake around a fundamental fact.
 Mutual Mistake – Both parties have made a mistake, but the mistakes are different.
o Each are mistaken; but have made different mistakes.
 Unilateral Mistake – Only one party is operating under a mistake.
o sometimes unilateral mistake can set aside a contract (Smith & Hughes – old oats)
o If one party has made a mistake, and the other party is aware of this – if the mistake is a mistake of fact, it will not set
aside the contract.
 But if they are aware that the other side is making a mistake regarding terms, it will set aside the contract.
 Mistaken Identity (type of unilateral mistake)– where the party has a mistaken understanding of who they are contracting with.
 Non est factum – (type of unilateral mistake) mistakenly signed documents.
o high threshold to prove this – nature of contract must be completely different than your understanding.

A. Common Mistake
McRae v Commonwealth Disposals Commission
1951, High Court of Australia
Facts:
 McRae – plaintiffs – brothers
 Commonwealth Disposals Commission – defendants
o CDC put an ad in the paper to sell an oil tanker – but it was only a rumour that the oil tanker even existed.
 CDC put an ad in the paper that read:
 o “Tenders are invited to the purchase of an OIL TANKER lying on the Jourmound Reef which is appx 100 miles north of
Samurai. The vessel is said to contain oil. Offers to purchase the vessel and its contents should be sent to CDC.”
 The McRae brothers put in a tender of £285 for the tanker and its contents.
o CDC accepted their offer.
 No reef anywhere near the locality known as “Jourmaund Reef”.
o There is an island or reef called “Jomard Island,” but it is 170 miles southeast of Samurai.
 So plaintiffs asked CDC for longitude and latitude of “Jourmaund Reef,” and CDC gave them one.
o There was no oil tanker near the specified location
 there was an “oil barge” 11 miles east of the specified location.
 An “oil tanker” is a self-propelled, ocean going vessel.
o an “oil barge” is merely a floating repository for oil.
 It turns out that the only foundation CDC had about having a tanker to sell was a rumour.
o They had no hard evidence of a tanker’s existence.
 Unfortunately, the plaintiffs took this information seriously.
o P set off on expensive salvage operation only to discover they had bought a non-existent tanker.
 P sues for breach of contract, negligence, and deceit

 plaintiffs are appealing that they were not awarded enough damages.
o were paid some money for deceit.

Issue:
 Can P recover for breach of contract?
 Does res extincta void the contract? (defendant’s argument)

Ratio:
 Common mistake and Res Extincta: a contract of sale for goods that cease to exist unbeknownst to the parties at the time of
contracting might void the contract
o But whether a common mistake makes a contract void or not is dependent on the circumstances and construction of the
contract.
 If one party makes an assertion of assumption recklessly or without reasonable ground and deliberately induces the other party to
enter the contract on the basis of that assertion or assumption, they are not then allowed to say there is no contract on the basis of
a common mistake.

 NB - In a contract for sale, it is implied that the item exists, and if the item does not exist, then it is a breach in the contract.

 Notes
 plaintiff not interested in suing for misrepresentation or mistake – b/c it would only return their $285 dollars – only return them to
their original position prior to the contract.
o want, instead, to be compensated for a breach of contract – be compensated for their ventures.
 Defendant argues res extincta – to get out of the contract – to say the contract did not exist.
 Defendant loses
 Analysis:
o examines Couturier v Hastie case.
 does not apply in case at bar, b/c the goods here never existed in the first place.
o there was an implied condition that the tanker existed; that implied condition was breached, so damages are owed to the
plaintiff.

Analysis:
 The CDC tried arguing saying there was no contract through res extincta.
 The plaintiffs argued that there was a contract and it was breached.
o They argue there was deceit and negligence and so they want the contract enforced with damages awarded.

 Common mistake of res extincta will not void the contract because:
o The goods never existed, and “extincta” suggests goods disappeared (i.e. once existed);
o The seller implicitly or explicitly suggested that the good existed
o This mistake was induced by the seller recklessly and without reasonable grounds
 Furthermore, this was not a common mistake because the assumptions of the parties were not the same
 o Defendant assumed unreasonably that tanker existed, and the plaintiffs assumed that assertions of the first party were
actually true.

 The mistake the defendants made was induced by their own negligent behaviour and the buyers acted on this mistake.
o the defendant’s must have realized that the plaintiff would act on the implied condition that the tanker existed.
 There was a contract, and the commission contracted that a tanker existed in the position specified.
o Since there was no such tanker, there has been a breach of contract, and the plaintiffs are entitled to damages for that
breach.

Conclusion:
 Appeal allowed – judgment for the plaintiff.
o not a common mistake (as the defendant’s tried to argue)
 Additional damages were awarded (breach of contract) because the defendants could not rescind the contract.
o It was due to their own negligence.

Bell v Lever Bros

1932, House of Lords
Facts:
 Bell – (and Snelling) appellants
 Lever Bros – defendant – owned the Niger Company
o a West African trading company
 Company hired Bell and Snelling to improve the company’s results
 After their appointment, company did better, and they entered a new contract, giving appellants commission.
 Then the company merged with another company, and Bell & Snelling were bought out on happy terms (large sums paid out)
 After appellants had left, the Levers discovered that appellants had been in a pooling agreement with other companies
o basically taking secret advantage of their employers (INSIDER TRADING)
 had been lowering the prices against the pooling agreement and pocketing money.
 Levers wanted the buy-out money back.
o - i.e., if they had known the facts, the Levers would have gotten rid of Bell and Snelling for nothing. – would not have
paid them severance.
 they claim they had a right to cancel the employment contract without the buyout.
 Defendants claimed for a return of the money under mistake of fact
o (i.e. we didn’t know you were cheating us)

Issue:
 Could their agreement be avoided by reason of the failure of Mr. Bell to disclose is misconduct in regard to the cocoa dealings?
 can mistake re: their bad dealing void the contract?

Ratio:
 Just because something could have been done in a different way, does not make it a common mistake.
1. A common mistake must be fundamentally wrong with respect to the quality of the subject matter of the contract, such that it
turns the agreement into something essentially different; and
2. it must be made by both parties
o i.e. ask: does the mistake turn the agreement into something essentially different from that for which the parties
bargained?
o and is the mistake held by both parties?
 Very rare that court will find such a fundamental common mistake that it will set aside the agreement

Analysis:
 Talking about whether contract was different in kind: here bargained for and got a termination agreement (i.e. the same kind)

Three types of common mistake cases:

1. Mistake as to the existence of the goods (Res extincta) (see McRae).
 Where both parties think the item exists but it does not.
2. Mistake as to who has title of the goods (Res sua)
 (both the seller and buyers think the seller has the title).
3. Fundamental mistake as to the nature and quality of the thing contracted.
  Mistake as to quality of the thing contracted for raises more difficult questions. In such a case a mistake will not
affect assent unless it is the mistake of both parties, and is as to the existence of some quality which makes the thing
without the quality essentially different from the thing as it was believed to be.
 This third category was added in this case but the court said this case does not fall under here. We are not given and
example of what falls in this category.

 This case is authority for stating the three categories where contracts may be voided due to mistake, but this case does not fall
under any of these. They argued it under common mistake of the quality of the thing being contracted for but it failed.

 The mistake did not cause Lever to terminate Bell’s employment (severance pay).
o Lever wants to void the contract b/c Bell screwed them, but it was not a case of common mistake.

Conclusion:
 no, Ds have to go by the contract they made; this type of mistake cannot void the contract because it is not fundamental to the
contract.
 The charges were dropped and the plaintiffs were able to keep their buyout money.

*Great Peace Shipping Ltd v Tsavliris Salvage (International Ltd)

o en route from Brazil to China, and the ship is sinking.
o enter agreement for Great Peace to alter their course to come support until tugs could approach
o both mistaken about distance between the ships.
o end up getting a closer ship to come to their aid, without cancelling contract with Great Peace.
o Decision – high threshold for making something “essentially different.”
*Miller Paving Ltd v B. Gottardo Construction Ltd.
o If you are responsible for the mistake, you cannot rely on common mistake as a defence.
o “If the contract identifies that one party is to bear the risk of a particular mistake, that party cannot rely on the common mistake
doctrine to set it aside.”

B. Mutual Mistake:
 Occurs when the same error has motivated the parties to enter into the contract.
 Two parties interpret contract in different ways – they are not of the same mind.
o This happens when there is a term they both think they understand, but they actually ascribe different meaning to it.

Raffles v Wichelhaus
1864, Ex. Ch.
Facts:
 Plaintiff and defendant entered into contract
 Plaintiff entered into a contract with the defendant to sell him 125 bales of cotton from Bombay.
o Cotton to arrive in Liverpool on the ship Peerless.
 the time of sale was not discussed
 Two British ships named Peerless arriving in Liverpool from Bombay.
o One departing in October
o Another departing in December
 Defendant thought the contract was for the cotton on the October ship.
o Price was declining - happy coincidence for defendant - wanted to walk away from contract and buy from someone else.
 Plaintiff thought the contract was for the cotton on the December ship.
 When December Peerless arrived, plaintiff tried to deliver cotton to the defendant.
o the defendant repudiated the agreement.
 The plaintiff sued for breach of contract.

Issue:
 Whether the purchaser should be bound by the agreement to buy the cotton of the claimant's Peerless
 Was the contract void for mutual mistake?

Ratio:
In a mutual mistake, a contract will be void if:
 the offer contains a latent ambiguity which can be reasonably interpreted in more than one way; AND
 Each party interprets the latent ambiguity in different, contradictory ways.
 o Latent ambiguity: only realized this was an ambiguity later when they ran into confusion.
 i.e. Need latent ambiguity + more than one reasonable interpretation of contract + actually varied
interpretations of contract.

 Where both parties have operated under different mistaken assumptions, and impossible to tell which assumption is the more
reasonable one, the contract will not be enforced (considered void)

o Difference between mutual mistake and certainty – mm – latent ambiguity; had intention, only unclear later.
o uncertainty – could have been vague during formation of contract, lacking intention.

Analysis:
 The plaintiff said it was a contract for cotton so it does not matter which ship delivered it.
 The defendant said the ship was an important part of the contract.

 The contract is ambiguous - there is nothing in the contract to show that any particular ship called Peerless was meant (both
reasonable)
 No consensus ad idem (meeting of minds) - no binding contract
 Heavily relies on balancing of objective factors

Conclusion:
 Defendant wins - contract void.
o no meeting of the minds.
o impossible to determine which interpretation was more reasonable.

Chapter 16 – Unilateral Mistake

 In general, doctrine of caveat emptor applies:
o Seller is under no obligation to disabuse a buyer from making mistaken assessment.
o a unilateral mistake by buyer, whether or not unknown to seller, won’t set aside k
o Seller generally has no obligation to disclose facts that might be relevant from buyer’s POV
 BUT an obligation to disclose arises when there is:
o Fiduciary relationship
o Contract of insurance
o Defects in real estate when there has been active concealment
 Lack of consensus ad idem could also potentially void contract (?)
 if evidence shows seller knows buyer is making a mistake as to the terms, court won’t be very sympathetic

*Stambovsky v Ackley – 1991, NYSC

Ratios:
 A contract can be void from a buyer’s unilateral mistake as to fact where the condition has been created by the seller and it
1. materially impairs the value of the contact; AND
2. is peculiarly within the knowledge of the seller or unlikely to be discovered by a prudent purchaser exercising due care
with respect to the subject transaction.
 This is an equitable judgment: Non-disclosure is a basis for rescission as a matter of equity

Smith v Hughes
1871, LR Queen’s Bench
Facts:
 Smith: Farmer, plaintiff, had new winter oats for sale.
 Hughes: Racehorse trainer, defendant, wanted old oats.
 Plaintiff said he had some good oats to sell.
o Defendant said he was always a buyer of good oats.
 Plaintiff sent defendant a sample of the oats
o Defendant offered 35s/quarter for the oats.
 They come to an agreement for the oats.
 Plaintiff delivers oats
o Defendant sees they are new oats, and that he only purchases old oats.
 Defendant rejected the oats – wants to return them – Plaintiff won’t take them back.
 o (he argued that in their original conversation, plaintiff said he had some “good old oats” for sale.
 Plaintiff rejects this.
 Plaintiff has never heard of horse trainers only accepting old oats.

 Jury at trial found for the defendant – question was whether or not the jury was charged correctly.

Issue:
 Generally, will a contract be enforceable where, during negotiations, one party is mistaken with respect to the meaning of a term
of the contract and the other party is aware of that mistake?
o Specifically, was the trainer mistaken as to the term of the contract here?
 Can a unilateral mistake of the buyer void the contract? NO.

Ratio:
 Caveat emptor: no obligation for the seller to say anything unless they have done something to induce the buyer to buy under a
mistaken misrepresentation.
 A contract will only be void for a buyer’s unilateral mistake if it involves:
o a mistake as to terms and not just a mistake of fact; AND
o the seller is aware that the buyer has made a mistake as to the terms.
Put another way:
 Where there is a unilateral mistake as to the identity of the subject matter, the contract will only be void if:
1. the seller knew the buyer was mistaken; AND
2. the seller knew that the buyer believed the seller to be contracting for goods as the buyer believed them to be.

Note – FOUR POSSIBLE MISTAKE SCENARIOS

Buyer Seller Outcome

Buyer made a mistake of fact: age Unknown to seller Valid contract

Buyer made a mistake of fact: age Known to seller Valid contract

Buyer made a mistake of fact – age AND Unknown to seller Valid contract
mistake about terms of contract (believed
seller is guaranteeing)

Buyer made a mistake of fact – age AND Known to seller Contract VOID
mistake about terms of contract (believed
seller is guaranteeing)

Analysis:
 While the seller might have believed the buyer thought he was buying old oats, the seller did not believe that the buyer thought
the seller was selling old oats.

 Hughes argues contract void due to his unilateral mistake

o Unilateral contract can void contract if it’s a mistake as to terms and not a mistake as to fact.
 Here, mistake doesn’t void contract because, although Smith might have a sense that Hughes thinks these are old oats, Smith
doesn’t believe Hughes is contracting to sell old oats.
o IE there may have been a mistake as to fact, but there was no mistake as to terms
 Starting point: caveat emptor
o Seller is under no obligation to disabuse a buyer from making mistaken assessment.
 But seller can come under a duty to disclose if mistake is about the terms of the contract (not just a mistake of fact):
o IE goes to what contractually warrantying/guaranteeing

 Example – looking at something other than oats.

 Shariff tried to buy a new phone case:
o S is standing in front of phone cases holding an iPhone 8.
 S is standing in front of iPhone 10 cases, did not realize she was not standing in front of iPhone 8 cases.
 S picks up wrong sized case
  unilateral mistake of fact
o The seller is under no obligation to disabuse her of her mistake of fact. (don’t need to tell her it’s the wrong phone case)
o BUT – if the seller becomes aware that Shariff believes the seller is representing the iPhone 10 case as an iPhone 8 case,
the seller has an obligation to inform Shariff of the mistake of terms.
 B/c this would be a mistake of terms.

Conclusion:
 Appeal is allowed and a new trial is granted to find out if the plaintiff knew that trainers only get old oats.
o jury was charged in a confusing way, and should not have found for the defendant.
 The outcome of this case is less relevant for our purposes – we are just trying to figure out the rule for unilateral contracts and
what would void a unilateral contract.

*Hartog v Colin & Shields

Ratio: A unilateral mistake by the Offeror will void a contract if the mistake is in the offer (ie a mistake as to terms) and where it is
reasonable in the circumstances to assume the Offeree knew of the Offeror’s error.

Chapter 17 – Mistaken Identity

o Lewis v Averay
o Lewis selling his car – pretends to be a famous actor.
o When there is reliance by an innocent third party and a contract is made in-person, unilateral mistake as to identity is
only going to render the contract voidable.

Chapter 18 – Non Est Factum

 A plea that says, “my signature is not my act”.
o there is a disconnect between what the person is actually signing and what they think they are signing.
 A common law doctrine which means the deed is not mine (or – I did not do that).
 When one party claims they should not be held liable under a contract in which they signed.
Only minimal prior notes from Niki for these two cases!
Saunders v Anglia Building Society
1971, House of Lords
Facts:
 Old lady wanted out of her contract and provided a defence of non est factum.
 Contends the fact of signing should not bind her to the effects of the contract.

Issue:
 Does the defence of non est factum apply? No.

Ratio:
 Non est factum will only be applied in fundamental mistake where the element of consent is totally lacking.
 Negligence is a bar to a plea of non est factum

When is a plea of non est factum admissible?

 A document should be held to be void for non est factum only when the element of consent to it is totally lacking.
o ie when the transaction which the document purports to effect is essentially different in substance or in kind from the
transaction intended.”
 use other expressions for where the contract is “radically” or “fundamentally” different in substance than what
was intended.
 The onus of proof rests on the party claiming non est factum.
o ie the onus is not on the third party to prove the contrary.
 Negligence is a bar to a plea of non est factum

o There are three added amplifications of the above general test:

i. When there is Fraud
 A signature obtained by fraud is invalid on the ground that the mind of the signer did not accompany the
signature – in other words; he never intended to sign, and therefore in contemplation of law, never did sign the
contract to which his name is appended.
 ii. A man cannot escape from the consequences, as regards innocent third parties, of signing a document if, being a man of
ordinary education and competence, he chooses to sign it without informing himself of its purport and effect.
iii. Where the signer has been careless in not taking ordinary precautions against being deceived:
 A person who signs a document has a responsibility to take care what he signs, which, if neglected, prevents
him from denying his liability under the document according to its tenor.
o The onus of proof rests with him to prove he acted carefully
 it is not on the third party to prove the contrary.

Analysis:
 The law sometimes provides relief to those wishing to get out of a contract they signed.
 The law does so with conflicting objectives, trying to balance between:
o providing relief to a signer whose consent is genuinely lacking; and
o protection to innocent third parties who have acted on an apparently regular and properly executed document.

 The plea of non est factum has a long history:

o in medieval days, illiterate people were allowed to plea non est factum
 if successful in their plea, the contract was not their contract.

 Majority judge – “in the present age, such a person should be denied the non est factum plea.”
o but there still remain illiterate and senile persons today who cannot read or apprehend a legal document.
o there are still persons who may be tricked into putting their signature on a piece of paper which has legal consequences
totally different from anything they intended.
 When is a plea of non est factum admissible?
o A document should be held to be void (as opposed to voidable) only when the element of consent to it is totally lacking.
 ie when the transaction which the document purports to effect is essentially different in substance or in kind
from the transaction intended.”
o There are three added amplifications of the above general test:
i. When there is Fraud
 A signature obtained by fraud is invalid on the ground that the mind of the signer did not accompany
the signature – in other words; he never intended to sign, and therefore in contemplation of law, never
did sign the contract to which his name is appended.
ii. A man cannot escape from the consequences, as regards innocent third parties, of signing a document if, being a
man of ordinary education and competence, he chooses to sign it without informing himself of its purport and
effect.
iii. Where the signer has been careless in not taking ordinary precautions against being deceived:
 A person who signs a document has a responsibility to take care what he signs, which, if neglected,
prevents him from denying his liability under the document according to its tenor.
o The onus of proof rests with him to prove he acted carefully
 it is not on the third party to prove the contrary.
 Case at bar:
o The plaintiff was a lady of advanced age, but was by no means incapable physically or mentally.
o She fell far short of making the clear and satisfactory case which is required of those who seek to have a legal act
declared void and of establishing a sufficient discrepancy between her intention and her act.

Conclusion:
 plea of non est factum does not apply in this case.

Marshall Wells Ltd. v Myszcyszyn

1984, MBQB
 1st & 2nd para – credit manager misrepresented the document that the plaintiff was signing.
o could have argued misrepresentation as well.
Facts:
 Defendant – Myszcyszyn / plumber
 Plaintiff – Marshall Wells / credit manager

 Defendant pleads non est factum to a claim by the plaintiff for $26,000 on the defendant’s guarantee of the debt of his now
bankrupt company.
 Defendant argues that the plaintiff’s credit manager totally misled him about the nature and effect of the document he signed.
 Plaintiff (Marshall Wells) claims that the manager read over and explained the document to the plaintiff.

 Defendant was a plumber and his company regular exceeded its line of credit.
 D’s company was in poor financial standing
o plaintiff made regular efforts to obtain some security.
 Plaintiff sent the defendant forms or postponement and also a form of personal guarantee
o defendant signed the postponement, but would not sign personal guarantee, as he did not want to put his family’s
financial position in jeopardy.
o P was aware he did not want to sign personal guarantee
 P again tried to get a personal guarantee signed.
o wife of D got real upset and cried, and P left them alone for a bit
 Defendant’s monetary situation did not get better, P ultimately got the guarantee under odd circumstances
o took place in D’s car, and took all of ten minutes.
 D was not left with a copy.
 this is where the cause of action comes from
 P trying to collect the debt owed by the signature of the personal guarantee, D refuting it by plea of non est factum.
 D believed he was signing a document extending his credit – not providing a personal guarantee.

Issue:
 does the plea of non est factum hold up in this case?

Ratio:
o Where there is evidence of misrepresentation and obfuscation of the fundamental nature of a document, a contract might be void
for non est factum.
o A rare case where a contract may be void due to non est factum arises where, as a result of being misled, under pressure, as to the
essence of the commitment, the defendant did not understand the document’s real nature and effect and did not assent to it.

Analysis:
 Judge: “given the signature of the defendant, he has a considerable burden to displace in order to avoid the agreement.”
o He is entitled to a remedy only if he brings himself within what must be the exceptional or rare case where the document
executed is fundamentally different as to the content, character, or otherwise from the document intended to be executed.
 he met the criteria!

 Plaintiff called D’s wife to get address with D so he could meet D.

o did not disclose to the wife that his real object of meeting the husband was to get the personal guarantee from the
husband.
 P got telephone number of D from wife, called D for a meeting, and again withheld that the object was to get a personal
guarantee.
o Their meeting took place in the D’s car.

 Their meeting:
 Judge trying to keep the aims of both P & D in mind.
o Defendant – burdened by severe, prolonged, and distracting financial pressure.
 met P in his car, outside of business hours, without family or legal counsel.
 he was meeting a credit manager of a dominant organization
o Plaintiff – was a credit manager who had reached a crisis point in trying to deal with a most difficult problem within his
own field of expertise.
 These different perspectives led to different perceptions of the meeting.
o P faced D with a threat to close down his business immediately
o D asked to consult with a lawyer before he signed the papers, P temporarily refused as he said it was essential for the
document to be signed in order for his credit to be extended.
o D never had the document in his hand, and did not see the top of the document which included the word “guarantee”.
o P gave the defendant an explanation, but unlikely that the unsophisticated defendant under pressure and in a bizarre
situation understood the implications.
 Judge satisfied P gave the defendant assurances that the document did not obligate his family.
 Defendant just thought he was once again extending his overextended line of credit.
o had signed forms like these before

 D still needs to prove onus that he was not negligent. (Starting point is that he is negligent.)
 o Even if there was negligence, the contract can still be void due to duress.

Conclusion:
 Defendant wins – contract void from non est factum
o as a result of being misled, under pressure, as to the essence of the commitment, the defendant did not understand the
document’s real nature and effect and did not assent to it.

 I double checked the case MARSHALL WELLS LIMITED v. MYSZCZYSZYN and saw the case was appealed with the trial
decision upheld. It appears that the Defendant MYSZCZYSZYN , in order to resist the creditors claim, did not originally plead
misrepresentation  but only non est factum. 

o It would also appear that had he pled misrepresentation that he would not have been successful - because as a matter of
equity, you cannot rely on your own carelessness to wiggle out of things. 

o He did however use the misrep and pressure by the credit manager to overcome his own negligence, the latter of which
would have likely otherwise operated to exclude him from successfully arguing non est factum. 

 below are the two key paragraphs from the court of appeal judgment. Best, Prof Shariff

 [2] We do not see any basis for interfering with the finding of fact by the learned trial judge, that the defendant signed the
personal guarantee as a result of being misled by the plaintiff's employee. This entitles the defendant to a successful defence in
equity against the plaintiff's claim. The appeal is therefore dismissed.

 [3] The defence presented at trial was not based upon misrepresentation and an equitable remedy in response, but rather a defence
of non est factum, which might not be available given the carelessness of the defendant at the time he signed the document. The
pleadings were broad enough to include equitable remedies, but the defendant presented his defence strictly on the basis of non
est factum. Under the circumstances the defendant is not entitled to costs in this court or in the Court of Queen's Bench.

 Appeal dismissed.

Part VI – Rectification
Chapter 19 – Rectification
 Rectification is an equitable remedy whose purpose is to prevent a written document from being used as an engine of fraud or
misconduct equivalent to fraud.
o The purpose is to restore parties to their original bargain.
 ie – have an oral agreement, get screwed on written, court enforces original oral agreement.

Performance Industries Ltd v Sylvan Lake Golf & Tennis Club Ltd.
2002, SCC
Facts:
 Performance (O’Connor) – Defendant/Appellant – stands firm on the written document.
 Sylvan (Bell) – Plaintiff/Respondent
 Real estate development gone wrong. Houses were supposed to be built along Sylvan Golf Course.
o It did not happen b/c the parties fell out over the amount of land to be included in the development.
 O’Connor & Bell verbally agreed to lots at 110 yards wide. (Allows for two rows of houses)
o O’Connor’s lawyer created a written agreement and mistakenly wrote 110 feet. (only allows for one row of housing)
 Bell did not bother to read it before signing.
 When Bell goes to exercise rights of the contract, O’Connor insists on written agreement, even though it does not reflect oral
agreement.

 Bell brought an action for rectification of the agreement, or damages in lieu, and for punitive damages
o Trial – Bell wins
o CA – upheld – (but punitive damages disallowed)

 Action for rectification – wants a correction to the written document to show yards vs feet.
o much more value to Sylvan (Bell) if it’s in yards – two rows of housing opposed to just one row.
 Bad actor, O’Connor, insisting on the “feet” agreement.
Issue:
 Are the conditions for rectification met? YES.

Ratio:
 In order to obtain a rectification remedy, one must pass four pre-condition precedents:
1. The party relying on rectification must show the existence and content of an inconsistent prior oral agreement.
2. The relying party must show both that written document does not correspond to prior oral agreement, and that the other
party knew or ought to have known of this error when the oral terms were reduced into writing, such that relying on the
error would amount to fraud or the equivalent of fraud.
3. The relying party must be able to show “the precise form” in which the written instrument can be made to express the
prior intention.
 This closes the floodgates to those who would invite the court to speculate about the parties’ unexpressed
intentions.
 In this case – it was simply the difference b/w feet and yards.
4. There is a high standard of proof: All of the foregoing must be established BARD, or evidence which leaves no fair and
reasonable doubt.
 described as “convincing proof”; i.e. not the criminal standard, but higher than the usual civil standard.

 Lack of due diligence can be taken into account in the exercise of discretion to refuse the remedy, but is not a bar to seeking
rectification because the party is not seeking more than to enforce the prior oral agreement to which the Defendant has already
bound itself. (para 69)
o Someone who screws the other person over cannot say, “Well, if you would have read the document, you would have
caught me tricking you.”

 Once you have passed the four hurdles, the court may then contemplate a lack of due diligence.
o to argue against rectification. (not lack of due diligence in this case).
o Big saving point of rectification in this case is that they had a prior verbal agreement.
 so the court will just make the written agreement reflect the verbal agreement.

Analysis:
 Bell was entitled to rectification as all the conditions precedent required for the remedy were met.
 The plaintiff (Bell) established that the terms to which it had orally agreed were not properly written down.
o The parties had made a verbal agreement.
o The individual defendant (O’Connor) fraudulently misrepresented the written document as accurately reflecting the
terms of the prior oral contract.
 He knew that the plaintiff would not sign an agreement without the option for sufficient land to create a
development with two rows of housing as specified in the prior oral contract; therefore, he knew that when the
plaintiff signed the document, the plaintiff had not detected the substitution of 110 feet for 110 yards.
o The individual defendant's actions were "fraudulent, dishonest and deceitful."
 The trial judge made his key findings in respect of the prior oral agreement, the unilateral mistake of the
plaintiff's president, and O’Connor’s knowledge of that mistake to a standard of "beyond any reasonable doubt."

 2. It is not enough for there to be a mistake; it is the idea that equity will not let O’Connor take advantage of an error that he was
aware of or ought to have known about it.
 3. Easily put into precise form – from feet to yards.
 4. Court says there was convincing proof of Bell’s unilateral mistake in the signing, and O’Connor’s knowledge of that mistake.
o The court was satisfied with the evidence of their prior verbal agreement.

 The plaintiff's lack of due diligence was not a defence to rectification because the plaintiff sought no more than to enforce the
prior oral agreement to which the defendants had already bound themselves.
o The president of the plaintiff had left the documentation to his lawyer without appreciating that he had given his lawyer
insufficient information to check the individual defendant's figures, and, at that time, he had no reason to question the
individual defendant's integrity.
o Furthermore, the plaintiff's lack of due diligence provided no defence because of the individual defendant's fraud. The
individual defendant undertook, as part of the verbal agreement, to have a document prepared setting out the terms of the
agreement.
o The trial judge found that part of the individual defendant's fraudulent scheme was to have the document wrongly state
the terms of the option, to misrepresent fraudulently to the plaintiff that the document accurately set out their verbal
agreement, to allow the plaintiff to sign the document when the individual defendant knew that the plaintiff was
 mistaken in doing so, and then to delay any response to the plaintiff's development proposals until it was almost too late
for the development to proceed.
 The individual defendant admitted providing his lawyer with the erroneous metes and bounds description in the
option clause.

Conclusion:
 Bell wins – O’Connor must pay $600,000 in compensatory damages.
o The parties specifically contemplated that the optioned land would be used for residential housing and the damages for
breach of the contract, as rectified, therefore properly included losses flowing from the special circumstances known to
the parties when they made their contract.
 Court finds rectification is in order!
o preconditions to rectification was met.
 The court makes the written agreement reflect the terms of the oral agreement.
o enforced the verbal agreement.
 Bell doesn’t want to argue mistake, b/c that would void the entire agreement.
o so argues rectification.

Part VII – Protection of Weaker Parties

Chapter 20 – Duress, Undue Influence, Unconscionable Transactions
 Court understands that a stronger party can take advantage of a weaker party;
o there may be different classes of relationships.
 The more the parties are commercial parties, the less likely the court will intervene
 The more the parties have an impact on an innocent third party, the less likely the court will want to interfere with the original
arrangement.
 the question is – how much weaker does the party have to be for the court to intervene?
o looks at below doctrines.

 Duress is a common law doctrine

o common law is narrow
o Looking for a coercion of the will that vitiates/negates consent
 Undue influence is equitable jurisdiction – there is domination of the will- the will is overborne- lack of consent
 With unconscionability – equitable jurisdiction – less concerned about consent but such an inequality between the parties that one
has an unfair advantage over the other one that the court will set aside the agreement.

 Duress was initially narrowly confined to physical threat to the person – court would provide relief.
o Preferable to find a contract voidable and not just void
 This gives the weaker party the option of ratifying the contract
 also gives protection to innocent third parties, b/c they would be taken into consideration.
o Historically, a threat to goods was not considered to be a valid threat for setting aside a contract
 Classic examples:
 when a pawn broker won’t release goods unless pawner promises to pay more
 landlord and tenant situation where tenant’s goods are seized by landlord unless tenant pays more.
 Economic duress is about business pressure – which is considered to be legitimate
o Later cases find that certain business pressures are coercive
 might not be a legitimate form of pressure
o Possibility of setting aside a contract on the basis of economic duress
 Courts trying to differentiate b/w legitimate business pressure, and coercive pressure.

A. Duress
Greater Fredericton Airport Authority Inc v NAV Canada
2008, NBCA
Facts:
(Used same facts as above)
 Nav Canada (appellant) had exclusive right and responsibility to provide aviation services and equipment due to federal
regulations (Aviation and Services Facilities Agreement/ASF)
 Greater Fredericton Airport Authority (GFAA) (respondent)
 GFAA decided to extend runway at cost of $6M
o Requested that Nav Canada move their landing system
 Disagreement about which of parties should pay for new equipment related to this move ($223k)
 Before work began, Airport Authority eventually indicated that it would pay, but “under protest”, so Nav Canada undertakes the
work
o This is a “post-contractual modification”
 After work completed, Airport Authority refused to pay (But allegedly previously said it would pay)

 This was a variation to contract so Airport Authority had to pay for equipment related to move.
 Previous ratio: a variation unsupported by consideration remains enforceable provided it was not procured under economic
duress
o Now we address the economic duress issue

 NAV Canada argues that its promise to pay for the navigational aid (DME) was not procured under economic duress.
o Airport Authority argues it was under economic duress.
 Arbitrator found that Nav Canada had the contractual right to decide whether to relocate the existing equipment or purchase new
equipment, and that they elected to go with the new.
o Nav Canada had refused to purchase and install the DME until the Airport Authority agreed to pay for it.

 Disagreement on who is going to pay for the services.

o NAV Canada says they will not make provisions in the upcoming budget to pay for the upgrade unless the Airport
Authority pays for it.
o Airport Authority agrees to pay, b/c cannot operate without navigation system.
 but agrees under “protest”.
Issue:
 Was the variation to the contract unenforceable because it was procured under economic duress? YES.

Ratio:
 para 52 - Regarding economic duress, the objective is to determine whether the variation was the product of an agreement.
o There is a premise that every commercial agreement is a “consensual bargain,” and this applies equally to variations to
existing contracts.
o The “bargain” is measured according to the consideration doctrine, but a lack of consideration should not inevitably lead
to the conclusion that a gratuitous promise is unenforceable.
 a gratuitous promise may still be enforceable, if it is the product of a consensual agreement.

Test:
 A finding of economic duress is dependent initially on two conditions precedent:
1. The promise (the contractual variation) must be extracted as a result of the exercise of “pressure”, whether
characterized as a “demand” or a “threat”
 Pressure for the contractual variation usually comes from the promisee in the form of an express or implied
threat to breach the underlying contract – usually by withholding future performance.
 Pressure is not technically necessary, but will usually be there (Roffey Bros.)
 Here: pressure present – NAV Can would withhold performance.
2. The exercise of that pressure must have been such that the coerced had no practical alternative but to agree to the
coercer’s demand to vary the terms of the underlying contract.
 if other practical alternatives were available to the victim, the plea of economic duress must fail.
 if no practical alternative, move on to next step of analysis.
 GFAA could only contract with Nav Can; NAV Can had a monopoly.
 However, even if those two conditions precedent are satisfied, a finding of economic duress does not automatically follow.
 Once these two threshold requirements are met, the legal analysis must focus on the ultimate question: Whether the coerced
party “consented “ to the variation. To make that determination, three factors should be examined:
 Whether the promise was supported by consideration (fresh consideration)
 why would anyone agree to pay more or do more in return for nothing?
 this would suggest that the variation was procured under economic duress.
 If there is fresh consideration, it is much harder to make an argument for economic duress.
 Here: no- funds being provided under protest
 Whether the coerced party made the promise “under protest” or “without prejudice”
 The failure of the promisor to voice any objection at the time of the contractual variation may prove fatal to a
plea of economic duress.
  If P is not complaining, it is difficult to maintain a claim of economic duress
 Here: yes, “under protest” letter
 If the promise is not made under protest, the coerced party must take reasonable steps to repudiate or disaffirm the
promise as soon as practicable.
 If you sit back and wait years to see how the variation plays out before going to court, you will be deemed
guilty of acquiescence and will not have a plea of economic duress.
 i.e. duress should be obvious immediately
 Here: yes, P always protested and never paid D
o If you have all three factors, you have a strong case for economic duress.
 if you have 2/3, weaker case, but may still win – would need to balance everything out to make an argument.
 Admittedly, the last two factors are more likely to have a bearing on the ultimate outcome of a case than the first.
 Legal advice is not necessarily a barrier, nor is good faith of the coercer, unless it affected the view of the victim.
o legal advice has no bearing on determining whether there was economic duress.

Analysis:
-Big issue is the impact on the victim.

Application to the present case:

 Nav Canada had a contractual right to decide whether to relocate equipment (or purchase new)
o Nav Canada elected to go with the new equipment
 Nav Canada refused to purchase and install equipment until Airport Authority agreed to pay
 Practical effect of Nav Canada’s position was to force the Airport Authority to promise to pay
 Nav Canada’s threat to breach contract by withholding performance arose by implication
o But that is enough
 Airport Authority had no practical alternatives
o Nav Canada had a monopoly + No other service provider Airport Authority could use
 Nav Canada was threatening to hold up use of extended runway for at least another year

 Step 1: 2 conditions precedent satisfied in case at bar

o 1. Nav Canada exerted pressure √
o 2. Airport Authority left with no practical alternative √
 NAV Canada has a monopoly on air services, and Airport Authority already paid $6 million to extend runway.
 Step 2: Airport Authority did not consent
o 1. Promise not supported by fresh consideration
o 2. Airport Authority refused to pay from the outset, and hasn’t deviated from that position
o Variation procured under economic duress; Airport Authority does not owe Nav Canada $

Conclusion:
 The variation was procured under economic duress & is not binding.

B. Undue Influence
 Definition: the conscientiousness use by one person of power held by him or her to cause another to enter into a contract that
presumably benefits the powerful person in the relationship
o This is more than the mere power of suggestion
 Usually arises in close person situations, and is objectionable because of the nature of the parties
o E.g. Norberg v Wynrib: undue influence from power doctor held over her; knowledge he had that he was not supposed
to use except for her benefit
 Remedy: Rescission of the contract
 Domination of will that results in lack of consent
 As a general proposition, a party may set aside a transaction where that party was induced to enter into the transaction by
another’s undue influence.
 Two categories of undue influence:
o 1. Actual Undue Influence: requires affirmative proof that wrongdoer in fact exerted undue influence on the
complainant
o 2. Presumptive Undue Influence: the nature of the relationship between the parties may give rise to a presumption of
undue influence
  2A. certain relationships are recognized by law as giving rise to a presumption of undue influence. Eg.
lawyer/client, doctor/patient, religious advisor/follower. Here, undue influence is automatically presumed by
the law.
 2B. Other relationships not falling within Class 2A. eg. Husband and wife relationship. Here, the presumption
is triggered by proof that a person in fact generally reposed trust and confidence in the wrongdoer.
o Once the confidential relationship is proven, the burden shifts to the wrongdoer to prove that the complainant entered
into the transaction freely
Bank of Montreal v Duguid
2000, ONCA
Facts:
 The defendant wife was a real estate agent who co-signed a promissory note with her husband, for a loan from the plaintiff bank.
The husband used the loan for a tax-driven real estate investment. The husband became bankrupt and the bank brought an action
against the wife on the loan as a co-signor. The wife alleged that the guarantee was procured by the undue influence of her
husband. The wife claimed that she was entitled to, but did not receive, independent legal and financial advice.

 In 1989, Mr. Duguid, a high-school principal, and his colleague applied to BMO for an investment loan.
o They were hoping to invest in a San Diego condominium complex.
 The bank was not prepared to give a loan of $76,095 to Mr. Duguid and his associate based only on their combined income and
assets.
o Mr. Duguid therefore asked his wife, a real estate agent, to fax her financial information to the Bank.
o She did, following which the Bank was prepared to extend the loan – as long as Mrs. Duguid was on the covenant.
 Mrs. Duguid was co-signer of the promissory note
 The Duguids signed loan documents in kitchen (informal) -> Relationship was strained at time
o Bank officer did not witness the signing
o Bank did not suggest to Duguids that either of them obtain independent legal or financial advice
 contrary to Bank policy
 The condo investment later failed & Husband went bankrupt (Parties have since separated)
 Bank sued wife to enforce her guarantee of loan
 Bank lost at trial (undue influence was placed by husband)
o Bank appeals

Issue:
 In what circumstances can a party set aside a transaction on the basis of undue influence as against a 3rd party to the alleged
wrongdoing?
o (I.e. Was undue influence placed on the wife to sign by the husband – can it mean that the bank/third party cannot
enforce her co-signing of the loan?)

Ratio:
 Make sure we understand the constructive notice test!!!
o sitting at a bank and someone is signing something
o para 55.
 only setting aside is massively disadvantageous to one of the parties…??

 As a general proposition, a party may set aside a transaction where that party was induced to enter into the transaction by
another’s undue influence.
o undue influence can make a transaction voidable.
There are two lines of analyses – Undue Influence, and Constructive Notice
 First, must have undue influence.
There are two different categories of undue influence - actual and presumed:
 Class 1: Actual Undue Influence:
o The claimant must prove that the wrongdoer exerted undue influence on the complainant to enter into the particular
transaction which is impugned.
 Class 2: Presumed Undue Influence:
o The complainant only has to show that there was a relationship of trust and confidence of such a nature that it is fair to
presume that the wrongdoer abused that relationship in procuring the complainant to enter into the impugned transaction.
o Once a confidential relationship has been proved, the burden shifts to the wrongdoer to prove that the complainant
entered into the impugned transaction freely.
 for example by showing that the complainant had independent advice.
o Such a confidential relationship may be established in two ways:
 Class 2A: Presumption of Law
  Certain relationships as a matter of law raise the presumption that undue influence has been exercised.
o ex – solicitor/client, medical advisor/patient
 Class 2B: De Facto Presumption
 Even if there is no relationship falling within class 2A, if the complainant proves the de facto existence
of a relationship under which the complainant generally reposed trust and confidence in the
wrongdoer, the existence of such a relationship raises the presumption of undue influence.
 In a class 2B case therefore, the complainant will succeed in setting aside the impugned transaction
merely by proof that the complainant reposed trust and confidence in the wrongdoer.
o Mere fact of “close relationship” does not automatically mean it is presumed undue influence

 Second, ask if the third party had a duty to inquire.

 A third party (ie a bank) will be bound by an undue influence ruling (which sets aside the transaction) only where it has
constructive notice of the undue influence
o Where constructive notice, bank has a duty to make additional inquiries/recommend advice
 There will be a duty when there is actual or constructive notice of complainant “rights.”
o There is constructive notice if there is a:
 1. close relationship coupled with a
 2. manifestly disadvantageous transaction
o If there is constructive notice, undue influence can be asserted against the third party.

 Third, even if a creditor does not satisfy the duty to inquire, it is still open to rebut the presumption
o dependent on the circumstances of the case
 for example, did a party obtain independent legal advice or are there other circumstances that show that the
contract was an act of a free and independent mind (e.g. commercial knowledge, general sophistication or
independence)

Test:
 Phase A:
o Step 1: Is there actual undue influence here? (proved)
o Step 2: If not, is the relationship such that the law automatically assumes that there is undue influence, simply from the
fiduciary nature of the relationship (class 2A)?
o Step 3: If not, is the relationship of the parties in reality such that it is analogous to the relationships in Step 2 (Class
2B)?
 Phase B:
o Step 4: Does the third party have constructive notice of the actual or presumed undue influence which inheres in the
relationship said to be in issue?
 In order to resolve this issue, there are two additional questions to be asked;
 Step 5: A close relationship between the parties
 Step 6: A manifestly disadvantageous transaction
 If Steps 5 and 6 are fulfilled, then Step 4 is answered in the affirmative and the undue influence can be asserted
against the third party.
o Step 7: Can the Bank rebut the presumption of undue influence?

 If undue influence established, can rescind contract!!! Pending barriers to rescission…

Analysis:
 “in my view, the relationship between Mr. and Mrs. Duguid in respect of their financial affairs was not a relationship that would
trigger a presumption of undue influence when Mrs. Duguid, at her husband’s request, co-signed a promissory note.”
Westlaw summary:
 A wife may set aside a transaction as against a third party when she can establish that the transaction was actually procured by
undue influence or when she can raise a presumption of undue influence.
o A third party, such as the bank, would be bound by the wife's equity to set aside the transaction when it has constructive
notice of undue influence or the risk of undue influence.
 Constructive notice may be established by the close relationship of a husband and wife, coupled with a
manifestly disadvantageous transaction.
 However, the mere fact of a close relationship does not give rise to a presumption of undue influence. 
 The spouse in each instance must show that he or she generally reposed trust and confidence in the
wrongdoer.
 The bank was fixed with constructive notice of wrongdoing as the existence of a marital relationship increased the risk of undue
influence and the transaction was to the wife's material disadvantage.
o However, the transaction was not vitiated by the mere fact that the bank had constructive notice but failed to take
reasonable steps to ensure that the wife's consent had been voluntary and informed.
o There was no evidence of actual undue influence and no basis was shown to raise a presumption of undue influence.
o There was little or no evidence that the wife reposed trust and confidence in her husband by leaving decisions on
financial affairs to him.
o The wife had no equity to set aside the transaction as against the bank.
 Even if undue influence were presumed, the presumption was rebutted by the circumstances.
o As a real estate agent, the wife likely knew the risks involved in the investment and almost certainly would have
understood the significance of co-signing the promissory note.

JS summary:
 See the above ratio of undue influence generally. Clearly, this falls into category 2B.
 Husband and Wife: undue influence?
o Husband and wife relationship doesn’t raise presumed undue influence as a matter of law
 Courts reject this “special equity” theory
o However, wife may raise de facto presumption of undue influence by demonstrating marital relationship was one in
which she relied on her husband
 So would be reasonable to presume transaction was procured by undue influence of husband
o A wife may set aside a transaction where:
 Establishes transaction was actually procured by undue influence (actual undue influence)
 She can raise a presumption of undue influence by demonstrating that de facto she left decisions on financial
affairs to her husband (presumed undue influence)
 Third party:
o A third party (e.g., a bank) will be bound by the wife's equity to set aside the transaction where it has constructive
notice of the wrongdoing
o E.g., of undue influence or the real prospect (RISK) of undue influence
o Constructive notice may be established by
 A close relationship between the parties (e.g., husband and wife); and
 A manifestly disadvantageous transaction
o If constructive notice, would need to advise of risks + advise independent legal advice
o However, mere fact of close relationship doesn’t give rise to a presumption of undue influence
o Rather, a spouse must establish in each case that the relationship was one in which he or she generally placed trust and
confidence in the wrongdoer
Application:
 1. In the case at bar, the Bank had constructive notice of wrongdoing between the parties
o Marital relationship is marked by characteristics of trust and confidence
o Created an increased risk of undue influence
o Transaction was to the material disadvantage of Mrs. Duguid
o Bank had duty to inquire & failed this duty; should’ve encouraged independent legal advice
 Requirement to advise of ind. Legal advice comes from Gold v Rosenberg (1997 SCC)
 2. Mrs. D must still establish undue influence & use evidence to presume undue influence
o Evidence that Mrs. Duguid didn’t place trust and confidence in husband
o (Want to avoid automatically extending 2A category to all husbands and wives)
o Mrs. D had notice bank would only be satisfied with amount of security if she co-signed
o Mr. Duguid had made other, similar types of investments previously (Mrs. Duguid was not previously asked to co-sign)
– Mrs. D made up her mind that it was OK
o At time of signing, Mrs. Duguid not under impression that marriage at risk of ending
 3. Rebuttal of presumption
o Mrs. D was a real estate agent & likely knew about the risks involved in the investment
o Likely understood significance of co-signing promissory note
o Also relevant that she did not plead undue influence at trial
 Bank’s appeal allowed because undue influence not established
o Mrs. Duguid’s co-signing of loan is enforceable by bank

Conclusion:
 Appeal allowed; Bank wins and co-signing is enforceable -> undue influence not established
C. Unconscionability
 An equitable principle
 Plaintiff must prove 2 elements:
o 1. Inequality in the position of the parties, such that the weaker party (plaintiff) is in the power of the stronger party
(defendant). Inequality may be due to the ignorance, need, distress, or mental infirmity of the weaker party.
o 2. The bargain is substantially unfair. That is, that the stronger party took an unconscionable or undue advantage of the
weakness of the plaintiff. Improvident bargain.
 Can’t simply be “I made a bad deal” – merciless use of an inequality of bargaining power of which any
reasonable person would know is unfair
 Undue influence turns on an argument that there was a lack of consent, the will of a person is overcome, whereas
 Unconscionability deals with granting of relief because of an unfair advantage gained by stronger party over the weaker
o it is about the unfairness of the bargain due to the inequality of the parties

Keewatincappo v Clearsky
1993, MBQB
Facts:
 Plaintiff – Keewatincappo;
 Defendant – Clearsky
o MPIC – third party; MPIC adjuster – Henry Dromberg
 Plaintiff injured in a single vehicle accident as a passenger in defendant’s vehicle – serious injuries
o Defendant was insured by MPI
 MPI adjuster (Dromberg) met with plaintiff after
o Adjuster got plaintiff’s signature on a “release” of liability, in exchange for $2,000
 Later, damages found to be $46,200
 Plaintiff makes claim against defendant for damages (driver/defendant is insured)
 MPI was a third party to claim – disputed nature and extent of injuries, and said plaintiff had discharged MPI from all causes
of action
 Plaintiff said that this release did not apply as parties were not in equal bargaining positions
o Plaintiff unemployed, no business experience, regarded MPIC adjuster as his lawyer
 Also, insurance adjuster:
o Had a number of years of experience – fully familiar with process/did not explain plaintiff’s rights
o Aware that plaintiff didn’t have independent legal advice, and didn’t suggest it
o Had the plaintiff’s medical records from the accident, and he knew that injuries were serious
o Some injuries were likely permanent
o Aware that plaintiff was having difficulty financially
o Accused P of a “joint drinking venture” with Defendant and of not wearing seatbelt
 No evidence for joint drinking, or that a seat belt would have helped.

Issue:
 Can the settlement be said aside due to unconscionability?

Ratio:
 Gross inadequacy of consideration (or an improvident bargain) AND inequality of the bargaining parties creates an
unconscionable transaction which can set aside the agreement, unless you can show the transaction is fair and reasonable.
o for example, when independent legal advice has been obtained or suggested.

 Crucial that stronger party knows he is taking advantage of one party

o Here, there was a “massively advantageous negotiation position.”

Analysis:
 Release must be valid, and must be set aside if improvident (e.g. if poverty/ignorance/confusion)
o Cannot necessarily set aside (i) a person accepting lesser amount than otherwise entitled to, or (ii) if person thought it
was fair and later found unanticipated factors
 But, here, would be wrong to rely on release
o Plaintiff in late 30s, grade 8 education, on welfare, lived most of life on reserve
o No professional assistance;
o MPI adjuster far more sophisticated & did not fully describe the forms
o Adjuster could have recommended independent legal advice
 o Adjuster also gave conflicting information, suggesting plaintiff was fully recovered – untrue
 Clear that plaintiff did not understand release/consequences
 Adjuster made reduction for contributory negligence (no seatbelt/drinking with driver) but failed to suggest independent legal
advice and “Instead of resolving the difficulty, he took advantage of it”
 Even if he read it and signed it, plaintiff did not understand the release
 Release set aside; plaintiff gets the $46,200
 Several factors influenced the court:
1. Poor education, experience, and mental capacity of the plaintiff as opposed to the sophistication of the adjuster.
2. No appropriate explanation of the forms or of the plaintiff’s rights (to consult a lawyer) was given by the adjuster.
 Adjuster knew plaintiff had no lawyer and that plaintiff was relying on adjuster’s recommendation.
3. Adjuster told plaintiff he was not wearing a seat belt, had been drinking with the driver, and that he was negligent.
 However, adjuster had no evidence.
4. The release amount ($2,000) was unreasonable having regards to the available information including the extent of the
injuries. Adjuster was aware of the extent of the injuries.

Conclusion:
 Plaintiff wins; the release must be set aside.
o plaintiff awarded full damages of $46,200 against the defendant – to be paid by 3rd party (MPIC).

Harry v Kreutziger
1978, BCCA
Facts:
 Appellant – Harry – Indigenous
 Defendant – Kreutziger
 D pressured P to sell fishing boat, which, with attached license, was worth over $15k
o Boat alone had limited value
o D assured P he could easily get a new license (untrue)
 The sale was made for $3,930

 Harry was an Indigenous man with little formal education who owned a boat, the "Glenda Marion" with a fishing licence attached
to the boat. 
o Partially deaf, inarticulate, and not widely experienced in business matters.
o He had a Grade 5 education.
 Kreutziger offered $2,000 for the boat, which by itself was worth very little, but the fishing license was highly valuable (around
$16,000). 
 Harry continually refused to sell, but Kreutziger persisted (cheque was handed back and forth many times) and eventually agreed
on a price of $4,500
o Kreutziger later unilaterally reduced the price by $570 as he had to pay back license fees of this amount to use the boat.
 Kreutziger assured Harry multiple times that he would be able to get another license, but Harry was rejected on the grounds that
he had left the fishing industry when he sold the boat.
 Clear that it was an improvident bargain: sold $16k asset for $4.5k 
 Harry sued to have the sale set aside, but was unsuccessful at trial
 Appeals on the basis that the agreement was an unconscionable bargain.

Issue:
 Did the appellant enter into his bargain under such circumstances that the court will exercise its equitable jurisdiction to rescind
the contract and return the parties to their original positions? YES.

Ratio:
Majority:
For a bargain to be unconscionable, it must be shown that:
a) there was inequality in the position of the parties due to the ignorance, need, or distress of the weaker party, which would
leave him in the power of the stronger; coupled with
b) proof of substantial unfairness in the bargain.
 When this has been shown, a presumption of fraud is raised and the onus is on the stronger party to show that the bargain was fair
and reasonable.

Concurring Minority:
 “whether the transaction, seen as a whole, is sufficiently divergent from community standards of commercial morality that it
should be rescinded”

Analysis:
Majority – McIntyre.
 Takes approach outlined in Ratio:
 The appellant, by education, physical infirmity, and economic circumstances, was clearly not the equal of the respondent.
o appellant wanted to continue fishing and wanted to retain his licence.
o respondent proceeded to bargain with full knowledge of the value of the fishing licence
o The appellant did not want to sell, and resisted for a time.
 “I am not going to sell, I am scared of losing my licence.”
o Respondent gave assurances that Appellant would not lose his licence, despite knowing little of the matter.
 “I believed him. that the is only reason I sold the boat.”
o Respondent sought out the appellant and would not take no for an answer.
o Respondent procured an asset worth $16K for $4.5K, and then reduced again by $570.
 The appellant’s ignorance, couple with pressures exerted upon him by the respondent, cause the inequality of the bargaining
position.
o Therefore, improvidence of is shown.
 The respondent, a man of greater business experience, greater education, and with a full knowledge of the value of a commercial
fishing licence, took advantage of his general superiority and prevailed upon the appellant to enter in to this bargain against his
best interests.

Lambert JA, concurring:

 Agrees that it is easier to state principle than apply -> principle only offers general assistances
 Comes down to single question: “whether the transaction, seen as a whole, is sufficiently divergent from community
standards of commercial mortality that it should be rescinded”
 Here, the respondent is purchasing a boat which he knew was worth 16k by harassing an uneducated/partially deaf man.
o This reveals a marked departure from community standards = unconscionable

 Third judge says he agrees with both of them – so which test do we use?)

Conclusion:
 Appeal allowed; appellant wins
o bargain was unconscionable
o parties returned to their original positions.

The Unconscionable Transactions Relief Act – CCSM c U20

Part VIII – Contractual Rights and Obligations

Chapter 21 – Implied Terms (Not examinable)

Implied Terms
 In first term we looked at implied terms as a means of validating the agreement made by the parties and interpreting the
contract so as to avoid ambiguity
 Terms may also be implied to invalidate the express and clear agreement of the parties
 Recall that terms can be implied by law, custom, or fact:
o If terms implied by custom or fact, can be overridden by specific intent of parties
o Custom e.g.: if you’re employed in an industry, you’re expected to know terms common to that industry; e.g.
shipping, commercial real estate
o Terms can be implied in fact to give business efficacy to the contract

 The terms of a contract, such as rights and obligations of the parties to the contract, are usually stated in the contract.
 Sometimes, however, there may be gaps or omissions in the contract. Parties may not have given complete expression to their
agreement
 Terms may be implied to fill the gaps:
o 1. On the basis of presumed intention of the parties
o 2. By common law
o 3. By statute
 1. Terms implied on the basis of the presumed intention of the parties
o Court may imply terms to give effect to the presumed intention of the parties
o It does so sparingly, and with caution; however, courts will not make or re-write an agreement for the parties
o In implying a term, the court considers the circumstances, background, and precise terms of the contract. Each case is
determined on its particular facts (Ford Homes v. Draft Masonry)
o Terms implied on the basis of the presumed intention of the parties:
 Terms implied from custom or usage: custom or usage must be “notorious” or “established.” Custom or
usage that, if asked, the parties would “unhesitatingly agree to be part of the bargain.” (Liverpool City Council
v. Irwin)
 ii. Terms applied in Fact: two alternative tests:
 a. Terms necessary for “business efficacy”: court will imply terms to “give such business efficacy to
the transaction as must have been intended at all events by both parties who are businessmen.” (The
Moorcock)
 b. Terms which are obvious in light of the facts, i.e. obvious to an officious bystander (Shirlaw v.
Southern Foundries Ltd.)
o The S.C.C. implied terms in: MJB Enterprises v. Defence Construction: Obligation to accept only a compliant tender;
Martel Building v. Canada: Obligation to consider all tenders in good faith, i.e., to give them fair and equal treatment.
o The S.C.C. did so to give: effect to the presumed intentions of the parties “business efficacy to the tendering process.”
 2. Terms Implied by Law:
o Terms implied as necessary “legal incidents” of a particular kind of contract
o Example: Under a Rental agreement the landlord has a legal duty to keep premises in good condition. Even if agreement
between landlord and tenant is silent on the landlord’s duty, the duty is implied by law. Implied to ensure that the
agreement is fair and reasonable.
 Terms implied by law need not be intended by the parties. McLachlin J. in London Drugs v. Kuehne
 3. Terms implied by Statute
o Sale of Goods Act (MB)
o Consume Protection Act (MB)

Machtinger v HOJ Industries Ltd

1992, SCC
Facts:
 Written employment agreement expressly provided for termination notice that was less than required under the Employment
Standards Act
 Employer terminated employee
 Employer offered severance under the ESA (implied that all employees agree to minimum under ESA)
 Employee claimed reasonable notice at common law - law should disregard the clause to allow you to get away with bare
minimum but instead should say the clause is invalid and we should imply term of reasonable notice and that is what should
govern

 Machtinger was employer by HOJ, a car dealership

 Contract gives HOJ right to terminate M’s employment with 0 weeks’ salary
 M fired without cause after 7 years
 Notwithstanding contract, HOJ paid him 4 weeks’ salary (min. requirement by Ontario)
o Reasonable notice would have been more than 4 weeks
 M sued for wrongful dismissal
 TJ found for M – gave him 7 months’ notice of termination ($48k pay)
 Court of Appeal reversed trial decision, said Machtinger only entitled to minimum statutory notice periods
 Attempt by employer to limit their liability for employment based dismissals without cause.

Issue:
 In the absence of legally enforceable term for notice of termination, can the court imply a notice period?
o Also, must intention be taken into account in fixing an implied term of reasonable notice?
 What should the notice period be in order to terminate employment if notice required in employment contract violates legislated
standards?
 Can employer come to conclusion that the standard doesn’t require notice/termination pay?

Ratio:
o A term of reasonable notice of termination can be implied regardless of presumed intention
o Court may imply terms in law contrary to the intentions of the parties when the character of the contract are “necessary” to the
fair functioning of the agreement
  Test considers necessity – what is best for the legal relationship between the parties
 Terms implied by law are like imposing contractual duties & need not consider the presumed intention of the parties
(unlike terms implied by fact or terms implied by custom)
o Terms can be implied by the court based on:
 1. custom or usage;
 2. if necessary for business efficacy;
 3. legal incidents of a particular class of contract.

o D-mac prefers McLachlin here – you can’t do that, we have employment standards; that’s what employment standards are for.
IMPLIED BY LAW!
 This isn’t about the intentions of the parties at all, this is about what is prescribed by law, and you ought not be
able to contract out of the limit prescribed by law; therefore, we will not give effect to this
 It is implied not because you meant for it to be, but because the law requires it to be!

o Defines 3 types of implied terms:

 Implied by fact [stuff a reasonable person would know is meant to be included]
 Implied by custom or usage of the industry (presumed to accept that when you enter into the industry)
 Implied by law (you cannot contract out of it, no matter how clearly you intended to do so; it is not a legal suggestion,
but a legal requirement)

o Terms are implied by law to ensure the fair functioning of agreements in the context of standard transaction types such as
contracts of employment, insurance, and leases
o Terms implied by law can only be displaced by the clearest express evidence of the intention of the parties to override them

Analysis:
 3 categories of terms implied (as mentioned in Canadian Pacific Hotels case):
o 1. Terms implied as a matter of fact
 Including terms used to give business efficacy to a contract, which parties would obviously assume
o 2. Terms implied as a matter of custom or usage
 Parties would understand these customs to be applicable – presumed intention
o 3. Terms implied in law
 Not on basis of presumed intention, but as “legal incidents of a particular class or kind of contract” – test for
implying these terms is necessity (Cdn Pacific Hotels)
 Intention is relevant to terms implied as a matter of fact, NOT to terms implied as a matter of law
o Requirements for reasonable notice are terms implied by law
o Some factors not known at time contract made (e.g. length of service etc) – thus, term of notice fixed by court is a “legal
incident” of a contractual relationship
 *Necessity test – practical view for implying terms in law – considers what is best in the world we live in today for the
relationship between employees/employers?
o *In today’s world, there should be a contractual duty to provide employee with reasonable notice of termination
o (Here they call it a duty, but usually contract law involves “obligations)
o Attaching legal incident to a contract on the ground of necessity is like imposing a duty
 Says court of appeal erred in characterizing this as a term to be implied in fact - should not have looked at the intention of the
parties
 Rather, should consider the legal obligation of the employer, implied in law as a necessary incident of employment contracts
o Notice period here implied by law – because here man was an employee 7 years
o If the contract had said “4 weeks” but it said zero which is illegal and null and void
o Not in contradiction to the terms because the “0 weeks” term was illegal and thus court erases it from contract; then
implies term of reasonable notice
 *(NOTE: McLachlin concurs with decision reached, but majority ultimately resolved case on a narrower ground of a factual
presumption of reasonable notice rebuttable by express or implied intention otherwise)
o McLachlin came to same result via a different route, and has sort of become the law now

Conclusion:
 A term of reasonable notice of termination can be implied regardless of presumed intention.

Bhasin v Hrynew
2014, SCC
VERY IMPORTANT CASE – earthquake in the law of contracts (but not examinable for us)
Facts:
 The appellant, Bhasin, was an enrollment director for Can-Am Financial Corp.
 Can-Am sells education savings plans. Its retail dealers make the sales. There is an exclusivity clause and a requirement of
fiduciary duty. There was automatic renewal in the absence of notice (or bad behaviour).
 The respondent is a competing dealer, pressuring Can-Am not to renew Bhasin, because of an earlier deal with the respondent.
 The appellant did not want to work with the respondent. But this could be part of a solution to problems with the Alberta
Securities Commission.
 They appointed the respondent to a position of provincial trading officer. Bhasin refused to show audited statements to the
Hrynew. Can-Am cancels the contract
 Can-Am prefers Hrynew to Bhasin; Hrynew is using the fact that he’s bigger to try to convince Can-Am to force a merger
between H and B. Can-Am is subject to regulatory oversight by Alberta Securities Commission.
 Bhasin doesn’t want to do the merger or give up his information to Hrynew, so he is let go.

Issue:
 Is there an obligation of good faith?

Ratio:
 Implied duty (implied in law) to treat each other fairly in the execution of the contract (NOT IN NEGOTIATIONS!)
o Execution = in carrying out your obligations under the contract (what you are required to do under the contract)
o Don’t have to give up EVERYTHING voluntarily (not a fiduciary), just don’t lie!!!
 This case says unequivocally that this does not apply at the negotiation stage of the contract; however, now there are cases that
say that the duty of fairness applies at the negotiation stage
o Despite what SCC says in this case, if you need a case to find that duty of fairness applies at the pre-contractual stage

 It used to be that only certain types of agreements attracted the duty of good faith, but the contract should have this duty.
 It is a general principle in Canadian contract law. Honesty is required in performance of all contracts.
o Gives clarity
o Gives coherence to the common law
o Not piecemeal – doesn’t want to give the ability to cherry-pick honesty
o Basic assumption of contract law – people enter into a contract because they believe there is a mutual benefit

 McCamus, 3 broad types of situations in which a duty of good faith performance of some kind has been found to exist:
1. where the parties must cooperate in order to achieve the objects of the contract;
2. where one party exercises a discretionary power under the contract; and
3. where one party seeks to evade contractual duties
 We expect a basic level of honesty and good faith in contractual performance. This basic level of honest conduct is necessary for
the proper functioning of commerce.
 We are not saying that you are at the level of fiduciary in contracts with others! Don’t have to look out for them. You
simply have a duty of honesty!
o Allowed to look out for their own interests, but they can’t lie.
 This is kind of like the opposite of misrep – misrep deals with lying before a contract; this deals with lying AFTER a
contract
 Good faith contractual performance is a general organizing principle of the common law of contract which underpins and informs
various rules of the common law
 There is a common law duty which applies to all contracts to act honestly in the performance of contractual obligations
 The duty of honest performance operates irrespective of the intention of the parties
 The precise content of honest performance will vary with context & the parties are free in some contexts to relax the requirements
of the doctrine so long as they respect its minimum core requirements.

Analysis:
 Commercial parties reasonably expect a basic level of honesty and good faith in contractual dealings. While they remain at arm’s
length and are not subject to the duties of a fiduciary, a basic level of honest conduct is necessary to the proper functioning of
commerce.
 The growth of longer term, relational contracts that depend on an element of trust and cooperation clearly call for a basic element
of honesty in performance, but, even in transactional exchanges, misleading or deceitful conduct will fly in the face of the
expectations of the parties:
 It is an organizing principle, not dependent on the intentions of the parties, though it could be influenced by the context of the
contract.
 Does not really interfere with freedom of contract
 Fiduciary duty is different.
Conclusion:

Chapter 22 – Representations as Terms of the Contract (examinable)

 She has a cool handout
 With a simple misrepresentation – you can argue rescission and return the parties to the status quo ante.
o ie the contract in general ceases to exist. (me)
 If you can morph the misrepresentation into a term of the contract (ie a warranty), you can sue for damages, as it will become a
breach of contract.
o ie the contract itself is good, but it has been breached.
 can’t rescind and return parties to status quo ante (me)

 In negotiating a contract, parties may make certain representations

o The contract may be induced by such representation(s)
 Sometimes, the representations may not be included as terms of the contract
o The representation may be false. (ie misrepresentation)
 The party that relied on the misrepresentation to enter into a contract may have a remedy where the misrepresentation (statement)
amounts to an implicit undertaking that the statement is true, i.e. a warranty
 In such a case, the undertaking may be enforceable either:
a) as a term of the main contract itself; or
b) as a collateral contract that is subsidiary to the main contract induced by the representation.
 In either case, falsity of the statement is breach of the implicit undertaking – and thus, breach of contract

 Consider this Scenario: A says to B: “If you buy my BMW car, I guarantee that the car is two years old”. Relying on this
statement, B buys the car. In actual fact, the car is 10 years old. Here, a unilateral collateral contract arises from A’s
representation as to the age of the car. Unilateral because A’s promise/guarantee is in exchange for B’s act (buying the car). This
collateral contract is subsidiary to the main contract, i.e., contract for the sale of the car. Falsity of A’s statement is breach of
the collateral contract.
 Summary of the Law:
o A representation by one party which is relied on by the other party (in entering into a contract) may be a warranty if it
was intended by the parties to have that effect. Heilbut Symons v. Buckleton and Oscar Chess v. Williams
o Where the representation relates to an issue on which the representor has expertise or access to info not possessed by the
representee, the court will readily infer that the representation was intended as a warranty. Dick Bentley v. Harold Smith
Motors

Heilbut Symons & Co. v Buckleton

1913, House of Lords
Facts:
 Misrepresentation (alleged) – that this is a rubber company
 Heilbut – Appellants – rubber merchants of high standing (Johnston – their manager)
 Buckleton – Respondent (Wright - a broker)

 Economic boom in the rubber trade 1910

 Appellants agreed to underwrite shares in Filisola Rubber & Produce Estates Company
o Filisola was located in Mexico
 Appellants told manager (Johnston) to ask his Liverpool friends to take shares in the company.
o Johnston was shown a draft prospectus of company.
 Johnston went onto sell a large number of shares; mentioned company to a broker for respondent (Mr. Wright).
 Respondent, on broker’s advice, called Johnston on the telephone
o Respondent asked if they were bringing out a rubbery company; Johnston said yes
 look at that convo again – Shariff noted that the respondent did not get a prospectus – he just relied on the
standing of the company
 He did not rely on the representation made by Johnston to buy the shares!!
o Johnston asked the respondent how many shares he would like,
 Respondent said he would take almost any number of shares
 They agreed on 5000.
o The respondent said he was willing to take so many shares because the position the appellants occupied in the rubber
trade was of such high standing that any company they would bring out was a sufficient warranty to him that it was
alright.
 Later same day, respondent called again to ask for more shares
o respondent took another 1000 at a higher premium.
 These arrangements were confirmed by 2 letters.

 At the time, the rubber boom was at its height, but it was subsequently discovered that of the rubber trees stated in the prospectus
an existing 15,000 had been damaged by natives and 30,000 could not be found, with the result that the shares fell in value and
were at the time of the trial practically valueless.

 Jury found Filisola not to be a rubber company.

o Johnston did not fraudulently represent that Filisola was a rubber company.
 BUT – the appellants did warrant that Filisola was a rubber company.
 Respondent (Buckleton) won.
 Appeal deals with the warranty (TJ’s finding of no fraud not appealed)

Issue:
 Is the pre-existing contractual statement a misrepresentation or a warranty (here talked about as collateral warranty)?
 Was there a binding collateral contract that Filisola was a rubber company?
 Remember, execution is a bar to rescission.

Ratio:
1. A mere representation of fact is not a warranty.
2. To determine if there is a warranty, you need to look at the intention of the parties.
o A collateral contract to the main contract can show a warranty if it is intended to be a warranty based on the totality of
the evidence.
3. An affirmation at the time of sale will be a warranty, provided it appears on the evidence to be so intended.

Analysis:
para 20,21,& 23
1. Collateral contracts “must be proved strictly. Not only the terms of such contracts but the existence of an animus contrahendi on
the part of all the parties to [the contract] must be clearly shown.” i.e., that the representation (statement) must be intended as a
warranty.
2. “There is in the present case an entire absence of any evidence to support the existence of ... a collateral contract....”
3. The statement was not intended as a warranty. “...the statement was made in answer to an inquiry for information. There is
nothing which can by any possibility be taken as evidence of an intention on the part of either or both of the parties that there
should be a contractual liability in respect of the accuracy of the statement.”

 innocent misrepresentation, not a warranty

 Conduct of parties reveals no evidence that one or both of parties intended for the statement to be a warranty or term of contract
o Was simply a statement of fact in reply to Q
 No affirmation at the time of the sale of the shares that was intended to be a warranty (no intention)
 Purchases of the shares did not actually rely on the representation.
o just relied on the fact they were a high-standing company

 look at that phone convo again – Shariff noted that the respondent did not get a prospectus – he just relied on the standing of the
company
o He did not rely on the representation made by Johnston to buy the shares!!

 Plaintiff must show a warranty (contract collateral to the main contract to take the shares, where the defendants in consideration
of the plaintiff promise the company was a rubber company)
o *Here: Warranty means a contractually binding undertaking
o *(More modern usage = a less important contractual term when contrasted with conditions, the breach of which leads to
damages rather than voidable contract– but this modern usage not used here)
 Consideration for a contract may be making of another contract – these collateral contracts rare
o Usually will just be one contract when terms are being varied
o Must show existence of an “animus contrahendi” (intention to contract) for it to be two separate “collateral” contracts
– must prove strictly
o Policy: must be limited times where collateral contracts so you can’t suggest existence of verbal collateral agreements
related to same subject matter

 Here, no evidence to support collateral contract

 o No evidence of contractual liability regarding accuracy of the statement
o Was a mere statement of fact in reply to a question – no guarantee
o While there was a representation, it was nothing more than a representation and no intention outside the main contract.
 (Peek v Derry: statement must be reckless – innocent misrepresentation gives no rise to action)
 An affirmation at the time of the sale is a warranty -> but must be so intended
o Court here narrows this definition – more than just a statement of fact
o Intention of the parties can only be deduced from totality of evidence
 No intention for contractual liability w/r/t accuracy of statement – TJ erred in leaving question of warranty to the jury

Conclusion:
 Appeal allowed; this was an innocent misrepresentation – not a warranty. Not a binding collateral contract.
o appellants win.

Oscar Chess Ltd v Williams

1975, UK, Court of Appeal
Facts:
 Plaintiff – Oscar Chess Ltd (Mr. Ladd was a salesman) (Purchaser)
 Defendant – Mrs. William’s son, W.V.R. Williams. (Seller)
 In 1954, Mrs. Williams acquired a second-hand Morris car.
o She acquired it on the footing that it was a 1948 model at a price of £300.
o The registration book showed that it was first registered in 1948, with five changes of ownership.
 Car was used by her son (defendant) – often gave rides to a motor salesman (Ladd) who was employed by Oscar Chess Ltd
o Ladd thought car looked like a 1948 model.
 1955, Williams told Ladd he wanted to get a new Hillman Minx car for £650, and offered the 1948 Morris car in part exchange.
o Williams described the car as a 1948, and produced the registration for it.
o Ladd looked up the 1948 Morris car – and offered £290 for it.
 this enabled Williams to buy the new car; if he had not gotten this allowance, he would not have gone through
with the transaction.
 Transaction was completed, but 8 months later, the plaintiffs realized the car was a 1939 not 1948.
o Would have been worth only £175, not £290
 In describing the car as a 1948, the defendant was perfectly innocent.
o He honestly believed that it was a 1948.
o Someone far back in 1948 must have fraudulently altered the log-book, but he cannot be traced now.
 Plaintiff’s claim as damages the difference of £115. (the difference in value of a 1939 & a 1948 Morris car).

 TJ sided with plaintiffs – found the type of car was an essential term of the contract – it was a condition of contract
o (did not consider warranty issue).

Issue:
 Whether Williams made a warranty to Ladd that the car was a 1948 model.
o Or, was it an innocent misrepresentation?

Ratio:
para 8
1. In order to get damages when faced with innocent misrepresentation, the plaintiff must prove the misrepresentation was a
warranty of the contract and that there was breach of that warranty.
o otherwise – cannot get damages from a misrepresentation – can only get rescission and return the parties to the
status quo ante. (this is just me trying to straighten out outcomes the parties may seek at court)
 ie whether they want damages – or just to put themselves back in the position they started.
2. The test for whether warranty is intended depends on the conduct of the parties, on their words and behaviours, rather than on
their thoughts.
o If an intelligent bystander would reasonably infer that a warranty is intended, that will suffice.
3. A statement made by a seller who has no personal exclusive knowledge to a professional/commercial buyer with equal or superior
knowledge about the subject matter will be a misrepresentation and not a warranty (applying the intelligent bystander test).

 Not a warranty-innocent representation, no special knowledge with respect to the car, just passing along information, intention of
parties as interpreted by what would be reasonable to infer.
Analysis:
 Agrees that both parties assumed car was 1948 model – this was fundamental, but that does not prove that the representation was
a term of the contract
 Was a common mistake
 Common mistake does not void contract from beginning, but might enable contract to be set aside in equity (if buyer came to
court in time)
o But here, the plaintiff came to court too late, so all he could get is damages, and to get damages, he must prove a
warranty.
 By “warranty”, Denning means a binding promise (rather than an innocent misrepresentation)
o Says this is the “ordinary English meaning”

 Intention depends on words and behavior of parties, not their thoughts -> if an intelligent bystander would reasonably infer
that a warranty is intended, that will suffice
o When the seller states a fact, which is within his own knowledge and of which the buyer is ignorant, intending that the
buyer should act on it and he does so, it is easy to infer a warranty.
o But, more difficult to imply warranty if the seller, when he states a fact, makes it clear that he has no knowledge of his
own, but got his information elsewhere, and is merely passing it on.

Application:
 Much depends on words used – question of intent
o If the seller says, “I believe car is a 1948 Morris. Here is the registration book to prove it,” there is clearly no warranty.
 It is a statement of belief, not a contractual promise.
 an intelligent bystander would understand this is not a warranty
o But, if the seller says, “I guarantee this is a 1948 Morris. This is borne out by the registration book, but you need not rely
solely on that. I give you my own guarantee that it is.”
 There is clearly a warranty. The seller is making himself contractually responsible, even though the registration
book is wrong.
 Proper inference from the facts is that there was no warranty.
o seller had no personal knowledge of the year of the car
 he only became owner after a great number of changes.
o He must have been relying on the registration book.
 it is unlikely that such a person would warrant the year of manufacture.
o The most that he would do would be to state his belief, and then produce the registration book in verification.
 In these circumstances, the intelligent bystander would say that the seller did not intend to bind himself so as to warrant that the
care was a 1948 model.

 *If an oral term is put in writing - that is good evidence of intention to be a warranty
o (but, not decisive)

 Also: the plaintiffs were motor dealers and relied on the registration book.
o If they wanted to confirm the year, they could have checked the engine and chassis numbers before purchasing.
 They only did this 8 months later.
o They should not now be able to recover against an innocent plaintiff who produced to them all the evidence he had.
o Car dealership should bear the loss – could have verified

 The person who committed the fraud cannot be traced, so the court must decide which innocent party must bear the loss.
o Loss should not be inflicted on an innocent seller who did not make a warranty.
o “The right course is to let the buyer set aside the transaction if he finds out the mistake quickly and comes promptly
before other interests have irretrievably intervened, otherwise the loss must go where it falls: and that is, I think, the
course prescribed by law”

Conclusion:
 Appeal allowed; there was no warranty.
o Seller/Defendant wins.
 does not have to pay £115

Dick Bentley Productions Ltd v Harold Smith Motors

1965, UK, Court of Appeal
Facts:
 Dick Bentley – plaintiff/purchaser
 Harold Smith Motors – defendant/seller
 Bentley brought an action claiming damages against the defendant.

 Bentley alleges that by a January 1960 agreement, partly in writing and party oral made, between Bentley and Smith, the
defendant had agreed to sell a Bentley motor car to him for the sum of £1850.
o It was alleged that Smith had represented or alternatively warranted that:
 the said car had throughout most of its life “been owned by Rolls Royce, and loaned to a German baron and had
only had one owner since arriving in England in 1959.
 the car only put on 20,000 miles since the fitting of a replacement engine and ancillary parts and gearbox.
 Plaintiff claims that, relying on those representations or warranties, he bought the motor car.
o But, contrary to those representations or warranties, the car was defective and in bad condition.
 Defendant argued that Smith stated, “to the best of his belief the vehicle had done 20,000 miles since the replacement engine and
that most of its life it had been owned by Rolls Royce, and that it had been lent to a German baron.”
o Argued these statements were made honestly and in the belief that they were true.
o Denied that these statements were either representations or warranties.
 also argued that if they were, that the plaintiff did not rely on them, and was not induced to purchase the car.
 Trial judge facts:
o Bentley had been dealing with Smith for a couple of years, and had told Smith that he was on the look-out for a well-
vetted Bentley car.
 Smith wrote to Bentley stating that he had purchased one, and that it is “one of the nicest cars we have had in
for quite a long time.”
o Smith had told Bentley earlier that he was in a position to find out the history of cars .
o Bentley went to see it, talked about 20,000 miles since new engine, German baron, etc;
 test drove it, then bought it.
o Smith guaranteed the car for 12 months including parts and labour.
 car gave Bentley much trouble over the first year – brought it in for repair multiple times.
 Eventually brought this suit.
 Car was owned by a German baron who crashed it in 1952. It was returned to the makers at 50,000 miles.
o fitted with a new engine and back to the baron until 1959. (would have put on a bunch more miles – near 100,000).
 back to makers and bounced around between dealers.
 changed to 20,000 miles somewhere along the way.

 Trial judge concluded that the statements were warranties.

o Regarding the mileage – Smith had stated a fact that should have been within his knowledge.
 Plaintiff was interested in the mileage, and would have acted depending on it.
o Plaintiff awarded damages.

Issue:
 Were the precontractual statements innocent misrepresentations (no damages) or a warranty (can give rise to damages)?
o Did the mileage provisions constitute a warranty?

Ratio:
1. A pre-contractual statement made at the time of the dealing for the very purpose of inducing the other party to act upon it, and
actually inducing him to act upon it, by entering into the contract, is prima facie an inference of a warranty.
 An affirmation at the time of sale would probably meet that test.
2. The maker of the representation can rebut this inference if he can show that it really was an innocent misrepresentation, in that he
was in fact innocent of fault in making it, and that it would not be reasonable in the circumstance for him to be bound by it.
 As in Oscar Chess.
3. Presumption is not likely to be rebutted where the representor has particular expertise, knowledge, or access to information that
the representee does not have.
 (like here)

Analysis:
Was the representation that the car had only done 20,000 miles since it had been fitted with a new engine an innocent
misrepresentation, or whether it was warranty? – YES WARRANTY
 Quotes Oscar Chess ratio.
o asks what conduct, words, behaviour lead to the inference of a warranty?

Distinguishes this case from Oscar Chess:

 Oscar Chess
o inference of a warranty was rebutted.
 The seller honestly believed the car was a 1948.
 regular dude who relied on the registration book; he was the fifth owner or so.
 Here
o the inference of warranty is NOT rebutted
 here, we have a dealer, Smith, who was in a position to know, or at least to find out the history of the car.
 he could get it by writing to the makers; he did not do so.
 he should have known better.

 Turns out the car was closer to 100,000 miles.

o Smith was not guilty of fraud, but he made the statement as to 20,000 miles without any foundation.
 Nobody knew the mileage once the car came to England
 The “20,000” was an invention of Smith.
 Smith stated a fact that should be within his own knowledge.
o he had jumped to a conclusion and stated it as fact.
 A fact that the buyer would act on.
 Therefore, ample evidence for warranty.

Conclusion:
 Appeal dismissed; plaintiff wins.
o There was a warranty.

Ennis v Klassen (dissent)

 Two takeaways:
 misrep & warranty can be construed out of the same fact scenario.
 rescission occurs at the moment the party tries to exercise rescission.
o when considering bars to rescission.

Arnold v Gen-West Enterprises Ltd

1996, MBQB
Applies Business Practices Act.
Facts:
 The Arnolds are requesting a judgment against Gen-West for $300 – being the amount of the deposit they paid for the purchase of
a 1994 Oldsmobile.
 Judge is allowing their claim as he is satisfied that Gen-West committed an unfair business practice under the Business Practices
Act by failing to disclose that the automobile had been rebuilt after having been “written off” following an accident.
 Gen-West buys, repairs, and sells automobiles
 Arnolds agreed to purchase a car in “as-is condition”
o They were selling another car, when unable to sell, no longer wanted to purchase from Gen-west
 Arnolds claim their agreement was conditional upon sale of their existing vehicle
 The Arnolds ask to withdraw from the contract (rescission), but Gen-West refuses
 The Arnolds find out the car they wanted to buy was written off due to accident.
o Arnolds say defendant was obligated to say car was written off
 Gen-West says they were only obligated to ensure vehicle was safe & had no duty to volunteer any information about history of
vehicle (Arnolds made no inquires in this regard)

Issue:
 1. Was the agreement conditional upon sale of their old vehicle? (a condition precedent)
 2. Does the failure of GW to disclose that the car had been “written off” constitute an unfair business practice?

Ratio:
 Failure to carry out the disclosure of info about the car was seen as an unfair business practice because it was a misrepresentation
designed to deceive and mislead the consumer.
o Under the business practice act silence can be a misrepresentation.

Analysis:
 1. Agreement was not conditional upon sale of the other vehicle – nothing in bill to suggest it.

 2. Considers the Business Practices Act (see statute) – it is an unfair business practice under Act
 o *s. 2(1)(a): “To do or say something or to fail to do or say anything if, as a result, a consumer might reasonably be
deceived or misled”
o Court allowed to order supplier to repay all or part of the amount
 GW made deliberate decision not to inform the Arnolds that the car had been “written off”
 If he disclosed this fact, it would have affected both the amount the Arnolds were willing to pay & perhaps even their decision to
purchase
o He knew that as a result of his failure to disclose, the Arnolds “might reasonably be deceived or mislead” – consumer
transaction here covered by the Business Practices Act
 GW had positive duty to disclose fact that vehicle had been written off – failure to do so constitutes an unfair business practice
under s. 2(1)
 (Also, says Arnolds made a reasonable effort to resolve dispute -> awards that GW repay whole deposit with interest)

Conclusion:
 Claim allowed; Gen-West committed an unfair business practice

Chapter 23 – Parol Evidence Rule & Two Party Collateral Contracts

Shariff:
 The Parol Rule is another rule that can be used to interfere or defend against arguments like rectification or collateral warranties.
o Traditional rule: The idea that oral evidence that contradicts, varies, adds, or subtracts from the written terms of the
contract is not admissible.
 Even though courts have acknowledged the Traditional Rule; if a plaintiff is pleading an action that requires oral evidence, like
misrepresentation, warranty, or rectification, the court has acknowledged that there needs to be an exception to the rule – at least
at the admissibility level – in order to allow certain arguments to be made.
 Once the court admits the oral evidence, then the court is faced with determining how the parol evidence rule operates at a
substantive level:
o meaning – is it true that an oral representation can never add/subtract/contradict the written terms?
 we know this not to be true – b/c we’ve seen cases where the oral contract contradicts the written document.
 mistake case – Hartog v Collin Shield
 rectification case – Performance Industries v Sylvan.
 We will see a case that shows the Traditional Rule, then a more flexible approach to the rule, and then a third case that
distinguishes between the two levels of the rule.
o distinguishes b/w admissibility, and then the substantive impact of the arguments on the rule.
 What we are trying to understand:
o How arguments that rely on oral arguments (like misrep/warranty) in the face of a written contract are impacted by the
Parol Evidence Rule.
o shows how a party can use the rule to exclude oral evidence.

 Creates priority for the oral agreement

 Any arguments re: rectification, warranties, etc. that deal with oral evidence will bring the parol evidence rule into play
o I.e. ask basic question: how is the written contract impacted by oral evidence?
 Traditional parol evidence rule: Where a written agreement appears on its face to be a complete agreement, parol evidence
cannot be admitted that contradicts, varies, adds, or subtracts from the terms of the written agreement.
 Sole repository of the contractual obligations of the parties
 Written agreement: creates certainty, narrows the issues of disagreement, good evidence to look at what the parties agreed to in
writing.
 Whenever relying on oral evidence in the face of a written contract between the parties, you will always have to consider
the parol evidence rule.
 Once you have oral evidence, look at it substantively, what is it trying to do to the written agreement (contradict/vary/
adding/taking away from it)

NN
 To what extent should the written document be considered the exclusive source of the terms of the agreement?
o One party claims: written document constitutes full agreement
o Other party claims: some prior (e.g. oral) undertaking given by the other party is also part of the agreement
 “Parol evidence” rule a misnomer; neither parol nor evidence rule
o 1. Applies to all forms of prior communication, not just oral
 Rule, generally: extrinsic evidence is not admissible to add to, subtract from, vary, or contradict the terms of a written
contract
o Rule is meant to promote certainty
 Exceptions to the Parol Evidence Rule:
o 1. Rectification: here, court will allow extrinsic evidence that parties made an oral agreement, but recorded it incorrectly
in a written contract
 Rectification is an equitable remedy and only applies when it is clear the parties have entered into a prior oral
agreement.
o 2. Parol evidence is admissible to show that the written contract is, in fact, only an escrow.
 Eg. that the contract is to take effect only when a particular condition-precedent (orally agreed) is fulfilled
o 3. Parol evidence is admissible to establish a distinct collateral contract.
o 4. Other exceptions: parol evidence is admissible to establish that:
 The written contract is not enforceable (mistake, misrep., undue influence)
 The written contract was not intended to constitute the whole agreement.
 Consideration has not been paid for the written contract.
 Written contract may state that price has been paid, whereas it has not been paid.
o 5. Statutory Modification: in some provinces, application of the rule in consumer transactions has been abolished by
statute.
 Question is: under what conditions, if any, can the written text of an agreement be supplemented with other statements and
documents, written or oral.
 If a contract can be read without ambiguity and ambivalence, it will end the matter right there. If it is clearly stated that
the contract is fully self-contained that is the end of the matter; and vice versa.

 Difficulty arises when there is lack of clarity as to what the parties intended.
 External conditions cannot form part of the contract, except:
o Where the undertaking can be shown to constitute a condition precedent of the contract.
o If a prior undertaking helps establish that sufficient consideration was not provided for the contract.
o If a prior undertaking can be said to constitute a collateral contract.
o If a prior agreement can bring evidence of fraud, undue influence etc.
 Question: is parol evidence of a collateral contract admissible where the collateral contract is in conflict with the written contract?
o NO: Hawrish v. Bank of Montreal - S.C.C. – so, it is the law.
 2 different versions of the rule:
o 1. Traditional
 Where written agreement appears on its face to be a complete agreement, parol evidence cannot be admitted
that contradicts, varies, adds, or subtracts from the terms of the written agreement.
o 2. Modern
 Need to demonstrate that the parties actually intended to reduce their agreement into writing as a precondition
to the application of the rule.
 (Starting to be embraced in Canada – see Gallen case)

 For exam – she wants us to be able to identify when the parol evidence rule might be raised.
o would be raised in any circumstance where we have a written contract and verbal evidence.
o Not required to do the analysis!!

Hawrish v Bank of Montreal

1969, SCC
 A case that sets out the traditional rule of parol evidence.
Facts:
 Hawrish – Guarantor / solicitor; (defendant/appellant)
 BMO – plaintiff/respondent
o BMO is suing Hawrish for breaking a guarantee in which he had signed for the indebtedness and liability of a new
company.
 Hawrish had a controlling interest in Waldheim Dairies Ltd. (a cheese factory)
o A new company, Crescent Dairies Ltd, had been formed for the purpose of buying assets in Waldheim.
 By January 1959, the line of credit granted by BMO to the new company had almost been exhausted.
o Hawrish signed a guarantee that would cover existing as well as future indebtedness of the company up to $6000.
 Hawrish argues that when he signed the guarantee, he had an oral assurance from a branch manager that the guarantee was to
cover only existing indebtedness and that he would be released from his guarantee when the bank obtained a joint guarantee from
the directors of the company.
o The bank did obtain a joint guarantee for the sum of $10,000 in July 1959; and then obtained another one for $10,000 in
March 1960.
 Hawrish says that he did not read the guarantee before signing.
o In February 1961, Crescent Dairies became insolvent – their overdraft at the time was $8000.
 BMO is coming after Hawrish for his full guarantee of $6000.

 H, lawyer, signed guarantee for the indebtedness and liability of newly formed Crescent Dairies
 D had oral assurance from assistant manager of the bank who said guarantee was only to cover existing indebtedness, and that he
would be released for guarantee when bank obtained a joint guarantee from company directors
o He wasn’t released
o CD became insolvent, bank tries to realize on full amount of guarantee
 H didn’t read document before signing but that’s irrelevant, especially given his profession

 Trial dismissed BMO’s claim

o trial judge admitted the oral evidence
 Court of Appeal reversed decision, and gave judgment for BMO.
o the parol evidence was not admissible. (SCC agrees).

Issue:
 Were the purported representations of the bank manager an independent oral agreement? (e.g., collateral contract)?
 Can the collateral oral agreement stand in the face of the written contract? NO

Ratio:
 While it is possible to sometimes find an oral agreement collateral to the written contract, (based on the intention of the parties), a
collateral agreement cannot be established where it is inconsistent with or contradicts the terms of the written agreement.
o In other words, when oral assurances contradict the written contract, those oral assurances are inadmissible (as here)

Analysis:
 The SCC found that the oral agreement was in plain contradiction of the provisions of the written agreement, and the oral
evidence should not be admitted.
o The written contract was the sole repository of the agreement between the parties.
o The SCC found no exception to the parol evidence rule and applied it very strictly.

 The relevant provisions of this guarantee may be summarized as follows:

a) It guarantees the present and future debts and liabilities of the customer (Crescent Dairies Ltd.) up to the sum of $6,000.
b) It is a continuing guarantee and secures the ultimate balance owing by the customer.
c) The guarantor may determine at any time his further liability under the guarantee by notice in writing to the bank. The
liability of the guarantor continues until determined by such notice.
d) The guarantor acknowledges that no representations have been made to him on behalf of the bank; that the liability of the
guarantor is embraced in the guarantee; that the guarantee has nothing to do with any other guarantee; and that the
guarantor intends the guarantee to be binding whether any other guarantee or security is given to the bank or not.
 There was no error in the reasons of the court of appeal.
o This guarantee was to be immediately effective.
o According to the oral evidence it was to terminate as to all liability, present or future, when the new guarantees were
obtained from the directors.
o But the document itself states that it was to be a continuing guarantee for all present and future liabilities and could only
be terminated by notice in writing, and then only as to future liabilities incurred by the customer after the giving of the
notice.
 The oral evidence is also in plain contradiction of the terms of para. (d)
 The appellant further submitted that the parol evidence was admissible on the ground that it established an oral agreement which
was independent of and collateral to the main contract.
o Fails as there was no clear intention to create a collateral contract.
o Fails on the ground that the collateral agreement allowing for the discharge of the appellant cannot stand as it clearly
contradicts the terms of the guarantee bond which state that it is a continuing guarantee.
o a collateral agreement cannot be established where it is inconsistent with or contradicts the written agreement.
 Even if there was a collateral agreement, the collateral agreement allowing for the discharge of the Appellant cannot stand as it
clearly contradicts the terms of the guarantee bond, which states that it is a continuing guarantee.

Conclusion:
 Appeal dismissed. BMO wins.

J. Evans & Sons (Portsmouth) Ltd v Andrea Merzario Ltd

1976, UK CA
 A more flexible approach to the parol evidence rule.
o The Court is looking at the context of the contract to conclude that the parties could not have intended that the writing
alone represented what the parties had agreed to.
Facts:
 J. Evans & Sons – importer
o Purchased a special injection moulding machine.
 Andrea Merzario – Italian forwarding agents, handled logistics of transportation.
 The parties had been doing business together for some time.

 Case about container traffic – the vessel Ruhr was not built for containers – it was built as a merchant ship but had been converted
to carry containers.
o Nov. 1968, the Ruhr was going from Rotterdam to Tilbury.
o Two containers fell off – one contained a special injection moulding machine worth £3000.
 No claim against shipowners – “ship at own risk.”
 Claim is by the English importers, Evans, against the forwarding agents, Andrea Merzario.

 Merzario made arrangements under which the goods were carried by rail from Milan to Rotterdam, then by ship to Tilbury, and
then carried to the destination in England.
 For years, Merzario had always arranged for the machines to be packed in crates to be carried under deck; as they were liable to
rust carried on deck.
o When it was proposed to change over to pack the machines in containers, Merzario talked to Evans about it.
 Merzario’s manager, Mr. Spano, spoke with Mr. Leonard of Evans.
o Leonard (Evans): “I have heard about these containers. I am afraid that our machines may get rusty if they are carried on
deck. They must not be carried on deck.”
o Spano (Merzario) replies: “If we do use containers, they will not be carried on deck.”
 On getting these assurances, Evans was content.
 Nothing was put in writing about the machines being carried under deck.
o But there were terms and conditions (see below)
 There was some mistake made somewhere and some containers were stored on deck.
o two fell off.
 Evans claimed damages against Merzario.
o Merzario replied stating there was no contractual promise that the goods would be carried under deck.
 alternatively, if there was, they relied on the printed terms and conditions.
 Condition 4 – gives company complete freedom in respect of means, route, and procedure in the
transportation of goods.

 TJ held there was no contractual promise for the goods to be carried under deck.
o (held it was just an innocent misrepresentation)

Issue:
1. Did Merzario’s oral assurance constitute a binding promise and part of the contract? YES.
2. Could Merzario rely on the written exemptions in the contract, despite the oral promise? NO

Ratio:
Denning:
 An express oral assurance in a separate collateral contract that induces the main contract will override any inconsistent terms in
the main contract.
Roskill:
 Contracts can be partly oral and partly written. An oral promise or term can override an inconsistent written term if, on the totality
of the evidence, that was the parties’ intention.
So the starting point is that oral evidence is not admissible. This second approach states that contracts can be party oral and partly
written.

Analysis:
Denning:
 1. It is plain that Spano gave an oral promise of assurance that the goods would be carried under deck.
o That promise was made to induce Evans to agree to the goods being carried in containers.
 promise was relied upon.
o In those circumstances, that promise is binding.
 Merzario is liable unless they can rely on the printed conditions.
 2. Merzario cannot rely on exemptions. (terms and conditions)
o The printed condition is rejected b/c it is repugnant to the express oral promise or representation.
 ex. condition 4 – gives company complete freedom in respect of means, route, and procedure in the
transportation of goods.

Roskill and Lane, concurring, one contract theory:

 Each of the 6 witnesses were in agreement in recollection
 The contract was partly oral, partly in writing, and partly by conduct
o So you don’t need to use collateral oral warranty concept here (which Denning used)
 here, was not a pair of written contracts, but rather one contract (look at totality of evidence)
 The promise induced plaintiffs to enter contract – clearly enforceable
 None of the exemption clauses can be applied, because one has to treat the promise that no container shipped on deck as
overriding the exemption clauses
 Otherwise, the promise would be illusory & plaintiffs would have hard time recovering
o Business efficacy considered here: defendants liable
 When asked if the usual written trading conditions applied, bystander would have said no.

Conclusion:
 Appeal allowed.
o Evans wins – oral evidence was admissible.

Gallen v Allstate Grain Co. Ltd.

1984, BCCA
Facts:
 Gallen – plaintiff – BC farmer
 Allstate Grain Co – defendant – SK seed company

 The plaintiffs, experienced farmers, were interested in growing buckwheat as a result of the defendant's advertising.
o they have no experience growing buckwheat as a first-crop.
 The defendant was in the business of selling seeds to farmers and buying farm crops.
 Plaintiff’s specifically asked the defendant whether buckwheat was prone to weeds.
 The plaintiffs were assured by an employee of the defendant that buckwheat was a broad-leafed, fast-growing crop that would
grow quickly and smother any weeds.
o With that assurance, the plaintiffs signed the defendant's standard contract, which contained a clause stating that the
defendant "gives no warranty as to the productiveness or any other matter pertaining to the seed sold to the producer and
will not in any way be responsible for the crop".
o So we see the oral and written terms were in conflict.
 Weeds grew uncontrolled and destroyed the crop.

 Plaintiff sues for breach of warranty, breach of collateral contract, and negligent misrepresentation.
 Defendant argues that the Hawrish parol evidence rule applies – in that the oral terms contradict the written terms, and that the
written terms should prevail.

 At trial – Gallen/plaintiff’s win.

o succeeded in an action for damages for breach of warranty.
 Defendant appeals.
o on grounds that the oral evidence was not admissible, there was a contradiction b/w the oral and written agreement, and
that the oral representation was not a warranty.
Issue:
 Whether or not the parol evidence rule applies to the representation.
 This appeal by Allstate is now limited to questions about the parol evidence rule. These are the questions:
a) Is evidence of the oral representation admissible?
b) Is the oral representation a warranty?
c) Can the oral representation add to, subtract from, vary or contradict the signed document?
d) Is there a contradiction between the oral representation and the signed document?

Ratio:
 The parol evidence rule is not absolute; there are a number of exceptions. Including where an oral promise:
a) is evidence of a collateral agreement; or
b) supports the allegation that the written document itself was not intended by the parties to constitute the whole agreement.
 If a prior oral agreement is not contradictory and was intended to be binding, it may prevail over the written agreement.

 Admissibility: The parol evidence rule does not apply to certain categories for admissibility.
 Substantively, the parol evidence rule is not absolute. Rather, it creates a strong presumption that the written document is to be
taken as the whole agreement.
o The parol evidence rule will be less strong if:
1. The oral representation is only adding, subtracting, varying, and not contradicting the written document;
2. The oral representation is specific and the written exclusion is general; or
3. If the parties are using a standard form as compared to a negotiated written document.
 The overall goal is to first try to read the oral agreement harmoniously with the contract.

Analysis:
 Lambert clarifies that the parol evidence rule is dealt with at two levels.
1. Admissibility level
2. Substantively – what is the substance of the argument with respect to parol evidence in the face of written contractual
provisions?

 In this case, the oral representation was intended to be acted upon and to form a part of the contract and it was a warranty.
o There was no contradiction between the warranty and the written contract and the defendant was liable for breach of the
warranty.

a. Is Evidence of the Oral Representation Admissible? Yes.

 The rule of evidence may be stated in this way: Subject to certain exceptions, when the parties to an agreement have apparently
set down all its terms in a document, extrinsic evidence is not admissible to add to, subtract from, vary or contradict those terms.
 Even in cases where the document seems to embody all the terms of the agreement, there is a myriad of exceptions to the rule.
Evidence of an oral statement is relevant and may be admitted, even where its effect may be to add to, subtract from, vary or
contradict the document:
a) to show that the contract was invalid because of fraud, misrepresentation, mistake, incapacity, lack of consideration, or
lack of contracting intention;
b) to dispel ambiguities, to establish a term implied by custom, or to demonstrate the factual matrix of the agreement;
c) in support of a claim for rectification;
d) to establish a condition precedent to the agreement;
e) to establish a collateral agreement;
f) in support of an allegation that the document itself was not intended by the parties to constitute the whole agreement;
g) in support of a claim for an equitable remedy, such as specific performance or rescission, on any ground that supports
such a claim in equity, including misrepresentation of any kind, innocent, negligent or fraudulent;
h) in support of a claim in tort that the oral statement was in breach of a duty of care.
 This is not an exhaustive list
 In this case, the evidence was properly admitted on the question of whether the document constituted a record of the whole
agreement (f).
 evidence – buckwheat being a fast-growing crop with no weeds – was properly admitted as an exception to the rule b/c
the plaintiff is trying to demonstrate on the facts that the representation is a warranty and that the written document does
not contain the whole document.

b. Is the Oral Representation a Warranty?

 The distinction turns on whether the representation became a part of the contractual relationship between the maker and the
recipient.
o That, in turn, depends on the intention of the parties, as derived from objective evidence, including, but not limited to,
evidence that tends to show whether the representation was intended to be acted upon and was in fact acted upon.
 The question is: who was to bear the risk that the statement might be wrong, the person who made it, or the person who acted on
it?
o If it must be taken to have been intended, and understood, when said, to form a part of the contractual relations between
the parties, then it is a warranty.

c. Can the Oral Representations add to, subtract from, vary, or contradict the signed document?
 Principle from Hawrish: A collateral agreement cannot be established where it is inconsistent with or contradicts the written
agreement.
 Lambert makes 8 comments about this principle:
1. the principle has its root in the parol evidence rule as a rule of evidence, and in the "two contract" or "collateral contract"
exception to that rule of evidence.
 There is no objection to the introduction of evidence to establish an oral agreement separate from the written
agreement and made at the same time.
 But it is unreasonable to contemplate that, at the same time, and between the same parties, two contracts will be
made dealing with the same subject matter, one of which contradicts the other.
 So, since the written one was clearly and demonstrably made, reason requires one to conclude that the
oral one, contradicting it, was never made.
2. the principle cannot be an absolute one.
 The principle in Hawrish is not a tool for the unscrupulous to dupe the unwary.
3. Hawrish illustrates, by the attention given to the evidence, that the principle is not an absolute one.
 If the principle were an absolute one, there would have been no need to mention the evidence.
 B/c written would always trump oral if it were absolute.
4. Recognizes a particular exception to the principle:
 if the contract is induced by an oral misrepresentation that is inconsistent with the written contract, the written
contract cannot stand.
5. The rationale of the principle, as discussed in the first point, does not apply with equal force where the oral
representation adds to, subtracts from or varies the agreement recorded in the document, as it does where the oral
representation contradicts the document.
 As far as "adding to" is concerned, there is nothing inherently unreasonable about two agreements which add to
each other.
 "Subtracting from" and "varying" represent a halfway stage between "adding to", which is wholly reasonable,
and
 "contradicting", which is wholly unreasonable.
 So you may be able to get around the Parol Evidence rule if you call it a variation as opposed to a contradiction.
6. There is a presumption that a document which looks like a contract is to be treated as the whole contract.
 That presumption is always strong.
 But it is strongest when the oral representation is alleged to be contrary to the document, and
somewhat less strong when the oral representation only adds (or is a variation) to the document.
7. That presumption would be more rigorous in a case where the parties had produced an individually negotiated document
than it would be where a printed form was used, though it would be a strong presumption in both cases.
8. The presumption would be weaker where the contradiction was between a specific oral representation and a general
exemption clause that excludes liability for any oral representation than it would be in a case where the specific oral
representation was contradictory to an equally specific clause in the document.
 that presumption will be questioned depending on how specific or general the clause at issue is.
 These are considerations the courts can use to get around the parol evidence rule; but the starting point is always the Hawrish
principle.

 Despite these considerations, Lambert finds no contradiction b/w the oral representation regarding the weeds being smothered and
the written exclusion clause regarding the seeds.
 so he accepts the oral evidence.
 substantively – no contradiction.
 It was a warranty.
d. Is there a contradiction between the oral representation and the signed document?
 In this case, oral warranty and printed document do not contradict each other.
 Written clause merely states Allstate gives no contractual promise as to yield of the crop.
 Proper to interpret written clause in relationship with oral representation made.
 Can interpret oral representation and written clause harmoniously:
o “Allstate would not be responsible for matters relating to the seed, for the yield, or for matters that might affect the
production of the buckwheat arising from soil conditions or from farming methods and practices, but Allstate would
assume any risk that the crop would be destroyed by weeds. There is no reason why the usual rule that a harmonious
construction should be preferred to a contradictory construction should not apply.”
 [Harmonious construction – interpret clauses so they do not contradict]

Conclusion:
 Oral misrepresentation was a warranty –> evidence admissible -> interpreted together with oral warranty, and there was no
contradiction (alternatively, if there was a contradiction, could still overcome presumption due to intent to affect relationship etc.)
 Once it has been decided that the oral representation was a warranty, then, in my opinion,
o (a) evidence accepted on the basis that there would be a subsequent ruling on admissibility becomes admissible;
o (b) the oral warranty and the document must be interpreted together and, if possible, harmoniously, to attach the correct
contractual effect to each;
o (c) if no contradiction becomes apparent in following that process, then the principle in Hawrish has no application; and
o (d) if there is a contradiction, then the principle in Hawrish is that there is a strong presumption in favour of the written
document, but the rule is not absolute, and if on the evidence it is clear that the oral warranty was intended to prevail, it
will prevail.
 Since there is no contradiction in this case between the specific oral warranty and the signed standard form, buckwheat marketing
agreement, 1980, I have concluded that the warranty has contractual effect and that the defendant Allstate Grain Co. Ltd. is liable
to the plaintiffs for breach of that warranty.

 But if the oral representation and the buckwheat marketing agreement contradicted each other, then, on the basis of the facts
found by the trial judge and his conclusion that the oral representation was intended to affect the contractual relationship of the
parties, as a warranty, I would have concluded that, in spite of the strong presumption in favour of the document, the oral
warranty should prevail.

Conclusion:
 Appeal dismissed.
o Plaintiff/farmer wins.
o Parol evidence rule does not apply.

 For exam – she wants us to be able to identify when the parol evidence rule might be raised.
o would be raised in any circumstance where we have a written contract and verbal evidence.
o Not required to do the analysis!!

Chapter 24 – Conditions, Warranties, and the Effect of Their Breach

 Trying to distinguish between Conditions & Warranties
o looking at the term of the contract and how serious it is
 is it a condition or warranty?
 This is relevant for considering what actions an innocent party can take when there is a breach of contract.
 An innocent party can find themselves in two situations when there is a breach of contract:
1. The innocent party may have already performed their obligations; or
2. The innocent party may have not yet performed their obligations.
 In both these situations, the innocent party may sue for damages.
 The question remains whether the innocent party is still obligated to follow through with the contract and perform its side of the
bargain; or
o whether the breach excuses the innocent party from carrying out their obligations of the contract.
 (ie can the innocent party be let off the hook without fulfilling their end of the bargain.)
 This all turns on how fundamental or important the breached term is.
o ex – Miranda agrees to paint Heather’s entire house.
 Miranda does not complete the job – fails to paint the window trim.
o Miranda clearly in breach of contract and Heather can sue for damages – damages would only be nominal – cost of
painting trim.
 but can Heather walk away from the contract entirely and not pay Miranda anything?
 does not seem legally fair to not pay Miranda for the painting she had already completed.
o Could be a different result if Miranda only painted for one day and then left.
 ie – Would Heather have to pay for the entire job, and then sue for damages? Or just walk away from the
contract and pay the new contractor?

 What is the threshold for house serious the breach is?

o Answer depends on whether broken term is a condition or a mere warranty (technical distinction)
o When we looked at warranty re: pre-contractual statements, we didn’t distinguish term/condition/warranty
 o But when we address breaches, need to distinguish between warranty and condition

 We want to understand how serious the breach is:

Condition – a fundamental term.
 A breach of a condition will excuse the innocent party from following through with its side of bargain.
o Innocent party can repudiate contract (justifiably walk away)
 Technically, contract is still there; not voided.
 does not technically return the party to the status quo ante (as opposed to rescission)
 repudiation is simply about not performing the contract.
o However, there is no obligation to repudiate a contract.
 the innocent party can choose to affirm a contract.
Warranty – a minor term
 A breach of a warranty will not excuse the innocent party from performing his obligations.
o The innocent party cannot repudiate the contract.
 If the innocent party quits, then they are in breach of contract

*Bettini v Gye – helpful for understanding

1876, UK.
Facts:
 Bettini – Plaintiff; opera singer;
 Gye – Defendant; director of Royal Italian Opera in London
 Agreement in writing between Bettini and Gye:
o Generally, Bettini could not sing elsewhere in UK during 1875 from March 30-July 13
o “Mr. Bettini agrees to be in London without fail at least 6 days before the commencement of his engagement, for the
purpose of rehearsals.”
 Bettini was ill, and only arrived in London on March 28th. (2 days prior, instead of 6 days)
o clearly in breach of contract.
 Gye refused to allow Bettini to perform, claiming lack of fulfillment of condition precedent (wasn’t 6 days)
o Arguing it was a precondition for obligations to kick in that Bettini showed up 6 days early
 Bettini sued for damages under the contract

Issue:
 Was Bettini’s breach of contract a condition or a minor term (warranty)?
o Ie – was the breach so fundamental as to allow Gye to repudiate the contract?
 Was the stipulation regarding the timing of Bettini’s arrival a condition precedent?
 Or was it only an “independent agreement” which only justifies damages?
o (Language different than modern terms of condition/warranty but reflects the same concept)

Ratio:
 To determine if a breach is a condition (which justifies repudiation) or a mere warranty, in the absence of an express declaration
by the parties, you must look at the contract as a whole to determine the intention of the parties.
o A condition is a term that goes to the root of the matter such that its breach renders performance of the contract different
in substance from that which was stipulated by the breaching party.
o A warranty is an independent agreement that does not really affect, or only partially affects, the contract.

Note – this is a conventional approach.

Court says when there is an express declaration by the parties – this carries significant weight.

Analysis:
 Failure of Bettini to attend 6 days ahead only affected certain performances, so the breach did not go to the root of the contract
and was therefore not a condition.

 It is clear that Bettini has not fulfilled part of contract.

 Answer to the issues depends on the true construction of the contract, taken as a whole.
 Parties may think a matter, apparently of very little importance, is essential; and if they sufficiently express an intention to make
literal fulfilment of such a thing a condition precedent, it will be one
o Or parties may think that performance of some matter, apparently of essential importance and prima facie a condition
precedent, is not really vital, and may be compensated with damages, and if they sufficiently expressed such intent, it
will not be a condition precedent
 Intention of parties (condition precedent or non-vital term) not clear from the document here
o So, need to look at the whole contract
 When looking at whole contract: does the stipulation go to the root of the contract?
o Does it render performance of the rest of the contract by Bettini a thing different in substance from what Gye stipulated?
o Or, does the stipulation merely partially affect Gye’s benefit from the contract, such that may be compensated for by
damages?
 Breach of early attendance provision was intended only to lead to damages
o Performances with singers outside company
o Bettini missed other booking opportunities on that span (big promise not to sing elsewhere)
o Performances over long period of time (not just a single engagement; was over long span)
o Does not go to root of the matter (Singer showing up early had limited impact)

Conclusion:
 It was only a warranty, not a condition;
o Gye could not repudiate – Bettini receives damages.

Hongkong Fir Shipping Co. Ltd v Kawasaki Kisen Kaisha Ltd.

1962, QB CA
 we see an expansion of the conventional approach from Bettini and a development of a new test.

 Charterer wants to repudiate the contract.

o argues the owner breached a fundamental condition of the contract – the seaworthiness of the ship.
o a breach of the condition would excuse them from performing their obligations
 they want to be let off the hook and sue for damages.
 This is very different than saying the contract does not exist!
o if you say the contract does not exist, on the basis of misrep or mistake, then there is no breach of contract and damages
cannot flow.
Facts:
 Hongkong Fir Shipping – plaintiff; owner of the ship
 Kawasaki – defendant – charterer of the ship.

 Hongkong chartered the vessel to Kawasaki, the defendants, a company registered in Japan
 Charter for that agreement provided:
o Owners to hire vessel for 24 months – specific terms set out
o Would make ship seaworthy (to exercise due diligence/supply crew)
o Otherwise, clause exempts the owners from liability in delay (owner only responsible for problems from their lack of
due diligence)
 Vessel picked up; sailed from Liverpool to Virginia, and was then to go to Osaka, Japan (going through Panama Canal; expected
2 month trip)
o stopped in Virginia for engine repairs;
o stopped in Panama for engine repairs;
o had to make a stop in Los Angeles for engine repairs to make it across the Pacific.
 total repairs took five weeks and cost £21,400 so far.
 Then, in Osaka, engine found to be in bad state & more repairs were required
o Required another 13 weeks of repairs, cost an additional £37,500.

 The ship’s machinery was in reasonably good condition at Liverpool, but by reason of its age, needed to be maintained by an
experienced, competent, careful and adequate engine room staff.
o It was not – chief engineer was inefficient and the complement of the engine room insufficient.
 the engine room was undermanned, with only five engineers, three fitters, and seven greasers.
 they were unfamiliar with this machinery.
o Previous owners had employed seven engineers and eight ratings, most who were familiar with the machinery.
 Had the owners taken proper steps to inform themselves they would have discovered there needed to be at least seven engineers.
o The causes of the breakdowns and the delays was the lack of necessary experience, complemented with the poor
weather.

 Kawasaki then wrote that they repudiated the charter AND claimed damages for breach
o argues the owner breached a fundamental condition of the contract – the seaworthiness of the ship.
 a breach of the condition would excuse them from performing their obligations
 they want to be let off the hook and sue for damages.
o (In the alternative, they claimed frustration of contract)
 Hongkong, owners, then claimed damages from wrongful repudiation from charter party (Kawasaki)
o claims that the seaworthiness of the ship is only a warranty, and not enough to repudiate the contract.
o (Shows repudiation is a dangerous game – if it was done wrongfully, liable for damages to other side)

 Ship keeps breaking down, D wants out (to repudiate), argues owner breached fundamental condition of contract: seaworthiness
of the ship
 Owner (Hong Kong) argues that the seaworthiness is only a warranty and not enough to repudiate contract, commences action for
wrongful repudiation

 TJ found vessel unseaworthy, but the charterers were not entitled to repudiate (e.g. just a warranty)

Issue:
 Can the charterer repudiate the contract on the basis of the breach of contract – is it a warranty or a condition.
 Was the seaworthiness of the ship a condition or a warranty?
o If the seaworthiness is a condition, the charterers can repudiate the contract.

Ratio:
1. In order to determine if a breach of contract is a breach of a condition (allowing repudiation) or a warranty, look at the
consequences of the breach.
 If the breach has deprived the innocent party of all the benefits they intended to gain from the contract, then the term is a
condition and the innocent party may repudiate the contract.
2. If the breach has been expressly contemplated by the contract, the innocent party will not be considered to have been
substantially deprived of the whole benefits of the contract and cannot repudiate the contract.

 Focus on the impact of the event on the innocent party, rather than the at-fault party’s breach
1. If it was known in advance that the relevant undertaking was a condition, the innocent party has the right to repudiate.
2. If it was known in advance that the relevant undertaking was a warranty, the innocent party may only claim damages.
3. If it was not known either way (innominate), then depends on nature of the event as result of the breach and decide
whether occurrence of those events substantially deprived party of the whole benefit intende for them to obtain.
 Impact of event to be judged when innocent party purports to repudiate the contract
o This will determine whether that party is justified in repudiating contract
 *(Not all judges have adopted this)

Analysis:
 It was a warranty only – the innocent party had not lost all the benefits of the contract.
o So the charterer could sue for damages of the breach, but still obligated to fulfill their terms of the bargain.
 Why?
o There was an express provision in the agreement that contemplated breakdown of that ship and time to repair it.
 This provision shows the defendant contemplated that the other side could be in breach of the contract due to a
breakdown.
 b/c they anticipated this, the innocent party was not deprived of the whole benefit of the contract – it
was already in their minds.
 And there were provisions re: liability by P only if there was a lack of due diligence on the part of the ship owners

 Contract may have a cancellation clause or may be a statute, but law sometimes must step in to determine if event discharges a
party from further performance.
 Test for if repudiation is permissible: Does the occurrence of the event deprive the party who has further undertakings still to
perform of substantially the whole benefit which it was intended by contract that he should obtain in exchange for performing
those undertakings?
o Depends on if event occurs due to fault of one of the parties
o If one party at fault: the at-fault party cannot rely upon it as relieving himself of relieving self of any further performance
– cannot take advantage of own wrong; innocent party can treat it as repudiated though
o When event occurs as a result of wrong of neither party, each relieved of further performance of their own undertakings;
rights become governed by law of frustration
 It is the happening of the event (not the fact that event was a breach of contract by one party) that relieves a party not in default
of further performance of obligations
o Breach caused the event -> but we are concerned with event caused (impact) not breach itself
 o 2 consequences of this below
 (1) Test of whether event relieves other party of obligations is the same whether the event is the result of the
other party’s breach of contract or not
 *(2) Test cannot be determined by treating all terms as either “conditions” or “warranties”
 (1) Condition terms
o If breached, it will give rise to an event which will deprive the innocent party of substantially the whole benefit which it
was intended that she should obtain from the contract
 *(Benefit must objectively have been known in advance – based on situation)
o Unless parties have agreed that breach of it shall not entitle innocent party to treat it as repudiated
o Many simple terms that go without saying (implied) that would substantially alter the whole benefit if breached – these
are conditions too (can be implied or explicit)
 (2) Warranty terms
o If breached will NOT give rise to event that will deprive the innocent party of substantially the whole benefit which it
was intended that she should obtain from the contract
o Unless parties agreed breach of it shall entitle party to treat contract as repudiated
o Can be express or implicit
 (3) “Innominate” terms
o Neither warranties nor conditions; some breaches will, others will not give rise to event that deprived party of
o Depends on nature of event to which breach gives rise; at times unclear (often complex)
o E.g. ship-owners breach may substantially frustrate benefit the longer the breach is prolonged (long breach would be
condition, short breach would be warranty)
o Bruce calls this the “nether regions” – cannot automatically be defined as one or other
o You don’t know at start whether these are conditions or warranties – need to look at event that breaches of these terms
caused & whether impact was to deprive innocent party of substantial benefit
o Look at events that occur as a result of the breach and decide whether occurrence of those events substantially deprived
party (charterers) of the whole benefit it was intended they should obtain
 If benefit substantially deprived, party justified in rescinding the contract
o Impact of event to be judged when innocent party purports to repudiate the contract
 Problem here not solved by debating whether ship owner’s promise to making ship seaworthy was a condition or warranty -> falls
into a third category
o Rather: one large class of contractual undertakings, one breach of which may have effect of breach of condition, others
only the effect ascribed to warranty
 Application:
o Ship-owner’s undertaking to make ship seaworthy very complex – can be broken by presence of trivial defects easily
fixed OR major defects that result in loss of vessel
o Clause on due diligence here exempted ship-owners for responsibility for delay unless caused by their own fault; did not
deprive substantial benefit under contract because suggested that charterers undertook to continue to perform obligations,
notwithstanding the occurrence of such event
 Suggests some element of seaworthiness not enough to deprive charterer of the whole benefit of the contract
 Suggests more likely entitled to damages, not repudiation

Conclusion:
 This was a warranty;
o Charterer not allowed to repudiate.

Spirent Communications of Ottawa Ltd v Quake Technologies (Canada) Inc.

2008, ONCA
 Repudiation in the case of anticipatory breach.
Facts:
 Spirent agreed to lease the majority of an Ottawa office building that was under construction.
o Quake Technologies agreed that it would sublease part of the building for three years.
o June 1, 2001, was the specified occupancy date for both Spirent and Quake.
 Weather and construction mistakes led to delays in the construction of the building.
o In the spring of 2001, as a result of the decline of the high technology sector, the commercial leasing market in Ottawa
had changed dramatically and more space was available and rental rates had gone down significantly.
 On April 9, 2001, Quake learned that occupancy would be delayed until July 15, 2001.
o It advised Spirent in a letter on April 19 that due to Spirent’s failure to be able to deliver occupancy on June 1, 2001, it
would not proceed with the sublease agreement.
 o Spirent disputed the alleged shortcomings and maintained that the subleased premises would be available on June 1,
2001, as agreed.
 Nonetheless, in May 2001, Quake subleased space elsewhere at a significantly lower cost.
o Spirent then purported to accept Quake's "repudiation" of the sublease agreement.
 Spirent was able to sublease the space to third parties but at a much-reduced rate.
o It sued Quake for the difference ($1.1 million) between the amount it would have received under the sublease agreement
and that which it was actually able to obtain.
 Quake defended on the basis that by April 19, 2001, it had become apparent that Spirent was unable to deliver the sublease
premises on the occupancy date and that Spirent was in breach of its obligations under the Agreement.
o Quake also counterclaimed for the expenses it had incurred in reliance on the agreement and as a result of Spirent's
alleged breach, and for the return of the deposit that it made at the time the agreement was entered into.

 At trial, Quake wins – they were entitled to repudiate.

o Spirent’s claim dismissed – they appeal.

Issue:
 Whether the anticipatory delay in occupancy deprived Quake of substantially the whole benefit of the contract – such that they
could repudiate.
 Whether Spirent’s potential breach (inability to deliver occupancy by June 1) to the agreement was so fundamental as to allow
Quake to repudiate the contract.
o NO!

Ratio:
 Only a fundamental breach gives an innocent party the right to treat an agreement as at an end.
o The test for a fundamental breach is whether the consequences deprived the innocent party of substantially the whole
benefit of the contract as assessed by the five-factor test:
(1) the ratio of the party's obligations not performed to that party's obligations as a whole;
(2) the seriousness of the breach to the innocent party;
(3) the likelihood of repetition of such breach;
(4) the seriousness of the consequences of the breach; and
(5) the relationship of the part of the obligation performed to the whole obligation

 If the alleged breach is an anticipatory breach, in addition to satisfying the five-factor test, the party wishing to repudiate must
also demonstrate that the conduct of the other side evinces an intention not to be bound to the contract before the performance is
due.
o To assess whether the party in breach has evinced such an intention, the court is to ask whether a reasonable person
would conclude that the breaching party no longer intends to be bound.

 Repudiation does not automatically bring a contract to an end, rather it gives the innocent party the right to elect to treat the
contract as if it is at an end.
o if the innocent party makes this election, then parties are relieved from further performance of the contract and the
innocent party may also sue for damages.
 As a general rule, the innocent party must make the election and communicate it to the other party in a reasonable amount of time.

Analysis:
 Trial judge failed to measure Spirant’s breach against the legal standard of fundamental breach.
o Appeal allowed.

Did the anticipated delay in occupancy deprive Quake of substantially the whole benefit of the Agreement?
 the anticipated delay did not constitute a fundamental breach.
 Quake argues that the anticipated delay was of fundamental importance to it because the consequence of not taking occupancy on
June 1, 2001, was that it would have been "out on the street". I do not accept this submission for two reasons.
o First, the record does not support Quake's contention.
 There was no evidence at trial that Quake made any efforts to obtain more "swing space" before it made its
decision to terminate the Agreement. – The evidence was actually to the contrary:
 In the April 19th letter, Quake stated that its existing landlord was willing to provide it with a three-
month extension
o Second, the record shows that Quake did not apply for a building permit until March 2001.
 While this timing may be explained by other delays, if the June 1, 2001, occupancy date was of such importance
to Quake, one would have thought Quake would have applied for its building permit well before March 2001.
 In the circumstances, it is telling that Quake never directly asked Spirent about the extent of any possible delay. All of these
matters speak to the seriousness of the breach and its consequences to Quake.
o They do not support a conclusion that the possible delay in occupancy was so serious that it gave Quake the legal right to
treat the Agreement as terminated.

The Five Factors

 The trial judge focused on the 4th factor — the seriousness of the breach to the innocent party.
o I do not accept that the anticipated delay in occupancy had sufficiently serious consequences to Quake that it would have
deprived Quake of substantially the whole benefit of the Agreement.
o This conclusion is reinforced by considering the first and fifth factors, that is, by considering the breach in the context of
Spirent's overall obligation under the Agreement.
 Spirent's obligation under the Agreement was to provide Quake with occupancy by June 1, 2001.
 Quake's occupancy was to last for 3 years.
 In the circumstances, a delay in occupancy of six weeks is not so significant that it amounts to
deprivation of substantially the whole benefit of the Agreement.

Did Spirent evince an intention not to be bound by the Agreement?

 A reasonable person would not conclude that Spirent evinced an intention to no longer be bound by the provisions of the
Agreement.
o To conclude otherwise would be to fail to recognise that the anticipated delay in occupancy was the result not of
Spirent's actions but, rather, of the weather and mistakes of third parties.
 The record demonstrates that Spirent very much wanted the Agreement to continue.
o Like Quake, Spirent needed to take occupancy of the premises on June 1, 2001.
o Further, given the change in the rental market, Spirent clearly had a financial incentive to keep the Agreement afoot.
 And, the correspondence between Spirent and Quake demonstrate that Spirent was working to complete its
obligations under the Agreement.
 For example, Quake's notes of the meeting of March 8, 2001, show that Spirent was working with
Quake to meet Quake's demands.
 The evidence also shows that, beginning on the day immediately following that meeting, Spirent took
steps to further respond to those demands.
o Even after Spirent received the April 19th letter from Quake, it continued to attempt to meet
Quake's concerns and work with it to minimise anticipated delays in occupancy.
 Spirent gave no indication, by conduct or language, that it wanted to repudiate the Agreement or that it did not intend to be bound
by its provisions.
o On the contrary, the record shows that until its May 17, 2001 letter, when Spirent accepted Quake's repudiation, Spirent
intended to fulfill its contractual obligations.

Conclusion:
 Appeal allowed – Spirent wins; receives the $1.1 million in damages.

Chapter 25 – Exclusion Clauses (Notice)

 Frequently, a stronger party will create exclusion clauses in contracts to protect themselves further.
 There are typically two purposes to exclusion clauses:
1. To reduce or limit the terms or obligations under the contract.
 ex. the party identifies that they will not take responsibility for certain things.
 ie the Sale of Goods Act does not apply to the contract.
2. To reduce or limit the consequences of a breach of the contract.
 ex. capping the liability at $1000
 Important to note that the Courts/cases don’t usually make this distinction between the two purposes
o but useful for us if we draft documents for clients

 Two main categories where we see exclusion clauses:

A. Unsigned documents
 ex. in the form of a ticket or receipt
 ie – get a ticket from a parkade, and on the back is more information.
B. Signed documents
 ex. where you rent a car – there is usually a long list of provisions in the document before you sign.
 The question for the court:
 o First, to investigate whether the exclusion clause actually forms part of the contract between the parties.
o Second, even if the court finds that the exclusion clause forms part of the contract, it is not a given that the exclusion
clause will be enforced.
 was there reasonable notice given to a party regarding the exemption clause?
 With signed documents: position changes somewhat: taken to have agreed to what you signed

A. Unsigned Documents
 Key is to determine whether or not the clause forms part of the agreement
o Even when ruled it is a term of the contract, not always enforceable (if the clause is unusual or harsh, must be given
reasonable notice to be enforceable)

*Parker v Southeastern Railway

1877, CoA
Facts:
 Parker – Plaintiff
 Southeastern Railway – Defendant
 Plaintiff checked his luggage on a train.
 He was given a ticket with a number on one side, and a number of clauses on the reverse.
 One of the clauses stated that the railway company, “will not be responsible for any package exceeding the value of £10.”
o Both respondents had received the tickets before but had never read the small print.
 They both lost their bags, and brought actions against Southeastern Railway for the value of the bags and their contents
o both were greater than £10.

 Plaintiff successful at trial, defendant company appeals.

Issue:
 Was the plaintiff bound by the terms on the back of the ticket?
o terms limiting liability to a maximum of 10 pounds.

Ratio:
Mellish – with respect to incorporation of terms.
1. Knowledge of writing can replace actual knowledge of terms.
o If the person receiving the ticket knows it contains writing, that person will be bound by the terms contained in the
document, provided that it is in the common knowledge that such writing contains such terms and conditions.
2. Reasonable notice can replace actual knowledge.
o A person will be bound to conditions on the back of the ticket, even if they do not know there are conditions, if sufficient
notice has been given.

para 9/10

Analysis:
Justice Mellish:
 para 7 with respect to signed documents, it is irrelevant or wholly immaterial if the person has not read the agreement and does
not know its contents.
 But, with unsigned documents, the printing on the ticket could be incorporated into a contract provided a reasonable person would
have appreciated that there was writing on the back of the ticket.
o So, if the person receiving the ticket does not know there is writing on the back of the ticket, they cannot be bound by its
conditions.
o But, if the person receives the ticket and knows it contains conditions, and keeps it, that person assents to those
conditions regardless of whether the person reads them or knows them, provided that sufficient notice of the conditions
have been given. (para 9)
 This is b/c a business is entitled to assume that a person receiving a ticket can read and understand English and will pay attention
to what may reasonably be expected of that person.

 So the question here is: did Southeastern Railway do what was reasonably sufficient to give the plaintiff notice of the condition?
o Justice Mellish ordered a new trial to see whether or not there was reasonable notice.

Justice Bramwell: - overall agrees with Mellish

 states that this is a question of law
 o if a person receives printed matter, they must read it and either object or not object.
o but if a person does not red it, they must be held to the terms. para 13
 The bottom line is that you must inform yourself.
o would have given judgment to railway company, but said if it is a question of fact, a new trial should be ordered.

Conclusion:
 A new trial ordered to see whether sufficient notice was given.

Thornton v Shoe Lane Parking Ltd

1971, UK, CA
 This case shows us there is a higher standard for incorporation of unusual or onerous terms.
Facts:
 Thornton, plaintiff, parked his car in Shoe Lane’s parking garage.
 Thornton got a ticket from an automated machine — the ticket included a statement that the ticket is issued subject to the
conditions posted in the parking lot.
o A notice on the outside of the parking garage stated: 'ALL CARS PARKED AT OWNERS RISK'.
 These conditions were posted in the office where you had to pay upon departure, and on the wall opposite the ticket machine,
however the poster was not very prominent. 
o On a pillar opposite the ticket machine, there was a set of printed conditions in a panel, part of which provided that: “....
the [defendants] shall not be responsible or liable for any loss or misdelivery of or damage of whatever kind to the
Customer's motor vehicle, or any articles carried therein or thereon or of or to any accessories carried thereon or
therein or injury to the Customer or any other person occurring when the Customer's motor vehicle is in the Parking
Building howsoever that loss, misdelivery, damage or injury shall be caused; and it is agreed and understood that the
Customer's motor vehicle is parked and permitted by the [defendants] to be parked in the Parking Building in
accordance with this Licence entirely at the Customer's risk...'
 A condition exempted Shoe Lane from any liability for personal injury caused to the customer while their car was in the parking
garage.
 Thornton was seriously injured when placing goods in his trunk before leaving by another car.

 parking at owner’s risk

 parkade operated by automated ticket machine.
 plaintiff injured loading something into his car
 in small print on ticket – “ticket was issued subject to the conditions displayed on the premise.”
o inside car park, notice excluding personal liability for personal injury.

 At trial, plaintiff & shoe lane found 50/50 at fault.

 Shoe lane appeals

Issue:
 Whether the limitation of personal liability condition can be incorporated into the contract. NO.

Ratio:
Regarding Offer and Acceptance and the Incorporation of Terms:
 In cases with automatic ticket dispensers, the contract is formed when the plaintiff inserts money into the machine and receives
the ticket.
o Anything on the ticket dispensed by the machine cannot be incorporated, b/c it has come too late.

Regarding Incorporating through Sufficient Notice:

 Where a condition is particularly onerous or unusual, the party seeking to enforce it must show that the condition was fully
brought to the attention of the other party.
o how much is required to be reasonably sufficient is dependent on the nature of the restrictive condition.

Analysis:
Denning:
 First, Denning looks at the idea of how to incorporate terms when dealing with an offer & acceptance analysis.
o when dealing with automated machines, the fiction from 19th century ticket cases that customers can reject or decline
conditions does not apply.
o machines make a standard offer which the customer accepts when he does whatever is required to activate the machine.
 ie putting money in the slot.
  The formation of the contract occurs when the customer accepts.
o Anything on the ticket dispensed by the machine cannot be incorporated, b/c it has come too late.
 The ticket in this case is merely a receipt, b/c the customer cannot refuse or decline.

 Next, Denning looks at the potential incorporation of terms based on sufficient notice.
o When terms are unusual or onerous, a stricter approach regarding notice must be taken.
 In this case, the customer is bound to the notice at the entrance of the parkade that parking is at the owner’s risk.
o But this does not exempt Shoe Lane from personal liability to personal injury.
 Personal injury is an unusual liability to exclude, therefore it needs to be drawn to the customer’s attention in
explicit terms.
o In this case, the exempting conditions is “so wide and so destructive” that the court should not hold anyone bound to it
unless it is drawn to the person’s attention in the most explicit way.
o In order to give sufficient notice for such an unusual and onerous term, like exclusion of liability for personal liability,
then the notice would have to printed in “red ink, or a red hand pointing to it or something equally startling.”
 The evidence here is that the customer did not know about the condition, and so could not be bound by it, unless reasonable notice
was given.
o no reasonable notice given.

Megaw:
 Megaw does not focus on the formation analysis, but just focuses on the incorporation of the term through sufficient notice.
o The question relates to the particular condition on which the defendant is seeking to rely.
o When that condition is unusual, the defendant must show that it was fairly brought to the notice of the other party.
o How much required to be reasonably sufficient is dependant on the nature of the restrictive condition.
 Agrees that there was not sufficient notice in this case.
o Proper steps were not taken to bring notice.
 The first attempt to bring notice was practically impossible. It would have been hard for the plaintiff to leave his
car and seek out the conditions being referenced.
o para 17. “It does not take much imagination to picture the indignation of the defendants if their potential customers,
having taken their tickets and observed the reference to the conditions which, they said, could be seen in notices on the
premises, were one after the other to get out of their cars, leaving the cars blocking the entrances to the garage, in order
to search for the notices.”

Conclusion:
 Appeal dismissed. Reasonably sufficient notice of the exempting clause was not provided.

*Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd

1989, QBCA
 Again looking at incorporating the condition – it is a very high standard.
Facts:

 Interfoto – plaintiffs / run a library of photographic transparencies

 Stiletto - defendants

 Stiletto/defendants wanted photographs for a presentation for a client.

o Defendants telephoned the Plaintiffs and asked whether the Plaintiffs had any photographs of the 1950s.
 Also included in the jiffy bag was a delivery note.
 Interfoto/plaintiffs, at the request of Stiletto, delivered 47 photographic transparencies to Stiletto in a jiffy bag.
o Having received the transparencies, Stiletto telephoned Interfoto and told them that they were very impressed with their
fast service, that one or two of the transparencies could be of interest, and that they would get back to Interfoto.
 Stiletto did not get back to Interfoto.
 While Stiletto did not use the transparencies, they did not return them until about a month later.

 Stiletto never read Interfoto's 9 standard terms and conditions, which were on a delivery note inside the bag.
o Condition 2 of the terms said there was a holding fee of £5 for each day over fourteen days.
 Condition No. 2 of the delivery note: “All transparencies must be returned to us within 14 days from the date of
posting/delivery/collection. A holding fee of £5.00 plus VAT per day will be charged for each transparency which is retained by
you longer than the said period of 14 days save where a copyright licence is granted or we agree a longer period in writing with
you.”
 After approximately a month, Interfoto sent a bill for £3,783.50 as a holding charge.
 o After the invoice was refused, Interfoto brought an action against Stiletto.

 Interfoto delivered 47 photographic-transparencies to Stiletto in a jiffy bag.

 Stiletto phoned Interfoto, and said there was interest in the transparencies, and would get back to Interfoto.
o Stiletto did not get back to Interfoto
 Stiletto did not use the transparencies, but also did not return them until about a month later.
 Interfoto sent a bill for over $3000 as a holding charge.

 Interfoto/Plaintiff won at trial

o Stiletto appeals

Issue:
 Can the onerous unread terms apply?
o Was the condition sufficiently brought to the attention of the defendants? NO.

Ratio:
 With respect to modern conditions, if one condition in a set of conditions is particularly onerous or unusual, then the party seeking
to rely on that clause must show that it was sufficiently brought to the attention of the other party.
o In order to know if the notice was sufficient and proportional to the onerous clause, one would consider the following
factors: Look at:
1. the nature of the transaction,
2. the character of the parties.
 and then ask if it is fair to hold them to the condition in question.
 it’s a proportionality test!
o the more onerous the condition, the more notice needed.

As an aside:
 Quantum Meruit – the industry standard of the penalty was reduced from $5 to $3.50 / week.
o if plaintiff would have won, this was what the penalty would have been.

Analysis:
Justice Dillon:
 Formation of contract:
o The contract comes into existence with the plaintiff sending the transparencies to the defendants, and after opening the
bag, it was accepted when the defendants called the plaintiffs, said they were impressed, and would get back to them.
 Parker v Southeastern Railway applies to any owners’ clauses where one contracting party would not know of the clause. para 16.
 Condition 2 is a very onerous clause, and the defendants could not conceivably know of that condition if their attention was not
drawn to it. para 17
 Even though people hardly ever bother to read conditions on tickets, and the terms are becoming more and more complicated in
society, it is still the case that there is a tendency that people assume all these conditions are only about ancillary matters and are
not really important.
o the old ticket cases demonstrate that reasonable steps must be taken to draw attention to printed conditions.
 When looking at modern conditions, if one condition in a set of conditions is particularly onerous or unusual, then the party
seeking to rely on that clause must show that that clause was sufficiently brought to the attention of the other party.
o in this case, the plaintiff did not draw the defendant’s attention to Condition 2, and so it is not a part of the contract.

Justice Bingham:
 Considers two aspects:
o Pure contractual analysis on the one hand; and on the other,
o the concept of fairness and whether it is reasonable to hold parties to conditions that are unusual and stringent in nature.
 Sets out the following test for whether or not there is sufficient notice for unusual and stringent conditions.
o Look at the nature of the transaction in question, and the character of the parties to it, to consider what notice the party
alleged to be bound was given of the particular condition said to bind him, and to resolve whether in all the
circumstances it is fair to hold him bound by the condition in question. para 24.
 In this case, Interfoto did not do what was required to bring notice to the clause, which was unreasonable and extortionate.

Conclusion:
 Appeal allowed – the term was not incorporated into the contract.
 o The plaintiff did not draw the defendant’s attention to Condition 2.

Union Steamship Ltd v Barnes

1956, SCC
 We see that it is not an excuse if you did not know or read the conditions – it is all about reasonable notice.
Facts:
 Barnes (respondent) was a on ship with his family.
 Barnes purchased ticket on board a ship (red ink on front of ticket referred to clause on back)
o Barnes never read ticket, and the company never explicitly pointed attention to the clause (but Barnes travelled
frequently with the company)
 Barnes fell down a dark hatchway and injured himself.
 He sued the shipping company for negligence.
 Union Steamship (appellant) argues that they are not liable because of the exclusion exemption clause on the back of the ticket.
o this exclusion clause exempted them for liability for negligence.
 Clause on reverse side:
o “... the person using it assumes all risk of loss or injury to person or property while on the vessel or while embarking or
disembarking, even though such loss or injury is caused by the negligence or default of the shipowner, its servants or
agents, or otherwise howsoever. The holder ... agrees to all the conditions ....”

Issue:
 Was there reasonable notice to make the clause a part of the contract?

Ratio:
 An exclusion clause on a ticket will be considered part of the contract if reasonable notice is given.
o This is a question of fact. So – must look at the facts to see if reasonable notice has been given.
 Some facts to look at include the kind of business, the kind of notice (colour of the letters, how big the font is), and the kind of
injury.
 The more onerous that clause, the greater notice must be given.

 In this case, Barnes was a frequent traveller of this ship, and he knew that tickets were to be purchased on board.
o So there was reasonable notice in the circumstances.
 It is a question of fact.

Analysis:
Majority:
 the business requires a ticket to be purchased on board, but there was reasonable notice.
 Factual, we must note, that Barnes saw the writing on the face of the ticket.
 para 22-25, & 41. Reasonable notice is a question of fact.
o in this case, reasonable notice was given b/c
 the notice to the conditions was printed in red writing on the front of the ticket.
 highly visible
 there was only one condition
 very quick to read
 The court asks how anyone could make it any clearer
 no evidence to show that the respondent could not have read the condition.

Rand – Dissent:
 Very strong – Rand has a distaste for exemption clauses – which is the general view of Canadian courts today.
 para 4: Rand, sufficient or reasonable notice was not given b/c:
o the party gets the ticket after they are on board,
o they are rushed into the situation
o Barnes had young children to attend to
o shippers do not advertise the clause
 it is tucked away on the back side of the ticket
o the clause has extreme and unusual terms that rob a person of their right to sue in negligence for personal injury.

Conclusion:
 Union Steamship wins – there was reasonable notice in the circumstances.
Bigger picture: Courts can dismiss exclusion clauses in two ways:
1. Receipt
o SCC identified that sometimes when you get a ticket, a reasonable person may not imagine that this has a contract on it.
 a reasonable person may only think they have a receipt.
2. Look at the time the contract was entered into.
o One would ask, “where is the offer and acceptance?”
 if the contracting party has no knowledge of the exemption clause prior to making the contract, then the clause
is not part of the contract.
o But the court can enforce an exemption clause, where there is no knowledge, by using reasonable notice.
 if there is reasonable notice, then knowledge is not required.
 Test:
 what is reasonable in the circumstances and to a person acting with the alertness of an ordinary man.

B. Signed Documents
 Presumption that you are agreeing to what you are signing (however, if it is a harsh or unusual clause, court will take additional
steps to determine if clause is valid)
 Unlike unsigned documents, the conventional view regarding signed documents is that reasonable notice is not necessary.
o Unless there are exceptional circumstances, exemption or exclusion clauses contained in the signed written document
will always be binding – even though a party may not have read and/or understood the document.
 Rule from L’Estrange v F. Graucob Ltd. / para 6 Curtis v Chemical.
o “When a document containing contractual terms is signed, then, in the absence of fraud, or I will add, misrepresentation,
the party signing it is bound, it is wholly immaterial whether he has read the document or not.”

 BUT this view could lead to severe injustice as clauses often difficult to read, written in small print.
o Question: then how much court relies on to written documents?

Curtis v Chemical Cleaning & Dyeing Co.

1951, KB CA
 This case is an exception to the conventional rule that the signed document is binding.
o narrows the conventional rule, where, apart from the signed document, you have a misrepresentation.
Facts:
 Mrs. Curtis – plaintiff
 Chemical Cleaning – defendant

 Plaintiff took a white satin wedding dress to the shop of the defendants for cleaning.
 Shop assistant handed her a paper headed “Receipt”, which she was asked to sign.
o she asked why, and the assistant innocently, but wrongly, replies it was b/c the defendants would not accept lability for
certain specified risks, including the risk of damage by or to the beads and sequins with which the dress was trimmed.
 when really, it was to exclude all damage done in any way!
 Plaintiff signed the receipt – which included the following condition:
o “This or these articles is accepted on condition that the company is not liable for any damage howsoever arising, or
delay.”
 Dress came back with a stain.
 Plaintiff sues.
o Defendant relies on the exemption of liability clause.
o Plaintiff argues they were induced to sign because of a misrepresentation.

 Trial judge found the employee made an innocent misrep, which meant the defendant could not rely on the exemption clause.
o defendant appeals.

Issue:
 What is the effect of the misrepresentation on the exemption clause?
o note – factually, we have a misrepresentation and reliance by the customer.
 customer seeking damages. – not just setting the contract aside.

Ratio:
 When a signature to an exemption clause is obtained by innocent or fraudulent misrepresentation, the misrepresentor is disentitled
from relying on the exemption to the extent of the misrepresentation, and to the extent it has been relied upon, because it does not
form part of the contract.
o Needs to be an associated reliance or inducement
Also Note:
 This kind of misrepresentation makes damages possible
o Not the kind of misrep that induced whole contract, just induced re: exemption clause
 Would also have to consider the Parol Evidence Rule
o Consider whenever there is oral evidence in the face of a written contract.
o Could the defendant raise the Parol Evidence Rule as a defence in this case?
 probably.
o Misrep is the argument being made by plaintiff, so evidence would be admitted.
o We know the parol evidence does not necessarily contradict the presumption that the written document is the whole
agreement.
o The presumption is less strong because we have a general written clause and a specific oral representation.

 For exam – she wants us to be able to identify when the parol evidence rule might be raised.
o would be raised in any circumstance where we have a written contract and verbal evidence.
o Not required to do the analysis!!

Analysis:
Summervell:
 The exemption did not form part of the contract, because it was conveyed that the purpose of the receipt was to exempt them from
liability to beads and sequins only.
o so this was a misrepresentation which induced the plaintiff’s signature.
 That misrepresentation disentitled the defendant’s from relying on any part of the exemption clause, which exempted them from
all damages, because in those circumstances, it never became part of the contract between the parties.

Denning:
 “When you sign a written document, the signature is irrefragable evidence of your assent to the whole contract, including any
exemption clauses, unless the signature is obtained by fraud or misrepresentation.” para 12
 So what is sufficient misrepresentation?
o Any misrepresentation, fraudulent or innocent, will be sufficient if it conveys a false impression and misleads the other
party about the existence or extent of the exemption clause.
o Either type of misrepresentation will disentitle its creator to the benefit of the exemption. (shop assistant in this case)
 Based on this, let’s consider whether the exemption clause operates at all.
o Could still rely on the exemption regarding damage to the beads and sequins, as she was aware of this.
 but in this case, only damage was a stain.

 Reliance and inducement?

o the misrepresentation must be relied upon!
o “If the misrepresentation is not relied upon, there is no reason for the exclusion clause not to operate to its fullest extent
when dealing with signed documents.”

Conclusion:
 Appeal dismissed.
o The exemption did not form part of the contract, because it was conveyed by a misrepresentation which induced the
plaintiff’s signature.

Tilden Rent-a-Car Co. v Clendenning

1978, ONCA
 Continues on with conventional rule that signed documents are binding
o but narrows that rule with respect to particular consumer transactions that are speedy – brings it closer to unsigned
documents in terms of reasonable notice requirements.
Facts:
 Upon his arrival at Vancouver airport, Mr. Clendenning (defendant) rented a car from Tilden Rent-A-Car Company.
o He was an experienced traveller and had used Tilden Rent-A-Car Company on many prior occasions.
 He was asked by the clerk whether he desired additional coverage, and, as was his practice, he said "yes".
o He signed the contract in the presence of the clerk and returned it to her.
 Clendenning did not read the terms of the contract before signing it, as was readily apparent to the clerk.
 On the front of the contract are two relevant clauses:
o 15. In consideration of the payment of $2.00 per day customers liability for damage to rented vehicle including
windshield is limited to NIL.
 But notwithstanding payment of said fee, customer shall be fully liable for all collision damage if vehicle is
used, operated, or driven in violation of any of the provisions of this rental agreement
o 16. I, the undersigned have read and received a copy of above and reverse side of this contract.
 On the back of the contract in particularly small type and so faint in the customer's copy as to be hardly legible, there are a series
of conditions, the relevant ones being as follows:
o 6. The customer agrees not to use the vehicle in violation of any law, ordinance, rule or regulation of any public
authority.
o 7. The customer agrees that the vehicle will not be operated:
 (a) By any person who has drunk or consumed any intoxicating liquor, whatever be the quantity.
 The rented vehicle was damaged while being driven by Mr. Clendenning in Vancouver.
o At trial – he argued that in endeavouring to avoid a collision with another vehicle and acting out of a sudden emergency,
he drove the car into a pole.
o He stated that although he had pleaded guilty to a charge of driving while impaired in Vancouver, he did so on the advice
of counsel, and at the time of the impact he was capable of the proper control of the motor vehicle.
 This evidence was accepted by the trial Judge.

 Even though Clendenning paid the additional insurance limiting his liability to NIL, Tilden said Clendenning should be liable due
to the exemption clause.
 Trial – found Clendenning not liable.
o found prior oral misrepresentations from Clendenning’s previous rentals.
 Clendenning thought full coverage was only void if he was so intoxicated as to not be able to control the
vehicle.
 under this interpretation, Clendenning would have full coverage.
 Tilden appeals.

Issue:
 Whether the defendant is liable for the damage caused to the automobile while being driven by him by reason of the exclusionary
provisions which appear in the contract. NO.
 When does reasonable notice have to be given for signed exclusionary clauses – if at all?

Ratio:
 Harsh, onerous, inconsistent and/or unusual exemption clauses on signed standard forms are less enforceable in consumer
transactions where the emphasis is on speed of the transaction, unless reasonable notice is given, or unless measures have been
taken to draw the terms to the attention of the signing party.

 Another way to put it – A signature alone does not represent acquiescence in unusual and onerous terms which are inconsistent
with the true object of the contract. If there are such terms, the party seeking to rely on those terms should not be able to do so in
the absence of first having taken reasonable measures to draw such terms to the attention of the other party.

 Essentially, we have three circumstances where the conventional rule does not apply:
o where reasonable notice is not given;
o where the signor is unaware of the harsh provisions – or the party seeking to rely on the provisions knew, or ought to
know, that the signor was unaware of the harsh provisions;
o where the party seeking to rely on the provisions knew, or ought to know, the signature of the signor is not the true
intention of the signor.

 Good summary para 28

o “In modern commercial practice, many standard form printed documents are signed without being read or understood. In
many cases the parties seeking to rely on the terms of the contract know or ought to know that the signature of a party to
the contract does not represent the true intention of the signer, and that the party signing is unaware of the stringent and
onerous provisions which the standard form contains. Under such circumstances, I am of the opinion that the party
seeking to rely on such terms should not be able to do so in the absence of first having taken reasonable measures to
draw such terms to the attention of the other party, and, in the absence of such reasonable measures, it is not necessary
for the party denying knowledge of such terms to prove either fraud, misrepresentation or non est factum.”

 Be careful of this decision – b/c the conventional rule of L’Estrange has only been slightly modified.
 o So how to ensure a harsh or onerous clause is enforceable?
 The party seeking to rely on the signature must draw attention to the clause.
o ex – many places have you initial each sentence.

Analysis:
Arguments:
 Clendenning (Defendant) argues that if he had known the full terms of the written agreement, he would not have entered into the
contract.
 Tilden (Plaintiff) argues the conventional rule in L’Estrange, which is: “When a document is signed, then, in the absence of fraud
or misrepresentation, actual knowledge of the terms is wholly irrelevant.”
o Defendant wins! Exempting conditions do not apply.

Dubin:
 Identifies that the task for the court is to try to identify when an exemption should not be enforced, despite the conventional rule
regarding signed documents. ie – if you sign it, you are bound.
 The court assesses the contract from the perspective of consensus ad idem, which is meeting of the minds, and tries to understand
the rule within those contexts.

 The convectional rule is ultimately about protecting reasonable expectations.

o So a signature alone should not allow a party to rely on the document to contradict what he knows, or ought to know, is
the understanding of the other party.
o A signature is just one way that the assent to terms is manifested.
 ie – it is all well and good to put these types of clauses in, but the point must always be:
 what does the non-signing party reasonably believe that the signing party is actually agreeing to.
 do we have a meeting of the minds, and what are the reasonable expectations?
o Although it is true that a signer should not be able to complain after the fact that the other party actually relied on their
signature, the flip-side is that the relying party cannot rely on the other party’s signature if they knew, or had reason to
know, of the other party’s mistake or misunderstanding.
 This is b/c the court is to enforce reasonable expectations.

 The court says that the essential part of that test is whether the other party entered into the contract in the belief that Mr.
Clendenning was assenting to all such terms. para 15
o First, it was apparent to the clerk that Mr. Clendenning had not read the document in its entirety before he signed it.
 And the small print itself was not meant to be read or understood – it was hardly legible and concealed.
o Secondly, the court recognizes the circumstances of this transaction were rushed. para 18.
 The nature of the transaction was built on speed
 which is different from other commercial agreements where the parties sit down and negotiate.
 Here – it was informal and hurried.
o Thirdly, the court found the terms were onerous, harsh, and stringent. para 8.
 if the driver of the vehicle exceeded the speed limit even by one mile per hour, or parked the vehicle in a no-
parking area, or even had one glass of wine or one bottle of beer, the contract purports to make the hirer
completely responsible for all damage to the vehicle.
o Furthermore, the party bought extended coverage and the exemption clause was in direct contradiction to the extended
coverage clause.
 The court found the exemption clause was completely inconsistent for the purpose in which the contract was
entered into.

 In these circumstances, the party seeking to rely on the exclusion clause must do more than hand the document over for signature .
o The party seeking to rely is under a duty to provide reasonable notice of the clause because it is not reasonable to assume
that the signer was assenting to the onerous terms.

LaCourciere - dissent
 The contract was not difficult to read (the terms clearly printed on the reverse) and was brought to the customer's attention clearly,
fulfilling sufficiency of notice.
 While agreeing that the clause is strict, he held that it was economically efficient as insurance companies set their rates based on
risk and as other rental companies have a similar approach it was not an unusual clause.
 Should be left to the legislature to decide which exemption clauses are unreasonable.
Conclusion:
 Court dismisses the appeal; the exempting conditions do not apply.
o The onerous conditions in very small print were not brought in any real way to the attention of customer by Tilden.
o And the employee could not help but have known that Clendenning had not read the contract before signing it.
o In these circumstances, it was not open for Tilden to rely on the clause.

Karroll v Silver Star Mountain Resorts Ltd

1986, BCLR
 An example of the limited application of the Tilden exception.
o Has limited applicability, it is not a principle in contract law – it is an exception – only applicable in certain
circumstances.
 In this case, we have a speedy transaction with a fairly harsh clause, but the party seeking to rely on the clause did not have to
provide notice b/c the circumstances did not exist to indicate that the signing party was not assenting to the release.
o and secondly, they did provide reasonable steps.
Facts:
 The plaintiff (Karroll) sustained a broken leg while participating in a downhill skiing competition at Silver Star, near Vernon, BC.
o The injury resulted from a collision between the plaintiff and another skier.
 Prior to participating in the race, the plaintiff signed a document releasing Silver Star and its agents from liability for any injuries
sustained in the race:
o Release And Indemnity – Please Read Carefully
o I agree to: RELEASE, SAVE HARMLESS; and INDEMNIFY Resorts and/or its Agents from and against all claims,
actions, costs and expenses and demands in respect to death, injury, loss or damage to my person or property,
wheresoever and howsoever caused, arising out of, or in connection with, my taking part in the Event and
notwithstanding that the same may have been contributed to or occasioned by any act or failure to act (including, without
limitation, negligence) of Resorts and/or any one or more of its Agents.
 Plaintiff participating in the race for her fifth year.
o The plaintiff signed and dated the release.
o She explained to her friend, Ms. Pannell, that she would have to sign the release if she wanted to race.
 advising her that the release precluded her from suing the mountain if she fell and hurt herself of her own
accord.
 The plaintiff does not recall whether she read the heading at the top of the form: "RELEASE AND INDEMNITY — PLEASE
READ CAREFULLY".
o She asserts that she did not read the body of the document.
o She says she could have read it in one or two minutes and is unable to recall if she was in fact given an opportunity to
take the time to read it.

 If the plaintiff is bound by this document, she has no action.

o She contends that she is not bound by it, arguing that she was given neither adequate notice of its content nor sufficient
opportunity to read and understand it.

 Plaintiff sues for damages, but the defendants brought an application for an order declaring that she was precluded from recovery
on the basis of the release and indemnity document the skier signed on the day of the race.

Issue:
 How is the general contractual principle that a party signing a legal document is bound by its terms, despite not having read them,
to be reconciled with a requirement that a party presenting a document for signature must take reasonable steps to bring them to
the signing party’s attention?
o What is the balance?

Ratio:
1. The requirement for reasonable notice for onerous clauses in a signed document is actually an exception to the rule in L’Estrange.
2. There is no general duty for a party tendering a document for signature to take reasonable steps to inform the signing party of
onerous conditions or clauses.
o This obligation only arises where the circumstances are such that a reasonable person should have known that the party
signing was not consenting to the terms in question.
3. What do we look at to determine the circumstances?
o Look at the effect of the exclusion clause on the nature of the contract.
o the length of release & size of print (how easy is it to read?)
 o the time available to read it
o the normal expectations of the parties in the situation
o whether it is an unusual or standard term

Analysis:
Test:
 With a signed document, L’Estrange remains the general rule: para 17
o “where a party has signed a written agreement it is immaterial to the question of his liability under it that he has not read
it and does not know its contents.”
 But there are three exceptions to the general rule:
1. Non est factum – (where the document is signed by the plaintiff "in circumstances which made it not her act")
2. Where the agreement has been induced by fraud or misrepresentation.
3. Special circumstances
 Where one party knew, or ought to have known, that the signature of the other party did not represent the true
assent of the other party.
 In a normal situation, drawing attention to the exemption clause is not necessary – that is the default rule.
o However, if circumstances exist that would lead a reasonable person to believe that the signing party did not intend to be
bound, then it may be required to bring it to the attention of the other party.

Application of the rules to the case: para 26

 Karroll signed the release knowing that it was a legal document affecting her rights. Under the principle in L'Estrange, she is
bound by its terms unless she can bring herself within one of the exceptions to the rule.
1. In this case, it was not non est factum,
2. not misrepresentation.
 It follows that Miss Karroll is bound by the release unless she can establish both:
o (1) that in the circumstances a reasonable person would have known that she did not intend to agree to the release she
signed; and
o (2) that in these circumstances the defendants failed to take reasonable steps to bring the content of the release to her
attention.

 1. How do we know if the circumstances exist?

o Look at the effect of the exclusion clause on the nature of the contract.
o the length of release & size of print (how easy is it to read)
o the time available to read
o the normal expectations of the parties in the situation
o whether it was an unusual or standard term
 In this case:
o the release was consistent with the purpose of the contract.
 The exclusion of legal liability was consistent with the purpose of permitting her and others to engage in this
activity, while limiting the liability of the organizations which made the activity possible.
o the release was short, easy to read and headed in capital letters "RELEASE AND INDEMNITY — PLEASE READ
CAREFULLY".
 There was no fine print. The printing was entirely contained by the page signed
o signing such releases was a common feature of this ski race.
 Miss Karroll herself had signed such releases on previous occasions before similar races.
o This was not an unusual term;
 on the contrary, it was a standard aspect of this type of contract.
 These facts negate the inference that a reasonable person in the defendant Silver Star's position would conclude that Miss Karroll
was not agreeing to the terms of the release.
o In these circumstances, it was not incumbent on Silver Star to take reasonable steps to bring the contents of the release to
her attention or ensure that she read it fully – however, court does anyway.

 2. Reasonable steps. – court finds that even if there were circumstances, Silver Star took reasonable steps.
o The heading at the top of the document, and the capitalized admonition to read it carefully.
 This was sufficient to bring the need to read the document to the attention of a reasonable person.
o Miss Karroll admitted that she could have read the release in one to two minutes.
 She further admitted that she could not recall if she had an opportunity to take one or two minutes to read
through the document.
o Thus the evidence fails to establish that she was not given sufficient time to peruse the document had she wished to do
so.
 These facts fall far short of a lack of reasonable effort to bring the term to the signator's attention as in Tilden.

Conclusion:
 Plaintiff’s action dismissed.
o Conventional rule is not displaced
 The circumstances were not such that a reasonable person should have known that the party signing was not
consenting to the terms in question
 Regardless, reasonable steps were taken.