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CONTRACTS ILLEGALITY AND PUBLIC POLICY

Introduction • Public policies are sometimes treated by courts and be legislators as being more significant than freedom of contract; thus contracts are sometimes said to be illegal or contrary to public policy on various grounds. • Maddox v. Fuller (1973)  “The true test … is whether the public interest is injuriously affected in such substantial manner that private rights and interests should yield to those of the public.” Restraint of Trade (Effect of restrictive covenant) • Contracts, clause or combinations designed to eliminate or stifle competition, effect a monopoly, artificially hamper the course of trade or obstruct the course of trade or commerce as it would be carried on if left to the control of natural economic forces. For example, one can’t set up shop in specific area. • Shopping Center Leases may impose a restraint of trade that is in the best interest for all parties. Onus is on the party who wants to enforce restraint to prove the reasonableness for public policy (i.e. shopping mall limits the number of competing stores so that mall is a good mall). • Unreasonable restraints of trade which are illegal per se restraints interfering with competition in business and commercial transactions which tend to control market to the detriment of purchasers or consumers of goods and services. Restrictive Covenant/Agreement (Clause) • Protects an employer from having an employee as a competitor in the future. Restrictions can be for A) a period of time and B) within a certain geographic area • General Rule: for a restrictive covenant to be enforceable it must be reasonable A) between parties and A) must be in the public interest • ‘Solus Agreements’ Exclusive purchasing agreements in which one party promises to buy all his or her requirements of a certain commodity from the other party (e.g. Zehers is exclusive seller of Precedence Choice) Illegal Contract • Illegal contracts which are in breach of a statutory regulation are unenforceable. Any property transferred under it is irrevocable, and any money paid out is lost. (Still v. Minister of National Revenue). Doctrine of Illegality is divided in 2 categories: common law illegality and statutory illegality. Three Issues dealing with the effects of Illegality • Are contracts that offend a statute or common law head of public policy ever enforceable? Yes. • Can a party ever recover money paid or property passed under the contract? Yes. • To what extent are courts willing to sever offensive provision? To a fairly great extent. Nine Types of Contracts which Offend Public Policy (Common Law) • Contract to commit a crime, contract that is sexually immoral, a contract prejudicial to the public safety, a contract prejudicial to the administration of justice, a contract liable to corrupt public life, a contract to defraud the revenue, a contract to oust the jurisdiction of the courts, a contract that tends to prejudice the status of marriage and a contract in restraint of trade.

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Facts KRG Insurance Brokers Inc v. Shafron • Shafron joined KRG after selling them his business and was subject to restrictive covenant that prevented him from competing with KRG in “Metropolitan City of Vancouver” for three years from termination • When he left a number of customers moved their business with Shafron to his new employer • KRG sued to enforce the restrictive covenant prohibiting competition • Shafron challenged that “Metropolitan City of Vancouver” was not “a recognized location.” Still v. Minister of National Revenue  Worked without a work permit in good faith

C SCC 2009

Holding Restraints of Trade and Restrictive Covenants  An ambiguous clause cannot be a reasonable clause, and will not be enforceable.  Notional severance has no place in restrictive covenants of employment contacts  Blue line severance will rarely be useful for restrictive covenant

Ratio  In cases where there is a restraint of trade or restrictive covenant, and as long as they are 1) reasonable to both parties and 2) in the public interest, then the courts will enforce them.  The clause must be reasonable to three factors: 1.) Must have reasonable geographical scope 2.) Must have reasonable time limit 3.) Must be reasonable in the activities it seeks to restrict  Reasonableness is determined by the language of the covenant and the surrounding circumstances, the nature and character of the business employment on a case by case basis

Notes  Employers should not be invited to draft overly broad restrictive covenants with the prospect that the court will sever the unreasonable parts or read down the covenant – this would change the risks assumed by the parties  Although the SCC said there may be cases where a “blue pencil” can be used to strike out a problematic portion of a clause (i.e. ‘Metropolitan), this will be done sparingly and only when a removal is trivial and not part of the main purpose of the restrictive covenant.

CA 1998

Effects of Illegality  CA allowed her to obtain UI benefits because acted in good faith; dealt with on a case to case basis and looks at true intention of parties – did person intend to harm or violate purpose of the Act?  Language in document was unambiguous  No other Canadian would take the job (most Canadians would be unwilling to take this job)

- An illegal contract may be unenforceable, but the Judge has discretion to enforce some or all of the contract where circumstances and fairness dictate - Reflects new modern approach to determining if a contract is void for illegality that is flexible and takes into consideration surrounding circumstances

 Although a statute may prohibit an activity there is discretion in judgment; certainty must give way to flexibility.  Courts construe a more flexible view of illegality to uphold public policy.  She was paying EI while working so no depletion of the fund  If there was proof that she knew she was not supposed to be working than enforcement of S.18(1) of Immigration Regulations would be enforced

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MISREPRESENTATION AND RESCISSION
Representations & Terms: Classification and Consequences  Representations are things that someone says to induce the other party to enter into a K  “Misrepresentation” = a representation made to someone to induce them into entering into a K that has later proven to be false. Four kinds of misrepresentation (type of remedy you are seeking determines the type of misrepresentation) 1. Mere Puff: Has no remedy – i.e. Buying a certain car does not mean you will attract girls for sure 2. Innocent: Rescission, puts party back into pre contract position(Redgrave; Smith) (Where you do not mean to tell a lie; do it recklessly) 3. Negligent: Damages, puts part in position is contract was not breached (Bank of B.C.) (It is a kind of Tort) 4. Fraudulent: Unravels everything, same position as if contract was not breached. Whatever best suits the victimized party (Test – Kupchuck; Redican) Also have Consumers Protection – Relief is through the Consumer Protection Act • Who is Protected  an individual acting for personal, family or household purposes and not a person who is acting for business persons • What is not included under the CPA  S(2) of Act Defences • “Just giving my opinion on things” • No longer an opinion if one person has or should have much more information than another 3 types of statements: 1. “Sales talk” or “mere puff”- representations made in advertising. NOT a term of the K 2. Pre-contractual statements/representation – can lead to limited legal consequences 3. A statement which can be construed as a term of the K – attaches more serious liabilities if broken  Advertisers are not allowed to tell an outright lie A false representation can lead to 2 possible situations: 1. Rescission – return to pre-K position, if you have been “sleeping on you rights” (delay in bringing rescission action, then action is void) 2. Damages for breach of K – general common law remedy. Compensation for what you should have received if K not breached. Post-K position. Ways in which rescission can’t apply: 1. completed K (applies to land, questionable whether it applies to goods and services) 2. where there are latches (undue delay in bringing action) 3. when it is impossible to put parties back to pre-contractual position (absent fraud) Exception: fraud or complete failure of consideration Warranty is a representation that has become a term of the K; very difficult to establish a warranty; best thing to do is to write it into the K.

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Facts/Case Redgrave v. Hurd  D (young lawyer) wanted to purchase P’s law practice & home. P told D yearly income was £300 £400; receipts showed that actual income was £200/yr.  D refused to complete transaction; P sued for Specific Performance. D countersued for rescission, return of deposit & damages for deceit Smith v. Land and House Property Corp.  P sold hotel to D. P told D that hotel was leased to “most desirable tenant”. After purchase tenant went bankrupt.  D refused to complete transaction, claimed P in position to know of tenants desirability Bank of B.C. v Wren Developments  Bank had Allan (D) sign new guarantee after Smith (D) requested release of shares. Allan thought bank still held shares.  Bank sued Allan (D) for outstanding sum b/c nobody else had $

C (1881) Ch. D. CA

Holding  Order for rescission & return of deposit  D did not get moving expenses  Had not proven deceit

Ratio  The negligence of the party seeking relief is no defence for the party who has made the misrepresentation.  The party making the allegation of negligence has the onus of proving negligence.  A party should not profit from their own misrepresentation. Today: we would argue Negligent Misrepresentation – Tort was not available until 1950’s – here maybe old man would be forced to pay but stay in the practice

Notes 1. The person who made the misrepresentation can escape liability if they show:  that the other party had clear knowledge of the truth and didn’t rely on the statement OR  the other party did not rely on the statement (objectively) 2. Doesn’t matter that the party had the opportunity to test the veracity of representation – it only matters that they relied on it

(1884) Ch. D. CA

 

P misrepresented desirability of tenant to D Shows difference between an opinion and a misrepresentation

Statement of belief isn’t innocent representation, but statement made where material facts are not equally well-known by both parties = misrepresentation If facts are not equally known by both sides a statement of opinion by one knowing facts is usually a statement of material fact, for that party implies he knows the facts to justify that opinion Silence does not constitute misrepresentation and a Bank will always be held to a higher standard when dealing with the public as they have a fiduciary duty to their clients If a true representation is followed by a change in material circumstances prior to an agreement which renders the statement false, the representor has a duty to draw the change to the representee’s attention


If both parties have the same knowledge, it is a statement of fact When one party has more information/knowledge, it is a statement of opinion

(1973) B.C. S.C.

Allan (D) is not liable to P on second personal guarantee. Action dismissed

Silence can be misrepresentation only for a bank Bank has a duty to check for Mr. Allan before they made him sign. Bank has a fiduciary duty toward their customers

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Kupchak v. Dayson Holdings Ltd.  (A) purchased shares in a motel in return for 2 properties & a mortgage given to (R). R sold ½ interest in one of the properties, tore down existing bldg & built an apartment – this is after they had notice that they were being blamed for misrepresentation  A discovered that R misrepresented past earnings of motel. A stopped making pmts

(1965) B.C. C.A.

Order for rescission, however because of circumstances, recession cannot take place, so the court referred to it as compensation


Hyrsky v. Smith Redican v. Nesbitt  D purchased leasehold property from P. 2 days after keys & lease delivered to D, D inspected & discovered misrepresentation on several crucial particulars. D stopped payment on cheque & P sued for amount of K [1924] SCC  D cannot claim rescission because K was fully executed.   

In cases of fraud, rescission is available and monetary compensation is available to restore parties to their pre-contractual position There are at least three bars to rescission: 1) affirmation of a contract (appear to accept contract through conduct – e.g. running hotel for 4 years), 2) latches or delay (sleeping on your rights), 3) third party interest (where there is a third party interest, rescission may not be available Fraud = give parties whatever they want Fraud unravels everything Monetary compensation is not available for rescission Once K is executed for land (conveyance), rescission for innocent misrepresentation is not an available remedy for the defendants Exception to the rule: where there is a patent defect concealed (major defect e.g. crack in foundation) Burden falls on D to prove that there was misrepresentation to prove rescission

HYRSKY v. SMITH  Cannot award damages for an equitable remedy – damages is a common law remedy and this is the problem in this case

KUPCHAK

Class Note:  When you buy a house there are two contracts:  1. Agreement to Purchase and Sale  2. Conveyance You have had all the time during Contract 1 to look at the house – might get damages if there was misrepresentation but will not be able to return the land – this could result in chaos in terms of the real estate market

“Red Flag” - general rule of law: an executed (completed) K for the sale of land cannot be rescinded for innocent misrepresentation except under very strict conditions (or huge error or fraud)  How to establish fraud: 1. Agent knew representation was false, or 2. Made representation without belief in truth 3. Made representation recklessly or carelessly of whether it was true or false

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v. can get recession & can also get money for any losses incurred as a consequence of the deceit Facts/Case C Holding Ratio Notes 6 . A contract may be rescinded in a proper case of innocent misrepresentation (i. Mardon  Man buying an Esso service station – stations are now tied contracts – only can sell Esso Oil  Asks the oil company what the traffic is like at that location – was told it was good  Man claims he relied on this representation  Company says it was just an opinion and they are not in the business of giving estimates of traffic flow  Court held that an individual here relied on the oil company’s statements  Opinion was based on information not known by the owner Representations & Terms Recession: an equitable remedy.e.Esso Petroleum Co. so therefore cannot get damages. K has yet to be executed) – an executed/completed contract cannot be rescinded for innocent misrepresentation Warranty: a representation that has become a term of the K. best thing to do is write in contract Damages is a common law remedy Fraud: unravels everything. to establish a warranty though it is difficult.

in the written K. Shares were devalued. If an intelligent bystander would reasonably infer that a warranty was intended. v. If barred under SOGA for delay. which isn’t always binding. made in this contract. [1913] H.  There was no misrepresentation or warranty made  no intention that there should be contractual liability with respect to the accuracy of the statement [1965] C. Must prove that there was intention to create a collateral K  it is very rare that a collateral K is found. you would argue breach of warranty & you would get damages which would be the difference of what it’s worth & what you paid  Note: Sales of Good Act – once a buyer has accepted.  There was ample foundation for the inference of warranty & that the warranty was broken  D’s statement was a warranty of K & P was entitled to damages Leaf & International Galleries  P purchased painting & discovered it was not by the artist that he thought it was when he went to sell it 5 yrs later [1950] C.  Policy rationale behind this case: trying to make contracts more certain  To try to get around a warranty. D made representations about car’s mileage. an innocent material misrepresentation may in a proper case be a ground for rescission even after the K has been executed  Oral collateral warranties are smaller Ks that induce one to enter into a main K.Helbut. and it actually induces the person to enter the contract.  P brought action for breach of warranty on sale of car.When you have one person selling to another – CPA does not apply – only when between company and individual it applies  If you are the P. Respondent sued for fraudulent misrepresentation & alternatively for damages for breach of warranty that the company was a rubber company Dick Bentley Productions Ltd.L. Symonds & Co. Buckleton  Appellant underwrote shares in a rubber company.  Once a buyer has accepted or is deemed to have accepted the goods in performance of the K.  On a K for the sale of goods. v.  P is not entitled to rescission – court determined that the term was a condition of sale & not a warranty  Existence of a warranty must be intended by the parties to be a contractual term. or is deemed to have accepted (passage of a reasonable time) then the claim is barred).  There are no damages available for innocent misrepresentation (See Smith Above)  An oral collateral contract is the same as an oral warranty – these are pre contractual contracts to induce you into the main contract  Requirements for a warranty: If a representation is made for purpose of inducing the other party to enter a contract. that will suffice. warranties. he cannot thereafter reject but is relegated to his claim for damages. “There are no oral representations.” However. on their words & behaviour. HELBUT .A.  A court will not relieve a party of a bargain if the mistake is related to the quality of goods rather than to their identity. etc. can still get around this – it’s usually in boilerplate.A. can put a clause in the K such as. Harold Smith (Motors) Ltd. it will be delayed under rescission (weaker remedy) 7 . rather than their thoughts. that is prima facie ground for inferring that the representation was intended as a warranty  Whether a warranty was intended depends on the conduct on the parties.

the court’s perception of relative bargaining power. but also on the elasticity distinction b/w commercial & non-commercial Ks. whether the court sees the result as just or unjust To establish a duty to exercise reasonable care: A special relationship must exist: 1. (Hercules Management v. Rafuse) 8 .Concurrent Liability in Contract & in Tort Theory of Concurrency • The right to sue in tort is not taken away by the K. Is there a sufficient relationship of proximity such that in contemplation of wrongdoer carelessness on part may likely cause damages to plaintiff? 2. Defendant ought to reasonably foresee that the plaintiff will rely on representation. A special relationship often arises in context of pre-existing relationship Where there is a special relationship. both treated seriously in court. Where person has special skill or knowledge and knows the other is relying on him for his advice. both are considered as being equal in effect. and finally. you can be held liable if you fail to exercise a reasonable duty of care in rendering an opinion. Ernst & Young): 1. not evident that expressed terms intended to oust the availability of tort remedies in respect of that duty • Strictly tort remedies as a way to resolve disputes may be specified in an express clause of the K • The question on whether a concurrent action in torts lies would depend not only whether the K expressly deals with the matter. It would be reasonable for the plaintiff to rely on the representation. although the K may limit or negate tort liability • The mere fact that parties have dealt with a matter expressly in their K does not mean they intend to exclude the right to sue in tort Express-Implied Distinction • Difficult to distinguish the right to sue based on the implied-express distinction. the plaintiff has the right to assert the cause of action that appears to be the most advantageous to him in respect of any particular legal consequence (Central Trust v. Person is in business of giving advice 2. can be anyone in position to have someone rely on them 3. judgment or knowledge • Advice or information was given in the course of the defendant’s business • Advice or information was given deliberately & not on a social occasion (this may not hold today) • Advice or information was given in response to a specific inquiry or request Advantages of Concurrent Liability: Can have more options available to you (most advantageous route) • Where concurrent liability in tort & K exists. Are there any policy considerations to negate #1? Degree of proximity can be established in 2 ways: 1. and 2. What court will look at for reasonable reliance when not so clear: • Defendant had direct or indirect financial interest to the representation that was made • Defendant is a professional or someone who possesses skill.

doctor.  Pre-contractual negligent misrepresentation induced P to submit its tender. 9 . Heller  Easipower went to ad agency (Hedley) for loan. Give opinion but with a qualification 3.Facts / Case Hedley Byrne & Co.g. then you would only sue in K (would be easier to argue liability. then you have to sue in K.g. Remain silent 2. [1993] SCC  D is liable for breach of K. P can also claim for negligent misrepresentation  Overrules Hedley: unless the parties indicate otherwise (e.g.  A clause limiting liability may not apply in cases where the tort (personal wrong) is independent or falls outside the scope of the K (e. but wasn’t. mistake. and person giving the information. v. Answer without qualification – if this option. therefore D is liable. Area should’ve been cleared prior to work being started. personal wrong has nothing to do with the contract)  If a K stipulates a more stringent obligation than tort law would impose. D is professional accountant & trustee in bankruptcy which created a special relationship & corresponding duty of care to P. & tort has not been excluded. which induces the other party to enter into the contract (looks like oral collateral warranty) Notes Reasonable person would have known. limited liability clause) you can sue in tort AND contract  Exceptions to concurrent liability: Where the contract is void for fraud. v. Tessis  D (a chartered accountant & licensed trustee in bankruptcy) overvalued goods of company by 100%. BC Hydro & Power Authority  BC Hydro called for tenders to erect transmission towers. then can sue in either tort or K – and you would use both. lawyer. Easipower went into liquidation & Hedley sued C (1964) Holding Sodd Corp. must be people in the business of giving advice (e.)  If a K limits the right to sue in tort. P claims negligent misrepresentation. then he has accepted a special relationship with the inquirer  Pre contractual misrepresentation may give rise to liability in tort if a representation is made negligently. Ad agency sought creditworthiness & Bank (Heller) gave favourable opinion w/out checking. banker)  For a pre-contractual misrepresentation that induced one party to enter into a K. you can sue in either tort or for breach of K Advice-giving professional has 3 options: 1. D’s stipulation amounted to an overriding of the exemptory clause Ratio  Launched “tort” or negligent misrepresentation  Must be some sort of special relationship between parties. or unconscionability. D tries to use clause stating that it’s the tenderer’s responsibility to inspect the site to their satisfaction. v. or ought to have known that his representations would be relied upon BG Checo International Ltd. (1977) Ont.  If the duties in tort & K are similar.  Specific clauses in the K override general ones  The tort duty was not limited or excluded by any express provision.

Old version of rule: Anything that is not in the agreement is “extrinsic” to the agreement. BUTTERLEY) 1. This is rebuttable 6. This is a rebuttable presumption. less strong when oral representation only adds something or varies the contract 7. It is open to either party to allege that there was in addition to the written agreement an oral express stipulation not intended by the parties to be excluded. in favour of the written document). 4. You can’t make 2 Ks that contradict each other 2. subtracts. Where there is a specific oral representation versus a general exemption clause. This parole evidence rule is a strong presumption (i. The rule is not absolute.e. but intended to continue in force with the express written agreement. The presumption is strongest in individually negotiated contracts & less strong in standard form Ks 8. Canadian case law has recognized that it isn’t absolute. strongest when oral representation is alleged to be contrary to written agreement. then the presumption is less strong (favours oral evidence) 10 . This rule is a presumption that a document that looks like a K is to be treated as a whole K. the written contract cannot stand (Bauer) 5. parole evidence rule is really just a rule of evidence and not a law 3. 8 Important Factors (GALLEN v. If the contract is induced by a oral misrepresentation that is inconsistent with the written contract. Everything that has been decided on is in the K. it is parole evidence and it cannot be added to the K. or contradicts something in a written contract is parole evidence and There will always be a written K with this “rule”.Parole Evidence Rule • • • Traditional Rule: Anything that is not in the written agreement is extrinsic to the agreement (any oral conversation that adds. subtracts or modifies the written agreement. If anything adds. and it has been signed by the parties.

No clear evidence of an intention to create binding oral agreement – court found in favour of the bank The following factors affect the strength or weight to be attached to the parole evidence rule:  Form & content of the writing  Whether writing has been signed  Status of the parties  Circumstances surrounding the preparation of the document  Subsequent conduct of the parties  Whether the K is a standard form  Nature & effect of the parole testimony  The presence of a merger clause in the writing  Any agreement collateral or supplementary to the written agreement may be established by parole evidence provided it is one which an independent agreement could be made without writing & is not inconsistent with or contradictory of the written agreement 11 . then the written agreement lacks legal efficacy & then parole or other extrinsic evidence will be admissible  Today. American Seating Co. commission to be determined at a later date – to fall between 3 – 8%. v. courts derive the mutual assent (intention) of the parties from their actions based on a reasonable person  Parole evidence rule does not stand up when the intention of the parties and expression is SO different from the provisions of the contract  Outside evidence is only admissible where the provision of a written K is ambiguous  A collateral (oral) agreement cannot be established where it is inconsistent with or contradicts the written agreement (this is the parole evidence rule applied) Hawrish v. P had oral assurance that guarantee was to cover only existing indebtedness & would be released once they obtained a guarantee from directors. Horse  A group trying to enforce verbal conversation b/w them & the gov’t Zell v. there is no need to allow parole evidence  Once the parties agree that a written promise is not to bind them or the written contract is a sham. Bank of Montreal  P (lawyer) signed guarantee on bank’s usual form.C.Facts/Case R.A. Written K replaced commission with a bonus amount to be determined & given at employer’s discretion C (1988) SCC [1943] C. Holding Ratio Notes  Court applied parole evidence rule  Parties deliberately intended the written K to be a misleading statement of their real agreement  Where the K is not ambiguous.  $1000/month. [1969] SCC  Parole evidence expressly contradicts the written agreement.

Bank of Montreal  P guaranteed loan. Seed company first brought action b/c farmers did not pay for seed. Dunlop  Lister was advised by lawyer not to sign a written contract that contradicted an oral contract but signed anyway Gallen v. Hence. Farmers countersued for breach of warranty & loss of profit b/c of no buckwheat  Parole evidence rule applied (probably because Lister had legal advice) (1984) BC CA  Counter to Evans  The word “crop” in this context meant “yield”. Evans & sons v.  If the K is induced by an oral misrepresentation that is inconsistent with the written K. The oral warranty & the written agreement do not contradict each other  No contradiction  don’t need to use parol evidence rule. there is a strong presumption in favour of the written document but if there is clear evidence that the oral warranty was to prevail. Butterley  K for buckwheat.  Counter case: Hawrish and Bauer Lister v. OR there was both an oral and a written contract (that when looked at as a whole form the entire agreement) the breach of either oral or written components will give rise to damages  Created a window for people to get around parole evidence rule by saying there clients did not have legal advice  Same decision as Hawrish  Curtis v. book debts of company supposed to be assigned by bank but bank does not properly register.  Roberts v. the written K cannot stand J.Bauer v. Can get around parole evidence rule if there is unequal bargaining power. Farmers lost  If there is a contradiction between written terms & oral representation. Merzario o During shipping machine was stored on deck. fell off and lost into ocean   A breach of an oral warranty (misrepresentation)that induces a party to enter into written contract. Montex – rep’ns in a brochure (merger clause = integration clause). subsequent bankruptcy of company – bank not preferred creditor [1980] SCC  Parol evidence would expressly contradict the terms of the guarantee that gave the bank the right to abstain from registration & perfection of security. they cannot rely on written K in contradiction of the misrep’n. it would be inadmissible under parol evidence rule & any collateral agreement founded upon it could not stand – bank was able to collect  There must be sufficient evidence of an oral misrepresentation which induced the party to enter a K for the parole evidence rule to be set aside. it will prevail  8 principles (above)  Specific term overrides a general term 12 . Chemical Cleaning – Where there is misrep’n that is either innocent or fraudulent.

It is often not clear whether a clause is a condition or a warranty. either by the term of the K or in contemplation of parties. If a warranty is breached. 13 . can repudiate K & stop performing.Classification of Terms Frustration of Contract  Where existence of a specific thing. Key to whether you’re looking for a condition or warranty: someone wants to repudiate. necessary for performance of a promise in the K. Must continue performing K – cannot repudiate it.    If a condition is breached. Frustration of Purpose  A party to a K will be relieved of his or her duty to perform when the objective purpose of performance no longer exists (due to reasons beyond that party’s control). & performance is excused under this rule even though there is no impediment to actual performance. duty to perform promise is discharged if thing is no longer in existence at time of performance. all you get are damages. This doctrine excuses a promisor in certain situations when the objectives of K have been utterly defeated by circumstances arising from formation of agreement. Would write this into the K.

owners to maintain efficient state of ship. C 1962 Eng. Hong Kong Fir test: The party that breaches the contract cannot use their breach as a means of rescission (still must perform). If substantial deprivation of benefit. look at the consequences. Test: a. c.Facts / Case Hong Kong Fir Shipping v. Crt. Ulrychova  Cribbing horse Wickman Machine Tool Sales Ltd. Provision is called condition.  Must write condition into K – “breach of which will give rise to repudiation”.  Provision in K that included weekly visit from sales rep. Holding  This was a warranty  Ds were not substantially deprived of the K Ratio Hong Kong Fir test is only used where terms cannot be identified as conditions or warranties by traditional tests of construing the K. ships tend to get laid up in drydock). b. nature & effect of the breach. Take into consideration the nature of the industry (e. P sued.g. 2 clauses in conflict – termination of K & weekly visits 1996 Alta Prov. look at consequences of breach (TEST). Must make intention clear or will not be able to repudiate. Couldn’t lease ship and kept in drydock for total of 20 weeks. Otherwise.  Denning had to harmonize between the 2 terms – specific & general  Rule in British courts was reviewed: can’t look @ subsequent actions to interpret parties’ intentions were at the time of the K (British rule. no payments for repair time exceeding 24 hours. HL  Did not deprive P benefit of whole K but gave her ½ of her money back anyway  This is the Canadian application of the Hong Kong Fir test (look at consequences & gravity of breach). 1. If terms cannot be identified as conditions or warranties. 2. Notes Hallmarks of case:  Must be an ongoing K. Schuler A. 1974 Eng. If the breach deprives the innocent party of the whole benefit (or a substantial part) they may repudiate. Kawasaki  24 month K (lease). Construe the K to see if there’s a condition or warranty. Subsequent action is often a clue as to the intentions at the time of creation of the K. you can look @ subsequent actions)  14 . Otherwise remedy is damages Krawchuk v. remedy is damages. in Canada.  Is it a condition or a warranty?  If innominate/intermediate (ambiguous) term. D wanted to repudiate K & get damages. d. ship delivered undermanned & old/inefficient. v. If the breach deprives the innocent party of substantially the whole benefit of the K then the innocent party may repudiate (stop performing/get out of the contract). then can repudiate.  Use of the word “condition” is not conclusive if that construction leads to an unreasonable result.G.

building Ks may stipulate that it is a condition of the obligation to pay that the work must be completed & to the owner’s satisfaction – this K would be enforceable once work is done satisfactorily Definitions:  Deposit – a sum payable in advance to secure a K.Discharge by Performance or Breach To what extent is the party in default able to enforce the K itself?  In cases where breaches do not relieve innocent parties the defaulting party may enforce the K  Often K are created in a way that avoids this situation from happening. deposit is forfeited  Down payment – a sum paid in advance toward the full sum. If K not performed. Facts/Case C Holding Ratio Notes 15 . there is a daily payment Contra proferentem – decision against the person who put forward the standard form agreement. for example. money is returned  Penalty clause – a sum provided for in a K which only becomes payable after a breach of the K. If K not performed. The party should have been cleared. for every day late. For example.

There was no substantial completion of K since D abandoned it. minus the amount to fix the defects  Where a contract is entire. ran out of money and abandoned project • Another contractor finishes the contract • Original contractor sued for money for work completed 1973 NS SC  M entitled to some money based on partial performance minus cost of defects  Elaborates on doctrine of substantial performance  Where the contract has been substantially performed but with defects.  When you make a contract for a lump sum and you don’t substantially finish. Family tried to claim for his wages 1795  Family not entitled to wages  When someone signs an entire K. there will be no payment unless it has been substantially performed  Substantial completion will be assessed according to all of the circumstances on a case by case basis. no substantial performance • Contractor today would get something back under the law of restitution (quantum meruit)  an equitable remedy • Law does not want people to gain windfalls at other people’s expense 16 . CA  Ruling for defendant (against original contractor). Sheppard  D made soap machine for P. Modifications to mitigate strict rule:  See if that clause can somehow be severed from the K so that can receive pay. “Unjust enrichment”  Case shows need for drafting clauses in the event of a breach  When a K has not been rescinded. you don’t allow the other party to benefit from it. Lohnes  M renovated L’s property  L made some payments by refused to pay the balance of the contract price because of defects in workmanship  M sues for price of contract Fairbanks Soap Co. you have to deal with whether the money is a deposit or a down payment 1953 SCC  Crt held for P.Cutter v. D refused to do any more work until full payment made. D could not receive any money 1898 Eng. the judge will award the completed price. Where someone has made some investment into a property & gets nothing out of it. are entitled to be paid for it Markland & Associates v. or a lump sum contract. P paid $1000. Strict rule! Has led to the mitigation of this drastic outcome. P sued to recover money paid.  Doctrine of substantial performance – if substantially performed. they must completely perform everything in K before they get paid. D countersued for full contracted price Sumpter v. Powell  Employment K for seaman who died at sea without performing all of his obligations. Hedges • Contractor building a house. v. you are not entitled to any money • Similar to Deglman – established law of restitution.

not the party that submitted the K for signing  A seller should not use words of uncertain meaning when he could have removed all room for doubt by the use of more specific language as to whether prepayment was deposit or not  Stevenson v. they are interpreted against the party bringing the contract Contra proferentem: Onus is on the party who proffered the standard form K to make the other party aware of the specific terms– look at language. CA • Ruling for Purchaser (Taken as a down payment. and size of the contract on a case by case basis Hallmarks:  Deposit is binding (almost like consideration) & the amount is a very small fraction of the entire sum – generally a certain percentage of the broker’s fee  Courts do not generally like penalty clauses unless they are very fair – a penalty clause comes after the breach  A deposit is never implied – it is always express In a standard form K. depending on the conduct of the parties. Colonial Homes Ltd. language used. not entitled to money back)    To determine if there was a down payment or a deposit must look at the intention of the parties. circumstances surrounding it. 500 deposit • Purchaser defaults on payment and doesn’t close on closing date  Vender wants to keep 500 pounds as a deposit 1884 CA  P is not entitled to recover – has lost right to both specific performance & right to sue for damages for its non-performance  A deposit may be construed as a forfeiture rather than a part payment. surrounding circumstances. Smith • Contract for land.  Purchaser goes into office and receive a standard form contract  Contract has both down payment and deposit written on the contract  Purchaser signs under down payment side  Purchaser decides he wants out of contrac 1961 Ont.Howe v. the crt interprets ambiguous terms in favour of the party signing. If there are ambiguities. the language used and the surrounding circumstances Standard form contracts are interpreted against the party who has brought it (contra proferentum). if it was construed as a deposit. (Standard form = “boilerplate”) 17 .

he is bound by them if reasonable notice was given of conditions Contra proferentem (strict construction) – If K drafted by one party. any ambiguity goes against drafter of the K. he is bound by them.  If he knew there was writing but didn’t know that it contained conditions. cannot then rely on limitation of liability clause 18 .Standard Form Contracts & Exclusion Clauses Whether or not a person is bound by conditions on back of ticket:  If person receiving ticket did not know there was writing on back. he is not bound by conditions.  If he knew of writing & that it contained conditions. strictly interpret the words as they appear on the K. Fundamental breach – one of the parties has failed to do what they agreed to do & breach goes to the root of the K.

it must be brought to the customer’s attention ahead of time b/c not normal practice (“red finger pointing to the clause”) 19 .  2 employees of used car lot. If there’s going to be an exemption for personal injury. CA  D cannot rely on exclusion clause. he is bound by them if reasonable notice was given of conditions  Condition deals w/ personal injury – different than personal items in car or the car itself. 1877 CA  Railway company did not give plaintiff reasonable notice of condition  This particular case turned on the simple fact on whether the wording in the exclusion clause was ambiguous or not. he is not bound by conditions. HOJ Industries Ltd. South Eastern  Pls left belongings at railway. Gabell v. and has brought terms to the attention of the other party. Dismissed without reasonable notice  Given 4 weeks notice pursuant to Act but argued they were entitled to more (reasonable notice) then the minimum even though they contracted for less Scott v. car dropped on plaintiff  Conditions written on ticket and posted around garage waiving liability for person injury  Posted conditions weren’t visible until after formation of contract 1971 Eng. then the person is bound even if the conditions are unread  If the party relying on the conditions gives reasonable notice. Pls did not read nor notice limitation of liability clause on paper ticket or posted on sign. Wawanesa Insurance  Son set fire to house deliberately. if he knew of writing & that it contained conditions. law or custom & usage. condition did not form part of K  Any unusual or onerous exclusion clause is ineffective unless brought to the parties attention before the time the contract is concluded  If person receiving ticket did not know there was writing on back. South Eastern. Shoe Lane Parking  Parking garage. then the exemption clause will be upheld  Insurance K is the classic “boilerplate” K Thornton v. C 1992 SCC Holding  Termination clause was a waiver (because did not need to give notice of termination) but cannot waive out of a statutory obligation (Act) – clause is null & void Ratio  The presumption is rebuttable if the contract specifies otherwise  Common Law reasonable notice prevails unless contract states otherwise (no less than minimum)  Contractual terms can be implied by fact. Once it is unambiguous or clear there is no liability to the insurance company  Contra preforendum applies to ambiguities in favour of the insured  If it is generally known that such tickets contain conditions.Facts / Case Machtinger v. If he knew there was writing but didn’t know that it contained conditions. Clear provision that Insurance did not cover willful or deliberate acts. Notes  Statutory interpretation is necessary & of importance in the legal field 1989 SCC  Policy does not cover damage – no ambiguities in clauses Parker v. he is bound by them.

Ship went to an inaccessible area in BC to bring people to Vancouver. 1974 Eng. D was deemed to know. the courts are more likely to consider limiting liability fair  This was the only company providing this service in the area. or a much higher price of service. v. if found liable. Note stated late charges.∴ it did not become part of K  In a good faith in contract where the terms and conditions are particularly harsh. Union Steamlines  Northern BC. D claims not not aware of charges. Before D signed. By printed condition. Ticket purchased once person is on ship – had limited liability clause.  MUCUTCHEON (same)  TILDEN (same)  FRASER (different)  Judge may determine what is fair and order damages based on market value  Sometimes penalty clauses are treated as exclusionary clauses  In this case. they may not service the area any longer – dilemma for the court.  Objective (reasonable) person would know that these agreements contained exemption clauses. David MacBrayne • McCuctcheon’s car is lost on a ferry • Conditions posted limiting liability • Never signed risk note 1989 Eng. NOT a subjective test  Where party are equal & know the norms of the industry. & D knew that there were exemption clauses. No mention of conditions. Person was injured  See class notes (good luck)  probably same as ratio from McCutcheon Interfoto Library Ltd. the penalty clause was found to be exorbitant BARNES (same)  British Crane Hire Corp. but seller be fair McCutcheon should be fully compensated for his car  Must prove actual knowledge that party was aware of the terms and conditions if one wishes to hold a party liable for the terms and conditions (west thinks this is wrong) If a service provider is trying to bring the best possible service to customer and the alternative is no service. CA  Should D be bound by an agreement that he had made but that wasn’t signed? YES. Crane was then delivered & soon after P “in accordance with its business practice” send D a printed from to be signed setting out conditions of hire. Not sure what the holding is. there had been previous courses of dealings w/ P. SCC convened twice to hear the case. the crane sank in marshy ground. they must be brought to the attention of the opposite party and the condition must be fair (not only buyer beware. Stiletto Visual Programmes Ltd. Also. CA  P did nothing to draw D’s attention to condition 2 . implied terms can be inferred 20 . McCutcheon v.  Oral agreement by D to hire P’s crane. Ipswich Plant Hire Ltd. D was required inter alia to indemnify P against expenses incurred in connection w/ the use of crane.Barnes v. v.  Photographic transparencies + terms sent by P to D in bag.

All except  Delaney received brochure detailing liability exemption prior to trip. P sued  company liable because they were aware of the intoxication (hosted party)  Eng  When a document containing contractual terms is signed. The company has done its part in bringing the exemption clause to the attention of the customer. Cascade River Holidays  Delaney – late addition to rafting trip. and was asked to sign release after. Machine was defective. with stringent no alcohol clause  D did not read contract. in the absence of fraud & misinterpretation the party signing it is bound & it is wholly immaterial whether he has read the document or not  ENGLISH CASE 21 . statutory or otherwise not stated herein is hereby excluded”. CA  P cannot rely on exclusion clause – D not liable for damage  If a Company uses extremely stringent terms in a contract. but it looks like a waiver is not valid if signed while intoxicated  “Red flag” in Delaney – difference b/w this case & Tilden is that there is a personal risk. waiver came after the fact (past consideration is no consideration)  Insufficient notice: provision too onerous to be singed in a rush. they cannot rely on the signature of the other party  Contractor inserting clauses inconsistent w/ overall purpose of K must use reasonable measures to bring to attention & not simply hand over to be signed  BARNES (similar)  FRASER (different) Delaney v. use of word “standard” induced a sense of security in passengers. SUNDANCE • party at a ski hill • somebody takes a rubber tube down moduls after drinking • signed waiver while intoxicated L’Estrange v. paid for trip. Wife sued for compensation 1983 BC CA  D was negligent in not providing life jackets of proper buoyancy. that they do not bring to the attention of the other party. passengers signed std liability release. but P failed to show that D’s negligence caused Delaney’s death b/c it could not be shown that he would have survived if he had worn a jacket of more buoyant specs  DISSENT IS NOW LAW!!!  People who go on adventures are deemed to know there is risk and there will be a wavier of liability  Dissent: Past consideration. Paid fee for trip. Graucob P bought cigarette machine from D & signed agreement w/out reading. release didn’t mention personal injury or death  no ratio provided in class. F.  While boarding bus. obligation of river company to bring it to Delaney’s attention (no presumption of advance knowledge of disclaimer). Clendinning  D rented car from P. the person knows it & probably knows that they will have to sign a waiver. then. A clause stated “any express or implied condition.  D agreed to pay additional $2/day for “full non-deductible” insurance. and the terms are not intended to be relied upon. had one drink and crashed car  P sued for damage to vehicle 1978 Ont.Tilden v. statement or warranty.

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Were there any negotiations as to terms or was it a “sign here” K? 3.. Considering all facts & representations by bailee. Were representations made that would lead ordinary person to believe clause would not apply? 6. would the upholding of the limitation clause be an implied approval by courts of unacceptable business practices?  “acceptable” business practices varies from industry to industry 23 . Does language of K read with clause render implied duty on bailee to take reasonable care meaningless? 7. Was the clause unusual in character? 5.. Look at all the terms & conditions & harmonize them with each other. Three spruces) 1. Was K standard form drawn up by bailee? 2. damages) Fundamental Breach Karsales Halbutt Fundamental Breach Against Suisse Photo Productions (modified/overrules) Hunter Engineering (modified) UNCONSCIONABILITY  Considerations for unconscionable Contract (Davison v. security guard providing security)  Secondary K = obligations that arise when a breach occurs (look to the consequences – i.  Primary K = the actual performing of the K (ex. Was bailor’s (P) attention drawn to limitation clause? 4.Fundamental Breach and Unconscionability FUNDAMENTAL BREACH  “Construe a K” – read the K as a whole..e. degree of loss & see what the remedy is – ex.

A. turned on machine and went home for the night • Duraplastic pipes cracked from heat. Wayne Tank • Wane tank company put tanks and duraplastic pipes in plasticine company (exemption clause relieving Wane Tank of liability) • For grand opening wanted to show plasticine in pipes.  Habutt Plasticine v.Facts/Case Karsales (Harrow) v. Holding  Appeal allowed (ruling for purchaser)  Implied term in course of business that the car would be delivered in substantially the same condition Ratio  When you have a fundamental breach. Wallis • Appellant viewed car and agreed to purchase a week before delivery • Exempting clause waived liability to the seller for condition of car upon delivery • When delivered the car was butchered • Appellant refused to accept the car • Defendant sued for payments Suisse Atlantique v. spilled on to floor of factory and place burnt down   When you have an exemption clause you should construe the contract on its own terms  No automatic striking down of exemption clauses (the ROL does not apply  Denning said this is a fundamental breach that goes to root of contract. Rotterdamsce C 1956 C. then an exclusion clause can’t be relied on  Three later cases rule to the contrary Notes  See top for counter cases 1967 A. the court will strike down the exception clause by rule of law  If a breach goes to the root of the contract.C. and court will not uphold the exemption clause because of a rule of law  Denning attempt to resurrect Doctrine of Fundamental Breach  See top for counter cases  See top for counter cases 24 .

and see if there is anything unconscionable.Photo Production Ltd v. parties should be free to determine for themselves the terms and conditions of their contract  Whether or not an exclusion clause is to be applied to a fundamental breach is a matter of construction & not a rule of law (the K must be construed as it was on the day it was signed)  This case modifies/overrules the concept of fundamental breach Hunter Engineering v. security guard started fire deliberately while on duty. see if it is unfair and unreasonable and leave discretion to the courts  Both: Exemption clause should be strictly construed against the party seeking to invoke it. Securicor. Securicor UNCONSCIONABLITY    25 . And clear and unambiguous language is required to oust an implied statutory warranty  Canadian version of Photo Production v. Syncrude Canada • K bw def and pl was regarding 32 gear boxes for $750. would apply 1989 SCC  Exclusionary clause applied b/c it expressly excluded Sale of Goods Act  Two approaches to exemption clauses (unconscionable v.000 and 4 extraction gear boxes for $400. unfair and unreasonable)  Dickson: look at intentions of party at the time of signing. Transport Ltd. • Night patrol service. liability is excluded  Court distinguishes between primary and secondary obligations  Primary obligations: to perform contract  Secondary obligations: pay if performance is not carried out  An exclusion clause is to be applied to fundamental breach by construing the contract (determine intention of the parties at time of signing) and not a rule of law  Where parties are of equal bargaining power. • Exemption clause limiting liability of security company to persons performing actions pursuant to their employment • Does exemption clause apply? 1980 Eng HL  Words of clause are clear – A can rely on clause. • Merger clauses differ in both K – one stated that this was the only warranty & no other warranty. statutory or otherwise. if not it will be upheld  Wilson: look at exclusion clause after a breach. and the risks are normally allocated by insurance.000.

 There does not appear to be a duty on an employee to point out an exemption clause to a customer – exception is in Tilden  when a customer asked.  In the absence of fraud or misrepresentation. CA  D (security company) entitled to rely on clause  In determining if a clause is unconscionable its not enough to say the parties are unequal. Does language of contract read with clause render implied duty on bailee to take reasonable care meaningless? 7. then it is unreasonable or unconscionable  Considerations for unconscionable K (has freedom of contract been abused) 1. includes limiting liability clause. 1977 B. 3. S.  PHOTO PRODUCTIONS (same)  The set of rules in Davidson – not all of these need to be present. alarm company delayed in calling police. Considering all facts & representations by bailee would the upholding of the limitation clause be an implied approval by courts of unacceptable business practices?  “acceptable” business practices varies from industry to industry  Can build an arbitration clause in that would send the matter to commercial arbitration on the grounds that the crts may get it wrong (better to go before someone who has the expertise) Fraser Jewelers v. Were representations made that would lead ordinary person to believe clause would not apply? 6. • Store gets robbed. 26 . employees were to tell them that the insurance didn’t cover them if they have been drinking. Was K standard form drawn up by bailee (person entrusted with goods)? 2. Three Spruces Realty • Bulk storage contract contained a liability clause that relieved all liability to the defendant • Defendant did not take propert precautions to protect valuables and they were stolen (negligent care) • Defendant seeks to rely on exemption clause. Crt would deem that a “reasonable” person would know. Dominion Electric Protection Co.Davidson v. 1997 Ont. there must be an abuse of bargaining power  Mere inequality of bargaining power does not entitle a party to repudiate an agreement. Was the clause unusual in character? 5.C. a person is bound by an agreement to which he has put his signature whether he has read its contents or has chosen to leave them unread. Were there any negotiations as to terms or was it a “sign here” K? (adhesion K). Was plaintiffs (bailor’s) attention drawn to limitation clause? 4.C. • P contracts w/ D (security company).  Exemption clause is so unreasonable that it cannot be enforced  If the exemption clause is so extreme that it leaves one of the contracting parties with no obligations.

Davis • Moving company leaves trailer with plaintiffs expensive goods on street and it is stolen • Contract stated that trailer would be kept in protected yard • Limited liability clause for moving company based on weight (according to statute 2002 C. A agrees to sell car for $5000 but in e-mail confirming formal offer. cannot “snap up” the offer.A. (“Where there is a mistake on the face of the record”  so obvious that anyone would know it. If the K is void at common law. McMaster v. etc. a mistake that you can see. Equity. will intervene in certain cases to relieve against the rigours of the common law. crts will apply subjective test & permit evidence of intention of the mistaken party to be adduced Error or mistake which negatives consent is really not mistake at all b/c it prevents the formation of K due to lack of consensus & the parties are never ad idem General rule  equity follows the law in its attitude towards Ks which are void by reason of mistake. to grant relief against onerous provisions  Dissent argued for moving company based on statutory law limiting liability by weight  Court applied Wilson’s test  Can apply test of unreasonable and unconscionable at time of breach (Wilson).. however. equity will also treat it as a nullity. it will be an error merely as to motive which will not avoid a K In mutual or common mistake the error or mistake in order to avoid the K at law must have been based either upon a fundamental mistaken assumption as to the subject matter of the K or upon a mistake relating to a fundamental term of the K In unilateral mistake. even though the mistake would not be operative at law Equity seeks the broad & more flexible approach by attempting to do justice & to relieve against hardship Crt will afford relief in any case where it considers that it would be unfair. DOESN’T INVOLVE AN ORAL AGREEMENT/ PROMISE.)    Mistake as to quality or substance of thing contracted for must be distinguished from mistake as to term of the K – in former case.Solway v.C. quoting something by the piece when you know it should be by the pound. “I offer to sell you my car for $500”.  Ruling for the plaintiffs  Invoked “relieve power of S. unjust or unconscionable not to correct it Mistake as to terms  K may be avoided Mistaken assumptions on the part of both parties generally do not allow you to set aside the K       27 .C. forgets a “0” so offer reads. and it is clear to everyone Hartog (below). Wiltshire Construction Co. Ex. – where there is a mistake so obvious that anyone would know it. or at time of signing (Dickson)  Mistake as to Terms Courts are generally unsympathetic for mistakes that are not caused by misrepresentations (courts like to uphold contracts and rarely employ mistake to override) Common mistake – parties have same mistaken perception Mutual mistake – both parties are mistaken but do not share same mistake Unilateral mistake – one party makes a mistake while the other knows of it. such as miscalculation or adding mistake. One party knows there has been a mistake as to terms – usually price MISTAKE. “Snapping up” a Mistaken Offer: When one party knows there is a mistake. UNLIKE MISREPRESENTATION.

Facts/Case C Holding Ratio Notes 28 .

use Lindsay  1976  Ruling for purchaser  Application of the ratio from Lindsay v. equity has come into the law of mistake. Lindsey v. Commercial and Home • False information given to purchaser indicating a shipment included only old steel. the court may find the K to be unenforceable. too bad.  In the past. what does it look like happened (majority) In this case. Made representation that the house had never been insulated with UFFI.  P loses  Equity will give relief where a contract was concluded.  When you are going to determine the validity of the transaction you use an objective test (what is reasonable in the circumstances instead of what was the intention of the parties).C. If you have a mistake that is promoted by bad faith in one of the parties (which may be by misrepresentation). and therefore.  P listed house for sale with D.  29 . Colin & Shields  Cannot snap up an offer knowing that the person you’re buying it from doesn’t know. You might be able to unravel the K. P wants to take advantage of mistake 1921 Ont. CA  Yes. however P knew that D was mistaken. S. Appeal dismissed.  P asked D “what will you give me for 75 shares of Eastern Cafeterias of Canada?” P replied later “I will give you $10. P changed warranty to read that currently no UFFI insulation.C. there was a meeting of the minds. There should be no “snapping up” of an offer when someone knows there has been a mistake. being no consensus ad idem there was no contract. equity was never triggered – if there was a mistake. it’s confused things because we no longer know for sure whether or not mistake will unravel a K.50 a share for your Eastern Cafeterias. It’s sort of a hit or miss on which side should win. one could equally argue on the basis of formation of K analysis that there was really no K formed. so seller decided not to deliver Glasner v. but actually contained both • Purchaser only wanted old. D then claimed that he meant to buy Eastern Cafeterias (not Canada).” P accepted the offer. Royal LePage Real Estate Services Ltd. Pretty useless case. Heron & Co. In a sense. Heron: use an objective test that the parties as to what was reasonable under the circumstances 1992 B. Stainman Steel v.Hartog v. where one party knew the other party was mistaken about a material fact and took advantage of that mistake  Will not be bound by a K where there is fraud or misrepresentation leading to a mistake. Today.

$. Northern Construction  Contractor submitted a bid that was a mistake (not on face of record)  Owner accepted mistaken bid (contract A).R. an offeree can accept an offer which might be suspiciously low. Ron Engineering  K A/ K B  tendering process. $400. they are bound to the contract.  The court upholds the integrity of the bidding process & the bidder bears the risk in submitting the tender  Tenderers have own engineers that know est. Error in submitting tender.. but no mistake on face of tender  Ron forfeited $150. whether or not they intended to contract Apply an objective test when there is doubt… what would a reasonable person believe?   The only way in mistaken assumption for buyer to get relief is if seller induced that assumption Balanced “buyer beware” with “seller be fair” MISTAKEN ASSUMPTIONS 30 . D is stuck  w/ tender. may be alerted 1986 Alta CA  City entitled to damages of approx. where the mistake is not obvious). Hughes  Horse trainer – old oats v. ambiguous instructions given to jury   OBJECTIVE TEST: If intention to contract can be derived from someone’s actions (based on a reasonable person). if something comes in too low.  Ron forgot to include labour costs. moved to contract B  Construction company refused to build building at low bid price  Owner sued for difference between their low quote and second bid (difference of $400.000  Court applies Ron Engineering.000 deposit – tried to get it back Calgary v. an offer inspired by an error is nevertheless an offer & may be accepted w/ knowledge of the error (very harsh rule in tendering process) 1871 QB Ordered new trial.e. v. new oats  Defendant refused delivery when he learned plaintiff was selling new oats  Common knowledge that horse trainers only buy old oats 1981 SCC • Terms of K A clearly indicate a contractual right in the owner to forfeit the money • No money back for Ron  If a party makes a mistake that is not on the face of the record then it will be concluded that the contract has been created  Where there is no mistake on the face of the record (i. In strict K terms.000 Smith v.

. Hughes – old oats). Only time court would not enforce a mistake as to quality is if the mistake went to a fundamental term McRae v. they cannot rely on that mistake. Lever Brothers (Common law)  Bell & Snelling were given “golden handshakes” – big compensation packages. there was a breach of K – P entitled to damages   If the party that wants to avoid K has made a mistake. termination of employee) another way (without compensation)    Still a decisive case in K law There are cases where the mistake is so fundamental as to quality that the K will be unenforceable (Smith v. negligently & w/ wilful blindness.  Company found out that they breached their duty & that they could’ve dismissed them w/out compensation 1932 HL  Contract is valid.Bell v. Where a person makes a reckless and negligence promise then that promise will bind the person making it to the contract  Can’t contract for something that doesn’t exist (COUTURIER v. HASTIE)  Would have been decided differently today as negligent misrepresentation 31 . recklessly. Commonwealth Disposals Commission  D sold P rights to oil tanker that didn’t exist 1951 Aust HC  There was a K but since there was no tanker.e. ruling for Bell and Snelling   A contract will not be terminated by reason that the quality of the contract differs from expectations unless the quality is fundamentally and essentially different than what you bargained for It doesn’t matter that Lever could’ve gotten the same results (i.

32 .

which was forfeited.  P granted a 7 year lease – wanted to recover difference in rent 1978 BCSC  D will return deposit of $10. Purchaser sued to get partial deposit back because D was unauthorized to sell companies in the first place Solle v. but is viodable  Compromise agreements are enforceable unless one of he parties has no power to contract Generally. a K could be voidable if it was a common mistake the party that induced the mistake cannot take advantage of their mistake Equity will set aside K whenever it’s unconscionable for 1 party to take advantage of a certain mistake Equity will relieve a person of a K if induced by a mistake that was neither fraudulent nor fundamental – (there is potential for chaos when apply a rule so loosely).both made the mistake that there was no rent control K not void from beginning.000 to P    1950 Eng KB  Mutual mistake.  This case has been overruled in Britain but we appear to follow it in Canada & the courts incorporate equity Solle v. Fortin (#2)  Prospective purchaser of companies placed deposit. BC SC determined that D sold companies without authorization. Tfarlierif 2003 QB 679 English CA (facts of case are in last year’s exam)  Mistake of law in Canada is confused – we follow both Bell v. Butcher (Equity)  Parties entered into a tenancy K believing rent controls did not apply because of renovation.TD Bank v. Butcher      33 . Butcher has been overruled by Great Peace Shipping v. Lever and Solle v. relief for a mistake of law is unavailable unless there is a fundamental mistake going to the root of the K A mistake at law could case a contract to be void ab initio At common law.

 2) there must be no warrantee that that state of affairs exists.  5) the state of affairs might be the existence or a vital attribute of the consideration to be provided. awarded full 5-day fee  There is really no room for equitable mistake. Mistake of law in Canada is confused – we follow both Bell v.  When there a mutual assumption of facts. BUTCHER – THERE HAS BEEN NO CASE THAT HAS OVERTURNED IT  The only difference in quality in the subject matter which will allow the K to be set aside is the difference which makes the K impossible (it’s so fundamental that it would render the K impossible). Lever and Solle v.  4) the non-existence of the state of affairs must render the performance of the contract impossible. the contact is enforceable  CANADA STILL USES SOLWAY V. Butcher  Contract is valid (ruling for Great Peace). and the rule. Tfarlierif  Ship suffered damage. except in very rare circumstances. and they are wrong:  1) there must be a common assumption as to a certain state of affairs. or circumstances which must subsist if performance of the contractual adventure is to be possible  This case overruled Solle v.Great Peace Shipping v.  3) the non-existence of the state of affairs cannot be attributable to the fault of either party. as laid out in Bell v. applies where you have a common assumption that turns out to be in error. Lever Bros. Butcher 34 .

who paid $200 Shogun Finance v. When K with someone. Chq didn’t clear. No K b/w P & rogue. and bought a car • Shogun checked everything to make sure he was who he was supposed to be • Patel got the car. UKHL 2003  No contract  Shogun had dealt with paper and did all the normal safeguards  Since the contract was a written document.Mistake & Third Party Interests Mistaken Identity  mistakes of identity usually happen because of fraud  it concerns the rights of mistaken owners – not against the party with whom they contract but against innocent 3rd party interest into whose hands the subject of the transaction has passed Facts/Case Phillips v. Hudson • con-man got Patel’s driver’s license. and said he couldn’t wait. There is a presumption in law that the K is made with the party who appears in person unless they intended to K with a particular person. Little  Little old ladies sold car to “con-man” who pays with a useless cheque  Con-man sells car to little (innocent third party) Lewis v. but in meantime the rogue sold ring to 3rd party. Brooks  P (jeweller) sold ring to person who came into store. Ingram v. Jmt for D (innocent 3rd party) 1. so 3rd party got to keep ring Ratio  Court determine that Phillips had intented to contract with the con-man. not the rogue. It was of vital importance to the ladies. and then sold it to Hudson C (1918) Holding  Crt found that property had passed from rogue to 3rd party.  There was an enforceable contract – Avery allowed to keep car  There was a K but it is voidable. and not a face to face encounter. which allowed Brooks to retain title of the jewellery (as innocent third party) Notes INGRAM (opposite) Court gave good title to ladies (sympathy?)  Found for ladies – intended to K w/ Hutchinson. 2. but P asked for cash or for person to wait until chq cleared. PHILLIPS (opposite) If there is an enforceable contract than a con-man can actually pass good title to a 3rd party (1972) Eng CA. Person who bought was “Sir George” something. The K is voidable but only if it’s voided before 3rd party rights have been engaged. identity of person is of vital importance sometimes.. Wrote a chq. Averay  Lewis wanted to sell a car for $450  Con-man assumed the role of a popular actor – managed to get the car without paying  Then sold the car to Avery. a university student. we need to construe the contract (look to the intention of the parties)  Once construed. the company had intended to contract with the real Patel who had not authorized the agreement 35 .

3. Anglia Building Society  Nephew had aunt sign document purporting to transfer house to him when she dies. not innocent third party 1. P is entitled to accept mortgage as valid. Aunt was negligent in signing doc Marvco Color Research v. Non est factum is only available where there is no negligence on the part of the person signing the document. Harris  Daughter’s boyfriend had her parents sign collateral mortgage. 1971 Eng HL  Valid contract (even though signed under fraudulent misrepresentation  K enforceable – cannot rely on non est factum because she was negligent  A person who signs a document differing fundamentally from what they believed is disentitled from successfully pleading non est factum if their signing of the document was due to their own negligence 1982 SCC  Appeal allowed (ruling for Appellants to foreclose mortgage)  3rd party won. D was careless so 3rd party should not suffer  If there has been negligence by the first party. 2. She claimed that she had no rights to express her own opinion in the marriage about financial affairs. the test is whether the documents are radically or fundamentally different. but relied on incorrect info given to them by bank employee that said that change was only as to date when it was in fact a 2nd substantial mortgage Norside v. the doctrine of non est factum is not available (negligent first party should bear consequences.DOCUMENTS MISTAKENLY SIGNED (NON EST FACTUM) Saunders v. There is a policy need for certainty & security in commerce. Where there is no negligence. Unconscionability should be argued instead of non est factum ONLY IMPORTANT CASE ON THIS TOPIC 1990 NS TD  Judge may have been overly sympathetic 36 . but document actually said that transfer was to take place immediately. Strickland  Wife signed papers b/c husband told her to. They signed w/out reading document.

the crt must admit extrinsic evidence of matters preceding the written K 3 flags: 1. The parties seeking relief must be ignorant of the discrepancy at the time the document is made 3. & there’s a chance of someone losing their licence/livelihood) but sometimes it’s BOP.Rectification • • • • • With rectification. There must be a common intention to agree on terms different from those stated in the document 2. The standard of proof of a mistake requiring rectification is higher than the balance of probabilities • The standards of proof shift. Sometimes it’s clear & convincing evidence (ex. when the College of Physicians & Surgeons is investigating a complaint of a doctor.. 37 . usually we accept that there is a K and determine whether it should be corrected The type of mistake that results from a typo Fairly stable & straightforward area of law Exception to parol evidence rule which enables the crt to correct written documents that do not reflect the real agreement between the parties where there has been a mistake in the reduction of the terms into writing In order to decide if the remedy is appropriate.

Facts/Case C Holding Ratio Notes 38 .

g. there is a very high std of proof that is just below BRD. Rectification will not be granted where 3rd party rights are affected (Wise v. 1. discrepancy in dimensions between oral and written contracts (ft. but below criminal standard) 4. 1966 Sask CA  Rectification order granted to P. wife tells lawyer  Lawyer forgets to include clause for ½ interest of house in separation agreement Sylvan Lake v.g. existence of third party purchaser) 5. yrds) appellant fraudulently misrepresented terms on written doc. the crt must find a common intention between the parties that exists when the parties (TD ratio) In addition to looking at subsequent events. 2. Might have to show the exercise of due diligence on behalf of person seeking rectification (at discretion of judge) Bars to rectification  Sleep on your rights and existence of third party  Fraud unravels everything  For rectification. Must prove existence and content of prior oral agreement (e. Must show some sort of fraud or conduct on behalf of the other party (e.  Here. v.g. arial photo) 2.  Wife can still sue lawyer Coderre (Wright) v. 39 . Rob Roy was never intended to be part of K  You can look at subsequent events to determine what should be a fair and reasonable resolution or outcome for rectification  Rectification has a standard of proof that is above a civil standard (balance of probabilities) but lower than a criminal standard (beyond a reasonable doubt) such as “no fair and reasonable doubt” or “clear and convincing evidence”. real estate deal. Axelford – Ont. Palmer  P sold 2 businesses. no 3rd party rights have been affected 1. The terms of rectification must be precise (e. Can award rectification on the basis of affidavit evidence alone. Gray  Merger of mining company with Augdome. 3. To ask for rectification on the grounds of unilateral mistake.Bercovici v. Five criteria for determining availability of rectification 1.  Gray owes $ to mining company but refuses to pay 1975 SCC  All assets belong to Augdome –  crt added the words “of whatever nature & kind” to show this. to yards) 3. D must pay. To get rectification. but “Rob Roy” cottage not included in K. 4.  P seeks rectification on agreement in writing to omit cottage  D says it was always part of the deal.  Agreement failed to include the phrase “of whatever nature & kind” when referring to its assets. And wants rectification 1975 Alta SC  P not entitled to rectification  No “clear convincing proof” that husband said this  Appeal dismissed with costs  Fraudulent parties should not benefit from their own wrongdoing  Augdome Corp. 2. change ft. CA). Coderre  Couple agrees to share matrimonial home. High burden of proof to get rectification. rectification allows one to look at parol evidence w/out having to get around the Parol Evidence Rule (it comes with rectification). v. the party asking must prove some sort of improper conduct on the part of the adversary. Can get rectification even though parties do not plead it in the first place. Must be existence of convincing prove (higher than civil standard. Performance Ind.

• Subsequent changes in the law which renders performance illegal. Exception: a change in the law is generally unforeseeable to the average person. 3. frustration will arise in 3 areas: • Total destruction of the subject matter..………K….. 1. the doctrine of frustration does not apply. The law of frustration deals w/ impossibility of performance because some unforeseen event has occurred. Mistake Frustration Assumptions at present……. Both parties are automatically discharged from future performance. or clearly should have been. Mistake Frustration & mistake often look alike. In these circumstances the parties are said to have consciously accepted the risk so that the obvious inference seems to be that they intended the loss to lie wherever it might fall 4. it may be clear from the nature of the K that the parties intended the risk of supervening events to lie where it falls. The parties may either expressly allocate the risk of supervening events or. • A K should not be frustrated by an event which was. 2 propositions follow: • A K should not be frustrated where it expressly provides for the event which has occurred. foreseen by the parties. Frustration concerns event that hasn’t happened yet. although any obligations in force prior to frustration will continue to be in force. and. Foreseeability is an objective test – what a reasonable person would foresee.. which made performance impossible. the substantial objective that the contracting parties had in view is no longer attainable 40 . 5. 2.Frustration Frustration v. or the event has been self-induced. if not. but unknown to the parties. 6. which deals w/ the problem of impossibility of performance because some state of affairs existed at the time of contracting. Risk is usually borne by the promisor. Mistake concerns event that happened at the time of K. Foreseeability or foresight of supervening events excludes frustration. If the event which has frustrated the K is attributable to the fault of one of the parties. It can be contrasted w/ the law of common mistake.e. It automatically terminates the K as of the moment of frustration regardless of the wishes of the parties. Frustration of the common venture – i. When claims of frustration may occur:  Death  Destruction/unavailability of subject matter  Illegality  Method of performance becomes impossible  Thwarting of a common venture Frustration occurs very rarely because most things can be anticipated.…………Events in future Frustration allows the parties to walk away from their future obligations because of a supervening (unforeseen) contingency. Practically speaking.

Facts/Case C Holding Ratio Notes 41 .

the doctrine of frustration does not apply (HERNE BAY (same) KRELL (opposite) • Objective reasonable person standard established 1956 Eng HL  K not frustrated – contractor should have provided for risk of delay Radical Change in Performance/Obligation test  Frustration occurs when contractual obligation become incapable of being performed due to no fault of either party.D.C. Trading Co. it is not frustrated CLAUDE NEON (opposite) HERNE BAY (opposite) KRELL V. courts will place the risk of unforeseen events on the Promisor 2. death of musician) & not subject to any stipulations or conditions 1.  Construe the contract in light of the radical change “Reasonable Person” is the Judge 42 . As a general rule. King didn’t attend as planned Claude Neon General Advertising v. K is not so sufficiently different than what was expected since they still got benefit from K 1942 NS SC  If the subject matter is not destroyed . v. Fareham U. Sing  P entered into K with D to make. QB  Both parties excused from K – K is frustrated because music hall no longer exists  There is an implied term in a K that the parties intended the K to terminate should the subject matter be destroyed through no fault of their own (e. Appellants claim contract frustrated Krell v. Caldwell  Music hall destroyed by fire. Work took 22 mos. erect & maintain neon sign. but the whole object of the contract is defeated. P claimed frustration & that they were entitled to damages 1922 SCC  K not frustrated – no evidence to indicate that delay was not foreseeable  Objective (reasonable person) test  Contract frustrated  Real basis of contract was to have a “room with a view” to see the Coronation  K not frustrated – people still did go & have a day cruise but they just didn’t see the King. Henry  People rented rooms along procession route.Taylor v.  Where a contract is still possible. D still gets benefit from sign. Post-war labour shortage caused delay. P sued D (music hall owner) 1863 Eng. HENRY (opposite) CLAUDE NEON (same)  Contract is not frustrated (valid contract.  P contracted to build houses within 8 month period. Where an event is foreseeable a contract will not be frustrated (the doctrine of frustration is not applicable) Can.  K to ship lumber from Vancouver to Australia – ships not ready in time due to dispute between gov’t & shipbuilders. Hutton  Boat company chartered boats & was going to take people out into the Bay to look at the ships that were there for the coronation. although altered in form (but not fundamentally). D claims frustration of K Davis Contractors v. Gov’t Merchant Marine Ltd. then there is a mistake of contract  WEST: Not an unforeseen event that a procession would be cancelled. Can. in 2006 this would not likely have been frustrated  As long as K is not sufficiently different & there is still some benefit. and procession was cancelled Herne Bay Steam Boat v. but King Henry was sick. Power restrictions during war. because the new circumstances render it radically difference from the original contract.g. so D couldn’t illuminate sign at night.

(Opposite to Capital Homes) (2000) B. more than “mere knowledge” on behalf of vender regarding intention of the purchaser (distinguished from Wood)  Application of proposition from Davis  WOODS (opposite)  DAVIS (same) 43 . Colwyn Construction Ltd. C. Canada Safeway  Contract for purchase of development property  Before close director of planning applied to have area rezoned severely restricting sq footage (self-motivated)  D sold premises to 3rd party. and radically altered the meaning of the contract  This is an example of a real frustrated contract. law passed that precluded subdivision of land. P lost deposit and sued for frustration C (1975) Ont. Ondrey  P contracted with D to purchase of land for the purpose of subdividing (intentions known to both parties).  Purchaser (P) wants deeds to 26 lots of land & vendor (D) could not provide them because of legislative changes which required consent by the ministry. CA Holding  Contract was frustrated. 138 Ventures v. v. v.C.  Director of planning’s actions were very unusual  Intervening event went to root of contract.A. entirely beyond what was contemplated by the parties.  K was not frustrated  Legislation did not go to the “very foundation of the agreement” and did not affect the parties abilities to perform their respective roles  The entire foundation of K was not destroyed  no frustration.C. Victoria Wood Development Corp.Facts/Case Capital Quality Homes Ltd.  Appeal dismissed (contract frustrated. return deposit). H. P wants deposit back – claims K has been frustrated. parties restored to pre-contractual positions (return of plaintiff’s deposit) Ratio  Doctrine of frustration is available when a supervening event beyond the control of the parties and not foreseen by them results in a radical change in the original obligation  Frustration can apply to the sale of land  Notes  One needs to assess factors which may constitute impossibility of performance in order to establish the doctrine of frustration & in turn terminate the K  DAVIS (same)  VICTORIA WOOD (opposite)  Purchaser could have safeguarded from delays or zoning changes by inserting proper conditions in K CAPITAL HOMES (opposite) (1977) Ont. P claimed frustration KBK NO. but not specified in written contract (for whole part of land)  Prior to close.

therefore. courts should consider that the K was frustrated  A foreseeable event. transferring risk to other party – possibly leading to an equitable allocation of risk. then it is the assumption that it is the own party’s fault which frustrated the K & it cannot. happen – whoever has partially performed. you have accident & can no longer afford to pay. Both were aware the amendments were made to the Fisheries Act Capital Quality Homes Ltd.  If the performance of the K is dependent on something being granted. v. tough! (& vice versa). During 2nd month of rental. general rule is to let whatever happens.  See above (1986) NS CA  No frustration because undertaking the environmental study is not onerous. rather parties are released from further obligation • Unlike a serious breach in which the innocent party can choose whether to treat the K as repudiated or not. D would’ve had to conduct an envir’l study.  D obtained easement from P to enable it to build sewer line across P’s property. & Canadian Indemnity Co. hardship or inconvenience. will not frustrate a K so as to terminate K & relieve parties of their contractual obligations  A K will not be frustrated if frustration was self-induced. courts are inclined to construe these clauses strictly EFFECTS OF FRUSTRATION • Unlike in mistake of K.  Ministry restricted D to 3 licenses for any of its 5 boats. CA COMMERCIAL IMPRACTICALITY / FRUSTRATION & SOCIAL FORCE MAJEURE Commercial frustration relates to supervening events that affect the relationship between 2 parties in commercial transactions An increase in expense or the fact that performance has become onerous will not suffice to invoke doctrine of frustration Contractors know that there is a possibility that risk may arise – ex. v. you are a landlord & your lease says you must pay $700/month. & it was by election that the performance was prevented. It did not do so & failed to obtain the rezoning. rely on their own default to excuse them from liability under the K  The doctrine of frustration extends to contracts of land  These 2 parties are of = bargaining power…would there be the same result if one had more bargaining power? Maybe… SELF-INDUCED FRUSTRATION 1935 Privy Council  K was not frustrated – self-induced FRUSTRATION & Ks CONVEYING AN INTEREST IN LAND (1975) Ont. material loss or the fact that the work has become more onerous than originally anticipated are not sufficient to amount to frustration in law to terminate a contract and relieve the parties of their obligations  If the inconvenience. Inc. P sued to recover the $50k. Colwyn Construction Ltd. Cuthbert was 1 of the 2 vessels that D chose not to licence. it does not render K void ab initio. Maritime National Fish Ltd.Kesmat Invt. Machinery Co. Both parties are discharged from further (future) obligation despite some for the financial consequences that may result • When K is frustrated.. Cuthbert. D chose not to take. In order to get rezoning app’n. Court will do what is fair & under 44 . St. Ps had contracted with D for the charter of the St. Ocean Trawlers Ltd. Should you be forced to pay? Nordic law says that it should be included in lease K to be merciful to those who lease land (this is difficult to monitor) • Anticipating the unforeseeable: force majeure clauses are an attempt to allocate risk in the event that an exogenous contingency applies because the clauses seek to exclude performance. v. even if it causes economic loss. D undertook to obtain a rezoning & subdivision of D’s lands & to pay P $50k if it was unsuccessful in doing so. hardship or material loss is extreme. P entitled to jmt of $50k  Hardship. Indust. In exchange. frustration does not allow for election.

threat to seize…will amount to duress  Duress = common law doctrine  Duress  K is voidable. Clause in K: interpreting force majeure clauses against “…shall not be less than 10. St. P • SCC will be very restrictive in sued for damages. tons of waste paper/year for 10 supernatural event beyond the control of yrs to be used as secondary fibre. strike earthquake) After 14 mos. D repudiated. unless as a result of an act availability should be foreseeable. threats of physical violence.Duress Duress  Commercial pressure. Anne1976 • D held liable for damages • In cases of alleged frustration. of God. the Queen’s or public • enemies…” etc. D pleaded nonavailability of mkts for pulp or corrugating medium Protection of Weaker Parties . Force Nackawic SCC • Market was available – they just Majeure clauses are interpreted very • K for sale by P to D of 10. not void Facts/Case C Holding Ratio Notes 45 . either party e.certain circumstances may ask for quantum meruit but by & large it’s difficult to know what a court will order Atlantic Paper v.000 a company b/c things like market tons.g.000 didn’t get at it effectively strictly (akin the an act of god.

) Was he independently advised? (must be no) 4.Pao On v. P subsequently refused to honour promissory notes & commenced action as trustee to have Dec. burden falls on person raising duress to prove the duress was not justified  blank   Very few cases that find economic duress Protection of Weaker Parties – Undue Influence Undue Influence  Def’n: the compulsion under which a person acts through fear of personal suffering as from injury to the body or from confinement.) Was there an alternative course open to him?(must be no) 3. courts may find it justifiable on other factors not considered in the test • If you can satisfy the PAO ON test.) Did the party protest? (must be yes) 2. Roebuck 1992  Ont.) After entering the contract did he take steps to avoid it? (must be yes) 5. D agreed to execute CA docs in return for $50K pmt + $80K in promissory notes.) Was he independently advised? (must be no) 4.) Did the party protest?(must be yes) 2.) Was there an alternative course open to him? (must be no) 3.) After entering the contract did he take steps to avoid it?(must be yes) 5 criteria for economic duress 1. 29 K declared voidable by reason of economic duress  The plaintiff must prove that his will was coerced and that the pressure exerted was over and above regular commercial pressure 4 criteria for economic duress 1. actual or threatened.) Is economic duress justified? • Even where economic duress is found. Lau Yiu Long • • Promise by the P to perform their existing contract with a company in which the D were principal shareholders D argued that their guarantee was procured by economic duress 1980 PC Gordon v. Joint venture in apartment buildings.  Undue influence = equity doctrine  Undue influence – unconscientious use by 1 person of power possessed by him over another in order to induce the other to enter a K (lower threshold)  Undue influence is found where there is an ability to exercise exceptional power in relation to another person’s choices  Domination of someone’s will in a long-lasting relationship  2 ways to prove: o 1) Actual undue influence: dominated party is tricked or forced into the transaction o 2) By proving a special relationship exists b/w parties  raises presumption that undue influence was exercised  Transaction must constitute a disadvantage sufficiently serious to require evidence to rebut presumption that in the circumstances of the rel’ship b/w the parties it was procured by exercise of undue influence Facts/Case C Holding Ratio Notes 46 .

g. Timing: duress must exist at time K is made 4.Geffen v. Eldridge • Eight appeals of wives claiming undue influence after charging their interest in their matrimonial homes to their husbands (business ventures)   To trigger a presumption of undue influence the court will look for the ability of one person to dominate the will of another through manipulation coercion or the abuse of power. Goodman Estate  Sister was bipolar – brothers looked out for her best interests… 1991 SCC  Undue influence claim rejected where a sister’s best interests were being advanced by her brothers. What factors establish the presumption of undue influence? Factors that establish undue influence 1. Was there independent legal advice? 3. person relationship not commercial) 2. Did the relationship between the parties give rise to the presumption? 3. Potential for domination of the will 2. unless there are other compelling circumstances (above and beyond normal wife pressures)  Banks are “put on inquiry”: A bank is required to explain a risk in every case where the relationship is non commercial (e.g. The sister had relied on independent legal advice. marriage) Relationships that give rise to a presumption of undue influence: • Priest and penitent • Mother superior and a nun • Doctor and a patient • Lawyer and his client • Trustee and beneficiary • Parent and child If tricked or forced into the transaction. Nature of the transaction (commercial or gift?):  Two types of transactions  1) Commercial (parties looking out for own interests – this is only place where you have to show manifest disadvantage). then it is actual undue influence.  The doctrine of manifest disadvantage does not apply to cases of gifts or trusts  The determination of a special relationship will be made on a case by case basis (spouses do not trigger a presumption of undue influence (Duguid v. Dufuid) Three step process of undue influence 1. There can be undue influence where the trust agreement is not manifest disadvantage (e. Royal Bank of Scotland v.  2) Gifts or trusts (no manifest disadvantage)  There is no presumption of undue influence between a husband and wife. otherwise difficult to find a presumption 47 .

Protection of Weaker Parties .  If these criteria are met. there is a presumption of fraud that must be rebutted by D – can do so where prove that P obtained independent legal advice.  Even where no confidential rel’ship exists. Facts/Case C Holding Ratio Notes 48 .Unconscionability Unconscionability  A contract that has two problematic factors 1) unequal bargaining power. the party who gets a benefit cannot hold it without proving that everything has been right & fair & reasonable on his or her part  The excuse of unconscionability is available where 2 elements are present: 1. 2. a transaction resting on such unconscionability will not stand. An improvident bargain. where parties are not on equal terms.  Unconscionability is a one-shot deal – not a long-lasting relationship. 2) unfair contract (generally these two things must occur together)  Where 2 people stand in a rel’ship to each other (no matter if confidentiality is present) that one can take an undue advantage of the other by reason of distress or recklessness or wildness or want of care & when the facts show that 1 party has taken undue advantage of the other by reason of the listed circumstances. An inequality in the positions of the parties.

Bundy  Father mortgaged house beyond its value to help son whose business was failing 1965 BC CA  Appeal allowed. with (grossly) inadequate consideration. Kreutziger  Ab man sold fishing boat & license to someone who led him to believe that he could obtain another license.  Man in nursing home sold land to bro for less than it was worth (with independent legal advice). is sufficiently divergent from community standards of commercial morality that it should be rescinded. Lawyer pulled out b/c man was unfit. Man wants rescission Lloyds Bank v. K case by case evaluation to determine which to use  Consumer Protection Act will pick up some of the slack 1968 Alta SC  D entitled to rescission – no costs. but it’s absence may be fatal Another test for unconscionability  Unconscionability is whether the transaction. bank manager given the promissory note so they can collect from missing men  Unconscionable contracts have two parts: 1) unequal bargaining power.  Followed in Canada  Categories of inequality of bargaining power:  Duress of goods  Unconscionable transaction  Undue influence  Undue pressure  Salvage agreements LLOIDS (same – application)  Two unconscionability tests: Lloyds Bank. and Harry v. 2) an unfair contract (generally both must be present)  D can rebut presumption of unconscionability if he can prove that the transaction was fair. or ignorance. but instead purchase cars and disappear Marshall v. Contract was unconscionable b/c:  Inequality of power b/w the parties  K was unfair bargain  Inequality of bargaining power. Coast Finance  79 year-old widow mortgaged home. unconscionable contract between unequal bargaining partners (ruling for old lady)  Bank manager deemed to know that contract was indecent. D knew that boat was worth far more than purchase price b/c of fishing license 1978 BC CA • K rescinded 49 . combined with undue influence for the other parties benefit  Independent legal advice will not save every transaction. gives money two men (that tricked her to pay off their debts)  Two men are supposed to pay off mortgage. desires. Bundy entered into contract that was largely unfair  Other two judges agree with Denning.Morrison v. just & reasonable (can do so by getting independent advice) Test for Unconscionability (outdated)  There are 2 things that needed to be proven for unconscionability: 1) there must be inequality (weaker & stronger party) 2) the contract was unfair or improvident Denning test for unconscionability  Parties will get relief when they enter into a contract on (very) unfair terms. This is a SUBJECTIVE test. seen as a whole. with impaired reasoning based on their own needs. Cdn Trust Co. but on grounds of breach of Fiduciary Duty by bank 1975 Eng CA Harry v.

see Hart v. marriage settlements 2. food. clothing and shelter)  if the k is an employment k benefiting the youth (i.Incapacity Capacity to Contract General Rule: All k entered into by an infant (under 18 years of age) must be for his or her benefit or the k is void. & is not voidable by the lunatic or his representatives by reason of “unfairness” unless such unfairness amounts to equitable fraud which would have enabled the complaining party to avoid the K even if he had been sane.Protection of Weaker Parties . O’Connor. share Ks. Ks made w/ people who are mentally incapacitated in some way are likely to fall into the unconscionable K category.e. Cutler which has been followed in Canada & holds that: “The validity of a K entered into by a lunatic who is ostensibly sane is to be judged by the same standards as a K by a person of sound mind. the K will stand. C 1985 PC Holding  K is valid b/c the person did not know that the other person is incapacitated even though there is a contractual imbalance Ratio  Where a bargain is sealed in good faith but the person doesn’t know the other person lacked capacity & there’s nothing exploitative (equitable fraud) about the arrangement. or enfeebled by illness is in an unequal bargaining position. P did not know at the time that D did not have sufficient mental capacity to enable him to enter into K. person knew that other person was mentally incapacitated 2. O’Connor  P purchased land from D. determine whether or not the K is unfair by analyzing if there is at least one of the two: procedural unfairness or contractual imbalance Notes K may be unfair in 1 of 2 ways (may overlap): • 1) Unfair manner in which it was brought into existence (undue influence)  “procedural unfairness” (where 1 party takes advantage of or exploits the other) • 2) Unfair by reason of fact that terms of K are more favourable to 1 party than to the other  “contractual unfairness” (contractual imbalance) 50 . This case reverses the long-standing authority of Archer v. Such Ks include: leases of land. Except: 1. Clearly someone who is mentally disabled.” Facts/Case Hart v. impaired by drugs or alcohol. partnership agreements.e. Steps: 1. hockey player k) K made by a minor will be binding if he or she ratifies the K on reaching majority certain types of long-term Ks are presumed to be ratified unless the minor expressly disclaims the Ks during minority or shortly on reaching the age of majority. minor will be bound  if the k is for the “necessity” (i. For a case which discusses mental incapacity in the context of capacity to K. 3.

Punitive damages = punitive in nature & may only be employed in circumstances where the conduct giving the cause for complaint is of such nature that it merits punishment. which are communicated by P to D • Extraordinary damages • Subjective test • Knowledge is actual • Waddams says this rule is really not sufficient – it is merely a statement of conclusion that the court comes to. Compensation for P. s/a distress & humiliation. Reasonable contemplation test • Damages which arise in the usual course of things. in the reasonable contemplation of both parties • Ordinary damages • Objective test • Knowledge is imputed OR 2. Special circumstances test • Damages which arise where there are special circumstances.Remedies • • Aggravated damages = award that aims at compensation but takes full account of intangible injuries. Actionable wrong Remoteness • The rule in Hadley v. Baxendale articulates the court’s concern to limit the recoverability of damages which are not too remote • The rule is two-pronged: there will be liability for damages: 1. that may have been caused by D’s insulting behaviour. Punishment for D. & is not a test which can be figured out beforehand Facts/Case C Holding Ratio Notes 51 .

shoddy framing. Too short a time frame for acceptance.Chaplin v. Nu-West Homes v. etc. Serious deficiencies were found due to P’s work – hump in basement floor. who determined that cost of repairs were $16k. the crt may not enforce the K strictly. 1962 Oklaho oma SC (US)  On appeal.000. TJ only awarded $4k. Thunderbird Petroleums  P contracted to build D a home. Jarvis v. Sued for loss of enjoyment & entertainment and mental distress TJ awarded half of the cost of vacation.  Ds are liable to P for reasonable cost of doing what they promised & wilfully declined to do (full costs awarded $60K) Where you have damages that can’t be assessed with certainty does not relieve a wrong doer with the necessity form having to pay damages  The measure of damages in these situations is going to be the cost of rectification or the cost of performing the K instead of the mkt value of the contractual object (in this case land)  Only entitled to the value of the increase of land ($300) Peevyhouse v. P sued for loss of chance of being selected Groves v. P appealed. Garland Coal  A stripmining lease purported to demand that D surrender the land with the reclamation required.  Very common type of remedy case! 1973 Eng CA  Damages should be £125  compensate for loss of entertainment & enjoyment. plumbing. D deliberately breached K because restoring would cost $60k but land only worth $12k. Certainty in assessing damages for a breach of contract is not a necessity. D brought in experts. P’s damages were limited to $300. electric wiring. Swans Tours  P purchased holiday that didn’t live up to his expectations.e. then easier to claim damages for mental distress 52 .  Must prove that there was really mental distress (expectation that something will give you pleasure. the value of the farm would have increased by $300. but crt doesn’t say how they arrived at that figure  Court brings in the notion that damages for mental distress can be recovered in K. the cost of rectification). If the mining company had restored the land.  Can’t amend claims for damages (can’t start out asking for damages & then change pleading to alternative). fireplaces of wrong size. that assessment was best left with the jury who awarded £100. In this case. 1911 Eng CA 1939 Minn CA  The average chance of each competitor was ¼. That’s why it’s good to go in seeking alternative damages  PEEVYHOUSE (opposite)  GROVES (opposite)  Which case you use depends on your facts  see class notes under “When determining costs consider” 1975 Alta CA  D acted on the advice of experts & did so reasonably – entitled to damages of $16K  General rule: P can recover damages to put him/her in a position contracted for (i. D K’d with someone else to fix & finish building. while the cost of restoration would have been approximately $29. & no pleasure should give you tangible compensation)  Where there is a promise within the control of the Promisor you may have grounds for mental distress  Brings into K law the ability to recover damages for loss of enjoyment & mental distress  Newell – if can establish special circumstances (old age). John Wunder  D was to restore land to original condition. Hicks  Competition for up & coming actresses..  Crt looks at what was done & looks at what was reasonable under the circumstances  Where the cost of rectification is great compared to the nature of the defect. Seems to be double the cost of the original trip.

especially given the inducements offered by D for P to join its company. a lengthy period of notice was required.s actions seriously diminished P. damages are limited to the amount of notice pay)  To ensure that employees receive adequate protection. if any.s age. Appeal Allowed and the issue referred to an official referee as to what damages. P wanted to ship via D.  Expanding company – needed boiler to operate. D promised to have it delivered by the following day. but rather from the manner in which the dismissal was effected by the employer. it was damaged & delayed delivery by 5 months. (Ex. In process of moving. the breach of which will be compensated for by adding to the length of the notice period.s prospects of finding similar employment. moving company doesn’t know about valuable art = damages too remote to claim) 1949 KB  It was implicit in the ordering of the machine that D knew P needed prompt delivery for reasons of profit..  Aggravated & punitive damages will be rarely awarded. United Graingrowers  D fired him “for cause” but initially didn’t tell him what it was. Victoria lost money from special contracts with the government 1854 Exch  Damages for wrongful dismissal are usually the number of years of employment reflected in months (1 month/year). Compensation does not flow from the fact of dismissal itself.  Special circumstances were never communicated to D by P. Through neglect. not all acts of bad faith or unfair dealing will be equally injurious. ICBC  P dismissed without cause but with appropriate notice (8 months). P bought boiler from D. Victoria Laundry v.  In light of P. Baxendale  Shaft for P’s mill broken. but D could not point to cause. the judge must examine the nature of the bad faith conduct and its impact in the circumstances. New trial ordered Hadley v. Brought wrongful dismissal claim. Loss of profits cannot reasonably be considered a consequence of the breach of K as could have fairly & reasonably been contemplated by both the parties when they made this K. Newman Indust. 1989 SCC  Conduct not sufficiently offensive to constitute actionable wrong – does not justify imposition of punitive damages. his 14 year tenure as the company. Gave damages of $15k. 53 . D.  See above re: remoteness  Two types of damages:  1) what would be expected in normal course of business.Vorvis v. employers ought to be held to an obligation of good faith and fair dealing in the manner of dismissal. awarded at trial. item not shipped in time. but could have been foreseeable in the circumstances. RESTORED 24 months salary in lieu of notice. then you should still be eligible for special damages as there may be implied knowledge Neither damages did not pass here because he wasn’t a unique situation (he just lost his job)  The law for wrongful dismissal is unclear  Remoteness: Defendant has to have actual knowledge of special circumstances. Ltd. (unless there’s something beyond the norm. and  2) special damages arising from special circumstances and communication between the parties (p902) • If there are special circumstances that were not explicitly communicated. in each case. P sued for punitive and aggravated damages for wrongful dismissal Wallis v.s top salesperson and his limited prospects at reemployment. mill unable to operate without it. 1997 SCC  Crt held that it was a bad faith discharge. or damages would be too remote. is recoverable in addition to the £110.