Contracts (Forbes) - 2016

Contracts Summary - Forbes
Table of Contents
INTRODUCTION TO CONTRACTUAL REMEDIES ....................................................................................6
DAMAGES ..................................................................................................................................................... 6
Damages Calculation ............................................................................................................................ 6
Hadley v. Baxendale (1854)– UK - Page 50 – Remoteness Test .......................................................... 6
Victoria Laundry Ltd v. Newman Industries Ltd. (1949) – Eng. CoA - Page 56 .................................... 7
SPECIFIC PERFORMANCE AND INJUNCTION ......................................................................................................... 8
Warner Bros Pictures Inc. v Nelson (1937) – Page 137 ......................................................................... 8
FORMATION OF THE CONTRACT ....................................................................................................... 10
1) INTENTION TO CREATE LEGAL RELATIONS .....................................................................................................10
Balfour v. Balfour (1919) – Page 299 ..................................................................................................10
Merrit v. Merrit (1970)– Page 302 – Test For Contracts In Close Relationships ...............................10
Family Law Act (1990) – Page 303 ......................................................................................................11
Jones v Padavatton (1969) – Page 304 ...............................................................................................11
Simpkins v Pays (1955) - Page 302 ......................................................................................................12
Rufos v Brewster (1971) (Australia) ...................................................................................................12
Ermogenous V Greek Orthodox Community (Australia) .....................................................................13
Canadian Taxpayers Foundation v Minister of Finance for Ontario (2004) – Page 308 .....................13
Parker v Clark (1960) - UK ...................................................................................................................13
Carlil v Carbolic Smoke Ball Company (1893) – Page 359...................................................................14
Rose and Frank Company v JR Crompton & Brothers Limited (1923) (England) - Page 306 – Test for
Contracts In Commercial Relationships .............................................................................................15
Jones v Vernon Pools Ltd. (1938) – Page 307 – Application of R+F Clause ........................................15
2A) OFFERS MECHANICS ...............................................................................................................................16
Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd (1953) – Page 184 ....................16
Boyer and Co v D&R Duke – Page 181 ................................................................................................16
Harvey v Facey (1933) (UK) – Page 180 ..............................................................................................17
Johnston Bros v Rogers Bros (1899) – Page 178 .................................................................................17
Carlil v Carbolic Smoke Ball Company (1893) - Second Look (Offer of Unilateral Contract) .............18
The Satanita (1895) (England) – Page 387 .........................................................................................18
MJB Enterprises v Defence Construction (1999) – Page 211 ..............................................................19
2B) DURATION OF THE OFFER ........................................................................................................................20
Dickinson v Dodds (1876) – P.194 – Offer Revoked ...........................................................................21
Petterson v Pattberg (1928) - P-S1 - Offer Revoked ..........................................................................22
Errington v Errington (1952) (England) – P.368 ..................................................................................23
Shuey, Executor v. United States (1875) – P.S5 – Offer Revoked .......................................................24
Livington v Evans (1925)– P.S7 – Rejection and counter-offer ..........................................................25
Barrick v. Clark (1951)– P.S9 – Offer lapse without stipulated lapse date .......................................26
Manchester Diocesan Council for Education v Commercial & General Investments (1969) (England)
– P.190.................................................................................................................................................28
3) ACCEPTANCE ...........................................................................................................................................29
3A) COMMUNICATION OF ACCEPTANCE ..........................................................................................................29
Felthouse v Bidnley (1862) – Page 196 – Acceptance needs to be communicated ...........................29
Cole-McIntyre-Norfleet Co. v Holloway (1919) - Page S.15 – Exceptions to Acceptance Being
Communicated....................................................................................................................................30
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Household Insurance v Grant (1879) – Page 236 – Postal Acceptance Rule .....................................30
Entores v Miles Far East Corporation (1955) – Page 248 – Telephone Acceptance Rules................32
Eastern Power v Azienda (1999) – Page – Fax Machine Acceptance .................................................32
Electronic Commerce Act, 2000 (Ontario) – Page 253 ........................................................................33
Summary .............................................................................................................................................34
3B) TIME AND PLACE ...................................................................................................................................34
Eliason v Henshaw (1819) – Page 200 ................................................................................................34
Holwell Securities Ltd. v Huges (1974) – Page 245 – PAR Exceptions ................................................35
Henthorn v Fraser (1892) – Page 241 – Test for when PAR will Apply ..............................................36
3C) ACCEPTANCE OF UNILATERAL CONTRACT ...................................................................................................36
Carlil v Carbolic Smoke Ball Company (1893) – Page 359 – Third Look .............................................36
4) CONSIDERATION..................................................................................................................................38
4A) GENERAL ..............................................................................................................................................38
Tobias v Dick and T. Eaton Co (1937) – Page 265 – No Consideration ..............................................39
4B) SUFFICIENCY OF CONSIDERATION..............................................................................................................40
Thomas v Thomas - Page 260 – Adequate consideration irrelevant ................................................40
Stilk v. Myrick – Page 268 – Performance of Existing Duty ...............................................................40
Hamer v Sidway (1891) – Page 259 – Detriment as consideration ...................................................41
White (Executor) v. Bluett (1853) – Page 258 – Illusory Consideration .............................................42
Dalhousie College v Boutillier Estate (1934) – Page 295 ....................................................................42
The Seal – Page 309 ............................................................................................................................43
Linton v. Royal Bank of Canada (1967) – Page 310 ............................................................................43
4C) PAST CONSIDERATION ............................................................................................................................43
Roscorola v Thomas (1842) – Page 317 .............................................................................................43
Lambleigh v Brathwait (1615) – Page 315 – Past Consideration Exception ......................................44
4D) PERFORMANCE OF AN EXISTING DUTY.......................................................................................................44
Hartley v Posonbly (1857) – Page 269 ................................................................................................44
New Zealand Shipping v Sattherwaite (1975) – Page 269 ..................................................................45
Williams v Roffey Bros. & Nicholls (1991) – Page 276 – Amending Agreements ..............................45
NAV Canada v Greater Fredericton Airport Authority (GFAA) (2008) – NB CoA - Page 279...............46
Wind River Ventures v British Columbia (2009) – BCSC - Page 284 ...................................................48
Foakes v. Beer (1884) – Page 285 .......................................................................................................48
Sihree v Tripp – Overruled in CoA .......................................................................................................49
Mercantile Amendment Act RSO 1990 – Page 289 – Part performance............................................49
4E) PRIMARY ESTOPEL..................................................................................................................................49
Central London Property Trust v. High Tree House (1947) – Page 324 – Rules of Promissory
Estoppel ..............................................................................................................................................50
John Burrows Ltd. V Subsurface Surveys (1968) – Page 330...............................................................51
D&C Builders v. Rees (1965) - Page 337 ..............................................................................................52
Combe v Combe (1951) – Page 326 ....................................................................................................52
Crabb v. Arun Distirct Council – Page 343 – Propriety Estoppel ........................................................53
Maher v Walton Stores – Australia- Common Law Estoppel .............................................................54
Summary of Consideration ..................................................................................................................54
5) CAPACITY TO CONTRACT...........................................................................................................................55
Nash v Inman (1908) – Page 546 – Sale to an Infant .........................................................................55
Toronto Marlboroughs Hockey Club v. Tonelli (1976) – Page S.18 .....................................................56
6) CERTAINTY OR ASCERTAINABILITY OF TERMS ............................................................................................56
Scammel and Nephew v. Outson (1941) – Page 227 ..........................................................................57
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Hillas v Arcos (1932) – Page 224 – Factors courts consider to interpret contract ............................58
Walford v. Miles (1992) – Page 232 – Contracts to Bargain in Good Faith .......................................58
Empress Towers v. Bank of Nova Scotia (1990) - Page 231 – “Agree to Agree” Clauses ..................59
Edper Brascan Corporation v. 117373 Canada (2000) – Qualified Empress Towers – Page 233 ......59
Calvin Consolidated v. Manning (1959) – Page 229 – Arbitrator as an ascertaining mechanism ....60
British American Timber Co. v. Elk River Timber Co. (1933) – Page 217 – LoI as a contract ..............60
Bawitko Investments v. Kernels Popcorn ............................................................................................61
Green v. Ainsmore Consolidated (1951) – Page 220 ...........................................................................61
TERMS OF CONTRACT ...................................................................................................................... 62
1) INTERPRETING WRITTEN CONTRACTS .....................................................................................................62
Pym v. Campbell (1856) – Page 505 – PER exception #2 ...................................................................62
Morgan v. Griffith (1871) – Page 504 – PER Exception #3 .................................................................63
Hawrish v. Bank of Montreal (1969) – Page 501 ................................................................................63
Southern Resources Ltd. v. Techbomin Australia (1990) – Page S.21 – PER Exception #4 ................64
Sattva Capital v. Creston Corp (2014) SCC – Page S.23 – Current Canadian law...............................65
Ledcor Construvtion v. Northbridge Insurance (2016) – SCC ..............................................................65
2) IMPLIED TERMS OF CONTRACT ..............................................................................................................66
Codelfa Construction v. State Rail Authority – Page S.26 ...................................................................66
The Moorcock......................................................................................................................................67
Liverpool City Council v. Irwin – Page S.31 ..........................................................................................68
Sale of Goods Act 1990 Ontario ..........................................................................................................69
3) DUTY TO PERFORM IN GOOD FAITH .......................................................................................................69
Bhasin v. Hrynew (2014) – SCC - Page S.35........................................................................................69
Greater Vancouver Sewage and Drainage Authority v. Wastech (2016) ...........................................70
4. EXCLUSION CLAUSES ............................................................................................................................71
McCuthcheon v. MacBrayne Ltd. (1964) - HL – Page 477 ..................................................................72
Harris v. Great North Railroad ............................................................................................................72
Parker v. South Eastern Railway Company (1877) – UK CoA – Page 471 – Test for “Ticket Cluases”
.............................................................................................................................................................73
Union Steam Ship v. Barnes (1956) – SCC ...........................................................................................74
Thomson v. London, Midland and Scottish Ry Co. ..............................................................................74
Olley v. Marlborough Court.................................................................................................................74
George Mitchell. v. Finney Lock Seeds Ltd. (1983) – HL – Page 558 ...................................................75
Hunter Enginerring Co. v. Syncrude Canada Ltd. (1989) – SCC – Page 563 ........................................76
Tercon Contractors v. British Columbia (2010) – SCC – Page 574 – Test for Enforcing Exclusion
Clauses ................................................................................................................................................77
DEFECTS IN CONTRACTUAL RELATIONS ............................................................................................. 80
1) MISREPRESENTATION...........................................................................................................................80
A) VARIETIES IN MISREPRESENTATIONS .......................................................................................................80
Redgrave v. Hurd – Page 756 – Fraudulent Misrepresentation ........................................................80
Esso Petroleum Co. v. Mardon (1976) – Eng. CoA – Page 777 – Negligent Misrepresentation ........82
B) REMEDIES ..........................................................................................................................................82
I) RECESSION .........................................................................................................................................82
Redican v. Nesbitt (1924) – SCC – Page 761 .......................................................................................83
O’Flaherty v McKinley (1953) – Nfld CA – Page 765 – Innocent misrepresentation..........................84
Leaf v International Galleries (1950) – CA – Page 764........................................................................85
II) DAMAGES ...............................................................................................................................................85
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Heilburt Symons & Co. v Buckleton (1913) – HL – Page 749 – Collateral contract ............................85
Shanklin Pier Ltd. v Detel Products Ltd. – Page S.43 ...........................................................................86
Esso Petroleum Co. v Mardon (1976) – QB CA – Page 777 – Second Look.........................................87
2) MISTAKE ................................................................................................................................................87
A) COMMON MISTAKE .................................................................................................................................87
Bell v Lever Bros. Ltd (1932) – HL – Page 806 – Common Mistake at Common Law ........................88
Solle v Butcher (1950) – Page 812 – Equitable Mistake .....................................................................88
Great Peace Shipping v Tsavliris Salavage (2002) – UK CoA Page 817 – New Test for Common
Mistake ...............................................................................................................................................89
Miller Paving Ltd. v Gottardo Construction (2007) – Ont. C.A. – Page 825 ........................................90
B) MUTUAL MISTAKE ...................................................................................................................................91
Raffkes v Wichekhaus (1864) – UK – Page 786 ...................................................................................91
Smith v Hughes (1871) – UK – Page 793 .............................................................................................91
C) UNILATERAL MISTAKE...............................................................................................................................92
Hartog v Colins & Shieds (1939) – 1939 – Page S.45 ..........................................................................92
Ron Engineering v R (Ont) (1981) – SCC – Page 838 ...........................................................................93
Cundy v Lindsay (1878) – HL – Page 434 – Mistake in Correspondence ............................................94
Ingram v Little (1961) – UK CoA – Page 438 – Face to Face Mistake.................................................94
Lewis v Averay (1972) – UK CoA – Page 443 - Likely bad law in Canada ..........................................95
C) MISTAKE AS TO DOCUMENTS (NON-EST FACTUM) ...................................................................................96
Saunders v Anglia Building Society (1971) – HL – Page 451 ...............................................................96
Marvco Colour Research v Harris (1982) – SCC – Page 463 ................................................................98
E) FRUSTRATION ..........................................................................................................................................98
Knell v Henry (1902) ............................................................................................................................98
3) ILLEGALITY ..............................................................................................................................................99
Oldfield v Transamerica Life (2002) – SCC -Page 683 .........................................................................99
In the Matter of Baby M (1988) - NJSC - Page 671 ..........................................................................100
Gordon v Ferguson (1961) – NSSC – Page S.47 .................................................................................101
Shafron v KRG Insurance Brokers (2009) – SCC – Page 673 ..............................................................101
Yango Pastoral Co. v First Chicago Australia Ltd (1978) – High Court Australia – Page S.53...........102
St. John Shipping Corp v Joseph Rank Ltd. (1957) - QB – Page S.61 ................................................103
Ashmore, Benson, Pease & Co. v Dawson Ltd. (1974) – Eng CoA – Page 691 ..................................104
5) UNCONSCIONABILITY AND UNDUE INFLUENCE........................................................................................105
Marshall v Canada Permanent Trust Co. (1968) – Alberta SC – Page 601 .......................................105
Macaulay v Schroeder Music (1974) - HL – Page 637 .......................................................................106
Lloyds Banks v Bundy (1975) – HL – Page 611 ..................................................................................106
Royal Bank of Scotland v Etridge (2001) – HL - Page 619 .................................................................107
ENFORCEMENT, BREACH AND REMEDY .......................................................................................... 109
1) PRIVITY ............................................................................................................................................109
Tweddle v Atkinson (1861) - UK – Page 375 .....................................................................................109
New Zealand Shipping Co. v Satterthwaite & Co. – Page 397 .........................................................110
London Drugs v Kuehne & Nagel Ltd.................................................................................................111
2) FRUSTRATION ........................................................................................................................................112
Taylor v Caldwell (1863) - UK – Page 858 .........................................................................................112
Davis Contractors v Fareham UDC (1956) – HL - Page 898 ..............................................................113
Frustrated Contracts Act – Page 910 ................................................................................................114
3) REMEDY ...............................................................................................................................................114
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A) DAMAGES .............................................................................................................................................114
Interests Protected – Fuller and Perdue Article ................................................................................114
Measurement of Damages...............................................................................................................115
Ruxley Electronics Ltd v Forsyth (1994) – Eng CoA – P.s76 ...............................................................115
Groves v John Wunder Co. (1938) – Minneapolis SC – Page 40........................................................116
Sale of Goods Act 1980 .....................................................................................................................116
Howe v Teefy (1927) – Page S.84 ......................................................................................................117
Fidler v Sunlife ...................................................................................................................................117
Whitten v Pilot Insurance ..................................................................................................................118
5
Introduction to Contractual Remedies

Damages
The general rule is such amount of money that will put the plaintiff in the same position as
if the contract had been performed.
• Damages are the most common remedy for breach of contract.
• Often, a contract does not have relation to money (rather a delivery or some kind of
good). In this case, a substitutionary remedy is given is a determined sum of money.
• Damages do not have to be specified in a contract; they can be implied.
• A liquidated damages clause is where parties agree that damages are going to very
difficult to estimate and therefore are stipulated and pre-determined.
o A court will be able to enforce this clause if it determines it is a genuine pre-
determined estimate.
o A penalty clause will not be enforceable if the terms are considered
unconscionable.
• The general principle is that punitive damages are not awarded; recently SCC said that if
some breach is so egregious that should be punished and in exceptional circumstances
there may be an award (Whitten case).
• Plaintiff needs to show breach of contract and demonstrate what the damages are.
However, they don’t need entire certainty of damages, court may approximate the lost
change damages and will compensate subject to remoteness.
o One can’t take a holiday, have bad experience from tour operator and argue there
is an intangible/mental damages.
Contracts is mainly common law as opposed to statute. We look at other jurisdictions to fill
some gaps via persuasive precedent. We have progressed from “a contract is a contract is a
contract” to the concept of putting a party back to as if the contract has been performed (concept
of fairness)
Damages Calculation
Someone failed to provide a $10,000 car in a contract.
• How much would it take to purchase a similar car?
o Replacement car is $12,000, so damages of $2,000 is awarded.
Hadley v. Baxendale (1854)– UK - Page 50 – Remoteness Test

Facts • Hadley received damages from Baxendale for lost profit in Baxendale’s
delay of transportation of part needed for repair at his Mill; Baxendale is
requesting new trial.
• Hadley did not communicate the lost profits that would occur from the
unreasonable delay of part.
Issue(s) Contract has been breached; should plaintiff be able to recover damages if
circumstances not communicated?
Case is appeal from trial court which awarded damages to Hadley.
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Decision No, plaintiff should not be able to recover damages.

Reasoning Party needs to be made aware of the possible damages or implicit circumstances
when entering into a contract.
Ratio Objective Remoteness Test: Why should the defendant have known about the
damages? It is a two-pronged test:
1) Damages should be fairly and reasonably considered either arising
naturally (implicit normal damages) OR
2) Reasonably be supposed to be contemplated by both parties at the time
they made the contract as probable a result of the breach
The differences between these is the damages that a reasonable person
should have reasonably seen (1) and special damages that could have been
determined before the contract is executed and were communicated prior to the
contract (2).
If special damages not communicated when the contract is made, then the
person who breached should not be held responsible as it was not contemplated
at the time entering contract.
Notes • This is the exception to the general principle of damages – damages are
awarded unless it is too remote.
• Information needs to be contemplated and considered in the bargain as if
full information provided
• Jackson v. Royal Bank of Scotland (2005): the appropriate characterization
of the breach depends on the terms of the contract, its business context, and
the reasonable contemplation of the parties – what can be considered as
arising naturally must include mentioned 3 components.
• Before 18th century, juries had free reign on awarding damages that led to
excessive verdicts; judges began to exercise control over jury by ruling on
evidence, new trials, instructing jury of proper awards.
Victoria Laundry Ltd v. Newman Industries Ltd. (1949) – Eng. CoA - Page 56
Facts • Plaintiff ordered boiler and received it ~20 weeks after time set out by
contract; initial judgment did not provide damages for loss of profit as it was
thought it was too remote.
• Newman Industries knew plaintiff was in business of laundry and required
boiler for business immediately.
• Because of not having enough laundry capacity, Victoria Laundry lost a
lucrative special contract from the Ministry of Supply.
• In a letter, Victoria Laundry pressed Newman for the need to expedition.
Case is appeal from plaintiff who argued trial judgement was narrow
interpretation.
Issue(s) Can Victoria Laundry recover loss of profits for delay of delivery that would
have been earned if delivered on time?
Decision Appeal allowed, assessment of damages referred to referee.
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Reasoning • Purpose of damages is to put party of was breached into same position.
Common law entitles one to recover losses if it was reasonable foreseeable at
the time of contract.
• Reasonably foreseeable depends on knowledge then possessed by party who
later committed breach. In this case, it was determined that Newman (as
engineers) could reasonably foresee what the purpose of the boiler’s usage
was for.
• To be liable, it is not necessary that Newman had asked what the loss is liable
from breach.
• Newman clearly knew more than layman as to the use of boilers given
expertise and highly technical advertisement.
• However, for plaintiff to recover profits from lucrative (special) contracts,
defendant would have had to know at time of agreement of this opportunity.
It would be too late if performance is already underway, this needs to be
known when contract was bargained.
Ratio • In cases of breached contract, the party is only able to recover the part of the
loss reasonably foreseeable at the time of contract. It is sufficient if party was
likely to see the loss.
• For the plaintiffs to recover profit, the defendants would have had to know at
the time of contract the prospects and terms of such contracts.
Notes • The court does not reimburse for the loss of the government contract, because
the profits from this special contract were not foreseeable.
• Contract is different that tort because contract allows you to restrict damages
and the tort test is much broader for damages.
Damages may be limited by mitigation. You must take reasonable steps to mitigate the amount
of the loss. If one does not take these steps, their award may be reduced.
Specific Performance and Injunction

• This section moves into equity remedies. Courts of Equity tended not to award monetary
damages but rather specific performance (positive covenants) or injunctions (negative
covenants).
Warner Bros Pictures Inc. v Nelson (1937) – Page 137

Facts • Warner Bros and Nelson entered into a contract with renewal options at
higher salary. The contract included a positive covenant to perform solely and
exclusively for the studio. It also included a negative covenant not to engage
in any other production without consent of studio. Additionally, contract says
that if Nelson fails to perform, Warner Bros. can extend the contract.
• Plaintiff left for another studio, in England, for more money and declined to
be bound by her contract. Warner Bros is seeking an injunction for Nelson to
perform alleging a breach of contract.
• Warner Bros is not seeking monetary damages; they would like Nelson to
return to perform. They could not even quantify the damages from the loss of
her services. Specific performance
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Issue(s) 1) Can Warner Bros be granted a specific performance?

2) Can Warner Bros be granted an injunction to enforce the negative covenant?
Decision 1) Specific performance denied.
2) Injunction granted.
Reasoning 1) Specific performance awards cannot be awarded for contracts of personal
services. The underlying rationale is that this could be compared to modern
day slavery.
2) The court will order an injunction as long as it does not absolutely cause the
performance of individual services.
Ratio • When a contract of personal services contains negative covenants, the
negative covenants will be enforced as long as it does not result into the
decree of specific performance of positive covenants or to giving of decree
under which one must remain idle.
• The Court will not grant specific performance of a contract when it is for
personal service, nor will it grant an injunction when it is the basis of
someone’s livelihood.
• Court of Equity will only protect plaintiff for a period of time against likely
damage by reason of breach of negative covenant.
Notes • The contract actually read that she can’t take on any other employment; the
lawyers decided not to argue that as it would force specific performance or
idling. Had they argued for that clause, it is likely the injunction would not
have been granted.
• Court does not order an equitable remedy if damages is more appropriate in
that scenario. Damages is not appropriate in this case because performance is
unique to Davis and giving them money would not allow them to buy the
same performance.
• Damages are not appropriate if performance is unique or damages are
incapable of being calculated.
• It is very important to write the contract forward, but also backward. i.e.
including the negative covenants is crucial as that’s where the remedy
(injunction) will usually be applied.
• Warner Bros came to England (and needed to prove California law there)
because equitable remedies are in personomum remedy which are remedies
against the person. These types of remedy need to be enforced in the
jurisdiction where the person actually is.
• Damages are “in rem” and judgements can be enforced wherever the person
has an asset. This applies to most jurisdictions without any review. It is only
overturned if the ruling significantly varies from the public policy of the
foreign jurisdiction.
• The injunction was only put into force for 3 years – this is because equitable
remedies are also discretionary remedies and it was decided that 3 years was
fair to get the current productions and projects out into distribution.
• Detroit Football Club v. Dublinski: Dublinski argued that he could only play
football to make a livelihood (Detroit did not argue this point) and therefore
no injunction was allowed because enforcement of this would result in
specific performance or idling.
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Formation of the Contract

1) Intention to Create Legal Relations
• There are certain items that need to exist to have a contract. The first of these is the
intention to create legal relations/consequences.
Balfour v. Balfour (1919) – Page 299

Facts • Wife sued her husband to get her full 30 pounds/month allowance.
• The wife was sick, husband was away sailing; he gave her a cheque for 24
pounds and promised to give 30 pounds per month of “maintenance”
• Before he returned, husband sent letter saying they were better to remain
apart.
Trial judgement in favour of wife; husband appealed.
Issue(s) Does a verbal agreement between husband and wife (for an allowance)
constitute an allowance?
Decision Appeal allowed. Husband does not owe an allowance to wife.
Reasoning No contract exists because parties did not intend that they should follow legal
consequences – natural love and affection not a consideration.
Ratio Some forms of agreements made between spouses do not constitute contracts
as they were not intended to be bound by legal consequences nor is there
evidence of consideration for both parties.
Notes
Merrit v. Merrit (1970)– Page 302 – Test For Contracts In Close Relationships
Facts • Husband left the matrimonial home to be with another woman; Husband
(defendant) signed and dated a paper that in consideration of wife paying
mortgage and housing expenses, he would transfer the house to her once
the mortgage was fully paid.
• Husband paid 40 pounds monthly to wife, part of which would go towards
paying off the mortgage. However, once the mortgage was fully paid, the
husband refused to transfer the house.
This is an appeal by husband – trial found that wife was the full
beneficiary owner.
Issue(s) Does the written agreement between the separating spouses constitute an
enforceable contract?
Decision Appeal dismissed – upheld decision of trial court.
Reasoning • Domestic arrangements are not intended to create legal relations, but this
does not necessarily apply where parties are not living in amity and rather
separated (or in process of).
In this case, the ruling of Balfour v. Balfour does not apply.
Ratio • Intention to create legal relations not subjective but rather what would a
reasonable person regard the agreement as an intention to be binding.
• Objective test for contracts in close relationships: Was there intention
under the circumstances to create legal consequences in close
relationships?
1) Presumption against intention to create any legal relationship
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2) The rebuttable presumption onus is on party claiming there is a

contract to show that in this situation there was intention to
create legal relationship.
3) Reasonable person/objective test
4) Factors affect the rebuttal of presumption
i) Not living in amity
ii) Contract in writing
iii) One party fulfilled their obligations
iv) Lawyers
v) Severe detrimental reliance
vi) Uncertainty
Notes
Family Law Act (1990) – Page 303

“A domestic contract [such as a marriage contract, separation agreement, or cohabitation
agreement] and an agreement to amend or rescind a domestic contract are unenforceable unless
made in writing, signed by the parties and witnessed.”
Jones v Padavatton (1969) – Page 304

Facts • Jones (mother) would provide monthly allowance if Padavatton (daughter)
gave up job to move to England to study for Bar. Later, the arrangement
was altered with mother providing housing.
• A dispute arose and mother evicted daughter despite housing agreement as
after 6 years she had still not qualified for the bar.
*Mother is plaintiff as she is trying to get her house back.
Issue(s) Did parties intend contract to be legally binding?
Decision Danckwerts J:
• presumption of no contract; the daughter fails to rebut the presumption;
appeal allowed.
Salmon J:
• found contractual obligation but believed that time was expired; appeal
allowed
Atkinson J:
• agreed with Danckwerts; appeal allowed
Reasoning Danckwerts J:
• Objective test When between close relations, the presumption is against
intention to create any legal relationship, there is a rebuttable onus on
party claiming contract to show that in this situation there was intention.
• In this case, the daughter needs to rebut that intention was there. However,
this is deemed to be a family arrangement based on good faith promises
made not intended to be enforceable legal agreements.
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Salmon J:
• Onus on daughter to prove intention, and if so, whether it was sufficiently
certain to be enforceable – objective test heavily weighed the
extraordinary facts including persuasions, letters from lawyers and extent
of circumstances, but no contract as the time frame for law school expired.
Atkinson J:
• No intent to create legally binding contract.
Ratio The principles of Balfour v Balfour expand to other relations such as between
mother and daughter. Also extends to more distant family circles and friends
(Simpkins v Pays and Parker v Clark).
Notes Discussion throughout case about what daughter gave up to go to law school
points to severe detrimental reliance.
Simpkins v Pays (1955) - Page 302

Facts • Plaintiff is a boarder in the defendant in Grandmother’s house.
• They would play a lottery type game regularly together.
• Defendant won lottery game but refused to pay plaintiff.
• At the time the contract was made, there was no amity (Balfour case);
there is nothing in writing nor formalities.
• The plaintiff will argue they kept their side of the bargain.
Issue(s) Is there a contract? The plaintiff argues there is and is entitled to her portion.
Decision There was a contract. “informal syndicate for profit”
Reasoning • There is a presumption of no contract because it is family; the onus is on
the plaintiff to prove otherwise. We need to use the objective
reasonable person’s test.
• The court determined that this was a more commercial relationship then
familial. It used the rational of splitting costs, understanding of purchasing
responsibilities, etc.
Ratio There are cases were a familial relationship can be rebutted in favour of a
contract.
Notes
Rufos v Brewster (1971) (Australia)

Facts • Plaintiff owns a hotel and defendant a general store; Brewster’s truck has
broken down in this remote town. They are father and son-in-law.
• They agree that Rufos will have the truck brought down to Adelaide to be
fixed and on the way back it will bring a load of liquor for resale.
• On the return trip, there was an accident.
Presumption that family members do not have a contract between each other;
the onus is on the plaintiff to prove otherwise. We need to use the objective
Issue(s) Is there a contract?
Decision There was a contract.
12
Reasoning • Despite them being family members, it was clear that there was a
significant commercial arrangement with business interests.
Ratio There are cases between family members, where the intention is clearly in a
commercial context, that a contract can be found and rebuts the presumption
of no contract.
Notes This case was an insurance case subrogated the case between the family
members.
Ermogenous V Greek Orthodox Community (Australia)

Facts • Plaintiff is a Bishop who is suing the Community for not paying him
severance after they let him go.
• Defendant says that relationship is strictly spiritual, not contractual.
Decision Yes – there is a contract.
Reasoning Where there are serious economic entitlements, the presumption is that there is
a contract.
Ratio Where the relationship involves serious economic and proprietary
entitlements, these entitlements point to a contract existing.
Notes
Canadian Taxpayers Foundation v Minister of Finance for Ontario (2004) – Page 308
Facts
Issue(s) Are political promises contractual?
Decision No – they are not.
Reasoning It is not the role of courts to intervene and enforce such promises and pledges
made.
Ratio Political platforms and promises are not contracts.
Notes
Parker v Clark (1960) - UK

Facts • Niece and Nephew move into house with Aunt and Uncle.
• The idea was that they would share expenses. The Parkers said they would
need to sell part of their house in order to do.
• Clarks assured that they would will the house to the Parkers.
• After one year, they did not get along, and were thrown out of the house.
Presumption that family members do not have a contract between each other;
the onus is on the plaintiff to prove otherwise. We need to use the objective
Issue(s) Is there a contract that was breached?
Decision Yes, there was a contract and it was breached.
Reasoning Devlin J:
• Clarks were liable for the damages to Parkers given that the Parkers
had relied to their detriment on the assurance of the Clarks.
Ratio Presumption of no contract in close relationships extends to aunt/uncle and
nice/nephew relationships.
13
Notes
Carlil v Carbolic Smoke Ball Company (1893) – Page 359

Facts • Defendant advertised it would pay 100 pounds to whoever gets influenza
after using their smoke ball 3x/day for 2 weeks; the money was deposited
into a bank account.
• Plaintiff used the ball as directed and became ill but Carbolic refused to
payout. .
Trial court awarded the prize, defendants appealed.
Presumption that commercial interests express a contract. The rebuttable
presumption is on the party expressing no contract. Objective reasonable
person test.
Issue(s) Is the advertisement as expressed a contract or a “mere puff”?
Decision Defendant must perform contract and award prize.
Reasoning Lindley LJ:
• There was an expressed contract and the money deposited solely for this
was evidence of this. This is not an inference; the promise was explicitly
made.
• Performance of the conditions is an acceptance to the offer, and does not
need to notify that acceptance of offer (unless notification is required in
the terms). In this case, it is assumed notice of acceptance is
communicated at the same time as communication of performance.
• The offer is continuing and not revoked.
• Some language of the offer can infer the offeree does not expect nor
require notice of acceptance apart from notice of performance.
Bowen LJ:
• Ordinary rule of English law is that acceptance of offer needs to be
notified to person who makes the offer so that the two minds may come
together.
• It is sufficient to act on the proposal without communicating acceptance
when person who makes offer expressly or implies in the offer.
• Can look at offer, the character of the transaction in advertisement cases
can infer that the person is not to notify acceptance of offer before
performance – it would not make sense for this offer to be accepted first.
Ratio • An advertisement can constitute a unilateral contract, which can be accepted
by fulfilling the conditions of the contract; no formal acceptance required.
• The determination of a serious offer will be determined from the words and
actions.
• The terms of the contract (if vague) will be interpreted purposively from the
contract.
• The offeror can determine how acceptance of offer will be made.
Notes
14
Rose and Frank Company v JR Crompton & Brothers Limited (1923) (England) - Page 306 –
Test for Contracts In Commercial Relationships
Facts • Plaintiff is US handler of JR’s product (tissue paper) and had a history of
contracting.
• In 1913, they used a document to govern future dealings, but had clause
that the agreement is not a legally binding contract and not subject to laws
of US or England.
• JR dissatisfied with Rose and Frank so refused to perform as per the
document.
person test.
Issue(s) Should written agreement be constituted as a contract giving rise to legal
relations?
Decision There is no contract.
Reasoning • Even in business, parties may have intention not to be legally bound, if
explicitly expressed.
• Some commercial relations may have presumption of the contract that
needs to be rebutted.
Ratio • Objective test for contracts in commercial relationships: Was there
intention under the circumstances to create legal consequences?
1) Presumption that commercial relationships and interest express a
contract.
2) The rebuttable presumption onus is on the party expressing there is no
contract.
3) Reasonable person/objective test
• A clause can exist that expressly waives any legal relations/enforcement.
Notes Certain types of contracts that are repugnant to have express waivers; this is
not one of them.
Jones v Vernon Pools Ltd. (1938) – Page 307 – Application of R+F Clause
Facts • Jones says he correctly guessed the wining matches and mailed it to
Vernon Pools.
• Vernon Pools claims it never received the ticket and further cites a clause
on the reverse side of the ticket that says it is not obligated to pay out any
winnings (clauses is similar to Rose and Franks).
Issue(s) Is there a contract made that requires the winnings to be paid to Jones?
Decision No contract- Rose and Frank type clause is valid and indicates no legally
binding relationship.
Reasoning • Court determined that it they enforced contract, Vernon Pools would go
out of business because anyone could claim they had mailed in winning
matches.
• The only way to avoid this type of gambling clause would be to have a
similar clause that was used.
15
Ratio No-legal contract clauses (Rose and Franks types) can rebut the intention to
create legally binding contracts.
Notes
2a) Offers Mechanics

• Reasonable persons test for whether there is an offer is if there is reasonable
completeness of terms being offered.
Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd (1953) – Page 184
Facts • Pharmaceutical Society responsible for enforcing the regulation for sale of
controlled poisons.
• Boots operated drug store and left controlled poisons in self-service area
that was controlled by cashier.
• Pharmacist instructed cashiers to prevent anyone from removing any of the
controlled drugs until they saw fit.
• Society claims that there is a violation of regulations because the sale took
place as the customer took drugs off shelf;
• Boots claimed that the sale takes place when the cashier accepts the
“invitation to make an offer”.
Lord Goddard decided that the sale took place when cashier accepted
offer;Society appealed.
Issue(s) Where does the sale take place?
Decision Sale takes place at exchange at the till – appeal dismissed.
Reasoning • Although goods are displayed and customer chooses what they want,
contract is not complete until it is indicated the articles which are needed,
and when the shop-keeper (or their representative), accepts the offer.
• If plaintiff’s contention is correct then once article is placed in receptacle
by customer, they are bound and would have no right, without paying for
the first article, to substitute an article which they saw later and perhaps
preferred.
Ratio A contract is complete at the point of sale.
Notes Collateral contract – note is displayed that if you break it, you buy it. It is
better to sue under breach of contract than tort because tort would only get you
replacement value where contract would get you retail value. This second
contract is in addition to contract of sale and is considered unilateral.
Boyer and Co v D&R Duke – Page 181

Facts
Issue(s) Is a price list that is published considered a contract?
Decision No – it is not. The contract exists when supplier agrees to fulfill an order.
Reasoning • Business could not be carried out if price catalogue offering desirable at an
attractive price were placed business in a position to create a contract of
sale – catalogue may be sent to many collectors but there may only be one
item.
16
• There is a distinction between quotations: basis of possible order and an

offer to sell. If accepted, then it creates contract for which a breach could
result in damages.
Ratio Merchant, dealers, or manufacturers, by furnishing a quote invites an offer that
will be honoured or not depending on the exigencies of the business.
Notes This is a way to protect sellers, price list does not constitute an offer. Contract
only exists when the buyer responds to price list and the buyer’s offer is
accepted by the seller. Protects dealers from too much demand if they cannot
honour all requests for services.
Harvey v Facey (1933) (UK) – Page 180

Facts • Harvey, solicitors, are the appellants; respondent, Facey and Mayor, for
sale of property for 900 pounds.
• Sent telegraphs back and forth first asking if R will sell A Bumper Hal Pen
property.
• Facey named lowest price, and Harvey confirmed price and asked for
deed.
Decision No contract
Reasoning • No concluded contract – first telegraph asked willingness to sell to the
appellants (offer to treat) and the lowest price (price quote). Respondents
reply addressed only the second question, as he only gave lowest price
• The third telegraph from Harvey treats answer of Facey stating his lowest
price as an unconditional offer to sell to them at price named
• Cannot treat Facey’s telegraph as binding him in any respect except for the
lowest price.
Ratio “Mere statement of the lowest price at which the vendor would see contains no
implied contract to sell at that price to the persons making the inquiry.
Notes This ratio fits very well with the price quote decision in Boyer, but does it
meet the reasonable person’s test?
Johnston Bros v Rogers Bros (1899) – Page 178

Facts • Rogers quoted price of flour, Johnston telegraphed that they would take
two cars at your offer.
• Rogers responded flour has advanced and provided counter offer of $0.30
on previous day’s quote
• Rogers says in original price quote that prices are volatile and need for
quick reply.
Issue(s) Is there an offer of contract?
Decision No contract
Reasoning • A quotation of prices is not an offer to sell, in the sense that does not give
rise to contract in accordance with proposed terms; requires acceptance by
one naming the price of the order made to complete the transaction, until
no mutuality of obligation.
17
Ratio A quote is to name current price - does not mean will be available at time of
contract.
Notes • The court noted that Harvey v Facey is persuasive precedent against
plaintiff’s case.
• The case cites Harty v Gooderham which is similar but where the court
found that there was a contract because D said “we will be happy to have
an order from you” when the Plaintiff made the first inquiry. This type of
definitive language distinction is what can determine if there was a
contract offer made or not.
Carlil v Carbolic Smoke Ball Company (1893) - Second Look (Offer of Unilateral Contract)
into a bank account
payout.
Issue(s) Carbolic makes a second argument that they cannot make an offer to
everybody that has a smoke ball and that this was not intended to be an offer
and if it was it was an illegal bet.
Decision Appellate court deems there is a contract.
Reasoning • With these performance offers, the court decides in is not necessary to
individualize.
Ratio Offer of Unilateral Contract – the nature of the offer is that if you do X, I
will pay you a sum of money. By doing these things, the performer accepts the
offer. However, the performer does not have an obligation to perform if they
choose not to. By the time the contract is formed, the performance is
completed.
Notes With unilateral contracts, there can be issues with withdrawing the
contract once the act has already been performed. The next cases will
look into these issues.
The Satanita (1895) (England) – Page 387

Facts • Valkyrie and Satanita manoeuvring to get into position for mile race at
Regatta Club when Satanita ran into and sank Valkyrie.
• Upon entry defendant, Satanita, signed clause with Yacht Club to obey and
be bound by rules of Association and by laws of the club – the rules
include if yacht in neglect of any of these rules shall foul another yacht
shall forfeit claim to price and pay all damage.
• Defendant denied that they had entered into such agreement as alleged
within individual yacht owner.
Yacht Club does not enforce contract because they did not experience any
damages.
Issue(s) Was there contract between owners of those yachts?
18
Decision Yes – there as an obligation that if there was any breach of these rules,
damages would be paid.
Reasoning • Satanita entered into obligation: that if you want to sail for our matches
you cannot do so unless you submit yourselves to the conditions which
have been laid down, and by doing so enter into obligation with owners of
yachts who you are competing with.
• Main contract with yacht club + collateral contract with everyone that
enters contract with same offer and acceptance
Ratio When enter contract with Yacht Club, also made offer to other yacht owners
entering the race “offer to you that if I foul you during race, I will pay you
damages”. Each other yacht owners accepts the offer when signing the same
form.
Notes • This broadcasted offer is accepted when you put your boat into the water
and start racing. This is an offer of unilateral contract.
• This is also considered a collateral contract because it is supplement to
the main contract administered by the yacht club.
• Would a reasonable person see this as a contract between individual yacht
owners?
• Didn’t sue in Torts because limitation on tort damages in admiral law.
• Similar cases will show up where common contract with more than one
party for common benefit. E.g. common obligations in lease for common
benefit of tenants leasing store space in mall – if one tenant not following
rules of lease another store owner may be able to sue. For this, Satanita is
a good case.
MJB Enterprises v Defence Construction (1999) – Page 211

Facts • Defendant, invited tenders (request for proposals, includes terms of
engagement and usually privilege clause*) for construction and received 4
tenders, including 1 from plaintiff – contract awarded to different party.
• Contemplated lump sum price, but significant cost of project would be
cost of material to backfill pipeline with the several possible materials of
which one would be determined later by site engineer – cost varied
significantly between materials.
• Successful bid (Sorochan) included handwritten note that said based on
native backfill if type 2 material required to add $60 per metric.
• Tenderers argued note invalidated tender, respondent accepted bid and
relied on privilege clause that said the lowest or any tender shall not
necessarily be accepted.
• MJB Enterprises sued for breach of contract.
Issue(s) 1) Can the privilege clause in tender documents allowed person calling for
tenders to disregard the lowest bid in favour of any other tender, including
a non-compliant one?
2) What are the respondent’s contractual obligations under Contract A
(inviting and receiving tenders)?
19
Decision Damages awarded for breach of contract based on expectations of losses (this
could be a lot of money for loss of profit from tender contract)
Reasoning • Respondent argued privilege clause gave it discretion to award contract to
anyone, or to not award contract at all, as along as they treat all tenderers
fairly. Reading tender documents in harmony with privilege clause, which
does not override obligation to accept only compliant bids. Discretion to
accept not necessarily lowest bid, retained by owner through privilege
clause, is discretion to take more nuanced view of costs that price quoted –
privilege clause is compatible with obligation to accept only compliant
bid, but does not mean have obligation to accept only lowest compliant
bid.
• Appellant argued respondent under obligation to award contract B to
lowest compliant tender; as Sorochan was invalid should have gone to
appellant – argues explicit terms of Contact A awarded to lowest
compliant bid and even if not, then it is an implied term (Court argues no
explicit nor implied term).
• Submission of a tender in response to an invitation to tender may give rise
to contractual obligations (contact A), quite apart from the obligations
associated with the construction contract (contract B) to be entered upon
acceptance of attender, depending upon whether parties intend to initiate
contractual relations by submission of a bid.
• Even though not under obligation to award to lowest bidder, by awarding
contract to Sorochan, respondent breached obligation to appellant, and the
other tenderers that it would accept only a compliant tender – respondent’s
defence that is considered in good faith is no defence to breach of contract
Ratio Acting in good faith or thinking that one has interpreted the contract correctly
are not valid defences to an action for breach of contract.
Notes • Privilege clause allows tenderer not to be bound by necessarily by lowest
priced bid.
• RFP is invitation to treat, submission of tender bid is an offer and
acceptance of bid results in contract.
• There can be two types of issues in an RFP dispute:
o Bidder reneges (i.e. mistake made)
o Proponent doesn’t comply with the RFP in selected the contractor.
• An RFP is a collateral contract between parties; it says if sufficient terms
are met in bid, the tenderer has an obligation to the bidders.
• See R. v Ron Engineering
• This case is a very good modern interpretation of collateral contracts.
2B) Duration of the Offer
METHODS TO “KILL AN OFFER”

1. OFFEREOR REVOKED
2. OFFEREE REJECTS
3. OFFEREE COUNTER-OFFER *test for a counter offer is the reasonable person test
20
4. OFFER CAN LAPSE *this can be stipulated in the contract or an implied lapse date
(reasonable period of tome)
Dickinson v Dodds (1876) – P.194 – Offer Revoked

Facts • Dodds signed and delivered to plaintiff, Dickinson, memo – agreeing to
sell house/dwellings for 800 pounds dated June 10th, had line in memo that
offer left open until June 12th, 1874 9am.
• Dickinson accepted on June 11th but did not signify acceptance believing
he had power to accept until 9am on June 12th.
• June 11th Dickinson learned Dodds had been offering to sell to another
third party, plaintiff went in the evening to Dodd’s mother in law house
were Dodd had been staying and left formal acceptance that did not reach
Dodd, as she forgot to give it to him.
• Following Friday morning, Berry, agent for Dickinson, found Dodds and
handed duplicate acceptance but Dodds said too late already sold. Few
minutes later Dickinson himself found Dodds and gave acceptance but was
told too late, already sold.
• Thursday, Dodds had signed formal contract for sale to Allan for 800
pounds and received from Allan deposit of 40 pounds.
Trial judge decreed specific performance in favour of plaintiff – Dodds
lost power to make sale to Allan given original offer to Dickinson and
acceptance to the date of the offer; Dodds appealed.
Issue(s) Was the offer still valid? Or has it been revoked?
Decision No binding contract between parties – offer had been revoked.
Reasoning • This is only an offer - no consideration given for undertaking for it to
be binding to keep property unsold until 9am June 12 – even though
Dickinson and probably Dodds believed they were bound by promise – it
is bare promise.
o If gave deposit is given or made under seal, then option contract.
o Clear principle of law that not binding, any moment before complete
acceptance by Dickinson, Dodds was as free as Dickinson himself. Do
not need to formally and expressly withdraw offer
• For contract need two minds at same moment of time continuing up to
time of acceptance. But, Dickinson on Thursday knew that Dodds had
offer to sell of Allan, and still went to Dodd’s residence to leave
acceptance with mother in law knowing that Dodds changed his mind.
o Impossible to say existence of same mind between two parties which is
essential in point of law to making an agreement
o Not only did Dodds didn’t have intention to sell anymore because
someone else willing to buy, but Dickinson also knew offer has been
revoked.
o Implied revocation; because what offeree found out
Ratio 1) Irrevocable offer can be revoked until accepted unless the offeror got
something for the offer (option contract).
2) Offer can be revoked at any time until acceptance.
21
3) Revocations have to be communicated but the communication does not

have to come from the offeror nor does it have to be explicit, revocation can
be communicated because offeree finds out from someone else (reasonably
reliable) offeror no longer intends to be bound by the offer – done something
inconsistent with the offer.
Notes
Petterson v Pattberg (1928) - P-S1 - Offer Revoked

Facts • Plaintiff is executrix of Petterson’s will. Defendant is owner of bond
securing 3rd mortgage on Petterson’s dwelling
• Over 5k remaining due under mortgage, Defendant wrote to Petterson
allowing $780 provided mortgage paid before May 31, 1924 and regular
quarterly payment in April is made, to pay off the mortgage.
• Petterson made the quarterly payment and on latter part of May went to
defendant’s home and said was there to pay off mortgage, Defendant
answered that he has sold the mortgage, defendant refused to take cash
payment presented by plaintiff in accordance with agreement.
• Prior to this, plaintiff had made contract to sell land to 3rd party free and
clear of mortgage to defendant. As defendant sold mortgage to third
person made it necessary that plaintiff to pay the full amount of mortgage
• Defendent letter proposed unilateral contract, gift of a promise in exchange
for performance of an act. (reduction of mortgage for payment in full of
principle prior to set date
Issue(s) Was Pattberg able to revoke this unilateral contract?
Decision Yes – there is no contract.
Reasoning • Any offer to enter unilateral contract may be withdrawn before act
requested to be done has been performed. Acceptance occurs when
requested performance is complete.
• If offeror revokes before offeree accepts offer is withdrawn however brief
the interval of time before the two acts – so with P saying he has come to
pay off mortgage, before he could tender, D says sold mortgage and
therefore cannot fulfil promise – sufficient to know that offeror has done
some act inconsistent with continuance of the offer.
Lehman J:
• Believes judgment should be affirmed; argues that fundamental justice if
promisor causes of failure of performance either of an obligation or
condition upon which his own liability depends, he cannot take advantage
of this failure.
Ratio An offer in a unilateral agreement offered can revoke until such that is
performed.
Notes • There is a clear issue with the ruling here. There was no chance given at
Pattberg’s home to perform the contract for which was Petterson’s
intention. In this case, it is said that there is only an offer of payment and
22
not formal tender of payment that was made before Petterson revoked
offer.
• Forbes: agree ratio is correct law, unilateral contract only accepted when
performance is complete – even after commencing some of the
performance. Would not be problem if we have a bilateral contract (“I will
bring you the cash for mortgage on this day…”) and both sides would have
had an obligation to perform.
Errington v Errington (1952) (England) – P.368

Facts • 1936 father bought house for son and daughter in law to live in. Put 250
pounds down, 500 pounds from building society secured by home
repayable in 15s/week installments.
• Father took house in own name to make himself responsible for payment.
He told daughter that 250 pounds was gift, but required son and daughter-
in-law to make instalment payments.
• Father gave building society book to daughter in law, saying house will be
theirs when mortgage is paid and when father retired, he would transfer
into their names.
• Father passed away, mother owns house. Daughter in law says contract to
stay in house as long as mortgage is continued to be paid by daughter in
law – couple has split up. Mother argues it is unilateral contract, not fully
complete because mortgage not fully paid off, should be able to revoke the
offer.
• Installments on house came down to 10s a week but still couple could not
those rates so father said he would pay the rates and did so
son/daughter-in-law undertook unilateral contract but did not sufficiently
complete it.
Issue(s) Can the offer be revoked when portion of unilateral contract has been
performed?
Decision Appeal dismissed. No order for possession should be made.
Reasoning • Couple never bound themselves to pay installments to society, no reason
such obligation should be implied.
o Father promised house would belong to couple when mortgage paid
off, did not discuss what was to happen if couple failed to pay
mortgage, inferred that if did not then house would not be bound to
transfer. The promise was a unilateral contract; could not be revoked
when started paying instalments but could cease if left incomplete and
unperformed
o If contract is in position during lifetime so it must after death, daughter
in law must continue to pay installments should they be entitled to
have property transferred to them, if not society claim instalments from
estate and estate will have to pay them but then the estate is not bound
to transfer property to couple.
o Expressly promised property to couple once mortgage paid off and
implied that as long as payments made by them can remain in
possession.
23
• Implied term of contract that once performance has been commenced,

offeror cannot act inconsistent with continuing performance.
A) unilateral contract: if you pay off mortgage I will transfer title.
B) collateral contract: if you commence performance I will allow you
to continue/complete – won’t revoke or make your performance
impossible. PROVIDED that performance can be completed in a
reasonable time.
Ratio Implied term of the contract, in consideration of your commencing

performance, offeror will allow performance subject to whole of consideration
being completed within reasonable time.
Notes • Forbes view is that once performance commences under unilateral
contract; a collateral contract arises that says it will not be making
performance impossible provided that performance is completed within
reasonable time. Essentially, this is a better method of getting to this
decision by stating there was a collateral contract enacted (yet, it this case,
it was still breached).
• In this case, Forbes likes where Denning J got to, but is questionable of
how he got there.
• American Restatement of Law: where performance is tendered in
pursuance of unilateral contract, offeror is bound by a contract to allow the
performance subject to the whole of consideration being can be tendered
within reasonable time. This is not binding law – just an academic
opinion and similar to Forbes’ idea.
Shuey, Executor v. United States (1875) – P.S5 – Offer Revoked

Facts • April 20, 1865 Secretary of War published in Newspaper that War
Department would pay for the apprehension of John Surratt, one of
Booth’s accomplices, $25k and that liberal rewards paid for any
information that shall conduce to the arrest of either. Offer of unilateral
contract made to world at large
• November 24, 1865 President published his order revoking reward offered
for the arrest.
• Surratt was Zouave in military service of Papal government, claimant in
same service and communicated to Mr. King, American minister at Rome,
fact discovered and identified Surratt.
• April, 1866 – Ste. Marie tracks down Surratt and provides information –
was not aware of revocation but still given 10K.
• From then, government agreed to arrest and extradition of Surratt on Nov
6 1866, when in custody in Papal, Surratt escaped to Egypt, steps to trace
and re-arrest, claimant sent again to identify Surratt in Egypt.
• During arrest/identification, claimant and Minister ignorant that reward
offered by Secretary for arrest has been revoked by President – discovery
and arrest of Surratt due entirely to disclosure made by claimant, but actual
arrest was not made by him.
24
• On July 27 1868, court found that facts did not constitute arrest but merely
giving information that was conducive to arrest.
Issue(s) How do you revoke offer made to work at large?
Decision Appeal dismissed – could not recover the balance of the 15k reward.
Reasoning • Offer was revoked on November 24, 1865, notice was published. Offer
was revocable at any time before it was accepted and before anything had
been done in reliance upon it – no contract until terms complied with.
• Withdrawn through same channel made with – claimant engaged in action
to entitle to reward five months after offer had been withdrawn, immaterial
that he was ignorant to the fact that it was revoked- offer of reward was
not made directly to him but published proclamation, should have known
that it could be revoked in the way it was made.
• Revocation can be made if published in same way as offer was made
(same newspapers), exception to Dickinson rule that revocations have to
be communicated.
Ratio There is an exception made the requirement of communication revocation of
offer. That is, for offers made to the world at large, revocation only needs to
be communicated in the same way the offer was made.
Notes If Ste Marie was a bounty hunter whom was on a mission to find Surrat,
would there be a collateral contract? It could be argued that the unilateral
contract should not be revocable without damages because performance was
engaged.
Livington v Evans (1925)– P.S7 – Rejection and counter-offer

Facts • Evans, through agent wrote to Livingstone offering to sell land for
$1800 on terms.
• Same day, Livington sent wire to agent “send lowest cash price, will
give $1600 cash”, Agent replied “cannot reduce price”, once Livington
received that telegraph he responded accepting the offer
• Meantime, Evans sold to someone else
Issue(s) Is plaintiff’s counter offer a rejection of the defendant’s offer which freed him
from it?
Decision Counter offer is rejection, but still bound because defendant wrote cannot
reduce price which inferred that D would stand by the price and open to accept
it.
Reasoning • When offer has been rejected it is has ended (including counter offer) and
cannot be afterwards accepted without consent of who made it – Hyde v.
Wrench
• P telegraph undoubtedly counter-offer, although contained an inquiry, it
also had counter offer that put an end to defendant’s offer.
• Difficulty is in response of “cannot reduce price” is this rejection of
counter-offer which means does not affect, or is it the renewal of the
original offer it gave the plaintiff right to bind defendant. Judge found that
by referring to price as it was unquestionably mentioned in the previous
telegraph sent by D, was willing to reinstate offer it and accept $1800.
25
• P accepted counter-offer of his counter-offer.

Ratio A rejection of an offer terminates the offer, a rejection of the counter-offer
terminates the offer, reasonable to determine whether counter offer is offering
the initial price.
Notes Does it matter when a rejection or counter-offer is sent or received? Forbes
believes it should be when it is received. There can be issues when a party
tries to accept in the time between an offer and the receipt of the actual
counter or rejection.
Barrick v. Clark (1951)– P.S9 – Offer lapse without stipulated lapse date
Facts • Executors of estate, Barrick, owners of parcel of land, conducted
negotiations for sale.
• Respondent, Clark, residing in Saskatchewan, inquired by letter Sept 8,
1947 whether would be interested in sale of land.
• Barrick responded Oct 10, 1947 inquiring what land is worth; Clark
October 16, 47, did not answer inquiry but made it clear cash was
available if price reasonable and asked what price would be.
• Oct 24, 1947 Barrick said would accept any satisfactory cash offer and
that Kostrovsky, tenant over the years, was anxious to buy land – would
look into reasonable price but in meantime Clark could make an offer to
get immediate attention
• Oct 30, 1947, Clark offered 14.5k for possession any time between Jan 1-
Mar 1, 1948
• Nov 15, 47 Barrick made counter offer 15k, can close immediately with 2k
initial payment and transfer of clear title Jan 1, 1948 (live counter offer)
• Letter received Nov 20, 47 opened by Mrs. Clark as Mr. Clark was out of
town for about 10 days. Mrs. Clark said would try to locate husband and
requested that hold deal open until Dec 1, Barrick made no reply. (inquiry
about the offer)
• Clark returned Dec 10, 47 and wrote to Barrick mentioning 14.75k was
fair but agreed with 15k, enclosed 2k deposit asked for transfer to be
drawn up and agreed to pay balance on or before Jan 1 (sends letter of
acceptance)
• Dec. 11 – Clark learns that Barrick had sold the property to someone else.
(revocation)
• In meantime, Hohmann, also of Sask, but without knowledge of Clark`s
correspondence, under date of Nov 28, inquired of Barrick regarding land
and on November 30 offered 15k
• Dec 11, Clark heard of Hohmann`s purchase and wired Barrick noting that
he trusted that Barrick received Mrs. Clark`s wire to keep deal open.
• Dec 12 Barrick replied, that he was requested to hold deal open for ten
days until your return, held deal open until Dec 6 when received offer
from Hohmann of 15k that was accepted.
Issue(s) Was Clark`s acceptance on Dec 10 of offer dated Nov 15 within a reasonable
time?
26
Decision Appeal allowed – Clark did not accept the offer within reasonable time. The
offer had lapsed, being incapable of being accepted on December 10th.
Reasoning • Barrick did not specify time, just as soon as possible. Reasonable time
depends on:
1) nature and character of subject matter and normal course of business
in negotiations leading to sale as well as
2) circumstances of offer
3) conduct of parties in negotiation.
• Reasonable time for land is longer than stocks as less fluctuations in price /
longer than goods of perishable character.
• Mrs. Clark asking for offer to remain open does not enlarge reasonable
time if the offeror elects, as he did to not make reply.
• Offeree given reasonable time to accept, and only by acceptance is he
given any rights against the offeror.
• Clark desire by initially offering price, and immediately accepting counter
offer upon his return
• Circumstances:
o considered factors that possession could not take place until March
1, nor could farm until spring in order to give a longer lapse date –
o but also had demand to sell, which shortens the lapse date.
o Parties insisted on speed
o Dec 10th acceptance date is not a reasonable amount of time to file
paperwork and diligence to close for Jan 1 st.
• Nov 15 letter from Barrick, show indications that December 10th beyond
reasonable time for acceptance.
• Conduct:
o If offer was acceptable then could close immediately by preparation
of agreement and 2000 initial payment
o Respondent asked to give answer as soon as possible – indicates
promptness
o Clearest indication is that after acceptance of offer, formal APS
would be executed in exchange for payment of 2k and balance paid
on Jan 1, 48 when conveyance would be given – absurd to think
could accept offer as late as Dec 10 given the resultant short
timeline between acceptance and closing of deal
• As matter of law, offer should not remain open until respondent actually
received it upon his return
• Type of contract, circumstance of offer speaks to length but the conduct of
parties clear indication of promptness and urgency.
Ratio If there is no stipulated lapse date, the offer lapses after a reasonable period of
time.
Notes • Should the letter from Mrs. Clark make any difference – speaks to legal
theory behind lapse: if there is no stipulated lapse date then offer lapses
after reasonable period of time because it is an implied term of the offer,
the offeror is saying will lapse after reasonable period of time, only thing
that offeror knows at time of the offer can be relevant
27
o Her letter was not mentioned in the SCC judgment which suggests
her letter was not a factor.
o Her correspondence was after the date of the offer and so it could
not effect it.
Manchester Diocesan Council for Education v Commercial & General Investments (1969)
(England) – P.190
Facts
Issue(s)
Decision
Reasoning Buckley:
• Where offer made in terms which fix no time limit for acceptance, offer
must be accepted within reasonable time to make contract.
o If reasonable time passes either: treated as withdrawn OR may be
said offeree has refused it.
• Second alternative involves objective assessment of facts and
determination of question whether on facts the offeree should in fairness to
both parties be regarded as having refused the offer. mind of offeree, but
offeror needs to be aware of this as well, bilateral – then Mrs. Clark’s offer
become relevant.
• Until offer has been accepted, open to offeror at any time to withdraw or
put limit on time for acceptance, offeree can at any time refuse the offer
or, unless has been guilty of unreasonable delay, accept it.
• Prefers second alterative to the first one, however traditional theory is first.
If don’t stipulate then reasonable period of time implied by offeror.
• Offeree view point communicated to offeror after acceptance of contract,
allows for changing circumstances to be accounted for after offer accepted.
Ratio
Notes • This helps support cases where there is still some activity occurring after
the offer in order to extend the lapse date. Some of the factors may be
relevant to the fact pattern.
• Always put in a lapse date in your contracts. Put the precision in the
offer.
• If an award is offered, it also lapses after a reasonable period of time.
• Loring v. City of Boston
o Offer is made in April 1837 for reward given for apprehension of
arsonists.
o Four years later, Loring gives information that results in arrest and
conviction of arsonist.
o Loring sues for reward after performance of offer.
o Court says that the offer has lapsed – performance must be done in
a reasonable period of time.
28
3) Acceptance
3A) Communication of Acceptance
Felthouse v Bidnley (1862) – Page 196 – Acceptance needs to be communicated
Facts • Felthouse negotiated to purchase a horse from his nephew.
• There was a mix-up with the price, as the uncle offered less than the
nephew desired. The uncle gave a definite offer (splitting the difference
between two offers) “and said if I don’t hear back I will assume horse is
mine” to the nephew in January, however no response was given, and no
actions were performed as the horse remained in the possession of the
nephew.
• In February, the nephew sold all of his farm stock in an auction, and the
horse, despite the nephew's instructions that the horse was not to be sold in
auction as it was sold.
• Felthouse sued the auctioneer, Bindley, in tortious conversion to recover
the horse.
Felthouse was successful at trial, receiving £33, which Bindley appealed.
Issue(s) Did the nephew accept his uncle’s offer? Or was the horse still his property at
the time of the auction?
Decision Appeal was allowed – there was no contract between Uncle and Nephew to
complete say of horse.
Reasoning • Willes, writing for a unanimous court, says that it is clear here that nothing
had been done at the time of the auction to imply that the property had
changed hands to the uncle, and the nephew had given no acceptance.
• Therefore, with no acceptance or implied acceptance through actions the
property remained that of the nephew at the time of the auction, and the
uncle has no case against the auctioneer for selling goods that were not
owned by the nephew.
• If the nephew wanted to enter the contract he must have given clear
indication of his acceptance, which he had failed to do.
Ratio • Silence does not constitute acceptance. Acceptance must be communicated
to the offeror.
• Exception: Unless the offeror in the offer, indicates that acceptance need
not be communicated, silence by the offeror does not eliminate need for
acceptance.
o This could only apply if it were the nephew suing the uncle, not
vice versa.
• You cannot impose obligations on an unwilling party, such as duty to reply
or be bound.
Notes Nephew already has purchase price of horse from auctioneer, in effect Uncle
is trying to get purchase price of horse from auctioneer as well. (It is the
Uncle suing the auctioneer).
29
Cole-McIntyre-Norfleet Co. v Holloway (1919) - Page S.15 – Exceptions to Acceptance Being

Communicated
Facts • Defendant seller of goods, has agent called drummer, collecting orders
from various store owners.
• Plaintiff makes an order; order form explicitly says no contract until order
accepted by head office.
• Time goes by, agent is in the store on number of occasions with nothing
said to storeowner. In meantime, flour went up in price 50%. Plaintiff says
send flour as per terms with agent.
• Defendant says the offer was never accepted.
Issue(s) Can silenced be qualified as communicated acceptance of an offer?
Decision Yes – there has been an accepted contract.
Reasoning • There are exceptions to the rule that acceptance must be communicated
(Other than saying “I Accept”):
1) Your conduct can be indicative and represented acceptance.
2) Past dealings between the parties where there is a contract without
express acceptance.
3) Is there an industry custom (known to both parties) which would
provide another exception to the rule of communicating
acceptance? In this case, this was not found.
4) Offeror in the offer indicates the need not to be communicated.
(Only the offeror can claim this)
Any one of these could be used as justification for not needing to
communicate.
Ratio • Offer to buy or sell is not binding until its acceptance is communicated
to the other party – this can be communicated by formal acts or acts
amounting to an acceptance. Delay in communicating action as to
acceptance may amount to an acceptance itself. It is reasonable to
expect a communication that an offer is not accepted by vendor
especially when perishable articles are involved and have a fluctuation
of value.
• If you fail to communicate a rejection within a reasonable period of
time, and there is proof that there was ample opportunity, silence for
unreasonable time will amount to acceptance, if offeree is relying upon
him for the goods.
• Course of conduct by offeror was accepted as explicitly as it would
have if said aloud.
Notes *Forbes says that this is called common law estoppel – will come back to this
later in the course.
Household Insurance v Grant (1879) – Page 236 – Postal Acceptance Rule

Facts • Defendant made an application for shares in Plaintiff’s company.
• The company allotted him shares and sent a letter by mail to inform
him of this; the letter never reaches the defendant.
Issue(s) Was there an acceptance despite the communication not being received?
30
Decision There is a contract. Defendant must pay sum of money as a shareholder

because acceptance was effective from time it was posted, not when the letter
was received.
Reasoning Thesiger LJ:
• Acceptance was valid when delivered to the post office (when put out of
control of the offeree) if acceptance in due time according to trade.
• Not doing so would cause delay in business transactions and prohibit
offered from planning their affairs.
• Artificial loss allocation rule where court says one or the other has to be
the rule (acceptance upon sending or upon receipt). Chose the posting
date because it has more commercial value.
• Legal notion that minds must come together at the same moment for valid
contract – but this problem is solved if treat post office as agent of both
parties.
• Would be poor policy if delay in delivery or non-delivery would unbind
that parties or unmake the contract.
• The court acknowledges postal office not perfect, some inconvenience but
on balance it is better than the alternative delay in contracts.
Bramwell LJ:
• If no communication, where letter or message is delivered, then no
acceptance of the offer. Acceptances should not differ from other notice
such as resignation or payment.
• While not allowing acceptance by post would be hard for the acceptor to
make arrangements on the belief the bargain was completed, it would be
equally hard on the offeror who may have may arrangements on the belief
the offer was not accepted (letter was lost in mail).
• If an offer is sent by hand and it is revocable before it reaches there, but
not the same with the post office, why is there an arbitrary distinction?
Ratio Acceptances sent by post are considered a contract once the letter is delivered
to the post office.
Notes • What if postal office didn’t deliver because of mistake of offeree
addressing envelope?
o Postal acceptance rule – subject to fault analysis, failure of
communication because of something offeree did then this rule
doesn’t apply.
Henkel v Pape
• Postal acceptance rule only applies when communication involves
intermediation of third party (delivering acceptance) and its non-
instantaneous. Acceptance is good when put out of the hands of the
offeree and not when received by the offeror. Not just post, but a
broader range.
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Entores v Miles Far East Corporation (1955) – Page 248 – Telephone Acceptance Rules
Facts THIS CASE IS THE INTRODUCTION OF THE FAULT ANALYSIS
FOR INSTANANEOUS COMMUNICATION
Case outlines 3 situations for telephone communication
Issue(s)
Decision 1) If the line goes dead in the middle of the phone conversation and you do
not hear the full acceptance of the contract. There is no contract. If the
man wishes to have a contract, he must call back and ensure he was
heard.
2) If the offeree does not know that the acceptance does not go through, but
the offeror does not ask for the message to be repeated The offeree can
reasonably assume there is a contract.
3) If the offeror does not receive the message without his fault, yet the sender
reasonably believes it went through There is no contract.
Reasoning
Ratio
Notes If the communication doesn’t fall under the Electronic Commerce Act
(i.e. it is instantaneous, but not electronic such as fax or phone), then it
goes back to the common law established here under Entores v. Miles.
Eastern Power v Azienda (1999) – Page – Fax Machine Acceptance

Facts • Eastern Power (EP) (located in Ontario) negotiated with Azienda (located
in Italy) to construct an electricity plant in Italy.
• Azienda signed a letter of intent and faxed it to EP.
• EP signed the letter of intent and faxed it back to Azienda
• The deal fell through and EP brought an action against Azienda in Ontario.
Azienda moved to stay the action on forum non conveniens grounds. The
judge granted the motion and EP appealed
Issue(s) Was the contract considered to have been formed in Italy or in Canada, when
acceptance of an offer is communicated by fax?
• Either general rule of contract where acceptance is received applies
OR postal exception should apply
Decision Judgement for the defendant, appeal dismissed.
Reasoning • The contract is considered to have been signed in Italy by applying the
case law from Entores v. Miles Far East Corp. and post mail acceptance
does not apply.
• Where instantaneous communication contract is formed, the post mail
exception does not apply because there is no delay between time of
acceptance and time when received (no effect on commercial expediency)
• Therefore, the general rule of contract applies that a contract is made
in the location where the offeror receives notification of the offeree’s
acceptance.
Ratio The postal acceptance rule does not apply to forms of instantaneous
communication and therefore a contract is made in the location where the
offeror receives notification of the offeree’s acceptance.
32
Notes
Electronic Commerce Act, 2000 (Ontario) – Page 253
Definitions
(1) In this Act, “electronic” includes created, recorded, transmitted or stored in digital form
or in other intangible form by electronic, magnetic or optical means or by any other
means that has capabilities for creation, recording, transmission or storage similar to
those means and “electronically” has a corresponding meaning;
(2) “electronic agent” means a computer program or any other electronic means used to
initiate an act or to respond to electronic documents or acts, in whole or in part, without
review by an individual at the time of the response or act; …
19(1) An offer, the acceptance of an offer or any other matter that is material to the formation or
operation of a contract may be expressed
o (a)by means of an electronic information or an electronic document; or
o (b)by an act that is intended to result in electronic communication, such as
Touching or clicking on an appropriate icon or other place on a computer
screen, or
Speaking
• Can accept electronic icon by hitting button on the screen – has
some importance
Legal Recognition of Electronic Contracts
(3) contract is not invalid or unenforceable by reason only of being in electronic form.
Errors, Transactions with Electronic Agents
(21) an electronic transaction between an individual and another person’s electronic agent is not
enforceable by the other person if,
o (a)individual makes a material error in electronic information or an electronic
document used in the transaction;
o (b)electronic agent does not give individual opportunity to prevent or correct the
error;
o (c)on becoming aware of the error, the individual promptly notifies the other
person; and
o (d)in case where consideration is received as a result of the error, the individual
(i)returns or destroys the consideration in accordance with the other
person’s instructions, or if there are no instructions, deals with the
consideration in a reasonable manner, and
(ii)does not benefit materially by receiving the consideration
Time of Sending of Electronic Information of Document
22(1) electronic information or an electronic document is sent when it enters an information
system outside ender’s control or if sender and addressee use same information system, when it
becomes capable of being retrieved and processed by the addressee.
Presumption, Time of Receipt
33
s. 22(3) Electronic information or an electronic document is presumed to be received by the

addressee when:
a) if the addressee has designated or uses an information system for the purpose of receiving
information or documents of the type sent, when it enters that information system and
becomes capable of be retried and processed by the address OR
b) if the addressee has not designated or does not use an information system for the purpose
of receiving information of the type sent, when the addressee becomes aware of the
information or document in the addressee’s information system and it comes capable of
being retrieved and processed by the addressee.
There is no current case law that has tested the applicability of s.22(3).
S.22(4) – electronic info or electronic doc is deemed to be sent from the sender’s place of
business and received at the addressee’s place of business.
Summary
• When does an offer lapse?
o It can be explicitly stated in the offer.
o If not explicitly stated, then look at a reasonable period of time depending on:
Nature of contract
Circumstance of offer
Conduct of parties during negotiation.
• Do things happen after the offer that effect its lapse?
o If the theory of lapse is implied term offer, then things after the offer may be
relevant from a different point of view – but traditional point of view more
prominent.
• Acceptances have to be communicated to be effective.
• Exceptions of communicating acceptance when conduct of the offeree is such that it can
be deemed; if past transactions operated like this in the last; industry standard; the terms
of the offer; PAR.
3B) Time and Place

Eliason v Henshaw (1819) – Page 200
Facts • The plaintiffs offered to purchase from the defendant some flour, to be
delivered to Georgetown by a certain time, for a particular price.
• The plaintiffs requested the offer be accepted by a wagon through which
the offer was made. The plaintiffs stipulated a location where the
acceptance was to be delivered.
• The defendants did not accept the offer by the wagon, nor did they deliver
the offer to the right location.
Issue(s) 1) Can an offeror stipulate the location where an offer must be accepted?
2) Can an offeror stipulate the manner with which an offer is to be accepted?
Decision No contract.
Reasoning 1) Yes, an offeror can stipulate the location where an offer must be accepted
because they may want, for the sake of business expediency, an contract to
be made at a specific address. If the acceptance is not sent to this specific
34
area, then it is up to the offeror to decide whether they will be bound by

the acceptance.
2) Yes, an offeror can stipulate the manner in which an offer is to be
accepted. However, this only holds if the manner of acceptance is not less
convenient to the offeror. The onus is then off the offeree to show that they
are inconvenienced/prejudiced by the stipulation.
Ratio Offeree must follow the terms of the offeror (time/place/manner of
acceptance) for an acceptance to be valid and binding (Unless the manner of
acceptance prejudices the offeree and there is an alternative that does not
make communication less onerous on the offeror).
Notes
Holwell Securities Ltd. v Huges (1974) – Page 245 – PAR Exceptions

Facts • Offeror has granted an option to buy certain land exercisable by notice in
writing with a stipulated lapse date
• Offer is given by mail and specifies that acceptance can only occur by
notice in writing to the offeror before lapse date.
• Acceptance is mailed before lapse date but not received.
• Plaintiff argues postal acceptance rule – acceptance good from time it was
posted.
• Defendant says there is no contract because they stipulated in odder they
need the acceptance in writing by certain date.
Issue(s) Was there a contract?
Decision No contract – offer clearly stipulated terms of acceptance and plaintiff didn’t
comply. Postal acceptance rule overridden by terms of offer.
Reasoning • If parties contemplate postal service for purpose of forwarding an
acceptance, then doing so would constitute contract even if letter gets lost
– but offer directed in writing, requiring that acceptance is communicated
or notified to the offeror which is inconsistent with notion that PAR could
apply.
• PAR cannot be used in all cases:
o Does not apply when express terms of offer specify acceptance
must reach the offeror.
o Does not operate if its application would produce manifest
inconvenience and absurdity. Having regard to circumstances,
including nature of subject matter under consideration, the
negotiating parties cannot have intended that there should be a
binding agreement until party accepting offer had in fact
communicated acceptance or exercise to the other.
Ratio Offeror has ability to dictate terms of acceptance; these can pre-empt the
postal acceptance rule. Therefore, postal acceptance rule is subject to specific
terms of the offer, that is “notice in writing”.
Notes
35
Henthorn v Fraser (1892) – Page 241 – Test for when PAR will Apply
Facts • Defendant (offeror) hand delivers offer for sale of land.
• Plaintiff lives in a different city. He decides to accept the offer and
plaintiff posts a letter of acceptance at 4pm which arrives at 8:30pm.
• Defendant got a better offer and so posts a revocation of the offer at 12pm
and it arrives at 5pm.
o By time Plaintiff posts an acceptance at 4pm, defendant already
posted revocation.
• Defendant argues that because offer made in person, could reasonably
expect acceptance to be required in person and therefore PAR should not
apply.
Issue(s) Does the PAR apply in this situation, such that the acceptance could be said to
have come into effect immediately on posting and before the revocation?
Decision Contract – the PAR applies.
Reasoning • According to ordinary usage, offeror could have reasonably expected to
receive acceptance by post.
• It would be unreasonable to assume in person acceptance because the
parties live in different cities.
• The PAR does not apply to revocations, which are only good when
communicated and a person who has made an offer must be considered as
continuously making it until revocation brought to knowledge of person to
whom it was made that it is withdrawn.
Ratio Test for when PAR will apply:
1) Accepted by ordinary usage (it is reasonable to use this type of
communication)
2) Acceptance by post is stipulated in contract.
3) Offer is given by mail.
4) Post is no less advantageous for offeror.
• If postal acceptance rule doesn’t apply, general rule from Fieldhouse –
acceptance is good when communicated//received.
• Revocations are deemed when they are received; acceptances deemed
when they are posted.
Notes
3C) Acceptance of Unilateral Contract

Carlil v Carbolic Smoke Ball Company (1893) – Page 359 – Third Look
into a bank account
payout.
person test.
36
Issue(s) 1) Do you need notify the intention to perform?

2) Do you need to notify of completion of the contract?
3) To what extent is motive relevant to the performance of the contract? (can
you unintentionally perform a unilateral contract)
Decision 1) No – an offer of unilateral contract is different.
2) Notice must be given in a reasonable period of time and this must be
within the reasonable amount of time that the offer would not have lapsed.
3) Motive is relevant to the performance of contract – see cases below.
Reasoning Lindley LJ:
• Notice of intention is given concurrently with the notice of the
performance.
• What happens if notification of completion is not given?
o Bishop v. Eaton
A friend writes to a friend and said if my son needs money
to give it to him and I will reimburse you.
Friend says he did not get notification from letter of
performance and that the offer had lapsed.
Court has decided that notice must be given in a reasonable
period of time.
PAR rule should apply.
• For motive case, we look to:
o Crown v. Clarke
Crown offers a reward for 1000 pounds for any information
for arrest for the murders of 2 police officers investigating
gold robberies.
Clark is arrested (he is a robber, not the murder) and gives
information about the actual murders while not knowing
about the reward.
Can an offeree fulfill the condition of a unilateral contract
made to society without having intention to do so, or
knowledge of the offer?
No contract, no reward given.
• Motive does matter. In order to claim an offer under
unilateral contract, you have to be motivated to
perform. Offeror may give offer morally, but would
not be obligated to do so.
• Never accepted or intended to accept offer.
• The motivation wasn’t for contract completion but
rather for acquittal.
o Fitch v Snedaker
Police officer captures felon. After arrest, officer finds out
there is an offer of reward for the felon. Police office sues
for the reward.
There is no contract – an individual cannot perform the
conditions of a unilateral contract without knowledge about
the contract.
37
o Williams v Carwordine
A reward is out for a murder and a woman is beaten almost
to death. She knew about the reward but was motivated
primarily by the fact that she was going to die and not by
the reward. She does not die (despite thinking she was) and
sues for the reward.
The individual can have two motivations for performing the
reward and not her primary motivation for having
performed the conditions of the unilateral contract.
o Smirnis v Toronto Sun Publishing
Toronto Sun offered $100,000 reward for information
leading to arrest and conviction in Bernardo murders.
Smirnis (shady character) reveals that he thinks it is
Bernardo but Police feel that he doesn’t fit the profile.
They come back to Smirnis after the DNA test from the
crime scene is positive to Bernardo. Thy are able to get to
convict Bernardo and Smirnis says he is entitled to the
award.
However, the police and the Sun say that he is not the
proximate cause of the conviction.
The court holds that there is a contract and should be
apportioned based on the usefulness of information.
Awarded 10K.
Character of individual should not affect the reward he gets
and that the information needs to be relevant and helpful,
but does not need to be the proximate, or solely responsible
for the conviction.
Ratio • If an offeror under a unilateral contract is not going to get notice of the
performance through performance itself, then the offeree has an obligation
to notify the offeror within a reasonable period of time.
• An individual must have the contract in mind when performing the
conditions for the acceptance to be good. Yet, we see in Williams v
Carwordine, it does not need to be primary motivation.
Notes • In a bilateral contract, both parties agree to a performance. When a
contract is formed by acceptance of the offer, each side is obligated to
perform.
• In a unilateral contract, the performer is not bound to perform. The
performance constitutes the acceptance of the offer and once it is accepted,
only the offeror needs to perform. The question becomes, do you need to
give the offeror notice.
• Forbes argues that Smirnis shows that taking a motivation of greed is not
valid for not giving someone the award.
4) Consideration
4A) General
• There needs to be consideration in both ways to enforce a contract.
38
• “A contract is not enforceable unless the promisor receives some benefit or promisee
concurs some detriment at the request of the promisor” – (Homer v Sedway)
• Bargains require that both sides require something. If you go back in the legal history, the
courts never wanted to create the doctrine of consideration. However, there judgments
started stating that there was a consideration or reason for the promises being made and
that these were required in order for promises to be considered enforceable.
• Courts believed that they should enforce that the promisor demonstrates their sincerity by
affixing their family seal to the promise. Then, this was deemed to be consideration.
“Signed, sealed and delivered”.
o Now you can sign and seal by signing, affixing a circle with an X, etc.
• If there is a situation with a bare promise, you stick a seal onto it and that should remedy
any issues.
• A consideration must be the following:
1) Consideration has to be real, not illusory – must move from promisor (Thomas v
Thomas; White v Bluett)
2) BUT, it does not need to be adequate – we don’t ask for a fair deal.
3) A promise in exchange for a promise is good consideration (Harrison v Cage). There
needs to be certainty for what the promises are and adequate to be enforceable.
4) Moral obligation is not consideration (Eston v Kemjon).
5) Can be detriment requested by promisor, sufficient if it refrains you from doing what
you have a right to do (Hanmer v Sidway).
6) Not performance of an existing duty (Stilk v Myrick)
7) A promise to not do something you have no legal right to do is not good
consideration.
8) Past consideration isn’t enforceable – consideration has to be contemporaneous with
the promise; except where performance requested by promisor in circumstances
where payment would be expected.
Tobias v Dick and T. Eaton Co (1937) – Page 265 – No Consideration

Facts • Dick invented grain grinder and enters written agreements with Tobias for
sale of grinders.
• Contract drawn up by Tobias, who induced Dick to sign it – setting
exclusive selling rights within specified areas.
• Plaintiff didn’t sell very many so Dick enters contract with Eatons to sell
his grain grinders.
Plaintiff sues Dick for breach of contract, and Eatons for inducing breach
of contract.
Issue(s) Is this a valid contract?
Decision No contract as there is no consideration.
Reasoning • This was a one-sided bargain where inventor of grain grinder got nothing
in exchange for the promise, no consideration moving from Tobias.
• D is required to sell to P but P is not required to buy only from the D. The
agreement is as standing offer; no consideration so cannot be viewed as a
contract.
39
• You accept the offer by putting an order in for grain grinders. Contract at
that point is for the number of units ordered. If you put in another order
later, there is another contract. D cannot revoke while there is an offer.
Ratio Something that looks like a formal contract, can still fail to be enforceable for
lack of consideration.
Notes • Contract can be fixed by setting amount of grain grinders to be sold by
plaintiff.
• A seal would solve this problem of lack of consideration.
4B) Sufficiency of Consideration

Thomas v Thomas - Page 260 – Adequate consideration irrelevant
Facts • Defendant was an executor of John Thomas’ will. John intended that his
widow, the Plaintiff, express she should have the house he lived in with all
his contents or 100 pounds.
• After his death, executors attempted to put wish into effect and executed a
written agreement between the parties.
• Defendant left house to wife and she had to pay rent of one-pound year
and will get a life interest in the property.
• Document says that it’s made in consideration of “pious respect for wishes
of testator”.
• Once the other co-executor died, the defendant refused to complete the
conveyance and ejected the wife from the home (life interest has
substantial value and is worth much more than the nominal rent).
Issue(s) Was there sufficient consideration to enforce the contract?
Decision There is a contract. The consideration was not deemed illusory.
Reasoning Lord Denman CJ:
• Stipulation for payment was an express agreement.
Patteson J:
• Express agreement to pay, not a voluntary gift. The rent is not incidental to
assignment of house, instead being payable to the executors.
• “Pious respect” is not good consideration because it is illusory and not
real. It’s recited consideration, but not good consideration. It doesn’t
move from the person who has to enforce the contract (executor). It also
doesn’t have any value.
• However, the promise to pay rent and repair the property is real and has
value. Law of consideration doesn’t ask if it’s a good bargain as long as
consideration is valid.
Ratio Consideration must be real and not illusory. It must move from the promise,
who should be getting something in exchange for the promise, to the promisor.
The adequacy of consideration is irrelevant.
Notes
Stilk v. Myrick – Page 268 – Performance of Existing Duty

Facts • On a sea voyage, two seamen deserted the trip.
40
• The ship captain, the defendant, promised the other crew members,
including the plaintiff, that if he could not find replacement workers, he
would pay the group the wages of the deserted members.
• Upon arriving in London, the defendant refused to pay the extra wage.
Issue(s) Was the offer sufficient to bind the defendant in a contract?
Decision No – the contract is void of consideration.
Reasoning • The sailors were already obligated to bring the boat back to London so
them simply continuing their work is not good consideration.
• If you are bound in a contract to give a certain performance and you enter
into an amending agreement and one of the parties gets more, that
amending agreement isn’t enforceable because one of the parties didn’t get
consideration (the captain didn’t get anything more).
• This may have been different if the sailors were at liberty to quit services
earlier or if the captain fire the two men and others were to take on more
responsibility.
Ratio Performance of an existing duty is not good consideration for an amending
agreement or a new contract.
Notes • It is likely now that the amending agreement would be enforceable.
• There is an exception (Scottson v. Pegg):
o If you have a contract between A and B for a performance, and C
offers B a contract of the same value; B can agree with a third
party to do something that you’re already bound in contract to do
with A.
o The consideration for C is having the contract fulfilled and the
opportunity to enforce performance onto B.
o If B doesn’t perform, he will be sued by both A and C. There is
obligation for same performance under two separate contracts.
Hamer v Sidway (1891) – Page 259 – Detriment as consideration

Facts • Storey promised nephew that if he would refrain from drinking, tobacco,
swearing, and cards until he is 21, he would give him $5k. This promise
was made in front of invited guests.
• When he turned 21, Nephew wrote to his Uncle to inform him that
conditions had been fulfilled. Uncle replied that money had been set aside
and that we would have it when he was considered capable of taking care
of it.
• Uncle died without having paid the Nephew and a claim was brought
against the executor of the estate by a woman who had acquired the debt
from a third party after the Nephew sold his claim.
Issue(s) Is performance of the promise (abstention from legal conduct) sufficient for
consideration?
Decision Yes. Contract is allowed.
Reasoning • Consideration may consist in either some right, interest, profit, or benefit
accruing to the one other party, or some forbearance, detriment, loss or
responsibility given, suffered, or undertaken by the other.
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• Does not matter whether consideration in fact benefits promise or third

party, or is of any substantial value to anyone.
• Enough that something is promised, forborne, or suffered by the party to
whom the promise is made as consideration for the promise made to him.
• Sufficient that restricted lawful freedom within limit of agreement and
now performed conditions imposed, does not matter whether such
performance actually proved a benefit to the promisor
Ratio • “In general, a waiver of any legal right at the request of another party is
sufficient consideration for a promise”
• “Any damage, or suspension or forbearance of a right, will be, sufficient to
sustain a promise”
Notes
White (Executor) v. Bluett (1853) – Page 258 – Illusory Consideration

Facts • Father lends his son, the defendant, money and issued a promissory note.
• Son complained about having to pay back so father agreed that if he
stopped complaining, and in consideration of natural love and affection,
father will forgive promissory note.
• The executor of the estate (White) sues for the money.
Issue(s) Is the promise to stop complaining good consideration?
Decision No. There is no contract as there is no good consideration.
Reasoning • The son had no legal right to bother father and therefore agreement not to
do that is not good consideration.
• Further, Natural love and affection is illusory and not real consideration.
Ratio There must be a valid consideration for a contract. Reciprocal exchange is a
necessary element of consideration (and promise to stop complaining is not
sufficient).
Notes
Dalhousie College v Boutillier Estate (1934) – Page 295

Facts • Boutillier promised to pay Dalhousie $5K for “maintaining and improving
efficiency in teaching… and in consideration of the subscription of others”
• Deceased’s estate then met with financial difficulties and couldn’t pay.
• Plaintiff is suing for breach of contract.
Issue(s) Was there sufficient consideration to bind the deceased in contract?
Decision No contract – there is no consideration.
Reasoning • “In consideration of the subscription of others” is not legal consideration.
• College argued and recited consideration. Court says this did not move
from College to Boutillier, it is an illusory consideration.
• College argued detrimental reliance as they incurred significant expenses
as the result of a promise. Court says Boutillier did not make the
request to the detriment, it was not personal to him.
• College argued promise for promise because it “improved efficiency in
teaching Court says not certain enough to be enforceable, given that
42
consideration was “of the subscription of others”. There must be more than
mere expenditure of money on something at the school.
Ratio Voluntary promise cannot be converted into binding legal contract by
subsequent action of the promisee alone without consent, express or implied,
of the promisor.
Notes
The Seal – Page 309

An early form of action, called covenant, permitted enforcement of promises, even without any
element of exchange, if under seal. The seal, originally molten wax dropped onto the document
and impressed with a dye, later took the form of a gummed paper wafer. A sealed document
(also known as a deed, a covenant, a formal contract, or a specialty) usually contains formal
language and ends with the words “signed, sealed, and delivered.” Through the passage of time,
the requirements of signing, sealing, and delivering have become much attenuated.
Linton v. Royal Bank of Canada (1967) – Page 310

Facts • A document ends with “signed, sealed and delivered” and which has the
word “seal” in parentheses beside the space provided for a signature.
• The guarantor signed the document without altering either of those printed
items, and had it delivered to the creditor.
Issue(s) Is it reasonable that the addition of a paper seal beside the signature was a
material alteration of the agreement?
Decision The document, with the addition of a paper wafer by the bank, cannot be
considered a material alteration affecting the “legal incidence” of the
document.
Reasoning • When the guarantee in question was signed by Mr. Linton with the
intention of constituting the document a deed, it became such.
• The important evidence was the markings of the document “signed, sealed
and delivered”.
Ratio • When a party signs a document, which by its language purports to be a
deed, he cannot after deny that it is so.
• The marking on the documents that say “signed, sealed and deliver” and
the word “seal” beside a space provided for signature make a document a
deed.
Notes
4C) Past Consideration

Roscorola v Thomas (1842) – Page 317
Facts • Plaintiff bought a horse from Defendant for $30.
• After the sale, the defendant says that the horse is 5 years old, sound and
free of any vice.
• Horse turned out to be vicious and wild.
• Plaintiff brought an action on the later promise.
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Issue(s) Did Plaintiff provide enough consideration to bind Defendant to later promise
quality about horse?
Decision No contract. No consideration for later promise, bargain already formed when
statement made.
Reasoning • Plaintiff provided no consideration for that later promise. Therefore, it is a
bare promise and not binding.
• Consideration must be in the present, not the past.
• The earlier consideration offers by plaintiff (money for the horse) has no
impact on the future promise of the defendant.
Ratio Consideration must be contemporaneous with the promise made. A promise
after a bargain is struck is not good consideration.
Notes
Lambleigh v Brathwait (1615) – Page 315 – Past Consideration Exception

Facts • Brathwait killed a man and asked Lampleigh to ride to King to petition for
a pardon. He did and was successful.
• When Brathwait was released, he promised $100 to Lambeligh.
• He never paid so Lambleigh brought an action.
• Brathwait argued that because service had been performed in the past,
before the promise, no good consideration at the time of the promise.
Issue(s) Can consideration be offered for an action performed in the past?
Decision Yes.
Reasoning • Normally, no. Consideration must be offered at the same time as bargain
made.
• However, where promisor requests an action from promise (i.e.
consideration) under circumstances where compensation is expected, past
consideration (action) is sufficient consideration.
Ratio Where promisor requests an action from promise under circumstances where
compensation is expected, past consideration is sufficient consideration.
Notes
4D) Performance of an Existing Duty

Hartley v Posonbly (1857) – Page 269
Facts • Facts similar to Stilk v Myrick, but one crucial distinction.
Desertion of crew members made operation of the ship “dangerous to
life”.
Issue(s) Did crew offer valid consideration to enter bargain to operate ship with
reduced number of crew for a higher wage?
Decision Yes – there was additional consideration given.
Reasoning • The crew offered valid consideration to enter a new contract with the
captain because the situation resulting from half the crew deserting
substantively different from original contract which is therefore null and
void.
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• Sailors no longer obligated to perform because situation was now

dangerous.
• An agreement to perform for a greater sum is binding because sailors have
given something additional.
Ratio This is an exception to Stilk v Myrick. Performance of contractual duties
can be valid consideration for a new contract if the duties change to such an
extent because of an external cause that the original contract is discharged.
Notes The conditions of sailing were so changed that the nature of the contract was
changed. The sailors forgo their right not to perform to perform for a higher
sum.
New Zealand Shipping v Sattherwaite (1975) – Page 269

• This is an exception to Stilk v Myrick.
• If you have a contract between A and B, then C offers to pay B for the same performance,
it is allowed because there is good consideration.
• C received independent right to sue B for the performance (enforcement rights)
• This is in support of Socttson v Pegg (see above).
Williams v Roffey Bros. & Nicholls (1991) – Page 276 – Amending Agreements
Facts • Roffey Bro contracted to renovate 27 flats and subcontracted carpentry to
Williams.
• Williams did some of the work but then ran into financial difficulty and
said the price was too low to enable the plaintiff to operate satisfactorily
and at a profit.
• Roffey was going to be liable under a penalty clause so they offered
Williams more money to complete the contract on time.
• After Williams does the work, Rofffey says agreement isn’t enforceable
because he was already bound for the original amount for the same
performance.
• Williams argues that Roffey got benefit of getting contract on time and
avoiding the penalty. Roffey says that is an illusory consideration because
any benefit didn’t move from one to the other in that the plaintiff did not
do any more work than he was already bound to do.
Issue(s) Was there valid consideration for an amending agreement?
Decision Yes – there is a contract. The practical benefit constituted valid consideration.
Reasoning • Court was attempting to fix Stilk; as long as Roffey didn’t enter into
amending agreement under duress, the practical benefit is sufficient to be
consideration for the amending agreement.
Ratio • If A entered into a contract with B to do work in return for payment by B
and:
1) At some stage before A complete obligations, B has reasons to
doubt whether A will, or will be able to, complete side of bargain
AND
2) B promises A additional payment in return for A’s promise to
perform contractual obligation on time AND
45
3) As a result of promise, B obtains practical benefit, or avoids a

detriment, AND
4) B’s promise not given as a result of economic duress or fraud by A
THEN
5) Benefit to B is capable of being consideration for B’s promise, so
that promise will be legally binding.
• As long as there is a practical benefit and the amending agreement did not
result from duress or extortion, the promise of existing performance can be
valid consideration for an amending agreement.
Notes • This is a refinement of Stilk v Myrick because there was no practical
benefit in that case. Canadian courts now starting to say that this is good
law in Canada. Being developed with few refinements and exceptions.
• This is a strange decision because you would never enter into amending
agreement unless you were getting a practical benefit.
NAV Canada v Greater Fredericton Airport Authority (GFAA) (2008) – NB CoA - Page 279
Facts • NAV wanted a specific piece of landing equipment to extend the runway
of the airport (instead of moving an existing piece of equipment from
another runway).
• GFAA was not contractually bound to pay, but agreed to do so “under
protest” in a letter to ensure that the extended runway became operational.
• Later, the GFAA refused to pay for the landing instrument. They
attempted to settle the matter under arbitration. The arbitrator held that
under the existing contract between the parties – which is the “Aviation
and Services Facilities Agreement” (ASF) - that NAV had no claim to
reimbursement. In fact, once NAV insisted on the purchase of new
equipment, under the ASF, they had the duty to purchase that equipment.
However, there was a new binding contract that was supported by
consideration and so NAV Canada was entitled to reimbursement.
The Arbitrator’s ruling was overturned at the Queen’s Bench and NAV
Canada appealed.
Issue(s) Was the promise made by GFAA to buy equipment in exchange for NAV
continuing to perform contract duties sufficient consideration?
Decision There is no contract – no sufficient consideration made.
Reasoning • The promise made by the GFAA to reimburse NAV in exchange for
continuing to perform its contractual duties to secure and install the
equipment is modification to the existing contract but is not supported by
“fresh consideration” (Stilk v Myrick).
• Plaintiffs forbearance from breaching existing contract does not qualify as
fresh consideration.
• Plea of detrimental reliance is not valid basis for enforcing an otherwise
gratuitous promise as “promissory estoppel can only be evoked as a shield
and not sword”
46
• Court attempts to see if the traditional rule require consideration should

provide the answer or whether they should move away from strict
application of Stilk v Myrick:
o Stilk v Myrick was an unsatisfactory way of addressing the
enforceability post-contractual modifications and the realities of
today’s modifications and contingencies.
o The courts should recognize that while some gratuitous promises
are not bargains supported by consideration, there may be other
sound reasons for enforcement.
o The doctrine of consideration and bargain and exchange should not
be frozen in time as to only reflect the commercial realities of
another era.
• Therefore, a post-contractual modification, unsupported by consideration,
may be enforceable if it is established that the variation was not procured
by economic duress. To determine if there was economic duress, two
conditions must be met:
o The promise must be extracted as a result of the exercise of
pressure (a demand or threat);
o The pressure must be such that the coerced party had no practical
alternative by to agree.
• Court found that GFAA had no practical alternatives and NAV Canada
had exerted pressure to obtain what amounted to a contractual
modification of the ASF agreement.
• GFAA did not consent to the variation irrespective of the circumstances.
The Court noted that the “under protest” language was evidence that
GFAA acquiesced.
• Valid policy considerations for refining the consideration doctrine to the
extent that it recognizes variation to an existing contract, unsupported by
consideration, is enforceable if not procured under economic duress:
o Stilk unsatisfactory to deal with enforcing post-contractual
modifications – captures coercive negotiations if some
considerations and excludes voluntary agreements that do not
offend economic duress when there no consideration.
o Notion that detrimental reliance can only be invoked if promise by
the defendant to the action is simply unfair and leads to unjust
result if promisor was not acting under economic duress.
o Doctrine of consideration should not be frozen in time, needs to
reflect commercial realities.
Ratio • A post contractual modification, unsupported by consideration, may be
enforceable if it is established that the variation was not procured by
economic duress.
• To establish economic duress, two conditions must be met:
o The promise by be made under pressure (demand/threat)
o The pressured party must have no option but agreeing.
• If these conditions are met, three factors must be analyzed:
o Was the promise supported by consideration?
47
o Was the promise made “under protest”?

o Were reasonable steps taken to disaffirm the promise?
Notes Williams v Roffey Bros may be good law in Canada. Don’t need practical
benefit, amending agreement and no duress. Duress can nullify the original
agreement
Wind River Ventures v British Columbia (2009) – BCSC - Page 284

Facts
Issue(s)
Decision
Reasoning
Ratio Agrees to apply GFAA but with refinement: To apply GFAA, you need either:
1) A situation where the other party relied to their detriment on amending
agreement OR
2) The party must receive some kind a benefit. This benefit must be real
(such as an increased performance) – but if you have real benefit than
wouldn’t need Williams v Roffey Bros because they have
consideration. Court didn’t specify if it needs to be practical or real
benefit.
Notes Overall, this case supports GFAA but needs something more than an
amending agreement.
Prof says he doesn’t think the decision helps us out a lot.
Foakes v. Beer (1884) – Page 285

Facts • Foakes (appellant) owed the respondent, a sum of £2,090 after a court
judgement (judgment debt and not a contract per se).
• Parties entered an agreement (not under seal) that Foakes would pay £500
down payment and £150 every 6 months until he paid off the debt.
• In return, Beer wouldn’t take any action as long as Foakes continued to
make payments.
• Once principal was paid off, Beer claimed she was entitled to interest
payments.
• Foakes argued there was a contract with no mention of interest but Beer
claimed this was invalid because she did not receive any consideration.
• Foakes paid in installments and Beer promised not to take any post-
judgment interest as long as payments made.
• After the principle paid, Beer sued for post judgment interest.
Issue(s) Is there sufficient consideration? This is a contract construction issue.
Decision There is no contract – no consideration so interest payments are due.
Reasoning • Installments looks like an illusory benefit because it did not move from
Foakes.
• Beer gets a practical benefit (she gets paid) but it didn’t come from
Foakes.
• Judge refers to Pinne’s Case (below). Judge acknowledges that the
doctrine has been criticized but it has not been overruled.
48
Ratio • Payment of a lesser amount cannot serve as satisfaction of a larger amount.

Notes Pinnel’s Case (1602):
• A person who owes as sum of money to be due in a period of time. The
person agrees to accept a lessor sum of money for earlier of payment.
Creditor sues for a remainder of the debit.
• IF there is an obligation to pay a greater sum and you agree to a lesser
sum, it is not enforceable, unless there is accord and satisfaction (real but
not necessarily adequate). Ratio
Sihree v Tripp – Overruled in CoA

Facts • Person owned 1000 pounds. Instead of paying, gave a promissory note for
500 pounds.
• Have the right to sue on this note.
Issue(s) Is there valid consideration?
Decision Taking of a promissory note for a lessor sum of money can be good
consideration.
Reasoning • This note is something different and therefore accord & satisfaction –
therefore it is good consideration.
Ratio • A cheque or promissory note for a lesser amount of money could be good
consideration. The court does not test the adequacy of consideration and
the defendant got something different.
Notes This ruling is overruled by Denning in a subsequent case. If you accept a
lesser sum of money without consideration, it isn’t enforceable. How is a
promise to pay a lesser sum of money enforceable?
Mercantile Amendment Act RSO 1990 – Page 289 – Part performance

“16. Part performance of an obligation, either before or after a breach thereof, when expressly
accepted by the creditor in satisfaction, or rendered in pursuance of an agreement for that
purpose, though without any new consideration, shall be held to extinguish the obligation.”
• This covers part performance, not a simple agreement.
• IF you have an obligation to pay 1000 and you accept 500, or if I render 5000 to you
pursuant to the obligation, you cannot collect the balance. However, if there was no
acceptance, rendering, or tender, the statue doesn’t apply.
• Must be a completed bargain – the money is accepted or paid to the creditor.
• Act only applies to a completed agreement; not a bargain to take a lesser sum of money. It
“kicks in” once payment is performed.
• This act responds to Foakes v. Beer, which would hold that if you cash the cheque to still
have access to the remainder. Mercantile Law Amendment would have said that the part
performance has been expressly accepted and tendered or rendered pursuant to the agreement
and therefore the obligation is extinguished.
4E) Primary Estopel

• Estsoppel concept comes about before Williams and Roffey Bros.. This came about to stop
the issues of amending formulas for issues of no new consideration.
49
• The doctrine is from Denning; if amending original agreement in circumstances where it was
intended to be acted upon and it was acted upon, there is no new contract, but an equity
arises – which will stop the party from insisting on strict legal rights under the original
agreement.
• Whereas in Willians v Roffey a new contract formed through an amending agreement – but
under promissory estoppel, only equity will arise which will estop party from enforcing
original legal rights.
• Estoppels do not create contracts; they cannot be brought about for an action; they can
only be used as defences. “Shield not Sword”
Central London Property Trust v. High Tree House (1947) – Page 324 – Rules of Promissory
Estoppel
Facts • In 1937, High Trees House leased a block of flats for a rate of £2500/year
from Central London Property. Due to WWII, the occupancy rates were
drastically low.
• In January 1940, the parties made an agreement to reduce rent by half.
Neither party stipulated the length of time.
• In 1945, the flats were in full occupancy.
• The new receiver of High Tree House argued that there was no
consideration for the amendment to the original contract and sues for the
original rents in arrears.
Issue(s) After making a promise to a promise to amend a contract that is not backed by
consideration, can the promisor sue the promise based on the original
contract?
Decision Judgement for the plaintiff – can collect full rent from time of full occupancy
in 1945.
Reasoning Denning J:
• Development in law of estoppel, previously unable to rely on estopell
without consideration or representation to the future. This is developed to
where courts honoured where promise made which was intended to create
legal relations, and which to knowledge of the person making the promise,
was going to be and in fact acted by whom the person whom it was made.
• A party who waives a part of the performance of a contract may later re-
instate that portion if it would not be unjust or violate the reliance of the
other party.
• The rent waiver was only meant to cover the wartime. It was not unjust to
raise the rent back to the original amount after the war, when the defendant
was able to pay it again.
• A party may retract the waiver by reasonable notification received by the
other party that strict performance will be required of any term waived.
• Full rent was payable from the time the flats were at full occupancy in
1945. However, the full rents would not have been able to be collected
from 1940 because equity would have estopped plaintiff from collecting (it
provides a defence)
Ratio The rule of promissory estoppel states, that if you have:
50
1) Promise related to the performance of an existing duty amending a

contract;
2) That the promise is not backed by consideration, but made with
intention to be acted upon;
3) The promise is intended to be, and is acted upon,
Then an equitable defence (not a new contract) that estops the promisor from
acting on his or her legal rights under the new contract.
Notes Ajayi v RT. Bristol
• You must have detrimental reliance to plead promissory estoppel.
Promisee must show that they relied and acted on the promise to their
detriment. If there is no detrimental reliance, then the party making the
promise for an amending agreement can insist on his or her original
legal rights after giving notice after a reasonable period of time.
John Burrows Ltd. V Subsurface Surveys (1968) – Page 330

Facts • Defendant owed Plaintiff money that was to be paid in monthly
installments pursuant to a promissory note.
• Note stipulated that it payments were more than 10 days late, defendant
defaults and whole amount is due.
• Because they were friends, Plaintiff accepted 11 late payments.
• After a falling out, plaintiff sued defendant because one payment was 36
days late.
• Defendant claims defence of promissory estoppel because plaintiff made
representation to him that he would not insist on strict legal rights having
accepted late payments before.
Plaintiff won at trial, defendant succeeded on appeal, plaintiff appealed to
SCC.
Issue(s) Can promissory estoppel be based on mere representation that did not result
from explicit negotiations?
Decision No – judgement made for plaintiff. Defendant must pay full amount.
Reasoning • To an estopell to exist; there has to be a:
1) Representation that strict rights under contract would not be enforced
resulting from a course of negotiations, AND
2) Such representation was intended that legal relations created by
contract would be altered as result of negotiations.
• The rational for this is that we don’t want the law to be giving someone the
benefit of the doubt and allowing them to extend a payment will cause an
estopell and prevent promisor from getting what is owed.
Ratio Promissory estoppel only results from agreements formed because of:
1) Negotiations that are intended to be binding
2) Not from a simple, friendly forbearance. It must be clear that the
agreement can be relied upon.
Notes
51
D&C Builders v. Rees (1965) - Page 337

Facts • Rees brings in contractor to do some work. They find out he is in financial
difficulty.
• Rees says that he should take less money for the job or else risk getting
nothing from if it lesser sum was not accepted.
• Plaintiff agrees only because of dire financial need and coerced duress
placed upon them but then sues for full contract amount. Rees claims
there is an estopell.
Issue(s) 1. Can a promissory estoppel arise if amending agreement is extorted?
2. Is settlement biding where debtor gives lesser sum and says they cannot
provide more and a creditor is considerate to accept it?
Decision Appeal dismissed – judgement in favour of D&C Builders.
• No distinction between payment of lesser sum by cash and payment of it
by cheque (no consideration).
• Equitable estoppel is an equitable remedy – cannot extort amending
agreement under economic duress (can’t ask for an equitable estoppel with
dirty hands).
• For estopell you need:
o Debtor and creditor enter negotiations leading debtor to suppose
that on payments of the lesser sum, creditor will not enforce
payment of the balance AND
o On this faith, the debtor pays the lessor sum and the creditor
accepts it as satisfaction, THEN
o The creditor will not be allowed to enforce payment of the balance
when it would be inequitable to do so, BUT
o Creditor needs to voluntarily agree to accept lesser sum in
satisfaction; gained through true accord between debtor and
creditor.
• In present case: does not give rise to estoppel. Cannot get an equitable
remedy in circumstances where you’ve extorted the money under
economic duress and acted inequitable, o true accord between two parties.
Ratio An equitable remedy such as promissory estoppel must be fair and cannot
result from inequitable actions. Amending agreement cannot be extorted by
duress.
Notes Similar to GFAA case.
Combe v Combe (1951) – Page 326

Facts • Wife divorced husband and is claiming maintenance.
• There is a letter between the two that husband agreed to pay wife, but he
never did.
• Seven years later, wife is seeking payments in arrears. There was never
consideration in exchange for the promise and so no contract was formed.
52
• Wife argued there was a promissory estoppel as she had acted on the
promise to her own detriment.
• Wife makes more money than the husband.
Trail judge agreed with wife and enforced the promise under promissory
estoppel; relied on Central London. Defendant appealed.
Issue(s) Can a promissory estoppel become a legally binding contract?
Decision No – promissory estoppel does not create a contract.
Reasoning Lord Denning:
• Central London case should not be stretched so broadly; cannot plead
promissory estoppel as a plaintiff to form a cause of action where none
existed before. “promissory estoppel serves as a shield, not swords”
• Can only plead promissory estoppel a party to stop another party from
insisting on their strict legal right under an original contract when it would
be unjust/unequitable to do so.
Ratio • Equitable estoppels do not create a cause of action because they do not
form contracts. They are shields to be used to defend against enforcement
of original contract where promises or assurances given to alter original
contract, not to create a contract.
Notes
Crabb v. Arun Distirct Council – Page 343 – Propriety Estoppel

Facts • In 1965, Crabb bought two acres of land and was neighbours to AD
Council.
• Crabb could only access the land through easement owed by council.
Access had a gate.
• In January 1969, Crabb put a padlock on the gate which upset the Council.
• They responded by taking down the gate and putting in fences. Crabb
asked that it be opened again.
• The council said they would in return for £3000.
• Crabb sued the council, alleging that he had been giving assurance that the
gate would remain open.
Issue(s) Can promissory estoppel even become a legally binding contract?
Decision Yes – but only if the estoppel is in relation to creation of interest in land
(called proprietary estoppel).
Reasoning • If you represent (words or conduct) to someone that you have an intention
to convey an interest in land and that’s relied upon, then an estoppel arises
that stops you from conveying the interest in land.
• If you have relied to your detriment, an estoppel arises forcing the person
to fulfill the agreement. It does create a cause of action because you can
make the person give the interest that they promised.
Ratio This is an exception to Combe. If the estoppel is created in relation to the
creation of interest in land, then the estoppel can create an actionable right on
its own.
Notes
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Maher v Walton Stores – Australia- Common Law Estoppel

Facts • Mahers own commercial building they use to produce annual income.
Walton rents the building and the lease is coming to an end.
• Walston want to continue but the building layout doesn’t work for Walton
Store, so if they continue Maher will to demolish one end and put up a
new structure.
• Maher agrees as long as there is a long-term lease.
• In reliance upon representation made before a contract was completed, the
Mahers demolished the building and started to erect a new one.
• But the contract never came to completion because Walton Stores did not
sign the lease.
• Walton decides they don’t want the building anymore and argues no lease
and no contract. Maher’s sue.
Issue(s) Is this a common-law estoppel? (i.e. Did Walton by their conduct represent
that they had accepted the offer?) Did they represent that there was a contract
or there would be a contract?
Decision Judgement for the defendant – The court held that the Walton Stores did not
act in a way to make the Maher’s assume that there was a contract.
Reasoning • 5 judges sat on the case. 2 said that Walton stores represented that there
was contract. 3 said that they represented that there would be a contract –
which does not create contract.
• Common law estoppel does not apply and therefore there is no contract.
• However, all five agreed that under circumstances where there is an active
creation or encourage an assumption that there would be a contract and
that assumption is detrimentally relied upon by the other party, then
equitable estoppel creates an enforceable obligation.
Ratio If the circumstances are such that there is an active encouragement of an
assumption of an intention to contract, then it is possible that the promisor is
estopped from denying the contract.
Notes Sometimes equitable estopell do create contracts although this has not been
argued in Canada.
Summary of Consideration
• This begins with Stilk, the duty to perform an existing performance is not good
consideration. Denning did not agree with this and look at the history and saw that from
Jordan v. Money where estopell could only be when representation for present contract,
not future.
• If William’s v Roffey Bros becomes law in Ontario – once amending agreement, it is
enforceable because practical benefit is consideration for new contract. If that case is
right, why would you ever argue promissory estoppel again? The problem gets fixed
because amending agreement is now enforceable due to practical benefit. But, we don’t
know if Williams v. Roffey is good law in Ontario so we may need to go through process
of promissory estoppel.
• Rundown:
1) No consideration in an amending agreement (Stilk, Foakes v Beer)
54
2) Was there real consideration (bilateral agreement as both parties got something different)
(Hartley; Pennel’s Case)
3) Can we argue Williams v Roffey? ( Don’t know if this is good law in Ontario, but it is
probably persuasive as it has been adopted by CoA NB)
4) Does MLAA? Acceptance of lesser sum for satisfaction of lesser sum
5) Promissory/Equitable Estoppel argument
o MLAA and Promissory Estoppel may not be necessary, as they are more difficult, if
Williams v. Roffey applies, but we are not at that point of law development yet.
5) Capacity to Contract
Nash v Inman (1908) – Page 546 – Sale to an Infant
Facts • Plaintiff, a tailor, sold the defendant, a minor, expensive clothing.
• Defendant did not pay for the clothing and the plaintiff sued the defendant
claiming that the clothes were “necessities”, pursuant to the Sale of Goods
Act and therefore payment should be made at a reasonable price.
• Defendant’s father argued that his son was away at university and was
amply supplied with the proper clothes for necessities.
Trial judge ruled in favour the in infant minor, holding that while
clothing may be a necessity for life, the defendant did not need any more
clothing at that time.
Issue(s) In order to claim an item is “necessary” pursuant to the Sale of Goods Act,
should court only consider character of goods or also needs of individual at the
time of the sale?
Decision Appeal dismissed – judgement in favour of the minor.
Reasoning Cozens-Hardy J:
• Sales of Goods Act requires consideration of both the character of the
item and the need the individual has to determine whether an item is
“necessary”.
• Although the item is necessary in general, it is not necessary in current
requirement and since the boy was a minor, contract is not valid.
• The law is developed that the plaintiff has the burden of proof to show
that the articles were necessary.
Fletch Moulton J:
• In theory, infant is incapable of making a contract in the strict sense of
the words; will imply an obligation only if supply necessary and will
enforce obligation against the estate of the infant.
• This obligation imposes a fair payment, not agreed upon price, in
respect of needs being satisfied, not really a contract.
Ratio • Minors (i.e. infant) and the mentally incapable are not bound by contracts
into which they enter – even though the other party may be bound by the
contract.
• A contract is voidable by the minor including when they reach the age of
majority, however, if at the age of majority, they accept the contract or act
consistently with the terms, the contract becomes binding.
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Exception:
• Where a plaintiff can prove that the sale of goods provided to the infant or
mentally incompetent are necessities pursuant to the Sale of Goods Act
(they are suitable to a) his or her conditions in life and b) to his or her
current requirements – then the contract is legally binding).
Notes
Toronto Marlboroughs Hockey Club v. Tonelli (1976) – Page S.18

Facts • Defendant, at age 16, signs a contract to play for the Malboroughs.
• The contract states that the defendant will play with the team for 4 years
and that he will pay 20% of his professional hockey salary for the first 3
years after that.
• In exchange, hockey club will groom him to become a professional hockey
player.
• Defendant walks away from the contract when he is 18 and signs a
contract to play professional hockey.
• The Marlboroughs seek an injunction to restrain Tonelli from playing with
the professional club.
Issue(s) Is Tonelli’s contract valid?
Decision There is no contract. Tonelli free to play with professional club.
Reasoning • Contract is not binding on Tonelli because it is not a contract of necessities
and therefore as a minor entering into the agreement, he has a right to
terminate it.
• Contract may be repudiated when he attains age of majority or within
reasonable time thereafter.
• Exception: where a contract service entered in as an infant is on the whole
for is benefit OR when the contract is for necessities, the contract would
be valid.
• Even where contract is for necessities, it still must be beneficial. Onus is
on the plaintiff to establish that a contract was for the benefit on the infant;
the infant does not need to establish that the contract was not to his benefit.
• In the later years of the contract, it was determined the contract was no
longer to his benefit.
Ratio When a contract is for a minor’s services, the contract is beneficial to the
minor for the entire duration of the contract and the benefit is clearly apparent.
Notes
6) Certainty or Ascertainability of Terms

1. Terms of a contract must be certain or ascertainable pursuant to a mechanism that works
OR
2. Terms complete or compatible pursuant to a mechanism that works.
• Agree to agree no contract
• Agree to negotiation in good faith no contract.
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Scammel and Nephew v. Outson (1941) – Page 227

Facts • Plaintiff agrees to purchase a van from the defendant in exchange for
another van and “the balance of the purchase price…on hire-purchase
(contract) terms over a period of two years”.
• The defendant wrote that the van would be ready for collection “subject
mutual acceptance of the hire-purchase agreement”.
• Later, the defendant changes his mind and decides the does not want the
transaction because the plaintiff misrepresented the kind of van they were
giving the defendant in exchange.
• Defendant argues no contract because “hire-purchase terms” is unclear.
Trial judge awarded plaintiff damages; CoA dismissed the defendant’s
appeal; defendant appeals to the House of Lords.
Issue(s) Is the contract void because of uncertainty of terms?
Decision Appeal granted – judgement in favour of the defendant.
Reasoning • A contract does not exist where:
a) The language of the contract is so obscure and incapable of any
meaning that the court is unable to ascertain intention to contract
(purpose of justice between the parties) OR
b) Where the parties are never in intention of or in appearance of a an
agreement.
• Court will interpret a contract if it is satisfied that it can ascertain and
determine intention of the contract and some definite meaning exists.
• The terms of the “hire-purchase agreement” are too uncertain and the
concept of such an agreement is too complex and vague for the court to
determine the terms (factors that were uncertain included; responsibility
for repairing the truck, responsibility for insurance, payments on a
monthly basis, and the implied interest rate).
• The terms of “mutual acceptance” if parties agreed to agree to the terms
later on and you can’t agree on them, the contract fails.
Ratio • If court analyzes what parties intended by imprecise terms, and it cannot
determine what is meant with certainty, the contract fails.
• If parties agree to agree to the terms of the contract later on and then can’t
agree, the contract fails because parties had mechanism for determining
the terms of the contract and it failed.
Notes • Court can in some circumstance determine a reasonable price when price
is not specified/reasonable time/reasonable instalments – may import
terms on proof of custom or by implication BUT it cannot make entire
contract for parties.
• This contract could have been saved if parties referred to be bound in
accordance with industry customs OR If parties cannot agree then they
send it to arbitrator or referee as a mechanism to ascertain terms.
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Hillas v Arcos (1932) – Page 224 – Factors courts consider to interpret contract
• In determining the meaning of imprecise language, the courts will consider the following
concepts:
o Past dealings between the parties,
o Industry standards,
o Correspondence between the parties before coming into an agreement, and
o Forms the parties have used before.
• Courts will try based on evidence to determine what the terms were. If they can, there is a
contract on those terms. If they can’t, the contract fails.
• A contract is enforceable if its terms can be ascertained through a mechanism or factors
that can show intention to agree on certain terms.
• Parties agree to negotiate in hope of effecting a valid contract – the no bargain except to
negotiate – may be under contract to negotiate if there is good consideration though
damages are likely to be minimal unless jury decides that opportunity to negotiate was of
some appreciable value to injured party.
Walford v. Miles (1992) – Page 232 – Contracts to Bargain in Good Faith

Facts • Defendant wants to sell business; parties enter into letter of intent saying
that parties will negotiate in good faith for sale and that defendant will not
negotiate sale with any other person.
• The parties start negotiating but then someone offers defendant more
money and the defendant accepts the offer.
• Plaintiff sues for breach of contract because 1) they agreed not to negotiate
with anyone else and 2) agreed to negotiate in good faith.
Issue(s) 1. Can you make an agreement to bargain in good faith?
2. If you enter into an agreement to negotiate in good faith, does that put
a contractual restriction on seller or is it a failure of a mechanism?
Decision No contract to bargain in good faith. Judgement for the defendant as the
mechanism fails.
Reasoning • Parties must agree to set the terms of the contract. An agreement to
negotiate in good faith is no different than an agreement to agree – there is
a lack of necessary certainty.
• If the agreement doesn’t work because the mechanism for completing fails
(i.e. you can’t agree to terms), then the mechanism to negotiate is good
faith also fails.
• Both fail because terms are not complete or completable pursuant to a
mechanism that works.
• What is good faith? Repugnant to adversarial position of parties involved
in negotiations.
• Courts are not going to try to get involved in policing what good faith
negotiation entails. Given that one party may not even want a contract.
• A “no shop” clause is enforceable if the clause is backed by consideration
and by explicit time limits. The problem here is that the was no time limit.
Ratio Agreements to negotiate in good faith (usually) lack certainty and fail as the
mechanism for completing a contract.
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Notes
Empress Towers v. Bank of Nova Scotia (1990) - Page 231 – “Agree to Agree” Clauses
Facts • Empress Towers (the landlord) has 5-year lease with BNS to lease a space
for a bank.
• Lease says at the end of 5 years; the parties have agreement to attempt to
mutually agree to market rent for a second 5-year term.
• Before the lease is up, the Bank presents terms for the second 5-years of
the years of the lease, based on research and says to landlord to
negotiation. Empress does not reply till day of lease expiration.
• On the day lease is set to expire, Empress agrees to rent terms but asks for
$15,000 additional one-time payment (rumour that one of the Empress
owners lost $15,000 in bank heist).
• Empress Tower seeks to obtain writ of possession (eviction) under
Commercial Tenancy Act, but BNS argues Empress Tower did not follow
their “agreement to agree”.
Issue(s) Was the renewal clause void under uncertainty?
Decision Judgement in favour of Plaintiff.
Reasoning • Agreement to agree to second term is not enforceable because it is not
clear.
• But, court rules that landlord had implied obligation to negotiate in good
faith. Even though generally there is no contract because there was an
agreement to agree.
Ratio • Agreements to agree cannot be enforced.
• The court will try, wherever possible, to give the proper legal effect to any
clause that the parties understood and intended to have legal effect.
Notes • This is bad law. How can we have implied enforceable obligation to
negotiate in good faith when it hasn’t even been stated its terms, especially
when other cases have ruled there is a good faith clause there a contract
still doesn’t exist?
• This case is unique to its own set of facts, the landlord had a secondary
motive. We can essentially ignore this case and instead focus on
Walford v. Miles.
• The SCC decline to hear the case, so it still exists.
• You get the sense that the Bank’s assessment of market value rent is
reasonable, so the ask for the $15,000 could be see as bad faith. What are
the damages that one could allege?
Edper Brascan Corporation v. 117373 Canada (2000) – Qualified Empress Towers – Page 233
• An implied obligation to negotiate in good faith is enforceable only in situations where it
is obvious that a party negotiates in bad faith.
• Good faith exists whenever the negotiation takes place within an existing contract.
• If we must treat Empress Towers as good law, then it is confined to only those facts.
59
Calvin Consolidated v. Manning (1959) – Page 229 – Arbitrator as an ascertaining

mechanism
Facts • Parties enter agreement and terms are to be mutually agreed to.
• If decision is made to make land development for oil and gas is a priority
and terms of a contract could not be agreed upon, then it will go to an
arbitrator.
• Defendant does not want to negotiate, tries to walk away on grounds are
not binding so plaintiff brings an action.
Issue(s) Is an arbitrator a mechanism that works to ascertain the terms of a contract?
Decision Yes – judgement in favour of the plaintiff.
Reasoning • If you can’t agree on terms, uncertain terms, or incomplete, you can have a
send to arbitration clause.
• A contract exists until the mechanism to complete the terms of the contract
fails.
• An arbitrator is a functioning mechanism for completing the terms of the
agreement, until arbitrator refuses to do so.
Ratio A contract with ascertainable or completeable terms exists until the
mechanism for ascertaining or completing its term fails
Notes Expand mechanism – If X can’t arbitrate, then Y, if not then Z. Expand it so
that you don’t get to the point where the mechanism fails. (Or each party
picks one arbitrator and those two arbitrators pick the 3rd)
British American Timber Co. v. Elk River Timber Co. (1933) – Page 217 – LoI as a contract
Facts • Parties enter into binding contract purchase timber rights, contract partially
performed – provided for survey and cruise of limits as preliminary to
formal agreement of sale in usual form in such cases in BC.
• Formal agreement not drawn up and plaintiff sues for specific performance
of the executed agreement – appellant argues execution of formal
agreement was a condition precedent to respondent’s rights to sue.
• Plaintiff alleges that a memo of understanding with defendant is a contract.
Defendant alleges that it’s not a contract but merely an agreement to agree
to the terms as at a later date.
Issue(s) When is a letter of intent/memo of understanding sufficient to be a contract?
Decision Contract – judgement for the plaintiff.
Reasoning • Clause 10 of agreement reads according to usual form adopted in cases in
BC.
• Clause 10 also includes provisions that make the agreement applicable
such as timber to be sold, parties, purchase price, and time of payments.
• The memo contains all the requisite elements of a contract and can be held
to be a contract.
• Mutual assent to terms of informal agreement may be sufficient where a
formal agreement is contemplated notwithstanding the failure to execute it.
Ratio If a pre-contractual document is complete and has all the elements of a
contract, then it may be held to be a contract.
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Notes • You can include and Rose and Frank clause and/or a Green and Anismore
(below) clause to ensure that these documents are not considered contracts.
• The more complicated or unique the agreement, the less likely the pre-
contractual document will be held to a binding contract.
• This says there can be a contract without completeness.
Bawitko Investments v. Kernels Popcorn

Facts • Franchise agreement for Kernels popcorn store in mall.
• Franchise agreement with Bawitko to go into the mall (transfer fees,
renewal fees, terms of agreement) in an letter of intent.
• Franchise agreement taken to lawyer to negotiate terms.
• 5 months later franchisee can’t agree to terms. Franchisor says too much
time has lapsed, gives back deposit.
• Plaintiff sues that there is a contract.
Issue(s) Is the oral agreement in contemplation of a formal contract enforceable?
Decision No
Reasoning • There is no concluded contract. Only agreement to set terms.
• Simply because you give certain terms and draft document doesn’t mean
you have complete contract.
• Batwitko had not been ready and willing to sign the documents
contemplated by the contract.
• Parties had not agreed to the final form of the franchise agreement; terms
other than those specifically agreed to had yet to be settled and therefore
there was no meeting of the minds.
• The unsettled details of the complex agreement were not mere formalities.
Ratio An oral agreement in contemplation of a formal written agreement is not
enforceable due to a lack of certainty; it is a contract to form a contract.
Notes • To distinguish between British Timbre case – maybe motivation of parties
to pull out of contract (self-interest of Elk-River) depends on how
sophisticated and normal is, the more unusual the contract is and need to
negotiate more intricate terms then more likely say there is not a contract
but will when the contract is finalized.
• The more complicated or unique the agreement, the less likely the pre-
contractual document will be held to a binding contract.
Green v. Ainsmore Consolidated (1951) – Page 220

• “There is no contract until there is board approval and/or until the parties agree”
• You can use this case “subject to a contract” clause to invalidate an informal contract.
The clause states that the document is not legally binding until a formal contract is signed
and developed.
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Terms of Contract
1) Interpreting Written Contracts
Now we assume that a contract has all 6 building blocks – how does the court interpret them?
Parole evidence rule: once the contracts has been memorialized in a written document, we look
to that document to determine the interpretation of the contract “within the 4 corners of the
document”. All other external considerations are irrelevant.
• The policy consideration behind this that people know they need to ascertain the rules of
the contract within the “four corners”.
Exception #1 to PER: only exists to a memorialization of the agreement by the parties.

• A document that is not shared with the other party (such as a document that is left in
one’s desk as a reminder) does not benefit from PER. This is not a memorialization
between the parties.
Exception #2 to PER: only applies to a present contract
• This implies that there is a precedent agreement to the contract. This was the case in Pym
as they proved there was a condition precedent. However, you can also prove
misrepresentation and mistakes.
Exception #3 to PER: Can prove that there are two contracts (collateral contracts)
• This is only valid if two contracts are not in conflict. See difference between Morgan v
Griffith and Hawrish v BMO.
Exception #4 to PER: Ambiguity – there are two types “patent ambiguity” and “latent
ambiguity”.
• If there is patent ambiguity (on the face of the contract), the contract and PER rule does
not apply. You must look at past dealings with the parties, industry standards, customs,
etc.
• Latent ambiguity can only be used to identify the subject matter of the contract (if that is
under question), you can bring in extrinsic evidence to prove it. However, beyond that
you cannot use information beyond the document to determine what the contract intends.
Pym v. Campbell (1856) – Page 505 – PER exception #2

Facts • Pym and Campbell signed agreement for Campbell to purchase interest in
an invention, subject to inspection my both of Campbell’s engineers.
• After getting approval of one engineer, parties orally agree at time of
signing that another engineer will look at invention.
• If he doesn’t approve the invention, no contract.
• Second engineer says it doesn’t work and Campbell says no contract.
• Pym sues. It says nothing in paper about the engineer – just says this
person will pay X for Y value of interest.
• Defendant argues that he contract does not exist because there was a
condition precedent to the contract coming into force.
Issue(s) Does the parole evidence rule mean that oral agreement doesn’t count?
Decision Yes – judgement for defendant.
Reasoning • PER only applies to a document that’s a contract.
62
• PER doesn’t stop you from proving that there is a condition precedent for
the effectiveness of the contract. Need to be suspicious of this as could be
set up without grounds.
Ratio The parole evidence rule (PER) only protects documents that are contracts on
their own. You can prove that a document is not a contract in the first place
by submitting evidence (outside the four corners of the contract), which
demonstrate unconscionability, mistake, invalidity, or misrepresentation.
Notes
Morgan v. Griffith (1871) – Page 504 – PER Exception #3

Facts • A lease for an estate. The lessor and the lessee negotiate the lease.
• At the time they are negotiating the lease, the lessee states the estate is
overrun by rabbits.
• The lessor says he will eliminate the rabbits, but refuses to put it into the
lease and does not remove the rabbits.
• The lessee leaves. The lessor sues on the lease.
Issue(s) Can a verbal collateral agreement be considered where there is already a
written contract without mention to the collateral agreement in the main
document that takes the benefit of PER?
Decision Judgement for the defendant. PER does not stop you from proving there are 2
contracts.
Reasoning • Can always prove there were two contracts: 1) Lease which is subject to
PER and 2) Collateral contract that states “in consideration of the lessee
entering into the lease, the lessor must eliminate the rabbits”.
• There is a written contract and an oral contract that is collateral to it.
• PER says you can complete a second contract as long as the terms of the
second contract does not conflict with the written contract. See Hawrish
for case where terms conflict.
Ratio A verbal collateral contract can always be proven and evidence to prove such
is not barred by the PER. The terms of the collateral contract must not
conflict with the terms of the main contract.
Notes
Hawrish v. Bank of Montreal (1969) – Page 501

Facts • Bank is suing Hawish on a guarantee of debt. The contract guarantee is for
a continuing debt owing from time to time. The contract is only until other
directors sign on to guarantee the debt.
• Hawish is responsible on debt of guarantee until the debt of company is
paid off.
• Hawish says he was told by debtor that he was only responsible for debt
owing for present debt and only until other directors became responsible
for the debt.
Issue(s) Can verbal collateral contract be admissible evidence in light of PER if that
evidence is in direct conflict with the terms of the contract?
Decision In favour of defendant. The guarantee is enforceable.
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Reasoning PER does not allow you to plead a collateral contract if it conflicts with the
terms of the written contract.
Ratio A collateral contract offends the PER if the collateral contract conflicts with
the terms of the main contract. If the verbal agreement of collateral contract
does not conflict with the terms of the written document, then the collateral
contract is admissible.
Notes Include an “entire agreement” clause to avoid this issue. This would state there
are no other conflict agreements/terms of contract other than those stated
within documents of the existing document. Here, we would have a
“presumption/non conclusory” idea that we do not have a conflict of terms.
Gallen v. All State Grain

• If the only conflict is the “entire agreement” clause, and particularly if it’s
an un-negotiated standard agreement clause, then you can try to prove by
good evidence that there was a second collateral contract or
representations that induced you to enter the contract.
• The reasoning is that an entire agreement clause allows the court to
presume that the entire agreement exists within the “four corners” of the
contract. This presumption is rebuttable, if the other party can prove a
clear collateral contract.
Southern Resources Ltd. v. Techbomin Australia (1990) – Page S.21 – PER Exception #4
Facts • Contract that says the plaintiff is supposed to get a 3% smelter interest
from minerals produced on defendant’s property.
• Defendant says when we said “3% smelter interest,” we meant a 3%
interest present from the minerals from one specific smelting process.
• Defendant says when we said “minerals,” we meant minerals other than
gold.
• The plaintiff points to the words of the document and says from all
minerals produced and that this is clear.
Issue(s) Are the words of the contract sufficiently ambiguous as to justify the setting
aside of the parole evidence rule to determine the meaning of the words?
Decision Judgement for the Plaintiff. PER applies, terms of contracts are patently clear,
no ambiguity as to terms or subject matter.
Reasoning • If the words are ambiguous, then the parole evidence no longer applies and
the court permits other evidence to determine what the document means.
As a general rule, you don’t allow the party to say when they refer to Net
Smelter Interest, that they mean something specific or other then its
general meaning.
• First, the court must interpret the words. If they are clear, then the contract
stands. The PER rule applies where the words are clear.
• If the words are ambiguous, the court must determine if the words are
certain enough to make the contract enforceable and may allow evidence
to determine whether the contract is valid.
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• The terms of the document are not ambiguous enough to permit the
meaning alleged by the defendant.
Ratio If the words of the contract are unambiguous, then the PER applies. If the
words of the contract are ambiguous, then the PER is set aside and the court
will permit evidence that clarifies the terms of the contract.
Notes
Sattva Capital v. Creston Corp (2014) SCC – Page S.23 – Current Canadian law
Facts • Dispute over how many shares a broker should get as commission. They
were entitled to a certain value of shares.
• Defendant says that clause of how many shares the plaintiff can claim as a
finder’s fee is limited to the equivalent monetary amount at the time of
completing the commissionable sale.
• Plaintiff says that it was set at the time of the contract, and that they can
claim the number of shares equivalent to when the contract was signed
(significantly more stock number because stock price went up).
• There is a difference between 1.5m and 7m.
Company appealed under the BC Arbitrators Act; an appeal of an
arbitrator’s decision could only be made under error of law and not error
of fact.
Issue(s) Did the arbitrator make an error in law by considering surrounding
circumstances present at the time of the contract be considered when
interpreting the terms of a contract without saying there was any ambiguity?
Decision PER still applies, but should consider surrounding circumstances.
Reasoning • Court should interpret the contract within the “factual matrix” at the time
of the contract. This was found not to be in violation of the PER. Court
finds that arbitrator did not make an error of law and should be able to
look at surrounding circumstances in light the factual matrix.
• Surrounding circumstances: consist of anything which would affect the
way in which the language of the document would be understood by a
reasonable man.
• Does not dismiss PER because instead of overriding terms of contract,
evidence to shed light on surrounding circumstances are used as an
interpretive aid to help judges determine the terms.
Ratio While surrounding circumstances may be considered in interpreting terms of a
contract, they must never be allowed to overwhelm the expressed words of the
agreement. But, PER still applies.
Notes • Court seems to think they made a bit of a mess here and it needs to be
fixed.
• The reaction to this case was that you better win your case at first instance
and it has become extremely difficult at appeal.
Ledcor Construvtion v. Northbridge Insurance (2016) – SCC

Facts • Involves the interpretation of a builder’s risk insurance policy.
• Contractors were required to have this type of policy.
65
• One of the terms of the contract is that insurance company will “deny
claims to faulty workmanship”.
• Ledcor is completing the project and they bring in a subcontractor to clean
all the windows. This subcontractor scratches windows which caused
$1.2M in damages.
• Northbridge refuses to pay claim due to faulty workmanship.
Trial judge finds that the insurer is responsible under the policy; AB CoA
reverses this decision.
Issue(s) Did the Alberta CoA err in entertaining the appeal? This is strict error of law,
so the standard of appeal is a matter of correctness. If it is an error of fact, the
standard of appeal is reasonableness.
So what is the basis of appeal in contract interpretations. Sattva clearly caused
some issues with the “factual matrix”.
Decision • If you are interpreting standard form contract, in effect there is a little
factual matrix involved.
• If interpreting a negotiated contract, there may be a larger factual matrix to
consider.
• Provision in the standard form contract that wasn’t negotiated is a question
of law not fact.
• Therefore, the standard of review is correctness.
Reasoning Standard form contracts reviews is correctness as it is a matter of law.
Negotiated contracts are the only ones subject to Sattva.
Ratio
Notes This is the court backing off of Sattva.
2) Implied Terms of Contract

PER states that once you have a contract, you cannot add terms as the terms of the
contract are within the four corners. Satvva doesn’t apply to implied terms because that
was to deal with interpretation.
• When are we going to allow a person to imply terms into a contract when we are not
violating the PER or creating a new term.
1) Terms implied in fact (terms that the party actually intended but they didn’t put down)
Codelfa
2) Terms implied in law (terms that because of the nature of the contract must be included to
make it work) Liverpool City Council
3) Terms implied by statute (Sale of Goods Acts) more Commercial Law then Contracts.
Codelfa Construction v. State Rail Authority – Page S.26

Facts • The state rail authority (D) has asked for tenders on a contract using the
standard form. They put it out for tenders from a variety of different
construction companies
• The contract is a date-certain fixed-price contract. Codelfa (P) bids and
offers a price and a completion date
• P picks up the contract believing that P would assume D’s immunity from
injunction. Both parties thought this would be the case.
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• The intention was that the construction would happen 24/7, free from
injunction.
• The court prohibits P from working Sundays and working through the
night.
• P will be forced to breach the contract, because they will not be able to
finish the contract in time.
• P’s equipment will be tied up for a longer period, preventing them from
making other money. money. Because of the fixed price, they will be
losing money.
• P goes to court to find an implied term of contract, which states that the
parties made the contract on the basis that P would not be prohibited by
court and could work 24/7, so need time extension.
• P also argues that because the implied term of contract was breached, they
should be given a greater sum of money.
Issue(s) Should the court imply a term in this formal written contract?
Decision No implied term – Ruling for the defendant.
Reasoning • The court holds that the term is not necessary to the contract and to its
business efficacy.
• P took a risk that was inherent to the contract itself. The bidding process
implied this risk.
• The term, therefore, is not so obvious as to go without saying. The
contract is further not particularly capable of clear expression.
• Lastly, if the contract is a fixed-price contract, then altering the price or
implying a term that alters that price conflicts with the writing of the
contract.
Ratio In order to imply a term of contract by implication of fact, one must meet the
following conditions:
1. Implication of the term must be reasonable and equitable.
2. The term must be necessary to give business efficacy to the contract,
such that the contract would not function without the implied term.
(The courts really focus on this)
3. The term must be so obvious, as to “go without saying.”
4. The term must be capable of clear expression.
5. The implied term cannot conflict with an express term of the contract.
(The courts really focus on this)
This is an extremely difficult test to meet.
Notes No case in Canada has implied the rules this articulately.

See of Gabriel v. Hamilton Tiger-Cats.
The Moorcock
Facts • D is renting a jetty for use by ships. The ship will come in, pay the rental
fee and use the jetty to discharge cargo.
• The parties know that when the tide goes out, the boat will be damaged on
bottom.
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• Contract is oral. A sum of money is paid.

• The tide goes out and there is a ridge on the bottom of the river. The
weight of the cargo snaps the keel of the boat when it takes the ground.
• D claims that he did not tell P about the bottom of the river.
• P claims that there should be an implied term of contract that indicates that
the jetty is safe.
Issue(s) Should the court imply a term in this contract?
Decision Yes – judgement for the plaintiff.
Reasoning • It should be so obvious that you can’t have a contract to unload a ship at
particular location if the ship is going to be destroyed during the
unloading.
• The jetty owner should have implied a guarantee of safety.
Ratio Test: What were the actual intentions of the parties if they had addressed
their minds to this issue and the contract is fully oral?
• We imply a term in an oral contract when it is absolutely necessary to
give business efficacy to the transaction, in this sense that the
transaction would not work without the implied term. The term must
be so obvious that the contract does not function without the term.
Notes
Liverpool City Council v. Irwin – Page S.31

Facts • Tenant in council flat. D refuses to pay rent because lifts were broken, no
lights in stairwells, garbage in hallway and couldn’t get to flat.
• City says that if he doesn’t pay they will throw him out. He counterclaims
saying council was in breach of an implied term of contract to keep
common parts of the estate in repair.
• City says this is not an implication of fact and they didn’t promise him
anything other than what’s in the contract.
Issue(s) Should the court imply a term of contract?
Decision No.
Reasoning • Here, the term is implied in law. The lease is so void of terms that it is not
functional without implied terms. The test for this is usually #2 from
Codelfa.
• The court can imply terms as are necessary to make the contract work, i.e.
to give business efficacy to the contract.
• The court will imply an obligation to take reasonable care to keep the
premises in reasonable repair otherwise the contract will not work.
• It is not an absolute obligation to repair.
• By implication of law, this term needs to be put into a contract of this type.
Ratio The court may imply terms that are necessary to give business efficacy to the
contract, even where the parties clearly did not intend any such terms.
Notes
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Sale of Goods Act 1990 Ontario

The Sale of Goods Act implies three warranties on the sale of goods.
1. WARRANTY OF TITLE: In transactions of the sale of goods, warranty of good title is
implied.
2. WARRANTY OF MERCHANTABLE QUALITY: If you get a sale of goods, the property
you get must be a good piece of property (working order).
3. WARRANTY OF FITNESS FOR PURPOSE: If a storeowner gives a purchaser an item in
response to the purchaser’s demands, then there is an implied warranty that the product is fit
for the purpose.
The Consumer Protection Act says that Any attempt to negate the implied warranties from the
Sale of Goods Act through an exclusion clause in a consumer and business transaction is void.
3) Duty to Perform in Good Faith

Bhasin v. Hrynew (2014) – SCC - Page S.35
Facts • Bhasin, P, markets educational savings plans for defendant, Heritage.
Contained clause of automatic renewal of contract for successive 3 year
terms, unless one of the parties gave 6 months written notice.
• D, Hrynew, also plan marketer under similar contract, Hyrnew wanted to
merge, Bhasin rejected. Hrynew encouraged Heritage to force merger,
Heritage agreed.
• Heritage told Bhasin that Heritage was required to appoint compliance
officer to audit Bhasin, and that Alberta Securities Commission instructed
that it be Hrynew who had would be bound by confidentiality, all of which
untrue.
• Bhasin not renewed, agents left and joined Hrynew.
• Bhasin brought action against Heritage for breach of contract and against
Hrynew for tort of inducing breach of contract
Trial court says implied term of contract for good faith termination; CoA
says cannot imply such term because inconsistent with express term of 6-
month notice for termination.
Issue(s) What is the principle of good faith as it applies to performance of contracts?
Decision Heritage found to be liable for breach of contractual duty to perform in good
faith because of falsehoods.
Reasoning • Bhasin argued that Heritage had contractual duty to perform in good faith,
and this was breached as Heritage lied.
• First identification of an organizing principle (not an implied term,
because implied term cannot conflict with express term) that performing
contractual duties needs to be honest and reasonable (in good faith); this
general principle that leads to more specific ones, contracting party should
have appropriate regard to legitimate contractual interests of the
contracting party.
• This means in merely regards parties not to undermine individuals in bad
faith.
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• On the facts, a party must not lie or knowingly mislead someone in

regards to contractual performance. But the rule is probably broader
than this.
• In this case, Bhasin was knowingly mislead and lied to. The duty to
perform in good faith is not met.
1) This is not an implied term (the organizational principle can’t contract
out but can contract down with clear words.
2) It isn’t a fiduciary duty – don’t have to put the other parties interest
first.
3) It doesn’t require you to forgo the advantages a contract may bestow –
even if at intentional loss to other party.
4) It doesn’t require positive disclosure to the other party.
Ratio • There is a general duty of honesty in contractual performance, not lie or
mislead each other in matters directly linked to performance of the
contract.
• This does not impose duty of loyalty or disclosure or forego advantages
flowing from contract. Not an implied term to contract but a general
doctrine of contract law – analogous to equitable limits such as
unconscionability.
• To cause loss to another, even intentionally, is not necessarily contrary to
good faith. Does not require disclose, but does require honesty in what is
represented.
• Cannot contract out of principle, may contract down and limit with express
language (no duty to disclose, provide info for convenience only, make no
representations).
• MAY include acting dishonestly can be breach of contract, fairly broad
may be applied to any contract to perform in good faith. May not actively
deceive other party of your actions to the contract.
Notes Like with Empress Towers, people are struggling to figure out what this case
does and says in relation to obligations under a contract.
There is an obligation to perform in good faith in these areas (in addition to
the overriding organizational principle):
1) Terminate for cause in an employee contract (obligation to perform in
good faith but bad faith to unfairly alleged termination for cause).
2) Termination of franchise (in good faith and with good reasons)
3) Payment of an insurance benefit.
4) Exercise control of a contractual discretion.
5) Must not knowingly mislead.
Greater Vancouver Sewage and Drainage Authority v. Wastech (2016)

Facts • Contract has set rates per litre of sewage for volume of sewage disposal
and there are bonus provisions.
• The city allocates certain amount of waste to others to that Westech won’t
get its bonus.
• Wastech sues arguing that the contract is being performed in bad faith.
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Issue(s) Is there bad faith?

Decision No.
Reasoning • Bad faith does not exist when a company is performing in benefit of itself
within the contract.
• The duty of good faith obligation does not allow for a party to impose
obligations based on what they think is a fair outcome.
Ratio
Notes • Prof says this is a fair reading down of Bashan – we are getting a bit of
certainty of how a case may be applied.
• This gets very close to requiring a misleading or misrepresented action in
order for there to be bad faith.
4. Exclusion Clauses
• An exclusion clause is any clause that eliminates your right to any remedy from a breach
of contract or legal duty:
o Exclusive liability
o Limitation of liability (Parker)
o Litigation limitation clause or a certain remedy (Hunter)
o Limitations of statutory rights from Sale of Goods Act
• These could limit you from any liability from anything arising from the contract. Because
of this, the court sometimes has a reaction to these results.
• These clauses are not bad per se, where they become bad is if they are included in
standard from contracts creating an unfair balance. This is where the courts tend to
become involved.
• Exclusion clauses must be contemporaneous with the contract.
• There are two approaches:
A) Classic – Is this clause a part of the contract? (McCutcheon) A contract is a contract is
a contract
B) Modern – If the clause is part of the contract, how do we interpret it?
• There are multiple ways to be bound by these clauses:
o Signed contract
o Assented to the agreement (and the exclusion clauses)
o No signature but past dealings (this will depend on whether there was knowledge
in past dealings)
o Ticket cases (knowledge = bound, lack of knowledge = reasonability)
• 1954 - Lord Denning: An exclusion clause does not apply when there is a fundamental
breach of contract. “rule of law” approach. However, how is this fair if it is a
negotiated contract?
• 1967 – Swiss Atlantique and confirmed in Photo Production – when you look at an
exclusion clause, you apply a rule of interpretation. Looking at the contract was the
clause meant to apply?
o This looks as aspects such a risk/reward, intention of breach, etc.
o This isn’t construing a contract but just the court saying they will enforce an
exclusion clause if it is fair and reasonable.
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o Determine of the clause is unconscionable.
McCuthcheon v. MacBrayne Ltd. (1964) - HL – Page 477

Facts • MacBrayne Ltd’s ferry sank (D), losing McCutcheon’s (P) car.
• Usually, D would have got its customers to sign a risk note but P’s brother
in law (McSporran) had made the shipping arrangements, and he did not
sign it.
• P had signed a risk note on four occasions and McSporran had done so
sometimes before too.
• Both said they knew notes contained conditions but not an exclusion
clause per se. D argued that even though it was not signed, the term letting
P assume the risk of an accident had been incorporated into their contract
through a course of dealing
Issue(s) Was the exclusion clause part of the contract that day when there was no
signed agreement? Under what circumstances is the exclusion clause part of
the contract?
Decision No contract.
Reasoning • In this case, they are not bound by exclusion clause because they didn’t
sign the contract that particular time.
• Would have been bound if it signed. Previous dealings are relevant only if
they prove knowledge of the terms – actual and not constructive
knowledge.
• Assent to the agreement and its exclusion clause it applies and the PER
applies. Even if you do not sign the contract, you still signed it. This is
still the memorialization of the contract.
• If from the fact that you’ve entered into the contract many times, you can
show that you had knowledge of the terms, you will be bound.
• Previous dealings are only relevant though if they prove knowledge. Here,
he didn’t know about exclusion clause.
Ratio • General principle of law of contract is that if you sign the contract, you
own it and this applies to exclusion clauses as well.
• Past dealings are only relevant if they showed actual, and not constructive,
knowledge of the terms of the contract. Prof believes this is a high
standard to meet.
Notes
Harris v. Great North Railroad

Facts • Where someone gives you a document and it’s a receipt or a ticket of some
sort that has conditions on it that says there is an exclusion clause.
• Person puts ticket in pocket and doesn’t read it.
Issue(s) Are you bound by the exclusion clause?
Decision Yes.
Reasoning
Ratio If you put a document in your pocket and you KNEW THAT IT
CONTAINED CONDITIONS, then the court considers that you have assented
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to the conditions as though you signed it. Allegations of ignorance about the
content of the conditions are not defence
Notes
Parker v. South Eastern Railway Company (1877) – UK CoA – Page 471 – Test for “Ticket
Cluases”
Facts • Parker hands bag in bag check and gets ticket with limitation of liability
clause for items > £10.
• He doesn’t read it and says he thought it was a receipt.
• Parker's bag, which was worth more than £10, was lost.
At trial, the jury found for Parker as it was reasonable for him not to
read the ticket.
Issue(s) Should an individual be bound by the exclusion clause placed on a ticket if he
knew there was writing on the ticket but was not aware that the writing
contained conditions?
Decision Appeal granted. A new trial is held
Reasoning Here, Parker saw the writing but didn’t bother to look at it, nor had he signed
anything. In these circumstances, must look at:
1) Is it reasonable for person claiming no knowledge to make that claim
credibly given the nature of the document and the knowledge of the
person? If you can pass that test and show you are unaware, then ask;
2) Has the person relying on the clause done what is reasonable in the
circumstances to bring the limitation clause to your attention? (e.g.
bold type, different colours, etc) If they have done so, the exclusion
clause is part of the contract. If they failed to it, the exclusion clause is
not part of the contract.
Ratio TEST
1) If the party knows that the document contains writing, but does not read it
to find out that it contains conditions, he is bound by any exclusion therein,
same as if you had signed. It is no defence to allege ignorance.
2) If the party does not know there is writing, whether or not the exclusion
clause applies depends on:
1) is it reasonable for person claiming no knowledge to make that
claim credibly given a) the nature of the document and b) the
knowledge of the person?
2) If yes, has the person relying on the clause done what is
reasonable in the circumstances to bring the limitation clause to the
person’s attention? (for eg. Bold type, different colours, etc). If they
have, exclusion clause is part of the contract. If they failed to do so,
exclusion clause is not part of the contract
Notes
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Union Steam Ship v. Barnes (1956) – SCC

Facts • Barnes lived in Hamlet not accessible by road. Only way to get out was
Union Steam Ship’s boat.
• They sold him a ticket in the dark, he didn’t read it and then fell through a
hole and broke both his legs
Issue(s)
Decision Judgement for Union Steam Ship.
Reasoning • The legend was on ticket in bold face.
• There was no extra caution required to tell Barnes about the limitations of
the ticket because what they did met the reasonableness standard.
Ratio APPLICATION OF THE PARKER V SOUTH EASTERN RY CO TEST.
• As long as you have taken reasonable precautions to bring exclusion
clause to attention of person entering the contract, they will apply.
Notes
Thomson v. London, Midland and Scottish Ry Co.

Facts Suppose the ticket holder is blind, does not speak English, or cannot read?
Issue(s) Are they bound by an exclusion clause on a ticket?
Decision
Reasoning
Ratio • If you are aware of the person’s disability, then you have to do what you
can to bring the exclusion clause to the attention of that individual.
• If you are not aware of the person’s disability, then question is whether the
individual did everything reasonable to bring the exclusion clause to the
attention of the person entering into the contract.
Notes Similar to this would be with a parking garage, a sign notifying limitation of
liability must be reasonably clear and placed within the garage. Signs must
have:
1) Reasonable notice (large print)
2) Visible before the contract was formed (Olley)
Olley v. Marlborough Court

Facts • Olley’s arrived at hotel and agree to price.
• In the room there is disclaimer saying hotel is not liable for any goods lost
or stolen.
• Ms Olley’s fur coat goes missing.
Issue(s) Who is liable for the fur coat?
Decision Judgement for P. Hotel liable for lost coat.
Reasoning Exclusion was not part of the contract at the time it was made and can’t be
added in after.
Ratio Exclusion clause must be made available to you prior to the formation of the
contract.
Notes
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George Mitchell. v. Finney Lock Seeds Ltd. (1983) – HL – Page 558

Facts • Finney Lock Seeds agreed to supply George Mitchell with 30ml of
cabbage seed for £201.60. An invoice was sent for delivery was
considered part of the contract:
1) Clause 1 limited liability to replacing any seeds or plants sold if
defective.
2) Clause 2 excluded all liability for loss or damage or consequential loss
or damage from use of the seed.
• 65 acres of crop failed resulting in a loss of £61,513.
Issue(s) 1) Should the limitation clause be interpreted to cover the seeds actually
sold, given that the seeds were wholly defective and so did not do a
seeds job at all?
2) Is the limitation clause reasonable under the Unfair Contract Terms
Act 1977?
Decision The limitation of liability to the cost of the seeds was not effective.
Reasoning Lord Bridge:
• Agreed with Lord Denning that clause 2 applied to the seeds in question
and that it was a “strained construction”.
• The passing of the Unfair Contract Act 1977 had removed the judges
temptation to resort to the device of ascribing to words appearing in
exemption clauses a tortured meaning so as to avoid giving effect to an
exclusion or limitation of liability when the judge though that in the
circumstances to do so would be unfair.
• Looking into reasonableness and fairness, the industry’s practice had
always been to negotiate damages claims if the seemed genuine and
justified. There was a clear recognition that the relevant condition would
not be fair or reasonable.
Ratio Doctrine of fundamental breach (true construction) no longer applicable,
replaced with test of reasonableness.
In determining whether an exclusion clause applies the court should regard
factors related to fairness and reasonableness to determine whether the
clause is fair. In doing so, the court should consider:
1) Whether the contract was in standard form or negotiated
o Standard form contracts are less likely to be deemed fair, while
negotiated contracts are more likely to be deemed fair.
2) Whether there was equality of bargaining power
o Standard form implies an inequality of bargaining power, while
negotiated contracts imply an equality of bargaining power.
3) A consideration of the risks and rewards of the contract
o A smaller payment may entail a smaller assumption of risk
(Photo Production Ltd).
o A smaller payment may imply that the exclusion clause is fair
4) The nature and circumstances of the breach
o Where the breach is intentional, the clause is less likely to be
applicable.
Notes
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Hunter Enginerring Co. v. Syncrude Canada Ltd. (1989) – SCC – Page 563
Facts • Syncrude ordered 32 mining gearboxes from Hunter which were
fabricated by a subcontractor. The specifications were provided by
Syncrude, but Hunter designed the gearboxes.
• The second contract, between Syncrude and Allis-Chambers, was for
the supply of an extraction conveyor system and included four
extraction gearboxes to drive the machinery.
• Those gearboxes were built according to the same design as the mining
gearboxes supplied by Hunter and were fabricated by the
subcontractor. The gearboxes entered service on November 24, 1977.
• Both contracts included time-limited warranties. The Allis-Chambers
warranty also stated it represented the only warranty given, and no
other warranty or conditions, statutory or otherwise, were to be
implied.
• The warranty was for 24 months, or for 12 months after the gearboxes
entered service. Both contracts provided that the laws of Ontario were
to apply.
• In September and October of 1979 defects were discovered in the
gearboxes which were repaired at a cost of $400,000.
• Allis-Chambers denied responsibility due to the expired warranty.
Syncrude sued claiming a fundamental breach, but failed at trial. The
Court of Appeal found that there was a fundamental breach because
statutory warranty was excluded by terms of the contract, which was
appealed to the Supreme Court
Issue(s) Is Hunter Liable for repairs to the gearboxes? Is the exemption clause
effective?
Is Allis-Chambers liable under the doctrine of fundamental breach?
Decision Clause is effective.
Reasoning Wilson J (with L'Heureux-Dubé concurring):
• Held that a fundamental breach is a breach that deprives a party of
substantially the whole benefit of the contract.
• As the gearboxes in this case were repairable, this was not a fundamental
breach.
• Rejects the notion that exclusion clauses would have to be per se fair and
reasonable at formation as this would be too subjective. However, the
courts can easily analyze a clause after a breach has occurred to see
whether the result has been unfair, allowing courts to avoid complicity in
unfair bargains and balancing freedom, paternalism and fairness to find a
standard of commercial reality.
• Unconscionability rests on inequality of bargain power between the
parties. There can been no unconscionability if the parties are of equal
power.
• She considers two options the court has:
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o adopt strict construction entirely (Photo Production Ltd. v

Securicor Transport Ltd.) which would discard the concept of
fundamental breach
o or adopt a reasonableness approach.
• Fundamental breach should be available as a residual regulative
mechanism where:
o There is equal bargaining power
o Substantially the whole benefit of the contract is deprived
o There is an unfair act by the other party
o It is determined the court wants to help by enforcing the exclusion
clauses.
• Exclusion clauses do not automatically lose validity in the event of the
fundamental breach.
Dickson J:
• The warranty clauses in the warranty period expired.
• Disagrees with Wilson J’s approach to doctrine of fundamental breach.
• Adopts Photo Production to treat fundamental breach as a matter of
contract construction.
• Disagrees with Wilson J’s suggestion of assessing the reasonableness of
the contract terms.
• The court should not disturb the bargains the parties have struck. However,
the courts should replace the doctrine of fundamental breach with a rule
that holds the parties to the term of their agreements, provided the
agreement is not unconscionable.
• The unconscionability doctrine should be used to determine if an
inappropriate allocation of risk between the parties should be struck down.
Ratio Only where the contract is unconscionable should the courts interfere with the
agreements the parties have freely concluded.
Notes FUNDAMENTAL BREACH ANALYSIS IS DEAD
Tercon Contractors v. British Columbia (2010) – SCC – Page 574 – Test for Enforcing
Exclusion Clauses
Facts • BC Ministry of Transportation and Highways issued request for proposals
for building new highways
• Tercon and Brentwood submitted proposals.
• The RFP included a broadly worded exclusion clause excluding liability
on the part of the Province for any damage claims arising “as a result of
participating in this RFP”.
• Brentwood sent submission stating that it wanted to join bid with another
company, which was ineligible for bidding process.
• Govt never responded and ultimately it came down to Tercon and
Brentwood. Brentwood was selected.
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• Tercon sued the Ministry for damages on the basis that acceptance of an
ineligible bid constituted a breach of contract, and that the breach had cost
it an award of the project.
Trial judge held that the Brentwood bid breached the provisions of the
tending contract and that the exclusion clause did not bar recovery for
this breach.
Issue(s) 1) Did the province breach the tendering contract by accepting a bid from an
ineligible bidder?
2) Does the exclusion clause bar a claim for damages for breach of the
tendering contract?
Decision (5/4) Restored trial judgement. Exclusion clause does not apply. It included
circumstances there were different than breach
Reasoning Cromwall J (5):
• Noted that the RFP model is a little more complicated than the simpler
Ron Engineering Contract A/Contract B model, where the terms of
Contract B are fully articulated from the outset, but that this did not impact
the analysis of the case at hand, and further, it was not necessary to
explore in full detail all the terms and conditions of Contract A.
• The bid was ineligible and that the Ministry was aware, noting that
Brentwood had a “material change in its team structure”.
• “It is time to lay the doctrine of fundamental breach to rest. Here,
Cromwell agrees with Binnie’s (minority) the analytical approach to
the applicability of an exclusion clause, but disagreed with the
interpretation of the clause.
Binnie J:
• Accepts the finding of the lower court that the RFP had been breached and
then explores to claim for relief from the exclusionary clause.
• There are two separate questions to address a clause’s applicability:
1) Whether there was a statutory or other legal reason why the parties
would not have been free to negotiate the exclusion clause. And
2) If there were any other reasons why the clause should not be enforced
in the circumstances (such as fundamental breach)?
• There is a three-part test for assessing enforceability in this
question:
i. As a matter of interpretation, does the clause apply to the
circumstances established?
ii. If it applies, was it conscionable at the time the contract was
made?
iii. If it applies and is valid, should the court nonetheless refuse
enforcement based on an overriding issues public policy (the
onus of proof of lying with the party seeking to avoid
enforcement)?
Look for factors of grossly unfair bargain, unreasonable bargaining
power and unfair advantage taken.
78
• Binnie found that the exclusion clause does apply as Tercon did
participate in the RFP process; Tercon was a major contrct with the
same amount of free bargaining power as the government.
• On public policy argument, there is a public interest in fair and
transparent bidding, it cannot be ratcheted up to defeat the enforcement
of Contract A in this case. The provinces conduct was not sufficient to
require the cause not to be enforced.
Ratio Test for assessing enforceability of exclusion clauses, the courts must
apply a three part test:
1) As a matter of interpretation, does the clause apply to the
circumstances established?
2) If it applies, was it conscionable at the time the contract was made?
3) If it applies and is valid, should the court nonetheless refuse
enforcement based on an overriding issues public policy (the onus
of proof of lying with the party seeking to avoid enforcement)?
Notes CONFIRMS FUNDAMENTAL BREACH IS DEAD
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Defects in Contractual Relations

1) Misrepresentation
• A misrepresentation is something that is represented that was material to inducing
someone into a contract, but is not specifically placed into a contract, and therefore
cannot be challenged as a breach of contract.
• The law says there are three types of misrepresentation:
1) Fraudulent misrepresentation – the tort of deceit (needs to determine if it induced
someone into contract)
2) Negligent misrepresentation – tort damages (needs to determine if it induced
someone into contract)
3) Innocent misrepresentation – not a tort (usually not part of a contract so there can
be no breach)
• A misrepresentation renders a contract voidable, not void.
• Any of these misrepresentation may have a remedy of rescission (the innocent
party who had the contract imposed may be able to set the contract aside,
subject to the bars of rescission).
• However, many argue that rescission is not an effective remedy because they may
only become aware of the negligence after significant time and investment. At that
time, we have to determine if there is a tort remedy? Or perhaps argue that the
misrepresentation was an entrance into a collateral contract and claim breach of
contract damages?
To make a misrepresentation, you usually have to make a positive statement. However,

there are exceptions:
• Contracts of utmost good faith (fiduciary relationships)
o a director to a company
o trustee to a trust
o contracts to subscription of shares
o insurance contracts
• Statements of opinions and not fact when parties are in situations of equal knowledge.
o Bisset v Wilkinsn:
A sheep farmer “reckons” the field could house 25 sheep. Another
relies on this statement, but finds out that the field cannot house that
amount. Qualified statement as opinion.
A representation—that induces a person to enter into a contract—can
be held as a warranty sounding in damages. In order to hold that
representation as a warranty, the representation must be one of fact and
not opinion.
o
a) Varieties in Misrepresentations
Redgrave v. Hurd – Page 756 – Fraudulent Misrepresentation
Facts • Redgrave, an elderly solicitor, advertised for a partner to join the business
and buy the accompanying house.
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• He told Hurd that the practice brought in £300 income when it was only
£200.
• He said Hurd could check records but he didn’t (in fact they showed no
business).
• Hurd did not inspect the papers, until he realized the truth just before
completion of the agreement. He had signed the contract but he refused to
go through.
• Redgrave sued for specific performance and Hurd counterclaimed for
rescission based on fraudulent misrepresentation. Nothing in the contract
referenced how much income or revenue was generated by the company so
plaintiff argues PER.
Issue(s) Should the contract be rescinded on the grounds of fraudulent
misrepresentation?
Decision Yes. Fraudulent misrepresentation. Contract is voidable and set aside.
Reasoning • An individual who induces another to enter a contract through fraudulent
misrepresentation cannot claim the defence that the other failed to exercise
due diligence to escape liability.
• Where the misrepresentation goes to inducing another to enter a contract,
the law assumes the individual entering the contract was induced by the
representation to do so.
• This is rebuttable when the individual knew the statement to be false or did
not act in reliance of it.
Ratio • In cases of fraudulent misrepresentation, the damage awarded in
contract is rescission, while the damage awarded in tort is damages (i.e.
money). You can only receive contract damages if you can imply that
there is a collateral contract implied in the bargain.
• To be a material representation; the contract needs to induce the formation
of the contract. It is an inducing representation if it would induce a
reasonable person into the contract.
• Fraudulent misrepresentation occurs when the maker of the
misrepresentation
1) The statement is knowingly false
2) Does not know whether the representation is true, has no basis for
belief in its truth, and does not believe it is true.
o If the misrepresentation would induce a reasonable person to
enter a contract, then the law assumes the individual entering
the contract was induced by misrepresentation to do so.
o The misrepresentation does not need to be the only factor
influencing the other party to enter the contract, it just needs to
be an inducing factor.
Exception: This inference does not apply where the individual knew the
statement to be false ahead of time or did not act in reliance of the false
statement. If an individual makes a false representation, alleging that the
individual could have proven the representation false through due diligence is
no defence.
Notes
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Esso Petroleum Co. v. Mardon (1976) – Eng. CoA – Page 777 – Negligent Misrepresentation
Facts • Esso builds gas stations but before they build, they do a thorough put
survey to monitor traffic in a particular area to see how much gas will be
pumped.
• They conclude that this station will pump 200,000 gallons per year.
Mardon rents the service station expecting revenue based on that number.
• No term of lease indicates any specific volume.
• Esso did their survey on basis of creating entrances and exits off the main
road and the city subsequently said no, that they would need to use side
road.
• Mardon took over and spent years trying to make it work but it wasn’t
financially viable. Esso then brought an action for possession against
Mardon
Issue(s) Should P recover in breach of an implied warranty (contract) or negligence
(tort) under Hedley Byrne (special knowledge)?
Decision Judgement for plaintiff.
• Innocent misrepresentation gives no right to damages, to recover need
either fraudulent misrepresentation of collateral warranty. In this case, not
a warranty or guarantee of 200000 gallons, but it was forecast made by
party with special knowledge and skill.
• P can successfully recover for either a breach of an implied warrant
(contract) or negligence (tort), but cannot recover in both. The motivation
behind damages is that the injured party be restored to their original
position. P cannot recover twice. When D found out that it based its study
on the wrong facts, it had a duty to alter the study accordingly. Esso
possessed special expertise and breached their duty of care.
Ratio If negligent misrepresentation induces the formation of contract, person may
have a tort remedy as long as they can fulfill Hedley Byrne requirements (ie.
special knowledge, reliance, etc.).
Notes Hedley Byrne v. Heller:
Established the tort negligent misrepresentation If an individual
professes to have special knowledge (a lawyer, an accountant, an
expert) and that individual makes a representation to someone where:
(1) it is reasonable to assume the representation will be relied upon and
(2) that person relies upon the representation, and
(3) the representation turns out to be false, then the individual with
expert knowledge can be sued for the tort of negligent
misrepresentation unless he or she took reasonable care to ensure the
representation was correct.
b) Remedies
i) Recession
• Recession occurs when we can set the contract aside (voidable contract)
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o This means it is a good contract to begin with so property rights passes.

• Bars to rescission:
o Inability to make restitution
Must be able to put the other party back in the same position
Substantial restitution is good enough (O’Flaherty)
Fraud cases go a step further and allow recession to be made with
compensation.
o Intervening third party rights
These third-party property rights must be made without knowledge of the
misrepresentation by the third party.
o Executed contact for sale of land (Redican v Nesbitt)
Representations merge in the deed and become no longer actionable or
recession remedy.
Exception: a fraudulent misrepresentation does not become merged in the
deed.
o Passage of a reasonable period of time (Leaf v International Galleries)
Applicable to sale of goods (as opposed to land)
A reasonable period of time is the amount of time long enough to make
reasonable investigation into the correctness of the representation.
o Affirmation of the contract after becoming aware of misrepresentation
If you become aware of the misrepresentation, but fail to act on it
• There are certain limitations that restrict the existence of a collateral to receive damages:
o Prove there was a real inducing factor to contract (Heilburt Symons & Co. v
Buckleton).
o There can’t be conflicting terms (Hawrish v BMO)
o Entire agreement clauses
Redican v. Nesbitt (1924) – SCC – Page 761

Facts • Nesbitt sold house to Redicans without their prior inspection.
• The keys were exchanged for the cheque and when the Redicans saw the
property for the first time, noticed there had been misrepresentation about
the number of bedrooms, electricity, etc and ordered a stop payment on the
cheque.
• Nesbitt sued for payment and the Redicans defended by suing for
rescission.
Trial judge found it was an innocent misrepresetnation but since contract
had been executed it couldn’t be rescinded. Appeal upheld; appealed to
SCC
Issue(s) Can the court rescind the contract on the purchaser’s claim of
misrepresentation?
Decision Appeal allowed. New trial ordered. Will allow the transactions in the land deal
to be set aside because there was fraud and people should not be allowed to
benefit from fraud.
Reasoning Court cannot rescind the contract because:
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(a) the contract was completed (i.e. when the cheque was given for the
keys), and innocent misrepresentation after the completion of a
contract does not support rescission, and
(b) the misrepresentation is not significant enough to consider the
vendor’s consideration false.
Ratio BAR TO RESCISSION: A fully executed contract for land is bar to
rescission in the case of innocent misrepresentation, unless the
misrepresentation is of such a substantive degree that it renders the
consideration given for the contract false consideration. If the
misrepresentation is fraudulent then this principle does not apply. An
individual should not be able to profit from his fraud.
Notes
O’Flaherty v McKinley (1953) – Nfld CA – Page 765 – Innocent misrepresentation

Facts • P bought a car from D that D innocently misrepresented as a 1950 model,
when it was actually a 1949 model.
• P drove the car 7000 miles and then found out that the car was a 1949
model.
• P sues for rescission of the contract and for damages. She sues for the
money she paid for the car and for the insurance and repairs she made to it
while she owned the car.
• D says can’t make restitution because P put 7000 miles on it.
Issue(s) Can P obtain a rescission of the contract even though the contract was
complete and P’s misrepresentation was an innocent misrepresentation?
Decision Yes – judgement for the plaintiff
Reasoning Dunfield J:
• P can obtain a rescission of the contract even though the contract was
complete and D’s misrepresentation was innocent.
• The difference between the cars is too substantial for the two cars to be
equal consideration.
• D’s claim that rescission cannot be granted because of the miles put on the
car change its character substantially does not hold up because the judge
considers the car “still a young car” and was not devalued by its use.
• The substantial restitution is “good enough” in this case because of the
misrepresentation.
Winter J:
• The buyer is afforded a reasonable period to inspect the goods after
purchase to determine if they are the goods that the vendor represented
them as being.
• If the buyer does not inspect the goods within that time, then the buyer
must accept the responsibility and losses her right to sue.
• In this case, a reasonable time elapsed and P forfeited her right to sue (Leaf
v International Galleries).
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Ratio • Rescission cannot be granted unless the parties can be restored

substantially to their original positions.
• Rescission will be available if one of the parties can grant substantial
restitution.
• Exception: Where complete restitution cannot be granted, then the court
allows part restitution and part compensation.
Notes
Leaf v International Galleries (1950) – CA – Page 764

Facts • "Salisbury Cathedral" by John Constable was what Leaf thought he
was buying on March 8, 1944 from International Galleries.
• International Galleries said it was a Constable. Leaf paid £85.
• Five years later when he tried to auction it, Leaf was told that it was
not a Constable.
• Leaf claimed rescission of the contract against International Galleries,
to get back his money.
Issue(s) Can the judge grant rescission of the contract even though P has had the
innocently misrepresented painting for 5 years?
Decision Judgement for defendant – no right to rescind.
• Transaction cannot be rescinded because too much time has passed.
• Five years is not a reasonable time.
• If the contract had stated it was a Constable, under the Sale of Goods Act,
the buyer is deemed to have accepted the goods, “when after the lapse of a
reasonable time, he retains the goods without intimating to the seller that
he has rejected them”, would have action in damages.
• If you can’t set contact aside for breach then shouldn’t be able to set
contract aside under rescission.
Ratio Bar to rescission: If contract is for a sale of goods, right to rescind is barred
after a reasonable period of time (Sale of Goods Act).
Notes
II) Damages
Heilburt Symons & Co. v Buckleton (1913) – HL – Page 749 – Collateral contract
Facts • Heilbut Symons & Co were rubber merchants who were underwriting
shares of what they claimed was a rubber company.
• Buckleton called up a manager at Heilbut to inquire about the shares. In
response to the questions, the manager stated that they were "bringing out
a rubber company".
• Based on this statement, Buckleton purchased a large number of shares.
The shares turned out not to be for a rubber company at all.
• The shares later dropped because of a problem with the rubber trees.
• Buckleton brought action for fraudulent misrepresentation and for
damages for breach of warranty that the company was a rubber company
whose main object was to produce rubber.
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Issue(s) Was there a collateral contract to the main contract to take the shares in
consideration that the company was a rubber company?
Decision Judgement for D. No collateral contract.
Reasoning Lord Moulton:
• Just because the vendor states a fact of which the buyer is ignorant doesn’t
mean that there is a warranty.
• Intention of parties is only deduced from the totality of the evidence.
• At common law, there is no right to damages for an innocent
misrepresentation.
• Courts often try to sidestep this by finding a collateral contract where there
was only an innocent representation.
• There needs to be evidence that there was a real inducing factor that
Buckleton only would have entered contract if it was a rubber company.
• In this case the statement was made in response to an inquiry-
representation as to specific thing, nothing more- no evidence either party
thought contractual liability would attach to it.
Ratio To obtain damages on a collateral contract for innocent misrepresentation, the
plaintiff must show that the parties had a real intention (animus contrahendi)
to create two contracts (i.e. the representation must be clear and separate).
Notes
Shanklin Pier Ltd. v Detel Products Ltd. – Page S.43

Facts • Shanklin Pier Ltd hired a contractor to paint Shanklin Pier.
• They spoke to Detel Products Ltd about whether a particular paint was
suitable to be used, and Detel assured them that it was, and that it would
last for at least 7-10 years.
• Based on this conversation Shanklin Pier Ltd instructed the contractors to
use the particular paint, which they did.
• The paint started to peel after three months, and Shanklin Pier attempted to
claim compensation from Detel Products.
• No direct contract between the two companies, only between Shanklin Pier
and the contractors, and between the contractors and Detel Products.
Plaintiff sues based on collateral contract.
Issue(s) Is plaintiff entitled to recover damages through a collateral contract?
Decision Yes. Judgement for P.
Reasoning Collateral contract was: “in consideration of telling our painter to use your
paint, you represented that the paint would last at least 7 years.”
Main contract is between contractor and Detel. There is no entire agreement
clause or anything representations to this contract other than the time
guarantee.
Ratio In a specific situation, a third party to a contract can sue for fraudulent
misrepresentation. A collateral contract can exist where A represents to B that
they should get C to use a specific product that A sells. In consideration of B
getting C to use A’s product, A represents that the product will be effective.
Notes
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Esso Petroleum Co. v Mardon (1976) – QB CA – Page 777 – Second Look

Facts • Esso builds gas stations and before they build, they do a thorough put
survey to monitor traffic in a particular area to see how much gas will
be pumped.
• They conclude that this station will pump 2000 gallons per year.
Mardon rents the service station expecting revenue based on that
number.
• No term of lease indicates any specific volume.
• Esso did their survey on basis of creating entrances and exits off of the
main road and the city subsequently said no, that they would need to
use side road.
• Mardon took over and spent years trying to make it work but it wasn’t
financially viable. Esso then brought an action for possession against
Mr Mardon.
Issue(s)
Decision
• Plaintiff can successfully recover for either a breach of an implied warrant
(contract) or negligence (tort), but cannot recover in both.
• The motivation behind damages is that the injured party be restored to
their original position. P cannot recover twice.
• When D found out that it based its study on the wrong facts, it had a duty
to alter the study accordingly.
• Esso professed special expertise and breached their duty of care.
Ratio • If negligent misrepresentation induces the formation of contract, person
may have a tort remedy as long as they can fulfill Hedley Byrne
requirements (ie. special knowledge, reliance, etc).
• A representation—that induces a person to enter into a contract—can be
held as a warranty sounding in damages.
• In order to hold that representation as a warranty the representation must
be one of fact and not opinion (Bisset v Wilkinson).
Notes
2) Mistake
• The parties don’t have the same view of the facts – and these mistakes get folded into the
execution of the contract. The parties just aren’t seeing the bargain in the same way.
• If there is a mistake, cam we render the contract void?
• There are different types of mistakes.
• You usually only plead mistake if you need a property right. If you see fraudulent
representation, you can plead no contract. However, if there is a bar to recession, turn to
mistake be able to void the contract and then argue property.
A) Common Mistake
• A mistake that is shared between the parties. Both parties think the same thing – but they
are wrong.
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• Two types of common mistake:

o Mistake at Law
o Mistake at Equity: not a void contract, but a voidable contract (which means it is
subject to the availability of rescission).
Bell v Lever Bros. Ltd (1932) – HL – Page 806 – Common Mistake at Common Law
Facts • Lever Bros. hired Bell to be the Chairman of a subsidiary company of
Lever Bros for 5 years.
• After 3 years, they don’t need him anymore so they make a contract to pay
him 30000 pounds to terminate the employment.
• Later on in the year, Lever Bros. find out that Bell had been making his
own profits on the side without disclosing them to the company.
• Lever Bros bring an action against him for the return of 30000 pounds
arguing that there is common mistake. They said they would not have
offered him severance if they knew he was competing.
• Bell argues that he did not know he was competing with Lever Bros.
• Both thought they were entering contract to end a five-year employment
contract when in fact the contract was terminable for cause and that this is
a mistake as to the substance of the contract.
Issue(s) Can plaintiff terminate the contract and get back their money due to common
mistake? Is this a mistake that is fundamental and of substance?
Decision Judgment for Bell. No mistake as to substance of contract, only mistake as to
quality.
Reasoning • The mistake went to the quality of the thing contracted for and not the
substance of the contract.
• Defendant thought they were terminating employee with a five-year
contract, when they were getting rid of an employee who they had actual
cause to terminate.
• Gives an example of a sale for a sick horse compared to the sale of a sound
horse. If both parties believe that horse is sound, but it turns out the horse
is sick, then the party buying the horse has no remedy.
Ratio A common mistake must go to the substance of the thing contracted for, not
the quality of the thing contracted for. May be mistaken in identity of
contracting parties or existence of the subject matter of the contract.
This makes common mistake very difficult to prove.
Notes
Solle v Butcher (1950) – Page 812 – Equitable Mistake

Facts • Soelle and Butcher are friends and partners in business.
• Soelle rents out flats and keeps one for himself.
• The parties have always assumed that the flats were not subject to rent
control.
• Soelle and Butcher have a falling out.
• Butcher is still the landlord of Soelle in the one flat
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• Soelle goes to the rent control office and asks if the flat is subject to rent
control.
• Determines there is a rent control and rent should be only £140 not what
was leased at £250.
• Soelle asks that the lease be set aside
Issue(s) Can plaintiff set aside the lease because both plaintiff and defendant made a
mistake about whether the flat was rent-controlled?
Decision Judgment for defendant.
• Two types of common mistake:
o 1) Common mistake at common law—renders the contract void,
but not this case because mistake as to quality BUT
o 2) Common mistake at equity—was there a fundamental mistake
– would the parties have entered the contract but for the mistake?
• Equitable common mistake renders the contract not void, but voidable—
rescission is available as a remedy if there is no bar to rescission.
• In this case, plaintiff was responsible for letting defendant know that the
flats were not subject to rent-control. It would be inequitable for plaintiff
to benefit from the mistake that he made. On this basis, plaintiff cannot
recover.
Ratio Equitable common mistake: A contract can be set aside in equity if the
parties were under a common mistake about facts or their rights, if the mistake
was fundamental and that the party seeking to set it aside was not himself at
fault.
Notes • Equitable common mistake is easier to prove – however – there must not
be a bar to rescission.
• If there is a bar to rescission – then you must be able to prove common
mistake in order to void a contract.
Great Peace Shipping v Tsavliris Salavage (2002) – UK CoA Page 817 – New Test for
Common Mistake
Facts • Defendant needs someone to assist to bring a ship back to port and to save
the crew, because the ship may be going down.
• Defendant concludes that plaintiff has a ship that could help. They make a
contract for five days of salvage.
• Defendant finds out that plaintiffs’ ship is 400 miles away and not 35
miles away and so he finds someone closer and contracts with them.
• Defendant then cancelled the contract with plaintiff and refused to make
any payments after found someone closer.
• Plaintiff brought an action claiming $82,500 for payment of the contract or
for damages.
• Defendant disputed the claim on the basis that the contract had been
formed under a fundamental mistake (both parties thought the 2 vessels
were in closer proximity and they weren’t) and that the contract should be
void or voidable and they should be entitled to rescission.
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Issue(s) Is the contract voidable because of a common mistake?

Decision Yes - Judgment for defendant.
Reasoning • Solle v. Butcher was wrongly decided.
• In substance, this contract was for one ship to find another ship and the
mistake in quality was that the ship was 400 miles away rather than 35
miles away.
• Plaintiff did not rescind contract; that performance was possible, even
though it was not ideal.
• That fact did not make the contract impossible to perform.
• New test for common mistake established.
Ratio New Test for Common Mistake: The following elements must be present if
common mistake is to void a contract:
1) There must be a mistake as to a vital attribute of the subject matter of
the contract (note: softer standard than mistake as to the substance)
2) The mistake must have rendered the performance impossible.
3) The mistake must not be the fault of the party pleading it.
4) No warranty by either party as to the state of affairs that exist.
Notes • This decision overrules Solle v. Butcher by saying that there is no such
thing as equitable mistake and they instead will apply Bell v. Lever
Brothers. Equitable common mistake is a dead end and now contract
either a valid contract or is void for common mistake.
• Does that mean that Canadian courts will no longer follow Solle v.
Butcher? It is unclear what Canadian courts would do because there
haven’t been many cases in this area since Great Peace Shipping BUT
this case has taken a lot of flack from academic writing criticizing it for
killing Denning’s ideas and because it makes it almost impossible to get a
remedy for common mistake.
• The law appears to be that there is no equitable common mistake anymore
(maybe because court doesn’t like idea of void contracts due to problems
with 3rd parties?). It blurred line between common mistake and frustration
– common mistake occurs before contract discharging all obligations
immediately, frustration occurs once contract is extant, automatically
discharging all future obligations.
Miller Paving Ltd. v Gottardo Construction (2007) – Ont. C.A. – Page 825
Facts
Issue(s)
Decision
Reasoning • Suspect that you are within your rights to argue an equitable common
mistake in the area. Court does say that when argue common law common
mistake, you look at Great Peace Shipping and go through the four
elements of it.
• On the facts of the case, English Court of Appeal says that this isn’t
common law mistake because performance of the contract wasn’t
impossible.
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• When the D found out about the mistake, they didn’t say no K but kept it
in place to see if there is someone closer.
Ratio Equitable common mistake is not dead in Ontario. Great Peace not adopted in
Canada yet.
Notes
B) Mutual Mistake
• Occurs when the parties have a different view of the contract (this is not a shared
mistake) and each of these views a reasonable.
Raffkes v Wichekhaus (1864) – UK – Page 786

Facts • Contract made for the shipping of cotton.
• Two different ships in India called the Peerless.
• Defendant thought shipment was coming in October on first ship. The
cotton was needed in October.
• Plaintiff thought ship was leaving in December on second ship.
• When cotton arrived in December, defendants refused to accept the goods
or pay the plaintiff.
Issue(s) • If there is latent ambiguity, does contract exist?
• If there is latent ambiguity, can parole evidence be submitted to determine
what plaintiff meant and what defendant meant?
Decision No contract – judgement in favour of defendant.
Reasoning • Both parties had different but reasonable views of the terms. Contract is
void.
• Document has latentl ambiguity related to the time of the ship sailing.
• Not apparent on its fact but as soon as you realize there are two ships
sailing from Bombay there is latent ambiguity and parole evidence can be
given to show that defendant and plaintiff meant different ships.
Ratio Mutual mistake regarding an essential term of the contract means contract is
void.
Notes Latent ambiguity can only be used to identify the subject matter of the contract
(if that is under question), you can bring in extrinsic evidence to prove it.
However, beyond that you cannot use information beyond the document to
determine what the contract intends
Smith v Hughes (1871) – UK – Page 793

Facts • Plaintiff selling oats.
• Defendants thought oats were old and bought a large quantity of them for
his horse to eat (horses can only eat old oats).
• Upon arrival, he realised they were new.
• Defendant tries to send them back but plaintiff says he never said they
were old and the sample he showed were new oats.
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• Hughes refused to pay and Smith sued for breach of contract, for the
amount delivered and for damages for the amount for oats that were still to
be delivered.
Issue(s) Should we set this contract aside for mutual mistake?
Decision No - Ordered new trial
Reasoning Lord Blackburn:
• For mutual mistake, both views must be reasonable and defendant’s claim
here is not reasonable because he agreed to buy the specific oats that he
saw, thus representing he was contracting on plaintiff’s terms.
• You can’t later try to opt out of a contract because it wasn’t what you
thought it was if there is no misrepresentation.
Ratio • If one of the parties intends to make a contract on one set of terms and the
other intends to set a contract on another set, then the parties are not in
agreement and there is no contract.
• Where one of the parties has an unreasonable view of the facts, then the
contract exists on the terms of the individual with the reasonable
perception of the facts.
Notes
C) Unilateral Mistake
• One party knows that the other party is mistaken.
• The court says there are two types of unilateral mistake:
o “snapping up the offer” when they know a mistake was made by the other party.
o “rogue cases” where one of the party causes the mistake - this is a type of fraud.
Hartog v Colins & Shieds (1939) – 1939 – Page S.45

Facts • The subject matter of contract is the purchase of Argentinian hare skins.
• Defendant mistakenly offered skins at a price per pound.
• Plaintiff accepted offer immediately.
• Negotiation had been at a price per piece.
• Thus, defendant lost a considerable amount of money.
Decision No – Judgement for the defendant as there was a unilateral mistake.
Reasoning • We conclude on the facts that plaintiff knew about the mistake.
• Defendant was mistaken, plaintiff didn’t cause the mistake, but plaintiff
knew about defendant’s mistake.
• The mistaken price was significantly too low.
• Court said the buyer had to be aware of the mistake and therefore contract
should be set aside.
• You can’t snap up an obviously mistaken offer.
Ratio If one party is aware, or should reasonably have been aware, of the other
party’s mistake in making an offer, then the contract is void for unilateral
mistake, and the offeree cannot “snap up the mistaken offer.”
Notes • This case has become a highly relevant precedent in the modern
context of e-shopping on the internet, when online retailers sometimes
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get the published price wrong and receive hundreds of online orders
(automatically accepted) before they discover their error - e.g.
advertising a £299 television on the website for £2.99. Retailers can
avoid having to supply at the mistakenly low price if the court finds
that the would-be purchasers must have known that the advertised
price was clearly a mistake.
Ron Engineering v R (Ont) (1981) – SCC – Page 838

Facts • A call for tenders was sent out requiring a deposit of $150,000 which
would be lost if the tendered offer was withdrawn.
• Ron Engineering submitted an offer along with the required deposit in the
form of a certified cheque.
• The submitted tenders were opened by the owner and Ron Engineering
was the low bidder by a substantial margin.
• It was then discovered that the price on the tender documents was far
lower than the price that Ron Engineering had intended to submit, and that
they had made a mistake in calculating their total bid price.
• They informed the owner of the mistake and tried to have the offer
changed.
• The change was refused, the contract was given to another company, and
the owner kept Ron Engineering's bid deposit.
• Ron Engineering sued to get their deposit back, claiming had not
withdrawn tender but owner could not accept despite received notice of the
error.
• The owner counter-claimed for costs incurred because of having to go with
a different bidder.
At trial the counter-claim was dismissed but it was held that the owner
was entitled to keep the deposit. The Ontario Court of Appeal reversed
the trial decision and held, relying on the contractual doctrine of mistake,
that Ron Engineering was entitled to get its deposit back. The owner
appealed to the Supreme Court of Canada.
Issue(s) Is there a contract completed during the tendering process?
When is this contract completed?
What are the conditions of this contract?
Decision Appeal allowed – owner to keep the deposit.
Reasoning • Generally, calls for tenders are invitations to treat. However, in cases like
this where specific language and conditions are used then it becomes a
unilateral offer.
• Contract A" was accepted by the contractor when he submitted his bid in
accordance with the terms, and it states that he has an obligation to enter
into "Contract B" – the construction contract.
• Accepting Contract A binds the contractor to enter Contract B.
• The deposit was to ensure the performance of the contractor of its
obligations under Contract A, which it failed to live up to.
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Ratio • Bids at once become irrevocable if filed in conformity with the terms
and conditions under which the call for tenders was made, if such
terms so provide.
• Obiter: may be mistake if egregiously low and the other party knows to
snap up.
Notes
Cundy v Lindsay (1878) – HL – Page 434 – Mistake in Correspondence

Facts • Crook, named Blenkarn, sends Lindsay a letter wanting to buy
handkerchiefs, which they manufacture.
• Lindsay thinks that the Crook is a company they know of with the same
name and so sells them.
• Crook then sells handkerchiefs to Cundy, an innocent third party.
• Lindsay does not receive payment because of the fraudulent
misrepresentation.
• Crook ends up in jail and has no money, so what can Lindsay do?
o No option for rescission (Cundy already sold the handkerchiefs to a
third party) and he can’t bring claim against crook because crook
doesn’t have the property anymore and has no money.
• Lindsay alleges unilateral mistake because he wants a conversion property
claim (to get this, must be unilateral mistake which makes contract void,
so then he can sue in property).
Issue(s) • Was the identity of the crook fundamental to Lindsay?
• Did Lindsay mean to contract with the sender of the letter, or only with the
company?
Decision Contract is void. Judgement for Lindsay
Reasoning • The mistake was fundamental—Lindsay meant to contract with the
company Blenkarn, therefore there was a unilateral mistake, contract is
void, and Lindsay can sue Cundy for conversion.
• Sued for conversion because handkerchiefs sold to customers need to get
money from Cundy rather than remaining handkerchiefs and not have to
sue individual purchasers from Cundy (conversion claim is to make
Cundy’s compensate Lindsay for the property that was converted into cash
by Cundy).
Ratio Mistake in correspondence: In correspondence, a unilateral mistake as to real
identity (a material aspect) of the other party to the contract will make the
contract void, if the facts indicate that the mistake as to identification is
fundamental (e.g you meant to contract with X instead of a thief). No
consensus of the minds.
Notes
Ingram v Little (1961) – UK CoA – Page 438 – Face to Face Mistake

Facts • Ingram sisters sold car to a man with a faulty identity (Mr. Hutchinson)
who paid by check although Ingram wanted cash.
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• Hutchinson represented self as someone else. This man then sold the car to
Little, and the man disappeared.
• Little then sold car to another dealer.
• Ingram now sues Little for the return of the car or damages for tort of
conversion.
Trial judge said that plaintiffs’ mistake as to the identity of person she
was dealing with prevents formation of contract so plaintiff should
recover. Defendant appeals.
Issue(s) Is there an actionable unilateral mistake here?
(There is a bar to rescission because of 3rd party intervention, so they need to
plead unilateral mistake to make contract void)
Question becomes: Was the mistake fundamental? Who did they intend to
contract with?
Decision Contract void for mistake. Judgement for P. Ingram gets car back.
Reasoning • You start with a presumption that the party intended to contract with the
person in front of them.
• Here, sisters only intended to deal with Mr. Hutchinson and the mistake
was fundamental to the transaction.
• Acceptance addressed to Hutchinson who was not the offeror, so no
contract.
• The analysis begins with a presumption: you presume that you are
contracting with the person in front of them.
• In order to rebut this presumption, you have to show that the identity is a
fundamental and that you took some level of diligence to confirm.
Ratio Face to Face Mistake: In cases of face to face negotiations, the same result
may be reached as in Hartog, if the appearance is still that the mistake is
fundamental, and the innocent party has undertaken some level of diligence to
indicate that it is. The presumption in these kinds of negotiations is that the
parties are not fundamentally mistaken, but you can rebut that presumption.
Notes
Lewis v Averay (1972) – UK CoA – Page 443 - Likely bad law in Canada
Facts • Lewis sold his car to a man, a “rogue,” pretending to be the actor from
Robin Hood, and the cheque he got was stolen and worthless.
• Lewis asked for verification and was shown Studio pass with Richard
Green name.
• The “rogue” then sold the car to Averay and got away with the money.
• Lewis is now suing Averay for damages for tort of conversion.
Issue(s) Was there a contract under which the car passed property from Lewis to the
rogue?
What is the effect of a mistake by one party as to the identity of the other?
Decision Contract. No fundamental mistake (2 of 3 judges) and all three deny remedy
• Unilateral mistakes to do not make a contract void, but rather makes it
voidable, subject to bars to rescission.
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• Here there was a bar to rescission (intervening third party rights) and
therefore no remedy. (This is NOT the law in Canada, however).
• On this basis, the original seller should bear the loss caused by the
mistaken identity.
Ratio • The traditional void contract remedy in changed in favour of a voidable
contract which is subject to bars to recession. However, Prof does not
think you could argue equitable remedy like this in Ontario.
Notes How do we distinguish these two car cases?
• In the first case, there was a positive act taken to establish that you thought
identity was important (Ingram checked the phonebook to verify that a
person named Hutchison lived on named street).
• If you act to verify that the statements made were true, then the courts are
more likely to accept it as evidence that the identity of the person was
material to the contract being made
What about Denning’s judgment?
• Arguably more equitable in the result (innocent third party would not
suffer)
BUT Following Great Peace Shipping, we would likely say now that there is
no equitable remedy for mistake. (This could be argued though because
there is no binding Canadian judgement)
C) Mistake as to Documents (Non-Est Factum)

Traditional Approach
1) In rare circumstances, someone can say they were mistaken as to the documents that were
signed and thus that person can get out of the contract.
2) To plead Non-Est Factum, must be able to show that the document is of a different class
(as opposed a difference in content) of document than what you intended to sign. (e.g you
intended to sign a contract and signed a guarantee)
3) To disentitle you from pleading non est factum, you had to show negligence on the
person who signs the document. This means that there would be some sort of negotiation
towards the document, otherwise there would be no duty of care.
• Who can please non-est factum? It is not clear but you must be able to prove that despite
singing the document, you were not careless in doing so. You must show that it was radically
different and you were not careless.
o You must be able to show that you haven’t been able to do anything more.
Saunders v Anglia Building Society (1971) – HL – Page 451

Facts • Mrs Gallie, who had broken her glasses, signed a document without first
informing herself of its contents.
• She was lied to by her nephew's business partner, Mr Lee, that the
documents were merely to help her nephew.
• In fact, she signed papers transferring title to nephew's business partner to
grant a mortgage over her property in favour of Anglia Building Society.
• When the business partner defaulted on the mortgage, Anglia Building
Society claimed to foreclose and repossess the Mrs. Gallie’s house.
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• Mrs Gallie died before the litigation reached the House of Lords, and was
represented by Saunders as the beneficiary of the estate (ie. Wally).
• Argue that deed should be taken away from the building society because
Gallie was mistaken about what she was signing.
Issue(s) Can the contract be set aside on a plea of non est factum?
Decision No – judgement for the defendant.
• A plea of non est factum should be about whether the document is
radically different from what was intended to be signed.
• You can disavow the document while the property is in the hands of the
other party, but once it’s in the hands of a third party, you can’t. That is a
bar to rescission.
Lord Pearson:
• Agrees with Denning about class/content issue and adopts his formulation
that in order to plead non est factum the mistake has to be to a document
that was radically or fundamentally difference than what was intended.
• However, Lord Pearson says that the result should not be voidable
contracts in non est factum. However, someone who was careless should
disentitle you from pleading non-est factum.
• Even if Gallie asked for document to be read to her, they wouldn’t have
read the right thing. So Gallie was not careless.
• However, the document was NOT radically or fundamentally different
than what she intended.
Ratio 1) The essence of the plea of non est factum is that the person signing
believed that the document was radically different in character or effect
than what was signed.
2) A person pleading non est factum must have taken steps to determined
what the document was about. Was the person careless?
3) A plea of non est factum can only apply to those who are blind, illiterate,
or through no fault of their own do not have a real understanding of the
document.
4) To make the pleas, there must be a fundamental difference between what
the claimant signed and what she thought she signed. It must be left to the
courts to decide what exactly this means.
Notes
97
Marvco Colour Research v Harris (1982) – SCC – Page 463

Facts • Harris’ own a house and has one child, a daughter who has a fiancé.
• Fiancé is trying to buy out business partner and asks Harris’ for help.
• To do so, they mortgage their house.
• As it progresses, he needs more money. Goes back to Harris’ and says that
there was a typo in the mortgage so re-executes the mortgage, this time for
a higher amount.
• Harris did not read the document before he signed it. He later sought to
avoid liability on the basis that he did not understand the nature of what he
had signed due to the fraudulent misrepresentation of his son-in-law.
Decision Contract. Judgement for Marvco.
Reasoning • Harris was careless in not properly understanding the document, which
disentitles him from a plea of non est factum.
• The SCC does not talk about class or content; it simply follows the
carelessness/negligence standard from Marvco.
Ratio Carelessness will disentitle a plea of non est factum.
Notes • The SCC does not elucidate whether the SCC will follow Saunders v
Anglia Building Society regarding the concept of fundamental mistake, or
whether the SCC will follow Prudential Insurance v Cugnet regarding the
concept of difference of class and not of content.
• Prof thinks we now follow the UK case now and rely on a radically
different standard as opposed to class and content.
E) Frustration
• The parties aren’t mistaken at the time of contract, but before the contract is performed,
that is radically different from what the parties could anticipate.
• The courts do not void the contract but rather say that performance is excused.
Knell v Henry (1902)

Facts • Queen Victoria has died, her so is coming to the throne.
• Coronation event planned and there is a route set.
• Plaintiff had rented a balcony to watch the coronation with his friends and
have a viewing party.
• Prince gets appendicitis and parade does not occur this day.
• Plaintiff does not what to pay a large sum for the balcony.
Issue(s) Is the contract voidable?
Decision No – but performance is excused.
Reasoning Something occurred that is radically different from what the parties could
anticipate.
Ratio
Notes
98
3) Illegality
• Some say that the result of illegality is a void contract. Prof does not like this analysis.
You would think that if your contract was void, you would be able to go after your
property rights. However, we see from these cases is that the courts are deeming illegal
are unenforceable, but they do not support them getting their property back.
• Illegality actually renders a contract unenforceable. It does not render it void or voidable.
If property is transferred, courts will not assist with remedy.
• We have:
o Contracts that are in restraint of trade: the contract is deemed good, but the court
just takes out the restraint clause.
Restraint of trade is illegal at common law due to public policy.
o Contracts that are illegal under statute:
The contract is illegal
The contract is not illegal but the way you perform the contract is illegal.
• The heads of illegality policy:
a. Societal values tell us that we don’t expect these types of contracts to be enforced.
(Oldfield v Transamerica Life).
b. Contracts to defraud the revenue authorities (Alexander v Rayson)
c. Contracts which promote corruption in public office (such as a bribe) (Parkinson v
College of Ambulances)
i. Parkinson wanted Knighthood and pays a donation to the college to have the
asset with this. He argues for the return of his money but does not get it
because of corruption.
d. Contracts for an immoral purpose (Wilkinson v Osbornw)
i. Public policy must be in accord with the governing principles that the
community has adopted. There should be some value for the community as a
whole of what is right and not just the judges view.
• Richardson v Mellish: “public policy is an unruly horse” and should be restricted.
• We must weigh conflicting social policies:
o Enlargement or restriction of liability because of anticipated salutary effects on
future behaviour or prevent some harm.
• In Printing & Numerical Registering Co. v Sampson, Justice Jessel argued paramountcy
of public policy requires feedom to contract freely and voluntarily.
• In Tercon, the Canadian case, the SCC emphasised the courts retain power to refuse to
enforce a contract on basis of public policy – freed of contract like any freedom can be
abused.
Oldfield v Transamerica Life (2002) – SCC -Page 683

Facts • Oldfield died after swallowed a condom with cocaine in it while
smuggling from Bolivia.
• Ex-Wife was beneficiary of the estate as part of separation agreement.
• Plaintiff claimed the proceeds of a life insurance policy under which she
was the named beneficiary
• Husband’s actions were contrary to both Bolivian and Canadian law.
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• Defendant refuses to pay on public policy grounds as the benefit received

directly from an illegal act.
Issue(s) Can plaintiff claim life insurance policy, even husband though he died while
committing an illegal act?
Decision Yes – there is a contract and she should recover.
Reasoning • Plaintiff can claim under her ex-husband’s life insurance policy even
though he died because of committing an illegal act.
• Public policy vitiates insurance claims where the claim results from the
insured’s illegal act or the claimant’s illegal act.
• This rule extends to claimants claiming under the insured’s estate, in the
case where death results from the illegal act. However, this does not
prevent separate beneficiaries from claiming under the insurance policy of
the insured.
• If policy specifically excluded coverage if death due to illegal act then
would not resort to public policy argument.
Ratio • The general rule is that “a person should not be allowed to insure against
his or her own criminal act irrespective of the ultimate payee of the
proceeds” (Brisette Estate v Westbury Life Insurance).
• Exception: An innocent beneficiary named in an insurance policy should
not be disentitled to insurance proceeds where the insured dies while
committing a criminal act and does not intend the loss.
Notes
In the Matter of Baby M (1988) - NJSC - Page 671

Facts • Sterns contract with Whitehead to give them her child in exchange for 10K
and payment of medical expenses.
• She has the baby and then changes her mind. Goes into hiding.
• Sterns sue for specific performance of the contract (ie. make her give the
baby).
Trial judge says it’s a good contract and doesn’t offend societal values.
Won’t give specific performance until determining the best interests of
the baby, which is with Sterns.
Issue(s) Should contract be upheld or voided for public policy reasons?
Decision No contract – contract is voided on public policy concerns. Baby still goes to
Stern.
Reasoning • Contract is illegal because denies baby natural mother, ignores impact on
both sets of parents, best interests of baby.
• Public policy is against it, grants adoption without suitability/separates
from mother.
• However, judge also ruled that it was in best interests of the child to be
with Sterns (crossed into family law)
Ratio Contract is illegal if it violates public policy by being directly contrary to
objective of the laws.
Notes
100
Gordon v Ferguson (1961) – NSSC – Page S.47

Facts • Gordon hires a junior doctor to work in his office.
• Includes a non-compete clause in contract stating that if he leaves, he
won’t practice medicine in the same city for 5 years. (restrictions on both
geography and time).
• Lawfully terminated, Ferguson starts own practice in same city, Gordon
brought an action for an injunction.
Trial court dismissed action, Gordon appealed.
Issue(s) Is any part of the exclusion clause valid?
Decision Non-compete clause not valid because unreasonably extent of application
Reasoning • Presumed void as contrary to public policy but can be upheld if found to
be reasonable having regard to interests of the parties and of the public.
• Employer has a valid business interest to protect, cannot be any wider.
• Need to consider nature and extent of business.
• Restraint not valid unless nature of employment is such that customers will
be drawn to skill or judgment of the servant to the exclusion of the master.
• Non-compete clause too broad as encompassed people that were not
clients of Gordon but resided in same area or who had moved to the area
since the termination of the employment.
• Also, how long do you think you can say that person can’t practice around
here? Ex: Might be difficult to believe that after 2 years, people would
follow…can’t be too broadly drawn.
• Public interest? Will there be sufficient medical services in the town if you
shut the employee out. There were only 2 doctors in Halifax at the time.
Ratio Non-compete clauses can’t be too broadly drawn (in terms of geography and
time (considering protecting valid business interests)) and should factor in the
public interest (are there other doctors in town?).
Notes • General caution against carving out bad covenants to make for a good one.
If you ask for too much, you may get nothing in a non-compete.
• When a contract has an illegal aspect at common law, we do not say that
the contract is unenforceable but rather that the clause is.
Shafron v KRG Insurance Brokers (2009) – SCC – Page 673

Facts • Defendant sold his insurance brokerage for cash and submitted to a
restraint of trade clause that stated that he would continue working there,
but would be unable to seek employment in the same field with another
brokerage in the “Metropolitan City of Vancouver.”
• The business was later sold to plaintiff, but defendant’s employment
continued under similar circumstances.
• Later, defendant left the company and began working for another
brokerage.
Issue(s) Whether the restraint of trade clause in contract is enforceable on its face?
Decision Judgment for D. Non-compete is unenforceable.
Reasoning • Common law tension between freedom to contract and public policy
considerations against restraint of trade.
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• Restraint of trade clause in contract is not enforceable because the

language describing its geographical limits is ambiguous (“the
Metropolitan City of Vancouver”).
• However, but for its ambiguity, the restraint of trade clause might be
enforceable because it occurs within the context of a vendor/buyer
relationship, and not simply an employer/employee relationship. There
was some consideration (one paid) for the non-compete clause to exist.
Ratio Test for determining if restraint of trade clause is enforceable:
General Rule: Construe non-compete clauses strictly against the
employer/purchaser. They are enforceable if tightly drawn.
• Is non-compete has been drafted in a way that is clear and
unambiguous?
• It’s easier to enforce a non-compete in the sale of the business over an
individual. In a business, you buy the goodwill of the business and the
parties are on a more equal playing field.
Is the restraint reasonable as between the parties?

Will the customers follow the employee?
Does the employee have confidential information that he can take to a
competitor?
If yes, is the non-compete clause more broadly drawn than necessary to the
purchaser/employee’s valid business interests, in terms of geography and
time?
How much distance is the right amount of distance? How long is the right
amount of time?
If yes to above, is the non-compete clause contrary to the public interest?

How does it effect essential services?
Does it create a monopoly that will result in unreasonable price increases?
The broader the geographical area and the longer the restraint of trade clause,
the less likely is the court to find the clause reasonable and therefore
enforceable
Notes
Yango Pastoral Co. v First Chicago Australia Ltd (1978) – High Court Australia – Page S.53
Facts • First Chicago lent Yang 132K secured by mortgage.
• Statute says it’s illegal to bank in Australia unless you have a banking
license.
• Yango signs up for a guaranteed loan before their banking license is
complete.
• The loan was secured by a mortgage, incorporated a guarantee given by
the other defendants.
102
• Yango’s loan goes into default and they say bank shouldn’t be able to
enforce guarantee because loan was signed up for before the bank got their
license. Implied the K is illegal.
• When defendant defaulted on the loan, plaintiff sued defendants (Yango
and guarantors).
Trial found for First Chicago, upheld by CoA, appealed by Yango.
Issue(s) Whether Banking Act on its proper construction, prohibited the making or
performance of contract?
Decision Contract – judgement for the plaintiff.
Reasoning • The contract is not automatically unenforceable.
• The purpose the legislation was not to prohibit banking contracts, but to
ensure that the banks would carry on their business in a way that keeps
them solvent.
• The purpose is to protect individuals who are putting money in the bank
and not to protect those borrowing from the bank.
• In fact, defendant’s actions contradict the purpose of the statute in that not
paying loans tends to make banks insolvent.
• Further, the penalty imposes a fine for every day that the bank carries
business without a licence, not for every loan contract the bank makes out
without a contract.
• On this basis, the statute did not mean to prohibit these contracts or rule
them as illegal.
• The conclusion is that the bank pays the fine, but the court enforces the
contract.
Ratio Test for indirect illegality:
1. What is the purpose of the statute, on its proper construction? Is the
statute meant to protect the person claiming the illegality?
o If the plaintiff is protected under the statute, then it should be treated as
enforceable
2. What is the penalty of the statute?
o If yes to 1) and the penalty does not relate to the illegality of the
contract, then unlikely contract will be found to be illegal.
Notes
St. John Shipping Corp v Joseph Rank Ltd. (1957) - QB – Page S.61
Facts • Plaintiff loaded his ship so that it was submerged 11 inches below the load
line.
• The fine imposed on Plaintiff for doing so is a maximum of £100 per inch,
pursuant to the Merchant Shipping Act.
• Plaintiff was charged £1100 for its infraction.
• Plaintiff made an additional £2295 for overloading, which covered the fine
and caused Plaintiff to profit from wrongdoing. Defendant is upset that
their cargo could have been potentially ruined by Plaintiff’s negligent
overloading, withheld the additional £2295 to punish plaintiff further for
their infraction.
103
Issue(s) Whether defendant can set aside contract because plaintiff performed the
condition of contract in an illegal manner (overloading the ship beyond its
load line)?
Decision Contract – judgement for plaintiff
Reasoning • Contract itself was not illegal, only the performance was and wasn’t done
intentionally when contemplated contract of carriage.
• Contract enforceable, and D must pay shipping costs.
Ratio General Rule:
A contract which is expressly or impliedly prohibited by statute is
unenforceable, regardless of the intentions of the parties to it. Application
depends on proof of parties’ intentions to break the law at the time the contract
was made:
a. If one party intends to perform illegally then they can’t enforce
contract, but other party can
b. If both parties agree to an illegal performance, then neither can
enforce contract
Express Prohibition by statute

1. If K is expressly prohibited by statute, or becomes an expressly prohibited
K through the performance of its conditions, then it is unenforceable,
intention of parties does not matter.
Implied prohibition by statute:

1. If the statute impliedly prohibits the contract, the contract will also be
unenforceable, intention of parties does not matter (St. Johns Shipping).
a. It will impliedly prohibit the contract if the statute makes an
offence out of entering into the contract
2. Otherwise, whether the contract is impliedly prohibited must be
determined:
o by examining proper construction of the statutee,
o by asking what is the intention/purpose of’ the statute, and
o whether it was intended to protect the person asking to have the
contract set aside, and
o whether there was a penalty for breach, and whether it relates to the
making of the contract (Yango Pastoral Co. v. First Chicago
Australia).
Notes
Ashmore, Benson, Pease & Co. v Dawson Ltd. (1974) – Eng CoA – Page 691
Facts • A piece of engineering equipment was being moved on a truck. They knew
the truck was not licenced to support this type of load.
• It was too heavy and ended up tipping over and causing damage to the
equipment.
• Company (Ashmore) is trying to get damages from the movers (Dawson)
but movers say the load was too heavy for the vehicle (it was contrary to
104
the Road Traffic Act which had a 30 tonne limit, and this load was 35 tons)
and that the performance of contract was illegal.
Issue(s)
Decision
Reasoning • Contract is legal, but performance is illegal.
• It’s not a matter of whether you can prove an illegal agreement, it is a
matter of whether you had known that the contract could only be
performed illegally.
• Contract is unenforceable because they had to have known that it was
illegal at the formation of the contract.
Ratio Neither party can enforce the contract if the parties agreed to the illegal
performance, or they must have known that the contract had to be performed
illegally.
Notes
5) Unconscionability and Undue Influence

• There was a point in time when we did not care about the (un)fairness of the nature of the
contract. If they parties had capacity, the bad bargain was valid.
• Unconscionability came along and said that there may be situations where the individual
has capacity, but did not have a fair option.
o For example, there could be duress. However, we used to say duress to goods was
not valid, but this became more expansive.
• Unconscionability results in a voidable contract, subject to the bars of recession.
• Undue influence is that some relationships impact a person’s ability to enter into a fair
bargain. Many times, this is a familial relationship, but this is broadened in Royal Bank of
Scotland.
• To rebut the presumption from a special relationship, you would need to prove that you
have the ability exercise free judgement (independent legal advice or expertise or the
contract is not fair.
• Tests for unconscionability:
o A gross inequality in bargaining power.
Did one person have really superior bargaining power over the other
person?
Has there been an overreach by the stronger party?
o Did a party take an unfair advantage?
o Did this result in an unfair bargain?
Marshall v Canada Permanent Trust Co. (1968) – Alberta SC – Page 601

Facts • Plaintiff made a deal with an elderly man in a nursing home to buy his
farm.
• After the contract was worked out, Canada Permanent Trust, acting as Mr.
Walsh’s committee for his estate, returned the cheque to Marshall because
Mr. Walsh, living in a patient home, was mentally incapable of transacting
business or of protecting his interests.
105
• Plaintiff sued for specific performance of contract and sale of land.

Defendant seeks agreement rescinded for unconscionability
Issue(s) Was there contract unconscionable?
Decision Contract voidable. Defendant entitled to rescission. Judgement for D.
Reasoning • Marshall had stronger bargaining power.
• Does not matter if he knew about his condition because power imbalance
still existed.
• Transaction was unconscionable, unequal bargaining power.
Ratio • The individual with the power advantage need not be aware of the
disproportionality between himself and the person who is entering the
contract for the contract to be rescinded. It is enough that there is:
1) an inequality of bargaining power resulting from some “special
disadvantage” (typically inability to protect own interests) and
2) an abuse of the inequality, driving an unfair transaction for the
weaker party.
• Onus on the plaintiff to show price given is fair value.
Notes
Macaulay v Schroeder Music (1974) - HL – Page 637

Facts • Young song writer enters a contract with music publishers that was
exploitative and was basically a restraint of trade for 10 years (company
got full copyright, most of the royalties, all the bargaining power, etc.).
• Plaintiff argued agreement was contrary to public policy and void.
Issue(s)
Decision Contract is unconscionable and is set aside.
Reasoning It’s an unfair contract because the music company has considerable power
over the young artist, relative bargaining power.
Ratio • Influencing factor: Young musician/performer, with significant cash needs
and who is unrepresented, signs an improvident contract, and differing
relative bargaining power of parties. Look at whether restraint of trade
reasonably fair for protection of legitimate interests of the promise and
commensurate with benefits secured to the promisor under the contract;
contract does not satisfy test of fairness.
• Standard form contracts: where used with very ancient origin
(insurance/bill of landings/commodity sales) presumed fair and
reasonable. Same presumption of fair and reasonable does not apply for
modern contracts of standard form (ticket cases) where not a product of
negotiation between parties to it. Dictated by those providing goods or
services to weaker party.
Notes
Lloyds Banks v Bundy (1975) – HL – Page 611

Facts • Bundy’s son’s business is going under and son’s bank says Bundy needs to
act as son’s guarantee and mortgaged his farm.
• Bundy agrees to help his son in whatever way he can.
106
• The bank already knew that the son’s business was going to go bankrupt
regardless of Bundy mortgaging his house, and they just wanted to lessen
their loss.
• So, son goes bankrupt, bank wants to sell the house and they bring action
against Bundy to evict him.
Issue(s) Is the contract unconscionable?
Decision Contract is voidable due to unconscionability.
• Transaction was unconscionable because bank knew that the son’s
business was going to fail and used the ability to get the guarantee to limit
their losses on a loan. Shouldn’t have taken security from Bundy when
they knew the loan was going to fail.
• However, the contract may have been upheld if the father had received
independent legal advice.
• There is an inequality of bargaining power based on:
1. Consideration from the bank was grossly inadequate
2. The relationship between the bank and Bundy was one of trust and
confidence.
3. Relationship between son and Bundy was such that Bundy’s natural
love and affection had much influence over him.
4. Conflict of interest between bank and Bundy, the father should have
gotten independent advice.
Ratio In most cases customer who signs bank guarantee cannot get out of it;
exceptions where a guarantee is not legally enforceable if the guarantor is a
volunteer or a family member to the debtor and where unequal bargaining
power, unless that guarantor receives independent legal advice about the risks.
Notes
Royal Bank of Scotland v Etridge (2001) – HL - Page 619

Facts • A wife charged the interest in her home in favour of a bank as a security
for her husband’s debt.
• She later asserted that she signed the charge under the undue influence of
her husband.
• The bank tried to enforce the document she signed, but wife’s defence was
that the transaction was procured through her husband’s undue influence.
Issue(s) Did the fact that this person had independent legal device cleanse the undue
influence? Cleanse the unconcionablity?
Decision Maybe-
Reasoning • Did the person on the other side of the bargain, with independent legal
advice, have undue influence?
• Did the lawyer who gave the advice know the facts so that they could give
proper advice?
• Did the lawyer explain the proper risks of the debt?
• The legal advice would have to be given in the absence of the party who
may have created the undue influence.
107
• It is okay for the person giving the advice to could be associated with the
other party.
o Canadian courts have said this would not be independence
CIBC v Bartlo.
Ratio As long as you are not aware of there being actual influence, just a
presumption of influence and as long as the person who is in the weaker
position gets independent legal advice, than that balance the situation and the
contract is not voidable.
Notes
108
Enforcement, Breach and Remedy

1) Privity
• As long as you can identify 3rd party beneficiary problem, you can fix it and build it into
contract. Ways to get around third party intervention:
o Enforcement by other part (including estates)
o Trusts
Put a sum of money in a trust. The trustees would be obligated to perform
in accordance of the trust. Trust law says that if the trustee won’t enforce
the terms of the trust, the beneficiaries can bring upon the trusts.
Identify specifically named trustee as holder of benefit
Identify the beneficiaries that can enforce (can be for unborn
children/grandchildren)
Ensure to use the word trust (NZ Shipping)
o Agency
If I give an agent the authority to enter a contract for me, the contract
entered into is my own contract.
The other party has to know that there is an agency involved, but agent
does not need to declare who the principle is.
New Zealand shipping
prof likes agency when there is a service contract involved and a pre-
existing contract.
o Principled exception – for employees to benefit from limitation/exclusion clause
(London drugs)
Tweddle v Atkinson (1861) - UK – Page 375

Facts • Father and father in law agree to provide a financial benefit to plaintiff, the
son.
• Father dies and father in law says he’s not going to provide the benefit.
• Son tries to enforce the contract and brings action.
Issue(s) Can the third party beneficiary enforce the contract?
Decision Son cannot enforce the contract because he didn’t give consideration to the
original contract.
Reasoning • Only someone who has given consideration to contract can enforce a
contract.
• Natural love and affection not sufficient consideration, so although the
contract is for the plaintiff benefit, he cannot enforce it or sue on it.
Ratio General rule of privity: is that a third party cannot sue through a contract to
which it is not a party, even though the contract may be expressed for the third
party’s benefit.
Notes • How do we get around the thought that a third party can’t enforce a
contract?
o Lord Denning says there is a problem here. If the other party
doesn’t have damages, maybe specific performance of the
contract is a good remedy.
Bezik v Bezik
109
• Uncle gives nephew contract to inherit business

as long as nephew provides monthly income to
aunt. Uncle dies, nephew stops paying and says
that Aunt can’t enforce the contract as she was
not a party to the contract.
• But Aunt says she is the executor so acting in
such position, she will bring action (as uncle) to
pay herself (as aunt).
New Zealand Shipping Co. v Satterthwaite & Co. – Page 397

Facts • Shipper and owner of drill press enter into contract for shipping.
• The ship will be loaded by a local firm but there will be a limited liability
clause. The liability clause includes NZ Shipping but also third parties
they contract with (stevedores)
• While being unloading, labourers drop and damage drill press.
• Owner sues for negligence thinking that the Stevedore can’t hide between
limitation of liability clause because they are not party to the contract.
Issue(s) Can stevedores shelter under the exclusion clause? Privity problem because
these people are third party beneficiaries in the contract.
Decision Stevedores can shelter under the exclusion clause even though they are third
party beneficiaries.
Reasoning The contract was set up originally so that the exclusion clause protects all
parties to the performance, including third party beneficiaries.
Ratio Test: 4 conditions must be met to argue agency to gain the benefit of the
exclusion clause:
1. Contract must make it clear that the third party is to be protected.
2. Contact must make it clear that carrier is contracting in two capacities:
on its own and as an agent for other people (third parties). As principal
and as agent.
a. Similar to a trust. You are acting in capacity to get exclusion clause
for your own benefit but also as an agent to enforce the exclusion
clause for the benefit of the stevedores. Court says that this must be
made clear in the contract that you will be doing that.
3. The agent must have the authority to contract on behalf of the third
parties, or the third parties must later ratify the contract.
a. If you enter into contract on someone else’s behalf, they must have
given you the authority to do so as their agent on their behalf.
Person must have given authority or you need to ratify that
authority after the fact – they ratify the K after.
b. Consider:
i. Are you affiliated with the third party in some way? (e.g
subsidiary company) Do you know them? Is there a pre-
existing relationship?
If not, you should likely use a trust. They likely
would always want to shelter under the clause,
110
but the issue is whether they need to send a

notice of ratification.
4. Third parties must give consideration to the contract.
a. The consideration in this case is labour for fee. Despite this
being consideration to do what was already required, it can be
consideration again for a third party.
At the end of this, there are two contracts:

1. Contract between shipper and owner AND
2. Contract between shipper and stevedore.
i. The second one is a collateral contract. In consideration of
the stevedore unloading the drill press, shipper agrees to
limit their liability (you give a limitation of liability)
ii. it’s a collateral contract – collateral to main contract AND
it’s a unilateral contract – unload/promise limited liability
iii. BUT agreeing to perform a K that you’re already bound to
perform is not good consideration. Scottson v Pegg – BUT
consideration here is unloading. Agreeing with a second
party to do what you’re already bound to do with a first
party IS good consideration. There is also extra liability.
• Court says that if your K is set up right and does all four of those steps,
then you can get around the rules of privity by creating two contracts
Notes
London Drugs v Kuehne & Nagel Ltd.

Facts • Owner of transformer and owner of storage company have a contract
where storage company will store the transformer with a limitation of
liability clause for damage over a certain amount.
• London Drugs aware K&N employees responsible for moving and upkeep
of transformer.
• Two storage company employees try move it and damage it.
• Owner of transformer recognizes that there is limitation of liability clause,
so he sues the employees.
• Union appears on behalf of employees. Contract says limitation will apply
to storage company and warehouse men.
Issue(s) Does limitation clause apply to workers?
Decision Employees can rely on exclusion clause even though they were not privy to
the contract.
Reasoning Iaccobucci J:
• “a principled exception to the law of privity”.
• There is clear community of interests between employer and employees
and no reason for denying the employees the benefit of the contract.
• Clause expressly or impliedly extends to the employees.
• If clause expressly or impliedly extends, which it does here because it says
“warehouse men”, and they are doing what supposed to be doing under
111
contract, there is a principled exception which entitles them to shelter

under the exclusion clause.
Ratio Principled Exception Test – If the following conditions are met, there is a
principled exception to the law of privity which allows employees to shelter
under exclusion clauses if:
1) Clause expressly or impliedly extends to the employees.
2) Employee must be acting in the course of employment and providing
the very service provided for under the contract.
If you meet these two requirements, courts are entitled to make principled
exceptions, small excursions into the law, when necessary to make fair and
equitable results. Power and duty to make incremental changes to common
law to reflect emerging needs and values of our society This principled
exception applies in narrow circumstances – only to employees who are
performing the exact contract that contains the limitation clause.
Notes “major reforms of law of privity should come from the legislature but the
court has power and authority to make incremental changes and exceptions ot
the law”
2) Frustration
• When will we, on some occasions, excuse performance on a contract that is otherwise a
good contract?
• This is different from mistake because as the time of the formation of the contract, the
parties are not mistaken. But after the formation of the contract, something happens that
could not have been imagined.
• Need to determine what the legal test is to know when to trigger frustration.
• Need to determine what you do in a case of frustration for a deposit, partial performance,
etc. How do we settle the rights and obligations of the parties.
• Frustration does not occur when something is deemed impossible, it can just ben
materially different or difficult that makes the contract excusable.
Taylor v Caldwell (1863) - UK – Page 858

Facts • Defendant signed lease to rent music hall for four days of concerts.
• Between time of signing the contract and the concert, hall burns down.
• Plaintiff says that they can still do the concert just outside.
• Defendants says that wasn’t the deal and pleads mistake as to a future
event.
Issue(s) Could the contract be frustrated?
Decision Yes - Judgement for defendant.
Reasoning • Because the burning down of the music hall occurred through no fault of
either party and the existence of the hall was implied term of contract in
the original contract, defendant is not liable to plaintiff for breach of
contract.
• The burning down of the hall excuses both parties from performance of
the contract.
112
Ratio • If the nature of the contract is such that the parties must have known at the
time of contracting that it cannot be fulfilled unless some specified thing
continued to exist, it is not a positive contract. An implied condition exists
that the parties will be excused from performance if that thing ceases to
exist without fault of the parties.
Old Test:
1) Whether the performance would have been expected to continue in
spite of the event; was one of the parties expected to be responsible for
this sort of risk? If so, there is no frustration.
2) Was this a situation that was meant to be covered by the contract or is
this an event that is so out of contemplation that performance should
be excused?
Notes
Davis Contractors v Fareham UDC (1956) – HL - Page 898

Facts • Plaintiff and defendant have contract to build 78 houses in 8 months,
subject to a penalty clause if not done on time.
• At this time, skilled labour was hard to find and it ended up taking 22
months to finish the contract.
• Plaintiff paid the penalty and lost a lot of money. Plaintoff claims that
contract should be frustrated, he shouldn’t have to pay penalty and he
should get the fair value for performance of contract.
Issue(s) Is there a frustration of contract?
Decision No frustration – judgement for the defendant.
Reasoning • Frustration doesn’t depend on an implied term (test in Taylor v. Caldwell
is wrong). Frustration only occurs outside of anything that parties could
have intended or contemplated.
• You don’t ask whether performance is impossible or more difficult. People
can always contract to do the impossible and will still be in breach of
contract if can’t do it.
• “Frustration is not likely to be invoked as an insolvent of a contract”
• To determine if contract is frustrated, must consider the contract and
construe it as a whole in light of all the circumstances that existed at the
time of the contract. Ask if what happened is so fundamentally different
that you could have excused performance or if one of the parties agreed to
accept the risk.
• Here, builder agreed to accept the risk. At time of contract, it was clear
there was a shortage of skilled labour and was known to both parties and
plaintiff took on contract in spite of that. Fact that skilled labour became
impossible to get shouldn’t excuse performance.
Ratio New test for frustration:
• The test is whether, during construction of the contract and construing the
contract in light of surrounding circumstances at the date of the contract,
it is reasonable to assume that one party accepted the risk of the future
event, or whether the required performance is so different from what was
113
contemplated that the parties should be excused from performing.

• In order to have frustration, the performance under the new circumstances
has to be fundamentally or radically different than what was contemplated
by the parties at the time of the contract.
Notes
Frustrated Contracts Act – Page 910

1. Sums paid are to be returned subject to the deduction/expenses incurred before the
frustration.
a. All deposits must be return less money spent on performance
2. If a benefit is conferred to the other party, person is entitled to the fair value of
performance.
a. If there are benefits conferred, you must pay the fair market value of the benefit
(not the contract price).
3. If the whole performance is severable (or where part has been performed), you treat part
performance as if they were separate contracts.
a. If the main contract is divisible into chunks, we may create new contracts based
on this division.
This act has nothing to say about when a contract is frustrated – it just tells us what happens in
frustration occurs. Tries to accomplish this in a fair way.
You can contract out of the entire Frustrated Contracts Act – you can even contract out of
frustration by inserting a “Force Majeure Clause”. This says that there is an anticipation of
some frustration events (such as an act of god) and that these will no longer frustrate the contract.
However, you need to be specific to include what qualifies to be protected by this clause.
3) Remedy
a) Damages
Interests Protected – Fuller and Perdue Article
Restitution interest: Plaintiff in reliance on promise of defendant conferred some value on

defendant. Defendant fails to perform promise, prevention of gain by defaulting promisor at
expense of promise – unjust enrichment. Plaintiff will recover deposit, get fair value of benefit
etc. Deposit back + the difference between the benefit price and the fair market price.
Reliance interest: Plaintiff in reliance on promise of defendant changes his position – neglected
to enter into other contracts/spent other sums of money on expectation that defendant would
perform – award damages for purpose of undoing harm; put in position as it contract had been
performed.
Expectation Interest: without insisting on reliance by promise or enrichment of the promisor,

give promise the value of the expectancy which the promise created. Specific performance or
damages-put plaintiff in position had defendant performed his promise. can recover on basis of
promise without reliance, otherwise business efficiency would be in flux
114
In reliance and expectation interests – there are exceptions of remoteness. Hadley v

Baxendale, Victoria Laundry v Newman Industries
Measurement of Damages
• General rule is that you need to prove not just your case but also what the measure of
your loss is and that can be difficult.
• Generally, it is the difference between the contract price and the market price. If you are
awarded this difference, you should be able to go out and purchase the goods from
someone else.
Ruxley Electronics Ltd v Forsyth (1994) – Eng CoA – P.s76

Facts • Contract to build a swimming pool.
• Express term of the contract was for the maximum depth of pool to be 7
feet 6 inches, actual depth 6 feet where diving would occur.
• Construction company failed to provide the depth requirement.
• Mr. Forsyth refuses to pay, so company sues him.
• Forsyth wants the amount of money it would cost to rip pool out (65k) and
rebuild so he can dive.
• Company says this isn’t reasonable because Forsyth won’t actually use the
money to rebuild the pool.
Trial judge holds 2500 for lost enjoyment. Appeal court says he should
get reinstatement to put you into position to buy the pool you wanted.
Issue(s) How much money should he get to put him in the same position as if contract
had been performed?
Decision
Reasoning • Should get difference between value of the property with the improvement
and value without the improvement or cost of restoration.
• Would be unreasonable under circumstances to require rebuilding. Issue is
that there are contracts that are commercial in nature and value that is
suffered is a commercial amount – with performance, financial value of
property is increased.
• What about where performance is personal (ie. i want to be able to dive!)?
Ratio If the breach of contract arises from a personal situation, you should get the
money to complete the performance of K; unless that amount of money is
thought to be unreasonable (factor considered: whether the remunerated party
will actually use their damages to rectify the breach of K).
a) Does the plaintiff have a serious intention of doing the work?
b) Is it reasonable for them to do the work? – mitigate, cannot claim
cost of reinstatement if difference in value would make good his
loss, if no alternative then entitled to cost of repair or reinstatement
even if very expensive.
Notes • Decision is actually from the HL.
• The problem with this is that when we enter personal damages, the
economic value of the personal property may not make amends for the lost
enjoyment of the person.
115
Groves v John Wunder Co. (1938) – Minneapolis SC – Page 40

Facts • Groves leased some land to Wunder.
• Groves let Wunder use the land and take sand and gravel from it.
• Wunder was supposed to pay Groves $105,000 and leave the property at a
“uniform grade”.
• Wunder intentionally breached and didn’t leave a uniform grade.
• It was found it would cost about $60,000 to fix the grade, however, the
property itself if the defendant had performed would only have been worth
about $12,600.
At trial, the plaintiff recovered the $12,600 plus interest. The plaintiff
appealed. (value without grading would be 2000K – Prof: loss is really
10600)
Issue(s) How much damage should defendant pay to put plainitff in same amount as
had the K been performed?
Decision
Reasoning • Plaintiff should get 60K.
Prof – this is a crazy result because it should be the difference (12600-2000),
not the cost of the grading.
• This award would put the plaintiff in a far better position than if
performance would have done.
• Had the contract been performed, the plaintiff would have $12K , whereas
the damages suggested by the majority would give the plaintiff 60K!
Nothing special about this particular property that it had special value
specifically desirable for particular use.
Ratio
Notes Commercial Damages
• Lesser of cost of performance and economical value of performance
Personal Damages
• Should a person be able to get the damages they bargained for?
• If I did something for personal reasons, I am entitled to the damages of
performance.
• Cost of replacement performance provided this amount this be
reasonable (Forsyk)
Sale of Goods Act 1980

S. 48 -- When assessing damages in contacts of sale of goods/property look at the difference
between the contract price and the market price. And the damages estimated loss directly and
naturally resulting in ordinary course of events from buyer’s/seller’s breach of contract. Covers
when buyer neglects or refuses to accept and pay for goods and when seller wrongfully neglects
or refuses to deliver goods to buyer.
116
Howe v Teefy (1927) – Page S.84

Facts • Plaintiff [Teefy] was leasing a horse off the Defendant [Howe] for the
purposes of racing it and generally making money off it (through bets etc).
• The Defendant randomly took the horse back, before expiration of lease –
breach of contract.
• The Plaintiff sued for damages, including the loss of chance (to win money
through races, bets, selling information on the horse to other gamblers etc).
Issue(s) How do you compensate loss of chance (when the plaintiff can’t actually
prove their damages?)
Decision
Reasoning • Were in contemplation of this type of loss because horse leased for chance
to make money.
• The agreement was made in place to give the Plaintiff a chance of making
money off the horse. He was deprived of that chance.
• The presence of contingencies (i.e. whether the horse would win races,
whether the Plaintiff would win bets etc) do not render damages incapable
of assessment. The value of the chance can still be assessed.
Ratio • Damages can also be awarded for loss of chance, even if actual loss is
uncertain. To determine damages for loss of chance you must look at the
circumstances to determine (in this case, the court could look to see if the
horse actually won any races). Compensation in these cases aren’t very
scientific, all the court can do is estimate what the losses are.
Notes
Fidler v Sunlife
Facts • Insured was diagnosed with chronic fatigue syndrome and fibromyalgia
and was receiving long-term disability benefits.
• Despite lack of medical evidence that insured could return to work, insurer
terminated benefits after video surveillance showed insured driving and
shopping.
• Insured brought action for payment of benefits.
• One week prior to trial, insurer agreed to reinstate benefits and pay
outstanding amounts plus interest.
Trial judge awarded insured aggravated damages of $20,000. Award was
upheld on appeal to Court of Appeal. Insurer appealed.
Issue(s) Is loss of enjoyment, mental distress actionable in contract?
Decision Trial judgement restored. 20K for aggravated damages.
Reasoning • SCC agreed with trial judge that punitive damages weren’t appropriate in
this case.
• While the insurer's conduct in denying benefits for over five years in the
absence of medical support was extremely troubling, it was not sufficiently
so as to justify interfering with the trial judge's conclusion that there was
no bad faith to warrant an award of punitive damages.
117
• To attract punitive damages, the insurer's conduct had to depart markedly

from ordinary standards of decency and be independently actionable.
Ratio Damages are subject to the remoteness test set out in Hadley v. Baxendale.
Damages (i) must be foreseeably to have arisen naturally in the ordinary
course of things from the breach, or (ii) are within the contemplation of the
parties at the time of the contract to be the probable result of the breach
(“special circumstances” are not contemplated, so need to be communicated
to recover damages. Reasonable time/notice following communication is
required.) Loss of enjoyment and/or mental distress is recoverable under these
two heads. Aim is to restore wronged party to position would have been had
contract not been broken.
2) degree of mental suffering caused by breach was of degree sufficient to
warrant compensation.
Don’t need independent actionable wrong as prerequisite to recover mental
distress damages; if accompany another damage can be seen as aggravated
damages.
Notes
Whitten v Pilot Insurance

Facts • Whiten’s family home burned down in the middle of winter and they lost
everything.
• Insurance company refused to pay the insurance claim and alleged that the
family had committed arson (which was found to have no air of reality).
• The denial of the insurance claim was designed to force the family to settle
for less than what they were entitled to.
Trial jury awarded family $1 million in punitive damages. Ont CA
reduced this to $100k. Family appealed to SCC
Issue(s)
Decision Trial award of $1M restored.
Reasoning • Although high, award did not exceed limit of reasonable damages.
• The award of punitive damages was a rational response by the jurors to the
evidence before them. T
• he insurer's conduct in maintaining the allegation of arson exceeded the
requirements of prudent practice or due diligence.
• The award of punitive damages was proportionate to the harm or potential
harm directed at the insured by the insurer.
Ratio Punitive damages may be awarded if:
1. Something particularly reprehensible has happened (conduct that represents
a marked departure from standards of decency; punish defendant rather than
compensate plaintiff) and
2. More than a simply breach of contract i.e. not necessarily an independent
tort but more than just breach. This is about deterrence.
Notes
118

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Contracts Summary - Forbes

Introduction to Contractual Remedies

Hadley v. Baxendale (1854)– UK - Page 50 – Remoteness Test

Decision No, plaintiff should not be able to recover damages.

Specific Performance and Injunction

Warner Bros Pictures Inc. v Nelson (1937) – Page 137

Issue(s) 1) Can Warner Bros be granted a specific performance?

Formation of the Contract

Balfour v. Balfour (1919) – Page 299

2) The rebuttable presumption onus is on party claiming there is a

Family Law Act (1990) – Page 303

Jones v Padavatton (1969) – Page 304

Simpkins v Pays (1955) - Page 302

Rufos v Brewster (1971) (Australia)

Ermogenous V Greek Orthodox Community (Australia)

Parker v Clark (1960) - UK

Carlil v Carbolic Smoke Ball Company (1893) – Page 359

2a) Offers Mechanics

Boyer and Co v D&R Duke – Page 181

• There is a distinction between quotations: basis of possible order and an

Harvey v Facey (1933) (UK) – Page 180

Johnston Bros v Rogers Bros (1899) – Page 178

The Satanita (1895) (England) – Page 387

MJB Enterprises v Defence Construction (1999) – Page 211

2B) Duration of the Offer

METHODS TO “KILL AN OFFER”

Dickinson v Dodds (1876) – P.194 – Offer Revoked

3) Revocations have to be communicated but the communication does not

Petterson v Pattberg (1928) - P-S1 - Offer Revoked

Errington v Errington (1952) (England) – P.368

• Implied term of contract that once performance has been commenced,

Ratio Implied term of the contract, in consideration of your commencing

Shuey, Executor v. United States (1875) – P.S5 – Offer Revoked

Livington v Evans (1925)– P.S7 – Rejection and counter-offer

• P accepted counter-offer of his counter-offer.

Cole-McIntyre-Norfleet Co. v Holloway (1919) - Page S.15 – Exceptions to Acceptance Being

Household Insurance v Grant (1879) – Page 236 – Postal Acceptance Rule

Decision There is a contract. Defendant must pay sum of money as a shareholder

Eastern Power v Azienda (1999) – Page – Fax Machine Acceptance

Electronic Commerce Act, 2000 (Ontario) – Page 253

s. 22(3) Electronic information or an electronic document is presumed to be received by the

3B) Time and Place

area, then it is up to the offeror to decide whether they will be bound by

Holwell Securities Ltd. v Huges (1974) – Page 245 – PAR Exceptions

3C) Acceptance of Unilateral Contract

Issue(s) 1) Do you need notify the intention to perform?

Tobias v Dick and T. Eaton Co (1937) – Page 265 – No Consideration

4B) Sufficiency of Consideration

Stilk v. Myrick – Page 268 – Performance of Existing Duty

Hamer v Sidway (1891) – Page 259 – Detriment as consideration

• Does not matter whether consideration in fact benefits promise or third

White (Executor) v. Bluett (1853) – Page 258 – Illusory Consideration

Dalhousie College v Boutillier Estate (1934) – Page 295

The Seal – Page 309

Linton v. Royal Bank of Canada (1967) – Page 310

4C) Past Consideration

Lambleigh v Brathwait (1615) – Page 315 – Past Consideration Exception

4D) Performance of an Existing Duty

• Sailors no longer obligated to perform because situation was now

New Zealand Shipping v Sattherwaite (1975) – Page 269

3) As a result of promise, B obtains practical benefit, or avoids a

• Court attempts to see if the traditional rule require consideration should

o Was the promise made “under protest”?