Law 410 Contracts CAN O'byrne Winter 2018
Law 410 Contracts CAN O’Byrne Winter 2018
Contracts CAN Winter ‘18
CONSIDERATION ...... 1 GENERAL ...... 1 EXCHANGES AND BARGAINS ...... 1 The Governors of Dalhouise College at Halifax v The Estate of Arthur Boutilier, Deceased...... 1 Brantford General Hospital Foundation v Marquis Estate ...... 2 Wood v Lucy, Lady Duff-Gordon ...... 3 BASIS FOR IMPLIED PROMISE ...... 4 Lampleigh v Brathwait ...... 4 BONA FIDE COMPROMISES OF DISPUTES CLAIMS ...... 4 B.(D.C.) v Arkin ...... 4 CONSIDERATION: PRE-EXISTING LEGAL DUTY...... 5 GENERAL ...... 5 DUTY OWED TO A 3RD PARTY ...... 6 Pao On v Lau Yiu Long ...... 6 Illegality Argument ...... 7 DUTY OWED TO THE PROMISOR ...... 7 Stilk v Myrick ...... 7 Gilbert Steel Ltd v University Const. Ltd...... 8 Williams v Roffey Bros & Nicholls (Contractors) Ltd...... 9 Greater Fredericton Airport Authority Inc v NAV Canada...... 10 Economic duress (O’Bryne) ...... 11 SUMMARY FULFILLMENT OF PRE-EXISTING LEGAL DUTY OWED TO A PROMISOR ...... 11 REVIEW ...... 11 PROMISES TO ACCPET LESS ...... 12 Foakes v Beer...... 12 PAROLE EVIDENCE RULE ...... 13 Re Selectmove Ltd...... 14 Foot v Rawlings ...... 14 Robichaud c Caisse Populaire de Pokemouche Ltee ...... 15 Judicature Act RSA 2000, c J-2, s 13(1)...... 16 PROMISSORY ESTOPPEL AND WAIVER ...... 16 Hughes v Metropolitan Railway Company ...... 17 Central London Property Trust Ltd v High Trees House Ltd...... 17 John Burrows Ltd v Subsurface Surveys Ltd...... 19 D&C Builders Ltd. v Rees ...... 20 Saskatchewan River Bungalows Ltd v Maritime Life Assurance ...... 21 WJ Alan & Co v El Nasr Export & Import Co ...... 22 ESTOPPEL AS A SWORD OR SHIELD ...... 23 Combe v Combe ...... 24 Robichaud v Caisse Populaire (see prior case summary) ...... 25 INTENTION TO CREATE LEGAL RELATIONS ...... 25 Balfour v Balfour ...... 25 PROMISES UNDER SEAL ...... 26 Royal Bank v Kiska ...... 26 Practice Question on Promissory Estoppel/Duress ...... 27 THE REQUIREMENT OF WRITING ...... 27 PART PERFORMANCE ...... 29 Deglman v Guaranty Trust Co...... 29 Thompson v Guaranty Trust Co...... 30 PRIVITY OF CONTRACT ...... 31 Dunlop Pneumatic Tyre Co. Ltd. v Selfridge & Co. Ltd...... 32 WAYS IN WHICH A THIRD-PARTY MAY ACQUIRE THE BENEFIT ...... 33 Specific Performance: Beswick v Beswick ...... 33 Beswick v Beswick...... 34 TRUST ...... 34 Agency ...... 35 New Zealand Shipping Co. Ltd. v AM Satterthwaite & Co Ltd...... 35 London Drugs Ltd. v Keuhne & Nagel International Ltd...... 36 Edgeworth Construction Ltd v ND LEA & Associates Ltd ...... 37 Fraser River Pile & Dredge Ltd. v Can-Dive Services Ltd...... 38 Privity Summary ...... 39 CONTINGENT AGREEMENTS ...... 39 Wiebe v Bobsien ...... 40 Wiebe v Bobsien ...... 41 RECIPROCAL SUBSIDARY OBLIGATIONS ...... 41 Dynamic Transport Ltd. v OK Detailing Ltd...... 42 EastWalsh Homes Ltd v Anatal Developments Ltd ...... 42 UNILATERAL WAIVER ...... 43 Turney v Zhilka ...... 44 REPRESENTATION AND TERMS ...... 45 MISREPRESENTATION AND RECISSION ...... 45 Types of pre-contractual misrepresentation ...... 45 Ingredients of an actionable misrepresentation per Treitel ...... 45 Liability in tort: fraudulent misrepresentation ...... 46 Redgrave v Hurd ...... 46 Smith v Land and House Property Corp ...... 47 Bank of British Columbia v Wren Developments Ltd ...... 48 Kupchak v Dayson Holdings Ltd ...... 49 BARS TO RESCISSION ...... 50 REPRESENTATION AND TERMS ...... 51 Leaf v International Galleries ...... 51 Heilbut, Symons & Co v Buckleton ...... 52 Dick Bentley Productions Ltd v Harold Smith Motors Ltd...... 53 Page 392: Fair Trading Act – Consumer Protection Act ...... 54 CONCURRENT LIABILITY IN CONTRACT AND TORT ...... 54 Sodd Corp v N Tessis ...... 54 BG Checo International v BR Hydro ...... 55 CLASSIFICATION OF TERMS ...... 56 Hong Kong Fir Shipping Co Ltd V Kawasaki Kisen Kaisha Ltd...... 57 Summary of test to determine whether a condition or warranty ...... 58 Wickman Machine Tool Sales Ltd v L Schuler AG ...... 59 CONTRACTUAL INTERPRETATION - IMPLIED TERMS ...... 60 Machtinger v Hoj Industries ...... 60 Gateway Realty Ltd v Arton Holdings ...... 61 Bhasin v Hynrew (Honesty in contract performance) ...... 61 Bhasin Summary and Taxonomy ...... 64 Supreme Court decision in Sattva ...... 64 CONTRACTUAL INTERPRETATION & EXCLUSION CLAUSES...... 64 IFP Technologies v EnCana Midstream ...... 64 STANDARD FORMS AND EXCLUSION CLAUSES ...... 66 Thorton v Shoe Lane Parking Ltd...... 66 Tilden Rent-a-car co v Clendenning ...... 67 Karroll v Silver Star Mountain Resort ...... 68 PRINCIPLES OF CONTRACTUAL INTEPRETATION AND EXCLUSION CLAUSES ...... 68 Karsales v Wallis ...... 68 Hunter Engineering Co Inc v Syncrude Canada Ltd ...... 69 Fraser Jewellers Ltd v Dominion Electric Protection...... 70 Plas-tex Canada v Dow Chemical of Canada ...... 71 Tercon Contractors Ltd v British Columbia (Ministry of Transport and Highways) ...... 71 HOW TO ANSWER AN EXAM QUESTION: ...... 72
CONSIDERATION GENERAL • A promise can be enforceable in law: • 1) If incorporated in a contract – i.e. the requirements of contract formation are satisfied. • 2) If incorporated in an instrument under seal as a deed – i.e. if the requirements for creating a sealed instrument are satisfied. • Very rare today. • 3) If the doctrine of estoppel applies to prevent breach of the promise - but (likely) not as grounds for damages for breach. • Estoppel may prevent a person from acting in a way that is contrary to something they have said or done prior to that.
• Consideration • a valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other.
• It is a requirement of contract formation. • The agreed exchange of value between parties to an agreement. • Value may be a benefit conferred or a detriment, forbearance or responsibility undertaken (Currie v Misa) • The promise of a benefit or a promise to assume a detriment, forbearance or responsibility is consideration. • Bilateral contract • Promise by A and promise by B are exchanged • A contract arises when the promises are exchanged (the date of the agreement)
• Unilateral Contract • Promise by A and requested act by B are exchanged. • Contract arises when the act is performed (but see Errington v Errington and Woods re: withdrawal of promise once acts of performance are undertaken is not allowed; Carbolic)
• Consideration is a method of flagging or signaling your intentions to the other party and the world. • They do not have to be of similar monetary value.
EXCHANGES AND BARGAINS
The Governors of Dalhouise College at Halifax v The Estate of Arthur Boutilier, Deceased [1934] SCR 642 Facts: • P: Dalhouise; D: Boutilier Estate • The Deceased promised to give Dalhousie $5,000. The promise was made via a letter but there was not follow up on the terms of the payment. • In a follow-up letter to the College, the deceased affirmed his promise but noted that currently he had financial difficulties. • He died before the payment was made. • The College spent money in anticipation of receiving the funds from the deceased.
1 Issue: • Is an agreement to make a charitable donation a contract? • Is there consideration given for a promise of funds under a charitable pledge (i.e. is the promise to contribute “supported by consideration”)?
Analysis/Holding: • The deceased's promise can only be binding in the event that it is found to be a contract supported by good and sufficient consideration. • Was the donation letter sufficient consideration as alleged by the appellants? • There was no agreement between Mr. Boutilier and the other donors. The promise made by the other donors is not consideration, because consideration requires and exchange of value (exchange of promises). There was no exchange. • The appellants also argued that there were mutual promises. • For the promise of the money by the deceased, Dalhouise argued that they had promised (through acceptance) to use the money for what was described in the donation letter. • The Court rejects this, says the reasons for which the money was given are too general to be specific requests, and if the cases were reversed the deceased would have likely had not claim to hold the College to those uses of the money. • The only evidence outside the donation letter that there was consideration for the donation was that the College increased its expenditures on the strength of the donation received. • The was no binding contract and the appeal was dismissed. • To do otherwise would be to hold a naked, voluntary promise to be a binding legal contract by the subsequent action of the promisee alone without the consent, express or implied of the promisor.
Principles: • Consideration requires an exchange of value (may be exchange of promises) – i.e. A promise given by A to B in exchange for a promise given by B to A. If A and B both make promises to C, there is no exchange between A and B so no consideration for the promises made by either A or B to C. • Consideration requires that one party assume an obligation or undertake a commitment in exchange for the other’s promise. • An action undertaken is not consideration for a promise if not done in exchange for the promise. The action must be done in response to a request (i.e. the exchange must be an agreed exchange).
Brantford General Hospital Foundation v Marquis Estate [2003] OJ No 6218 (Ont SCJ) Facts: • A pledge was made by the deceased, Marquis, to the Hospital for part of its fundraising campaign. • The deceased was known to give to charity, including the hospital. • The pledge was for $1 million over five years. • The pledge was made in 1998 and the first installment of $200 K was made in 2000.
• The deceased's late husband had also given to the hospital and had his name on a particular unit. In considering giving the pledge, the deceased wanted to ensure his name remained on the new unit. The hospital suggested that both their names be put on the unit. • The hospital was a 1/5 beneficiary to the estate of Marquis. The estate refused to pay the remaining $800,000 of the pledge.
Issue: • Was the promise to name the critical care unit for the donor and her husband consideration for the donor’s promise of funds? 2
• Is the naming of a facility (or similar action) consideration for a promise to contribute funds to a public or charitable organization?
Analysis/Holding: • There was no mention of the naming promise in the pledge and the deceased did not mention it to her accountant. • The Hospital wants to rely on the pledge as evidence of a contract, but it does not contain the naming provision. • The naming of the new unit is still subject to board of directors’ approval. • The Court finds that the naming rights cannot constitute consideration if it is still subject to approval. • The naming rights are not consideration, they were a show of the hospital’s gratitude and separate from the donation of the funds. • There is no enforceable contract.
Principles: • A promise to subscribe to a charity is not enforceable in the absence of a bargain. • A promise or an act undertaken as an expression of gratitude is not consideration if the promise to be enforced was not given in exchange for the promise or act.
Wood v Lucy, Lady Duff-Gordon 118 NE 214 (US NY, 1917) Facts: • P: Wood; D: Lucy • Lucy endorses fashion and when she does it boosts sales. People pay for her endorsements and when they do it gives the designs new value in the public eye. • The P and D entered into a contract where he was to have the exclusive right for one year to place her endorsements, subject to her approval, on the designs of others. • She was to have on half of all the profits and revenues from the contracts that he makes. • She ended up endorsing things without his knowledge and she was sued for breach of contract.
Issue: • Did Wood provide consideration for Lady Duff-Gordon’s promise that he would have the exclusive right to place her endorsements (i.e. exclusive marketing rights)? • Is there a contract where one of the parties to an agreement has not expressly promised to do (or not do) something in return for a promise by the other?
Analysis/Holding: • Cardoza J: The court finds that while there is no explicit promise of the defendant to use his best efforts to place her endorsement on goods, such a term can be implied. • “A promise may be lacking and yet the whole writing may be instinct with obligation.” • The acceptance of exclusive agency was an assumption of its duties. • Woods' business was adapted to the placing of such endorsements and the implication as that his business would be used for its purpose. • She was given half of the profits and revenues, without an implied promise, the transaction cannot have such business efficacy as both parties must have intended that all the events it should have. • He was to account monthly for this so there were details that regarded the accounting for profit and other matters (patents, copyrights and trademarks). • By determining the intention of the parties, the promise has value. To promise one half of the revenues and profits of the exclusive agency was a promise to use reasonable efforts to bring profits into existence. • There was a contract. 3
Principles: • Implicitly: An agreement lacks consideration and is therefore not a contract where one of the parties has not undertaken an obligation to the other. • An implied promise to make reasonable efforts to achieve a contemplated result may supply consideration that is otherwise lacking, where the parties clearly intended a binding agreement.
BASIS FOR IMPLIED PROMISE
• An implied promise will be found to give the agreement the “business efficacy” that the parties must have intended (i.e. presumed intention – compare Canadian Pacific Hotels v Bank of Montreal) • Factors in finding an implied promise: • Business nature of transaction and character of parties (Wood was in the marketing business: “Otis F. Wood possesses a business organization adapted to the placing of such endorsements as the said Lucy, Lady Duff- Gordon has approved.”) • The objective of the agreement (profit sharing) could only be fulfilled if a promise to make reasonable efforts was implied. • Detailed provisions regarding accounting for profits and other matters (e.g. patents, copyrights and trademarks) in relation to marketing and sale of the designs suggests that the plaintiff had assumed duties.
Lampleigh v Brathwait (1615), 80 ER 225 (KB) Facts: • P: Lampleigh; D: Brathwait • Lampleigh brought suit against Brathwait for asumsit (an action on a promise). • D killed Mahume, and asked the plaintiff to try to obtain a pardon from the King for the defendant. • The defendant promised the plaintiff 100 pounds but did not pay him. • In the judgment it is said that the consideration was past and found for the plaintiff. • The defendant claims the plaintiff actually did nothing to obtain the pardon.
Issue: • Was Lampleigh’s effort in procuring a pardon consideration for Brathwait’s subsequent promise to pay £100? • Is an act performed in the past consideration for a subsequent promise of compensation or reward?
Principles: • A “mere volunteer curtesie will not have a consideration to uphold an assumpsit”. • In other words, a voluntary act is not consideration for a subsequent promise of compensation. • “But if that curtesie were moved by a suit or request of the party that gives the assumpsit, it will bind, for the promise, though it follows, yet it is not naked, but couples it self with the suit before.” • But if an act is performed at the request of the promisor, the subsequent promise is enforceable.
BONA FIDE COMPROMISES OF DISPUTES CLAIMS
B.(D.C.) v Arkin [1996] 8 WWR 100 (Man QB) Facts:
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• The plaintiff is suing the defendant for money she paid to them as compensation for damages the other defendant, Zellers (the store) sustained resulting from thefts committed by her young son. • Arkin is not actually a defendant in this case as the proceedings had been discontinued. • The son stole from Zellers. • The mom, Mrs. B, paid $225, which was the sum of the goods taken by her son and other costs. • The goods were recovered and items, undamaged, were able to be sold ~$60 worth. • The additional costs ($225-$60) are what Zellers called incremental costs of shoplifting.
Issue: • Was the plaintiff’s agreement to pay in return for forbearance by Zellers a contract? • Is forbearance from legal action or a promise of forbearance consideration for a reciprocal promise (i.e. to settle the claim by payment)?
Analysis/Holding: • Parents are not generally liable for the torts of their children, unless they were negligent in some way. • Zellers submits the plaintiff voluntary paid the compensation and, therefore, entered into a contract with her. • The defendant's claim was not only doubtful but invalid. • The plaintiff would have believed the claim was a serious one and paid, but would have not done so if she knew it was invalid. • Zellers is not believed to have seriously thought that their claim could succeed. A competent and responsible lawyer, ought to have known that the claim had no prospect whatsoever. • The plaintiff was refunded the money under the law of restitution and received costs and interest.
Principles: • Forbearance from legal action on a claim is good consideration, whether or not proceedings to enforce the claim have been instituted. • Forbearance is good consideration even if the claim is doubtful or invalid, provided the claim is made on reasonable grounds and the party forbearing in good faith believed it to have a fair chance of success. • Forbearance to enforce a claim which is known by the party forbearing to be invalid or not believed by him to be valid is therefore not consideration for a promise or payment of settlement. • A party who relies on forbearance to enforce an invalid claim (which he or she nevertheless believes to have a fair chance of success) • may not deliberately conceal from the other party facts which, if known, would enable the other party to defeat the claim, and • must show that he seriously intended to pursue the claim.
CONSIDERATION: PRE-EXISTING LEGAL DUTY GENERAL
• If A is already legally bound to perform some act to B, can that act be used as consideration in return for a promise from B? • Since that act is necessary, A is giving up nothing in exchange for B's promise. There is no possibility that A would not have done that action. • The performance of a pre-existing legal duty is not consideration in the eyes of the law (there are exceptions, see cases). • This situation is indistinguishable from a situation where there is a promise to do something that has already be done.
• 1) Duty owed to the promisor 5
• 2) Public Duty • Traditionally, a promise to perform a public duty is not consideration. • If the courts can find that the promise provided something extra, beyond the requirements of the public duty, there is consideration. • Includes a duty owed by a public official or an obligation imposed by statute.
• 3) Duty Owed to a 3rd party • Performance of a duty owed to a third party has traditionally been viewed as good consideration, particularly in the family context.
DUTY OWED TO A 3RD PARTY
Pao On v Lau Yiu Long [1980] AC 614 (PC) Facts: • P: Owner of all shares of private company, Shing On; D: Lau Yi Long, majority shareholder in public company, Fu Chip. • Fu Chip wants to acquire the building of the P which was their principle asset. • Two agreements were made. The first, the P agreed to sell the Fu Chip all their shares in Shing On, in exchange for 4.2 million shares of Fu Chip. • P promised to hold onto some of the shares for a year and a bit to not depress the market. • The subsidiary agreement made specifically with the D (Long) promise to buy back the portion of shares that were being held for a year for a set price in case the price fell. • P was therefore not entitled to get any price increases on those withheld shares since they would be bought back at a set price, and they would have to wait a year until they could realize any benefit from those withheld shares. • The P realized this was a bad deal and said they would not execute the main agreement unless the subsidiary agreement was changed. • D changed it and signed a guarantee that if the price fell below the fixed price on the date the withheld shares could be sold, the D would compensate the P the difference. • The shares fell dramatically, and the D refused to fulfill the guarantee.
Issue: • Did the Plaintiffs give consideration for the Defendant’s guarantee (i.e. the promise to compensate for a drop in value of Fu Chip shares below $2.50)? • Can an action already performed be consideration for a subsequent promise?
Analysis/Holding: • All three principles (see below) were present in this case: • 1) The promise to given to the Fu Chip to not sell the shares for a year was at the D's (Long) request. • 2) the parties understood at the time of the main agreement that the restriction on selling was compensated by a benefit of a guarantee against a drop in price. • 3) Such a guarantee would be legally enforceable. • The evidence shows that the consideration for the promise of financial protection, was the primary promise given by P to D to perform the main contract, which included holding on to the shares for a year. • This promise was consistent with the consideration stated in the guarantee. • The guarantee was therefore valid consideration unless it was made out of economic duress
Principles:
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• An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. • 1) The act must have been done at the promisor's request, • 2) the parties must have understood that the act was to be remunerated either by a payment or the conferment of some other benefit (the understanding may be implied), • 3) Payment or conferment of a benefit, must have been legally enforceable had it been promised in advance (no condition exists that would make the contract unenforceable, e.g. duress),
Issue 2: • Is the performance of (or promise to perform) a pre-existing duty owed to a third party (Fu Chip) consideration for a promise?
Holding 2: • An agreement to do an act which the promisor is under an existing obligation to a third party to do, may amount to consideration. • The benefit received by Long (D), got the benefit of a direct obligation that Pao On hold the shares for 1 year. If they did not, they could sue them for breach. • Both Fu Chip and Long could sue Pao Long under breach for the respective contracts. Illegality Argument • Why did the D give the agreement to Pao On? • Because Pao On was threatening to not perform its contract with Fu Chip. • The Court says that the threat of breaching the contract was not enough to make the contract unenforceable. • There would have to be actual duress.
DUTY OWED TO THE PROMISOR
Stilk v Myrick Eng KB 1809 Facts: • P: Seaman; D: Captain • An action for seaman's wages on a voyage from London to the Baltic and back. • The ships articles, executed before the voyage, stated the plaintiff was to be paid 5 pounds per month. • Two seamen deserted, and the Captain entered into an agreement with the rest of the crew, that they should have wages of the two who deserted spread equally among them if new crew members were not found. • They were not, and the voyage back to London was made with the crew who had struck the agreement the Captain.
Issue: • Did the plaintiff sailors give consideration in exchange for the promise to pay more? • Can the performance of or a promise to perform a pre-existing contractual obligation be consideration for a new promise made by the other party (i.e. the promisor)?
Analysis/Holding: • A previous case had held that there would be no action against a captain who promised extra wages in consideration of his doing more than the ordinary share of duty because otherwise Sailors would hold the ship hostage unless the captain gave in to their demands. This was a public policy concern. • The agreement is void for want of considerations. • There was no consideration for the ulterior pay promised to the seaman who remained with the ship.
7 • Prior to leaving on the voyage, they had undertaken to all they could, under all emergencies of the voyage. • They had sold their services till the voyage was complete. • If they had have been able to quit at the location the promise was made or if the captain had discharged the two men, the others might not have been able to be compelled to take the whole-duty upon themselves, and their agreeing to do so may have been sufficient consideration for the promise of an advance of wages. • Desertion of the crew is considered to be an emergency of the voyage, and those who remain are bound by their original contract.
Principles: • The performance of or a promise to perform a pre- existing contractual obligation is not consideration for a new promise made by the other party (i.e. the promisor).
Gilbert Steel Ltd v University Const. Ltd. (1976), 12 OR (2d) 19, (CA) Facts: • P: Gilbert Steel; D: University Const. • The plaintiff brought actions for damages for breach of an oral agreement for the supply of fabricated steel bars to be incorporated into three buildings. • The P and D entered into the first written contract to deliver to the defendant fabricated steel at a fixed price. • The first two buildings were finished accordingly and then prior to the third building, the P let the D know that there was an increase in the price of fabricated steel and gave warning of a future price increase. • The P and D entered into a second contract at higher prices for steel. • Mid-way through construction of the first of the last set of buildings, the P notified them of another price increase. • No third contract was made, but an oral agreement was found by the trial judge for the increase price. However, there were two conditions in that oral agreement that were unilaterally imposed by the P on the D. • The D paid the P by rounding, which resulted in a balance owed to the P in accordance with the invoices.
Issue: • Did Gilbert Steel give consideration in exchange for the promise to pay more? • Can the performance of or a promise to perform a pre-existing contractual obligation be consideration for a new promise made by the other party (i.e. the promisor)?
Analysis/Holding: • D submitted that past consideration is no consideration, and the plaintiff was already obliged before the oral agreement to deliver the steel in accordance with the second contract. Where was the quid pro quo for the defendant's promise to pay more? • The P argued that they had promised to give a good price on steel for the second of the last set of buildings in agreement for the D paying an increased price on the first. • The appeal judges reject the submission that there was an entirely new contract as price was the only condition that changed, so there was no recision of or intent to rescind the original contract. • Two other changes made by the plaintiff in the oral agreement were unilaterally imposed and rejected by the trial judge. • There is also no consideration for the plaintiff's promise of “a good price” on steel for the second of the last set of buildings (there was no actual commitment given). • There was also no consideration in the increased credit inherent in the increased price afforded to the D by the P. • Finally, did the D by not repudiating the invoices with the increased price when they were received acquiesced to the increase in price and could subsequently not refute it. • Estoppel can only be used as a sword and not a shield. A claim cannot be found in estoppel. • In order for there to be estoppel, the P must show that the D gave up on its right to insist on the original prices but also that the P relied on the D's conduct to its detriment. 8
• The oral agreement was an agreement to alter the second contract and is not enforceable for want of consideration.
Principles: • The performance of or a promise to perform a pre-existing contractual obligation is not consideration for a new promise made by the other party (i.e. the promisor). • A promise to vary a term of an existing contract is not enforceable unless new consideration can be found to support the promise.
Williams v Roffey Bros & Nicholls (Contractors) Ltd. Eng CA 1990 Facts: • P: Sub-Contractors (Williams); D: Contractors • The D hired the P as a sub-contractor to do carpentry on a number of units in building project it had. • The set price was 20,000, however, the P ran into financial difficulties and the D agreed that the price agreed to was too low. • They D was concerned the project wouldn’t be finished on time since they were liable to the person who hired them to have it done. • The D agreed to pay the P an additional rate per unit until the work was done and make some interim payments. • The D stops making the additional payments and the P stops working claiming they are owed over $10,000.
Issue: • Was Roffey Brother’s promise to pay more for the carpentry work to be performed by Williams contractually binding? • Was there consideration for the defendants’ promise made to pay an additional price at the rate per completed flat? • Is a promise to vary the terms of a contract ever contractually binding where the promisee has only done or agreed to do what she or he was legally obliged to do under the original contract terms?
Analysis/Holding: • Economic duress exists when the sub-contract has agreed to complete work at a fixed price and then stops work and says they will not resume again until the contractor agrees to pay more. The sub-contractor may be held guilty of securing the contractor's promise by taking unfair advantage of the difficulties they will cause if they don’t complete the work.
• Gildewell J: i) if A has entered into a contract with B to do work for or to supply goods or services to B in return for payment by B and • ii) at some stage before A has completely performed his obligations under the contract B has reason to doubt that A will or will be unable to complete his side of the bargain and • iii) B thereupon promise A an additional payment in return for A's promise to perform his contractual obligations on time and • iv) as a result of giving his promise B obtains in practice a benefit or obviates a dis-benefit and • v) B's promise is not given as a result of economic duress or fraud on the part of A, then • vi) the benefit to B is capable of being consideration for B's promise.
• Russel LJ: there must still be consideration, but courts now should be more ready to find its existence so as to reflect the intention of the parties to the contract where the bargaining powers are not unequal and where the finding of consideration reflects the true intention of the parties. • The P acknowledged the original price was lower than what he considered reasonable.
9 • The D received a benefit of retaining the services of the plaintiff and not having to find another sub-contractor, which was consideration for the additional sums.
• Purchas LJ: This arrangement was beneficial to both sides. • Where the agreement on which reliance is placed provides that an extra payment is to be made for work to be done by the payee which he is already obliged to perform, then unless some other consideration is detected to support the agreement to pay the extra sum that agreement will not be enforceable. • The additional agreement came from the defendants and so they cannot rely on economic duress as a defence. • What was the consideration then? A commercial advantage to both sides, including the defendants securing their position. • If both parties from an agreement benefit, then it is not necessary that each also suffer a detriment.
Principles: • See judges above.
Notes: • Fraud: You conduct yourself recklessly or you miss-represent yourself such as your financial situation. • Extortion is extracting something from someone using threats. • Duress: NAV Canada decision. Greater Fredericton Airport Authority Inc v NAV Canada [2008] NBJ No 108 (NB CA) Facts: • Federal Government enters into agreement with NAV, where NAV will take care the air navigation services at airports in Canada. • Canada starts selling airports and the Greater Fredericton Airport Authority (GFAA) is created and is assigned the government’s duties under the agreement with NAV. • GFAA is extending a runway and asks NAV to move some equipment, which they will not do unless GFAA pays for an additional new equipment. • GFAA agrees to pay under protest via letter for the acquisition cost of the equipment. • NAV installs the new equipment and GFAA refuses to pay.
Issue: • The issue went to arbitration where it was ruled that under the agreement NAV was not entitled to be reimbursed, however, it was held that the later exchange of correspondence constituted a separate binding contract that entitled them to reimbursement. • It was appealed to the NBCA. • Was the promise to pay for the equipment by GFAA supported by consideration from NAV?
Analysis/Holding: • Stilk v Myrick is the basic rule, which Gilbert Steel in Canada adopts. • The performance of a pre-existing obligation does not qualify as fresh or valid consideration, and an agreement to vary an existing contract is not enforceable. • In the English case, Roffey Brothers, the Court recognized a practical benefit or commercial advantage as consideration for a promise to vary a contract. • An exchange of promises or detriment on the part of the promisee is not required, so long as the promisor obtains some benefit or advantage. • The NBCA states that there are valid policy reasons for these refinements to consideration doctrine. • The rule in Stilk v Myrick, is still valid, however, it should not be determinative as to whether a gratuitous promise is enforceable.
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• The contract was found to not be valid because it was procured under economic duress, and NAV as the party seeking to enforce the variation, has the burden to establish there was no duress.
Principles: • The NBCA adopts the Roffey Brothers’ principle: • A post-contractual modification, unsupported by consideration, may be enforceable so long as it is established that the variation was not procured under economic duress. • If its clear the parties intended to enter into this modification and it was not made under duress. • The court views this as incrementally modernizing the rule in Stilk v Myrick.
Economic duress (O’Bryne) • Contracts that are made as a result of one of the parties being threatened with physical harm or actually harmed are obviously not enforceable. Duress is now a broader concept and includes economic duress. • The House of Lords in Pao On (involving a threatened breach of contract) defines duress as “coercion of will so as to vitiate consent” but adds the proviso that “in a contractual situation commercial pressure is not enough.” • In a commercial context, economic duress often involves one party financially pressuring the other. For example, a company might threaten to break a contract that it knows is extremely important to the other side unless the other side grants certain concessions or payments in return. • Coercion of will so as to vitiate consent is a tough test to meet, so now in Canada the test is: • Universe Tankships (1983), stating that duress requires showing: • (1) pressure amounting to compulsion of will of the victim [no practical alternative]” and • (2) the illegitimacy of the pressure exerted.
• In NAV Canada, the CA set out its own test (which reflects the law in NB): • First, the promise (the contractual variation) must be extracted as a result of the exercise of ‘pressure’… • Second, the exercise of that pressure must have been such that the coerced party had no practical alternative but to agree to the coercer’s demand to vary the terms of the underlying contract. • Once these thresholds are met, the issue shifts to whether the coerced party ‘consented.’ In this regard, there are three factors to consider • (1) whether the promise (to pay more) was supported by consideration (If consideration is received, means there is less likely to be duress); • (2) whether the coerced party made the promise ‘under protest’ or ‘without prejudice’; and • (3) if not, whether the coerced party took reasonable steps to disaffirm the promise as soon as practicable. • In the NAV, case these 2 thresholds and 3 factors were met and there was duress.
SUMMARY FULFILLMENT OF PRE-EXISTING LEGAL DUTY OWED TO A PROMISOR • Is not good consideration: Stilk; Gilbert • Can be good consideration if practical benefit: Roffey • Do not need consideration but there cannot be duress: NAV
REVIEW • A promises to deliver a specific number of widgets at a certain price by a fixed date. • B promises to pay for those widgets at that price and on that date. • The promises are consideration for each other and therefore we have a contract that is actionable.
• Shadwell p. 179: 11 • Nephew promises to marry his now fiancé, this a contract (and still is in Alberta). • Nephew then enters into a contract with his Uncle who promises to give him some money when he does get married. • This is an analogous situation to the Pao On case. • The Uncle receives in consideration a promise to his request that the Nephew marry. The uncle is getting what he wants hence reciprocity.
PROMISES TO ACCPET LESS
Foakes v Beer (1884), 9 App. Cas. 605 (HL) Facts: • Beer lends Foakes 2090 pounds, there is a statement of claim for Foakes to pay Beer back, and the result is that Beer is the judgment creditor and Foakes is the judgment debtor. • The parties then enter into an agreement on Dec. 21, 1876 for Foakes to pay her back because he cannot pay it all at once. • 500 pounds is due on signing the agreement, with 150 due every six months until the money is paid back. • The debt had been paid in full, but Beer brought a suit against Foakes for interest. • On appeal, Beer was awarded interest.
Issue: • Was the payment plan agreement signed on December 21, 1876 legally enforceable since it was not in seal? • In order for it to be legally enforceable Beer has to have received consideration from Foakes or it has to act by way of accord or satisfaction to extinguish the claim for interest.
Analysis/Holding: • On the face of the agreement there is no consideration. • The 500 paid on agreement was payable under a judgment and as part of the larger debt due. • Foakes did not contract to pay the future installments of 150 pounds, and he did not give any new security. • The plaintiff, Beer, had made a promise de future that if the 150 pounds per six-month payments were made she would not take action. • If Foakes was not under some antecedent obligation to pay his whole debt, then the fulfillment of these payments may have acted as some form of consideration on his part for the promise of forbearance.
• The Court finds that there was no consideration. • The Court also finds that there could be no complete accord or satisfaction while there were still future payments to be made, and payments on account could not operate in law as a satisfaction ad interim conditionally upon other payments being made afterwards. • The rule is (as per Pinnel’s Case): that payment of a lesser sum on the day in satisfaction of a greater cannot be any satisfaction for the whole because it appears to the judges that by no possibility a lesser sum can be a satisfaction to the plaintiff for a greater sum.
Principles: • A lesser sum of money cannot be a satisfaction of a greater, unless an acquittance under seal in full satisfaction of the whole is made which would be valid and binding. • An agreement not under seal: there is no consideration by the debtor who pays down part of the debt due from him for a promise by the creditor to relinquish, after certain future payments are made, the residue of the debt.
Notes:
12
• Accord and satisfaction: accord and satisfaction is the purchase of a release from an obligation … by means of any valuable consideration, not being the actual performance of the obligation itself. The accord is the agreement by which the obligation is discharged. The satisfaction is the consideration which makes the agreement operative.
• This case was from 1884 but it had some Roffey brothers feel to it since Beer was receiving a practical benefit of receiving some money on a schedule and having the cooperation of Foakes. The court did not see it this way. • There is also a policy consideration at play where the debtor could withhold payment in order to extract a better payment deal from the creditor. The decision by the court is a pro-creditor decision. • You could put the contract under seal or have nominal consideration in order to have the contract be enforceable.
• Ms. Beer could also seek a rectification: The essence of rectification is to bring the document which was expressed or intended to be in pursuance of a prior agreement into harmony with that prior agreement. It deals with the situation where, contracting parties have reduced into writing the agreement reached by their negotiations, some mistake was made in the wording of the final, written contract, altering the effect, in whole in or part, of the contract. • Rectification is not used to vary the intentions of the parties, but to correct the situation where the parties have settled upon certain terms but have written them down incorrectly. • The SCC recently made a decision on this in Fairmont Hotels 2016 SCC 56.
PAROLE EVIDENCE RULE • Traditional articulation: where a written agreement appears on its face to be a complete agreement, parol evidence [outside communication] cannot be admitted that contradicts, varies, adds to or subtracts from the terms of the written agreement. • Under this version of the rule, one must determine that the written agreement appears to be, in some sense, incomplete before one can turn to consider evidence of prior communications [whether written or oral].
• Modern approach: places emphasis on the need to demonstrate that the parties actually intended to reduce the agreement into writing as a precondition to the application of the rule. In determining whether the parties actually did intend to reduce their agreement into written form, all evidence of their prior communications relevant to this issue…is admissible. • Under this version of the rule…a party could lead evidence demonstrating that a written agreement that appears complete on its face is actually merely a component of an agreement that is intended to by the parties to be partly oral and partly in writing.
Aside of rectification • The essence of rectification is to bring the document which was expressed or intendent to be in pursuance of a prior agreement into harmony with that prior agreement. It deals with the situation where, contracting parties have reduced into writing that agreement reach by their negotiations, some mistake was made in the wording of the final written contract, altering the effect. What the court does is alter the document, in accordance with the evidence, then enforce the document as changed. Rectification is not used to vary the intentions of the parities but to correct the situation where the parties have settled upon certain terms but have written them down incorrectly.
• The Supreme Court of Canada in Canada (AG) v Fairmont Hotels Inc, 2016 SCC 56, [2017] 2 SCR 720 at para 32, the party seeking rectification must “identify the terms which were omitted or recorded incorrectly” and provide evidence of the definite terms that the parties “had specifically agreed to” at the time the contract was formed. What the courts will not permit is an attempt by parties “to go back in time and re-engineer a concluded transaction.”
13 Re Selectmove Ltd [1995] 2 All ER 531 (CA) Facts: • Selectmove deducts payment from its employees for EI and income tax, which it is the supposed to pay the Crown, however, it was not paying the money to the government. • The company proposed on July 15 that it would start making the current payments and pay the arrears amounts a rate of 1,000 a month. • The tax collector said he would have to get approval for the plan from his superiors and would get back to the company if the deal was unacceptable. • On October 9, the Crown demanded payment in full of 24,650. • The company from November to April was making current payments and made seven 1,000 payments. • Eventually, the company dismisses all its employees and sold its work to another company. • The Crown applied for a compulsory liquidation of the company to make a payment of 17,466.
Issue: • The Court found that the Crown could not have accepted the July 15 agreement but considered in the alternative, if there had been consideration, whether the agreement was supported by consideration.
Analysis/Holding: • The Crown argued the principle in Foakes v Beer applied. • The company argued that the Crown received additional practical benefits from the July 15 agreement: the Crown would receive more from the company if the debt was not enforced, given the financial troubles, than it would receive if the company was put into liquidation. • The company had paid its current obligations as well as 7000 on arrears. • The company relied on the argument of Williams v Roffery Bros for the proposition that a promise to perform an existing obligation can amount to good consideration provided that there are practical benefits to the promisee. • The Court in this case is deciding whether to extend the principle that applied to the case where B was to do work for A to the case where B’s obligation is to pay A. • If this extension is to be made it must be made by parliament or the house of lords. • Accordingly, there is no consideration and there was no agreement between the Crown and the company. • Roffey Bros does not apply to situations where there is a promise to accept less for payment of a greater sum.
Principles:
Notes: • The result in Selectmove (from England) is at odds with the Canadian decision in Robichaud. Foot v Rawlings [1963] SCR 197 Facts: • The appellant owed the respondent a large sum of money, and then entered into an agreement in July 1958. • The terms of the agreement included that the respondent would lower the interest rate on the debt from 8 to 5% if the debtee makes $300 a-month-payments by writing six cheques at a time for the next six months and the cheques do not bounce. • If the debtee defaults on the debt, then the interest rate goes back up and the debtor can bring suit.
Issue: • The respondent succeeded at trial for the balance of debt, even though the debtee continued to make the payments.
14
• The issue became whether there was consideration received by the debtor in the agreement of July 1958.
Analysis/Holding: • The giving of the several series of post-dated cheques constituted good consideration for the agreement by the respondent to forbear from taking action so long as the appellant continued to deliver the cheques. • Why? Cheques are of uncertain value … the court is saying it is a piece of paper (it could bounce) (see Sibree notes below) • The agreement discloses an undertaking by the appellant to give cheques from time to time, and this undertaking is the consideration for the respondent’s agreement to withhold action as long as the appellant continue to carry out the agreement. • If the appellant defaulted then the respondent could bring action but until then the right to bring suit is suspended. • The agreement was also at the request of the creditor, which is not definitive, but certainly helps because it may indicate the there is some practical value/benefits to the creditor.
Principles:
Notes: • This a results-oriented decision, it may not stand on solid ground but the Court wants to enforce this decision. • To get around Foakes, in the Sibree case, the English Court of Appeal became creative. Page 205, quote: • If you substitute for a sum of money a piece of paper (or a stick of wax), then the bargain may be satisfied. • The court can say that the other thing, say a horse worth 100 in payment of a 200 debt, is of uncertain value. • So in the Sibree case, the promissory notes are of uncertain value.
• Even though this is an SCC precedent, it might not be the best case to cite and take to court, its robustness is in question. • Still worth noting in an exam.
Robichaud c Caisse Populaire de Pokemouche Ltee (1990), 69 DLR (4th) 589 (NB CA) Facts: • The Caisse obtained a judgment against the plaintiff for $3,800. The Royal Bank also obtained a judgment against the plaintiff for $10,000. • Note: upon obtaining a judgment for an amount owed, Caisee is a judgment creditor, which means they have certain remedies available to them to collect their debt. • As part of the debt consolidation negotiated by Avco, both the Royal Bank and Caisee agreed to remove from the registry their judgments against the plaintiff in exchange for the payment of $1000 to each creditor. • A cheque for $1,000 was sent to the Caisee • The board of directors for the Caisse refused to ratify the agreement, which had been reached through a local manager. • The plaintiff sued the Caisse to accept the cheque.
Issue:
Analysis/Holding: • This case works for both promises to accept less and promissory estoppel. • Promise to accept less: Caise is arguing that there is no consideration, as per Foakes v Beer, in their promise to accept less in payment of a greater amount.
15 • It cannot be denied that a financial institution, of its own accord and knowing all the consequences of its actions, entered into an agreement by which it agreed to waive the priority judgment in its favour in return for part payment of the debt. • This agreement constituted full satisfaction. • The consideration for Caisse was the immediate receipt of payment and the saving of time and expense. Caisse would have to garnish wages and re-possess assets, etc in order to realize on its judgment. • It is not up to the court to judge the reasons for entering into such an agreement but rather to determine that the agreement was reached with full knowledge and consent.; • It would be foolish to suppose that financial institutions disdain the old adage “a bird in the hand is worth two in the bush.”
• Can Robichaud rely on promissory estoppel to enforce Caisse’s promise? • There is a previous legal relationship in the form of judgment debtor/creditor. • There has been reliance to his detriment since he went to Avco and had a debt consolidation plan put in place. • There are equitable reasons. • However, Robichaud is suing on the representation, i.e. breaking the promise for full satisfaction of the debt is the cause of action. • The NBCA relaxes the rule from Combes v Combes and allows Robichaud to use promissory estoppel. • As a judgment creditor, Caisse does not have to go to court to repossess Robichaud’s stuff, therefore in the court’s view, Robichaud would not have the opportunity to use the promissory estoppel defence in court. • However, the issue with this is that upon repossession, he could file an objection with the Court, which would then give him an opportunity to use promissory estoppel defence. • Caisse would first use the defence that they are a judgment creditor, then as a defence to that defence promissory estoppel would be invoked.
Principles:
Notes: • On promises to accept less, while the Court does not reference Roffery Bros, there is a similar idea that a practical benefit can be good consideration for a promise. The practical benefit here being a savings of time and expense.
Judicature Act RSA 2000, c J-2, s 13(1) • (1) Part performance of an obligation either before or after a breach thereof shall be held to extinguish obligation • (a) when expressly accepted by a creditor in satisfaction, or • (b) when rendered pursuant to an agreement for that purpose though without any new consideration. • This goes to Foot v Rawlings. • This covers installment payments that are all made. But if the payments are still being rendered, then perhaps it is not clear. If the arrangement remains executory, it could be that the creditor is able to revive the existing debt. • This likely covers executory agreements in Alberta.
PROMISSORY ESTOPPEL AND WAIVER • Goes to the notion that sometimes it is just unjust to allow people to rely on their strict legal rights because it is unpalatable. They are not allowed to do what the contract say that they are able to do. • It has to be very confined and it cannot be some random thing because people want to be able to rely on their contracts. • A less for more agreement has three responses. Common law, legislative response, and now equity.
16
Hughes v Metropolitan Railway Company (1877) 2 AC 439 (HL) Facts: • The railway company, the respondent, leased property from the appellant (Hughes). • On October 22, 1874, the landlord pursuant to its right under the lease served notice on the tenant demanding that it repair the property within six months. • This is called a covenant to repair. • The tenant replied on November 28 by suggesting the landlord buy the tenant’s leasehold and proposing to defer commencing the repairs until we hear from you as to the probability of this arrangement. • They started negotiating for the lease hold, but talks broke down at the end December. • On April 19, the tenant wrote to the plaintiff saying it would now undertake the repairs (three days before the notice was due) • On April 28, the landlord served a writ of ejectment on the tenant. The tenant completed the repairs in June. • The landlord sued to enforce the writ.
Issue: • Should the landlord get his writ of ejectment? • When did time run against the tenant?
Analysis/Holding: • It seems to the court that all the time which had elapsed between the giving of the notice in October and the letter of the 28th was waived as part of the six months during which the repairs were to be complete. • The time between November 28 and December when the talks broke down is also waived. • December 31st was the first point at which the time began to run for the respondent to complete the repairs.
• Appeal allowed.
Principles: • If parties who have entered in definite and distinct terms involving certain legal results – certain penalties or legal forfeiture – afterwards by their own act or with their own consent enter in a course of negotiations which has the effect of leading one of the parities to suppose that the strict rights arising under the contract will not be enforce, or will be kept in suspense, the person who otherwise might have enforce those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have this taken place between parties.
Notes: • Perhaps a common law argument could be made that the offer to negotiate was an offer to vary the contract, and by entering into negotiations there was acceptance by conduct. • Consideration to the landlord would be the benefit of buying back their leasehold.
Central London Property Trust Ltd v High Trees House Ltd. [1947], 1 KB 130 Facts: • A lease was made under seal on September 24, 1937, the plaintiffs, Central London Property, granted to the defendants, High Trees House, a subsidiary of the plaintiff company, a tenancy of a block of flats for a term of 99 years at a ground rent of 2,500 pounds a year. • Due to war conditions, there were no renters and the rent could not be paid by High Trees to Central London. • An arrangement was made between the two companies, in writing, which lowered the rent starting in 1940 to 1,250 pounds per year.
17 • The reduced rent was paid from 1941 until 1945, by which time all the flats were rented. • The plaintiff at this time decided that the rent should actually be 2,500 pounds and claimed arrears of almost 8,000 pounds were due. • The landlord, Central London, is put into receivership by one of its creditors, which explains why the parent company is going after its subsidiary for these payments. • The defendants pleaded that 1) the agreement in 1940 lowered the rent to 1,250 for the entire term of the lease; 2) they pleaded in the alternative that the plaintiff was estoppel from alleging that the rent exceeded the 1,250 and 3) that by failing to demand rent in excess of 1,250 prior to 1945, they waived their rights in respect of any rent in excess of that rate that had accrued up until this point.
Issue: • Is there an estoppel?
Analysis/Holding: • Under the old common law, a lease under seal could not be carried by an agreement by parol (whether in writing or not), but only by a deed. • Equity, however, stepped in and said that if there has been a variation of a deed by a simple contract, (which in the case of a lease required to be in writing would have to be evidenced by writing), the courts may give effect to it. • That equitable doctrine, however, could hardly apply in the present case because the variation here might be said to have been made without consideration. • “With regard to estoppel, the representation made in relation to reducing the rent, was not a representation of an existing fact. It was a representation, in effect, as to the future, namely, that payment of the rent would not be enforced at the full rate but only at a reduced rate. Such a representation would not give rise to an estoppel since a representation as the future must be embodied as a contract or nothing.” • HOWEVER, in recent years, there have been decisions which have said that similar promises should be honored.
• Lord Denning in this case decides that the time has come for the validity for the promise. • A promise to accept a smaller sum in discharge of a larger sum, if acted upon, is binding notwithstanding the absence of consideration. • Even though this really isn’t the issue here, he is planting this so he can use it later if he needs to and then has precedent to cite. • Furthermore, such a promise should be enforceable in law even though no consideration for it has been given by the promisee. • In the present case, there was a promise to reduce the rent to 1,250 but only as a temporary expedient while the block of flats were not full. In 1945, the conditions changed, and the amount received for them was in excess of what was expected. • The court is satisfied that that the promise was understood to only apply to the period where the conditions prevailing made it so the flats were not let. • The rent payable starting in 1945 is the full amount. • If the case was one of estoppel, it might be said that in any event the estoppel would cease when the conditions to which the representation applied came to an end, or it might also be said that it would only come to an end on notice. • The court prefers to apply the principle that a promise intended to be binding, intended to be acted upon and is in fact acted upon, is binding so far as its terms properly apply. • Judgment for the plaintiff.
Principles: • Equitable or promissory estoppel: • What is the representation: If war time and flats not fully let for that reason then you don’t have to pay the full rent amount.
18
• Could the landlord back away from the estoppel on notice? • The court will look contextual at what is fair. • They would likely be estopped from arrears. But what about going to the future? There may be situations where you cannot give reasonable notice. • The general rule is if reasonable notice is given then you can end the estoppel.
Notes: • At the time of this decision there was one definition of estoppel: If one party makes a representation as to a present or past fact upon which the other party relies to his detriment, the representor cannot afterwards repudiate the representation (estoppel by representation) • The High Trees case is not going to the present or past, it is going to the future since the landlord said they would not (going forward) charge the full rent.
• Promissory estoppel can be permanent or suspensory.
• There can be continuing obligations, such as paying lower rent when the flats are not fully let and there are war time conditions. • Or once and for all obligations,
• Questions following the case:
• 1) Would the plaintiffs have recovered the full rent had they sued in 1943? • The war conditions were still present but what was truly the nature of the representation? • If the war time conditions are the true representation, then they would have likely not been able to recover.
• 2) If they had given notice in 1943 that they intended to claim the full amount would they have been able to? • Subsequently the case law added reasonable notice. • Lord Dennings idea is that reasonable notice has to be given in future cases.
John Burrows Ltd v Subsurface Surveys Ltd. [1968] SCR 607 Facts: • Subsurface buys part of a business from the plaintiff. • Included in the purchase price was a promissory note where the defendant paid 42,000 upfront and then agreed to make monthly installments. • If the instalments were late, the plaintiff could accelerate the payments and claim the entire amount due. • The instalments are regularly late, however, the plaintiff does nothing. • There is a disagreement between the plaintiff and defendant, so the next time the defendant misses a payment, the plaintiff sues for the entire amount.
Issue: • Does the defence of promissory estoppel apply? • By accepting late payments month after month, is the plaintiff saying that the acceleration clause will not be invoked, and therefore promissory estoppel applies?
Analysis/Holding:
19 • It is the first principle upon which all Courts of Equity proceed, that if parties who have entered into definite and distinct terms involving certain legal results – certain penalties or legal forfeiture – afterwards by their own act or with their own consent, enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce when, where it would inequitable having regard to the dealings which have thus taken place between parties (HL in Hughes v Metro Ry. Co., 1877) • This type of equitable defence cannot be invoked unless there is some evidence that one of the parties entered into a course of negotiation which had the effect of leading the other to suppose that the strict rights under the contract would not be enforced. • This implies that there must be evidence from which it can be inferred that the first party intended that the legal relations created by the contract would be altered as a result of the negotiations. • The evidence here does not warrant the inference that the appellant entered into any negotiations with the respondents which had the effect of leading them to suppose that the appellant had agreed to disregard or hold in suspense or abeyance that part of the contract … • Is the conduct of taking 18 payments late a representation that the acceleration clause would not be invoked? • This worked on a lower court but before the SCC they say it was a friendly indulgence. • There was no representation and the defence of promissory estoppel fails. • Appeal allowed.
Principles:
Notes:
D&C Builders Ltd. v Rees [1966] 2 QB 617 (CA) Facts: • The plaintiffs are two men who renovate buildings. The defendant is a store owner. • The plaintiffs did work on the defendant’s building and the finished work was billed at 746 pounds. • The defendant paid 250 pounds. • The plaintiffs made an allowance for 14 pounds off the bill. • The remainder was 482 pounds which the defendant did not pay. • The plaintiffs tried to get a hold of Mr. Rees but could not for many weeks. • Eventually, Mrs. Rees calls the plaintiff says her husband is sick and complains about the work done. She offers 300 in settlement for the bill, knowing that D&C has money troubles. • Due to the financial troubles of the company, the plaintiffs accepted the 300. • The plaintiffs then call the defendants and say 300 will not settle the commitment but they will accept it for now and given them a year to pay the rest. • The defendant resisted and eventually the 300 was paid, the receipt given said that this would be the completion of the account as insisted upon by the defendant. • The defendants defence is that there was bad workmanship and that there was a binding settlement.
Issue: • Is there consideration supporting the creditor’s promise to accept the lesser amount in full satisfaction of the whole? • Is the creditor estopped from seeking the balance?
Analysis/Holding: • The trial judge held that the payment by cheque was incidental to the arrangement. He found for the plaintiffs. • The defendants appealed on the basis that there was accord and satisfaction. 20
• In the eyes of the common law, the creditor should be able to claim the rest of the money owed, as was the case in Pinnels case and Foakes v Beer. • Then equity stretched out its merciful hand: parties will not be allowed to enforce their rights where it would be inequitable having regard to the dealings which have taken place between the parties. • This principle has been applied to cases where a creditor agrees to accept a lesser sum in discharger of a greater. • The Court in this case notes a qualification: The creditor is barred from his legal rights only when it would be inequitable for him to insist on them. Where there has been a true accord, under which the creditor voluntarily agrees to accept a lesser sum in satisfaction and the debtor acts on that accord by paying the lesser sum and the creditor accepts it, then it is inequitable for the creditor afterwards to insist on the balance. • But he is not bound unless there has been truly an accord between them. • In this case there was no true accord. The debtor’s wife held the creditor ransom, since she knew they were in need of money (undue pressure). She threatened that if they did not take 300 then they would get nothing. • Duress = no practical alternative. • She was trying to compel the creditor to do what he was unwilling to do. • There is no reason in law or equity why the creditor should not enforce the full amount. Appeal dismissed. • Judgment for D&C, as the plaintiff and creditor.
Principles:
Notes:
Saskatchewan River Bungalows Ltd v Maritime Life Assurance [1994] 2 SCR 490 Facts: • Maritime is the appellant and they issued an insurance policy on the life of Fikowski. • The Policy was issued to the respondent Saskatchewan. SRB was responsible for paying the annual premiums. • There was a clause that allowed a 30-day grace period following a missed payment. • If the grace period lapses without payment the policy lapses. • The policy can be reinstated upon proof of good health and insurability.
• In 1979, the policy lapsed after the annual premium was not paid within the grace period. • The policy was then reinstated. • In 1981, SRB again failed to make payment within the grace period, but Maritime accepted the late payment and did not require proof. • In July 1984, SRB mailed a cheque for the annual premium for $1,316. • In August 1984, Maritime sent a premium due notice requesting payment of $1,361. • SRB mails a cheque for $45 dollars. • The second cheque was received but the first one never was. • The grace period lapsed and Maritime sent a late payment offer to SRB. SRB did not respond. • Maritime then in November sent Fikowski an letter that the policy was technically out of force, and immediate payment was required. • A final policy lapse notice was sent in February 1985.
• Due to SRBs business, they did not receive the notice until April 1985. • In July 1985, SRB sent a cheque for last years and this years premiums which were refused.
• Fikowski dies and Maritime declares the policy of no force and effect.
Issue: 21 • Is there a waiver? • If yes, does the insurer have to give reasonable notice to resile?
Analysis/Holding: • The ABCA considered the doctrine of promissory estoppel, which suggests that a party should not be allowed to go back on a choice when it would be unfair to the other party to do so. • The SCC, however, decides to deal with the case using the doctrine of waiver. • Waiver occurs where one party to a contract or to proceedings takes steps which amount to foregoing reliance on some known right or defect in the performance of the other party. • Waiver can only be found where the evidence demonstrates that the party waiving had 1) full knowledge of rights; and 2) an unequivocal and conscious intention to abandon them.
• The waiver issue turns entirely on Maritime’s intentions. • The respondents argue that by requesting payment after the grace period lapsed, and by accepting late payment in previous years, and delaying the issuance of the lapse notice until February, Maritime waived its right to require payment in accordance with the terms of the policy. • To the court, the November letter itself constitutes a waiver of Maritime’s right to receive timely payment under the policy. • As late as November, Maritime was willing to continue coverage under the policy upon payment of the July, 1984 premium. • It makes not mention of evidence of insurability nor does it speak to reinstatement. • The overriding consideration in each case is whether one party communicated a clear intention to waive a right to the other party.
• The next question is then whether the waiver was still in effect when SRB tendered payment of the missing premium in July 1985. • Waiver can be retracted if reasonable notice is given to the party in whose favour it operates. • Based on the facts, SRB did not rely on Maritime’s waiver. • The policy has lapsed statement contained in the February lapse notice, took effect on its terms. • When the respondents open their mail in April they clearly became aware of Maritime’s intention to retract its waiver.
• Maritime’s waiver, as contained in November letter, was no longer in effect when respondents sought to make payment in July 1985. • The respondents are not entitled to any of the benefits under the policy.
Principles:
Notes: • Differences between Waiver and PE? • Waiver (Blacks): voluntary relinquishment of some known right, benefit or advantage. • Estoppel (Blacks): is the inhibition to assert it. • The difference, according to O’Bryne, is that there is no difference.
WJ Alan & Co v El Nasr Export & Import Co [1972] 2 All ER 127 (CA) Facts: • The buyers are purchasing coffee from the sellers, Kenyan coffee producers, under two separate contracts. • Payment was to be confirmed by irrevocable letter of credit and the contract was to be governed by English law. 22
• The price in the contracts of sale clearly referred to Kenyan shillings but at the time there was parity between the English pound and the Kenyan shilling. • The buyers open a confirmed letter of credit in sterling through their bank and the sellers’ raised no complaint was to this. • The first shipment was made and part of the second was also made, and the sellers invoiced the bank in sterling and accepted in sterling.
• Eventually the sterling is devalued but the Kenyan currency is not. • The second shipment is made, and the sellers sent their invoice and were paid in sterling. • The sellers then prepared an invoice for an extra number of shillings to offset the devaluation to ensure they were paid the full contract price. • The buyers contended nothing else was owed of them and the sellers brought action for the invoice amount.
Issue:
Analysis/Holding: Megaw LJ: • The relevant transaction here is not one of instalments, it is a once for all transaction. • It is the establishment of a credit which is cover the whole of the payment for the whole of the contract. • Once it has been accepted by the sellers, the bank is committed and is committed in accordance with its accepted terms, and no other terms. • When the letter of credit was accepted as a transaction in sterling as the currency of the account, the price under the sale contract could not remain as Kenyan currency. • Even if there was no variation, the buyers would still be entitled to succeed on the ground of waiver.
Lord Denning: • Is it a variation of the original contract or a waiver of the strict rights thereunder or a promissory estoppel precluding the seller from insisting on his strict rights? • The principle of waiver is: if one party by his conduct, leads another to believe that the strict rights arising under contract will not be insisted on, intending that the other should act on that belief, and he does act on it, then the first party will not afterwards be allowed to insist on the strict legal rights when it would be inequitable for him to do so. • There may be no consideration moving from him who benefits by the waiver. There may be no detriment to him by acting on it. There may be nothing in writing. Nevertheless, the one who waives his strict rights cannot afterwards insist on them. • He may on occasion be able to revert his strict legal rights for the future by giving reasonable notice in that behalf, or otherwise making it plain by his conduct that he will thereafter insist on them. • Denning also says that there does not have to be reliance to a detriment. Is this true? (see O’Bryne handout on PE at #4)
Principles:
Notes:
ESTOPPEL AS A SWORD OR SHIELD
23 Combe v Combe [1951] 1 All ER 767 (CA) Facts: • The parties were married and decided to divorce in 1943. • The wife asks for a 100 pound per year allowance, free of tax, which the husband agrees to. • The wife writes for the first installment of 25 pounds which she does not receive. • For 6 and ¾ years the husband does not make a payment. • In the meantime, the wife does not make any applications to the Divorce Court. • Eventually shoe brought an action claiming arrears for the 675 pounds. • The judge held that 3 payments were barred by the Limitations Act and then awarded her 600 pounds based on the principle of High Trees that a promise was enforceable because it was an unequivocal acceptance of liability, intended to be binding, intended to be acted on and was in fact acted on. • The husband is appealing this decision.
Issue: • Is there consideration supporting the husband’s promise to pay 100 per year? • Is the husband bound by his promise via promissory estoppel? • Can promissory estoppel be used as a cause of action i.e. suing on the promise directly or as a sword.
Analysis/Holding: Was there consideration? • For the 100 she is likely giving forbearance to sue in the divorce for other amounts. • Neither the trial judge nor Denning found consideration. • They found that it was not at the request of the husband so there was no consideration.
Lord Denning: • The principle from High Trees does not create new causes of action where none existed before. It only prevents a party from insisting upon his strict legal rights, when it would be unjust to allow him to enforce them, having regard to the dealings which have taken place between the parties. • Sometimes it is a plaintiff who is not allowed to insist on his strict legal rights. • A creditor is not allowed to enforce a debt which he has deliberately agreed to waive, if the debtor has carried on business or in some other way changed his position in reliance on the waiver. • Sometimes it is the defendant who is not allowed to insist on his strict legal rights. His conduct may be such as to debar him from relying on some condition, denying some allegation or taking some other point in answer to the claim. • In none of the prior cases was the defendant sued on the promise, assurance, or assertion as a cause of action itself: he was sued for some other cause like breach of contract. • The promise, assurance or assertion only played a supplementary role. • The principle never stands alone as giving a cause of action itself, it can never do away with the necessity of consideration when that is an essential part of the cause of action. • The wife cannot enforce the promise because there was no consideration for it.
Principles: • “The principle is that where one party has, by his words or conduct, made to the other a promise or assurance which was intended to affect the legal relations between them and to be acted on accordingly, then once the other party has taken him at his word and acted on it, the one who gave the promise or assurance cannot afterwards be allowed to revert to the previous legal relations as if not such promise had been made by him, but he must accept their legal relations subject to the qualification which he himself has so introduced, even though it is not supported in point of law by any consideration but only by his word.”
24
Notes: • Never forget that if you can deal with a promise via consideration it is easier than promissory estoppel.
• Situation 1: Customer orders good from supplier with delivery on a Friday. • Supplier asks for an extension to Monday. Customer agrees but then refuses delivery on Monday. • Suppliers sues for breach on contract, customer uses the defence of late delivery, the supplier then invokes promissory estoppel. • So while the plaintiff is using promissory estoppel, it is not a sword, rather a defence to a defence.
• Situation 2: Customer agrees to pay more for a car than recited in the contract. The customer then resiles. • The vendor would have to sue for the larger amount (as per Gilbert) and would then be using PE as a sword.
• McCamus: PE can only be used defensively. But the doctrine creates an artificial distinction between concessions granted [promise to accept late delivery] and an affirmative promise to provide greater value [NAV Canada].
Robichaud v Caisse Populaire (see prior case summary)
INTENTION TO CREATE LEGAL RELATIONS
Balfour v Balfour [1919] 2 KB 571 (Eng CA) Facts: • Husband and wife are living in England. • The husband has to leave the country and return home, the wife on the advice of her doctor stays. • The husband agrees to pay her 30 pounds a month while she is in England for her maintenance. • It was understood at the time that the wife would be returning to her husband after a few months but then she suggests that they should remain apart. • She sued him to enforce the agreement of the 30 pound a month payment. • At trial, the judge found that the husband had an obligation to support his wife and the parties had contracted to the extent of that obligation per month. • The consent of the wife to that arrangement was sufficient consideration (i.e. she was giving consideration in the form of forbearance to sue for more as an abandoned spouse)
Issue:
Analysis/Holding:
Lord Atkin: • There can me mutual agreements that are not contracts: one of the most common is the arrangements made between a husband and wife. • The Husband may give the wife some money which she is to use for her maintenance, the maintenance of the kids or the functioning of the household. • This does not however result in a contract. • They are not contracts because the parties did not extend that they should be attended by legal consequences.
25 • To allow this would make it so she could sue him for failure to supply the allowance, and he could sue her for non-performance of her obligation. • The consideration that obtains these agreements is love and affection which the courts do not care about. • The promise here was not intended by either party to be attended by legal consequence. • The common law does not regulate the form of agreements between spouses. • The evidence does not prove a contract.
Principles: • In a commercial situation; intention to create legal relations is presumed. The person disputing the intention has to rebut it. • Family arrangements: No intention to create legal relations is presumed and the person disputing it has to show that there was intention.
Notes: Looking at the Case under an Equity Theory Lens • The law strives for equity • Focus on equity and fairness
Feminist Critique • See slides.
PROMISES UNDER SEAL
• The seal is no longer a necessary condition of enforceability for a promise, however, it is a sufficient condition. • The seal provides clear evidence that the promisor intended to create a legal obligation; and the act of sealing it serves to encourage the promisor to carefully contemplate the legal consequences of their actions.
• The Law of Guarantee ->
Royal Bank v Kiska [1967] 2 OR 379 (CA) Facts: • Kiska’s brother took out a loan. Kiska signed as the guarantee. • The plaintiff brought an action on a guarantee which had been signed by the defendant. • There was no wafer seal attached but the word seal was printed on the document next to where the signature was. • The majority of the Court of Appeal found that the promise was enforceable because of consideration, Laskin dissented on the view that it could only be enforced if it constituted a sealed document.
Issue:
Analysis/Holding: • A wax impression is no longer required and a gummed wafer will do. • The document put forward by the bank has the words “signed, sealed, and delivered in the presence of” and “given under seal”. • At the end of the signature line the words “seal” are there. • Laskin says that those words are not, even when taken collectively, enough to make it a formal seal. • There should be some semblance of formality, common law requires an operative act such as the affixing of wax or the adoption of a seal. • The word seal after the signature line is merely an invitation to place a seal there, including a wafer seal.
26
Notes: • On consideration: the consideration for Kiska’s guarantee was that Bank gave the brother extra time to pay the debt. • Laskin, in dissent, said there was no consideration. The only way it would be enforceable if it is under seal.
Practice Question on Promissory Estoppel/Duress • See slides online • PE on the flow chart: Acted equitably -> did he put pressure on Peter initially? -> Is Doug acting equitably in his actions after having become wealthy (channel Lord Denning)? • It might be worth noting at the end of the answer that there is not a shield/sword issue. • Follow-up with a brief conclusion: at common law …; at equity ….; based on the judicature act … • At common law, if there is consideration then it is a done deal. • With PE, all bets are off, these more often go either way.
THE REQUIREMENT OF WRITING
• The Statute of Frauds applies to certain kinds of contracts and legislation deriving from it is in force in most Canadian Provinces. • Its purpose was to prevent litigants from trying to enforce promises that were never made. • S 4 includes the certain kinds of contracts that have to be in writing to be enforceable. • S 17 stated that contracts for goods of sale greater than 10 dollars had to be in writing. • An equivalent provision is found in the Sale of Goods act RSA 2000 (>$50). • In Alberta, S 4 has been replaced by the Guarantees Acknowledgement Act
Why do certain kinds of contracts have to be reduced or evidenced in writing • Due to the Statute of Frauds, Sales of Goods Acts, Guarantee Acknowledgement act
Rationale for the writing requirement • Shuts the door on confusion, memory loss, strategic memory loss. • Statute of Frauds – to prevent fraud in litigation. Defendants would be the victims of sham litigation in the 1700 through perjured evidence by asserting a contract against the defendant.
What kind of contracts have to be educed to writing or evidenced in writing? • Contracts for the sale of land or any interest concerning them (Deglman v Guaranty Trust) • Contracts not to be performed within a year. • Rule in Adams v Union Cinema: contract only has to be in writing if its performance of necessity must last longer than one year. • Rule in Hanau v Ehrlich: If there is no mention of time and time is uncertain or indefinite the agreement is not within the statute. • A contract for the sale of any good of the value of $50 or upwards. • Sale of Goods Act, RSA 2000, c S-2, s-6 • Enforcement of contract over $50 • 6(1) A contract for the sale of any goods of the value of $50 or more is not enforceable by action • (a) unless the buyer accepts part of the goods so sold and actually receives that part, or gives something in earnest to bind the contract or in part payment, or
27 • (b) unless some note or memorandum in writing of the contract is made and signed by the party to be charged or the party’s agent in that behalf.
• (2) This section applies to every contract referred to in subsection (1) notwithstanding that the goods may be intended to be delivered at some future time, or may not, at the time of the contract, be actually made, procured or provided or fit or ready for delivery or that some act may be requisite for the making or completing the goods or rendering the goods fit for delivery. • (3) There is an acceptance of goods within the meaning of this section when the buyer does any act, in relation to the goods, that recognizes a pre-existing contract of sale whether there is an acceptance in performance of the contract or not.
• A contract under guarantee, Guarantees Acknowledgement Act • Requirements • 3(1) No guarantee has any effect unless the person entering into the obligation • (a) appears before a lawyer, • (b) acknowledges to the lawyer that the person executed the guarantee, and • (c) in the presence of the lawyer signs the certificate referred to in section 4.
• (2) The lawyer referred to in subsection (1) must not represent or be employed by a person or corporation who stands to benefit as a result of the guarantee.
• (4) Section 4(1) is repealed and the following is substituted: • Certificate • 4(1) The lawyer, after being satisfied by examination of the person entering into the obligation that the person is aware of the contents of the guarantee and understands it, must issue a certificate in the prescribed form.
What counts as some memorandum or not note...in writing...signed by the party to be charged therewith • There are liberal interpretations of this requirement. • It must adduce the existence of the contract and not fail for uncertainty. See McKenzie: need the 3 essential P's, namely parties, property, and price. But, per Tweddell, other essential terms might exist, as here, that payment of the purchase price was to be in stages. • The document need not be intended as a memo of the contract. • It is sufficient if the memo comes into existence anytime before the action is commenced. • It can be constituted by several pieces of paper. • It must be signed by the party against whom the contract is being alleged. • Mere initialing is sufficient • Hand-printed name is sufficient • Printed name of the contracting party on top of a standard form is sufficient (per McCamus)
• E contracts -> Electronic Transactions Act, SA 2001, c E 5.5
What is the effect of non-compliance with the S/F? • 1) In Common Law • Per Treitel: this failure does not make the contract void but only unenforceable. • Per Riddell J.A.: “it must never be forgotten that the Statute of Frauds does not deal with the validity of the transaction, but only with the evidence to prove an agreement.” • This means plaintiff has only a procedural problem wrt enforcement of the contract but the contract itself does exist. • Hence, per CB, the contract can be used by way of defence as in Wauchope and can also be used as consideration for a new contract and the like 28
• 2) In Equity • Per Fridman: “it was decided quite early after the passage of the Statute, by courts of equity, that defendants would not be allowed to plead and rely upon the Statute if to permit them to do so would be to allow the Statute `to be used as an engine of fraud.'”
• Per Coyne J.A.: “Equitable principles which hold that the Statute of Frauds does not apply where there has been performance or part performance of the oral contract by, or where otherwise the result would be fraud against, or injustice to, the other party….”
• 3) What is Part Performance? • Equity's desire to ensure S/F is not used as an engine of fraud is the foundation for the doctrine of P/P. • What counts as part performance? • a. Lord Selbourne in Maddison v. Alderson seems to posit two views, per Fridman • per Lord Selborne: the acts relied on “must be referred to the actual contract” [emphasis added] • This is the narrower view, per Fridman • **Part performance must be ‘referable to the oral agreement that is relied on’, per court in McMillen v. Chapman. • This narrow view appears to have been followed in Deglman (S.C.C. 1954) by Rand J. while the broader view appears to have been followed by Cartwright J., according to the analysis offered by Erie Sand and Gravel Ltd. v. Seres’ Farms Ltd., 2009 ONCA 709 • Continue with slides
PART PERFORMANCE
• Has been used by the courts to circumvent the strict application of the statute of frauds. • Courts of equity would enforce some contracts for a sale in the interest of land, absent a sufficient not or memorandum, as long as certain circumstances could be proved. • Equity’s ability to dispense with the writing requirement became known as the doctrine of part performance.
Deglman v Guaranty Trust Co. [1954] SCR 725 Facts: • Aunt promised nephew she would leave him her house (No. 548) if he would run errands and so on as she might request from time to time. This agreement was never recorded in writing. • Acts of alleged part performance: driving aunt around; doing odd jobs around the house. • The nephew only lived at a different of the Aunt’s properties for six months and never lived at 548.
Issue: • The question is raised as to the nature of part performance which will enable the court to order specific performance of a contract relating to lands unenforceable at law by reason of s 4 of the Statute of Frauds.
Analysis/Holding: Rand J: • The leading case in this area is Maddison v Alderson:
29 • “all the acts done must be referred to the actual contract, which is the measure and test of their legal and equitable character and consequence.” • Payment of the purchase price is not sufficient. • It must be unequivocal. It must have relation to the one agreement relied upon and to no other when it must be such “as could be done with no other view or design than to perform the agreement.” • The acts of performance by themselves are wholly neutral and have no more relation to a contract connected with the premises of 548 than with those of 550 or than to mere expectation that his aunt would requite his solicitude in her will, or that they were given gratuitously or on terms that the time and outlays would be compensated in money. • In relation to specific performance, strict pleadings would seem to require a demonstrated connection between the acts or performance and a dealing with the land before evidence of the terms of any agreement is admissible. • There is, however, the question of quantum meruit, the courts below found that the service were not given gratuitously but on the footing of a contractual relation: they were to be paid for. • It would be inequitable to allow the promisor to keep both the land and the money and the other party to the bargain is entitled to recover what he has paid, it is the same in the case of services given. • The Court makes a determination of $3,000 for services rendered.
Cartwright J: • The appeal was argued on the assumption that there was an oral contract made between the respondent and the late Aunt under the terms of which the former was to perform certain services in consideration whereof the latter was to devise 548 to him, that the contract was fully performed by the respondent and that there was no defence to his claim to have the contract specifically performed other than the face that there was no memorandum in writing thereof as required by the Statute of Frauds, which was duly pleaded. • In citing the law, he refers to McNeil v Corbett, which adopted Maddison v Alderson: • “All the authorities shew that the acts relied upon must be unequivocally, and in their own nature, referable to some such agreement as that alleged. i.e. to an agreement respecting the lands themselves, and a plaintiff who relied upon acts of part performance to excuse the non-production of a note under the Statute of Frauds, should first prove the acts relied upon. • After this has been proved then evidence of the oral agreement becomes admissible for the purpose of explaining those acts. It is for this reason that a payment of a purchase money alone can never be sufficient act of performance within the rule.” • There is nothing here in the nature of the acts proved which bears any necessary relation to the interest in land. • Agrees with Rand J regarding the payment of fair value of the services.
Principles:
Thompson v Guaranty Trust Co. [1974] SCR 1023 Facts: • Gus Thompson began working as a hired hand on Dick’s farm and continued there for 48 years. • Gus alleges that this work was done as consideration for Dick’s promise to devise and bequeath his land and personalty to Gus. • Time after after time, Dick would be injured or otherwise ill and Dick would nurse him back to health. • Gus took a somewhat marginal farming operation, per TJ, and made it successful. (built graneries; made decisions on crops, equipment purchases etc.) • On his death, Dick’s assets were $200,000. • No will was found
Issue: 30
• The appellant had sued for specific performance of an agreement alleged to have been entered into between him and the deceased, Dick, whereby the said deceased agreed that in consideration of Gus remaining with the deceased and working and operating the farm lands of the said deceased until the death of the deceased the deceased would devise and bequeath to the respondent the whole of his estate, both land and personalty.
• The action has been argued in all Courts upon the basis that there was no sufficient memorandum within s 4 of the Statute of Frauds and the vital issue in thei appeal is whether or not lacking such a memorandum in writing there have been sufficient acts of part performance on the part of the appellant to take the case of s 4 of the Statute of Frauds.
Analysis/Holding: • The trial judge held that the appellant had established an oral contract as alleged. The Court of Appeal did not disturb his ruling. • The test was set out in Maddison v Alderson: All the authorities she that the acts relied upon as part performance must be unequivocally, and in their own nature, referable to some such agreement as that alleged. • The Court is of the opinion that practically ever act of part performance as to which evidence was given were acts which were unequivocally referable to a contract in reference to the very lands in question. • The deceased more than anyone else, realized, appreciated the nature and quality of the appellant’s work. • The house was a wreck, that it was totally rebuilt by the appellant is exactly the same kind of circumstance the court found was part performance in Brownscombe. • The evidence that the deceased and the appellant had agreed to share the proceeds of this business two-thirds and one-third rather than being evidence mitigating the alleged contract, is evidence that will confirm and corroborate it. • The appellant has proved acts which are unequivocally referable to the very lands and that therefore he has adduced the evidence of part performance which takes the case of out the provisions of s 4 of the Statute of Frauds.
Principles:
PRIVITY OF CONTRACT • A contract cannot, as a general rule, confer rights or impose obligations arising under it on any person except the parties to it. • This means that, again as a general proposition, someone who stands to benefit from a contract between two parties cannot sue on the contract.
• Provender v Wood (1630): A party to whom the benefit of a promise accrues may bring his action.
• Tweddle v Atkinson (1861): It is now established that no stranger to the consideration can take advantage of a contract, although made for his benefit. • The modern cased have overruled the old decisions – they show that the consideration must move from the party entitled to sue upon the contract. • It was argued that there is an exception when the consideration moves from a father, and the contract is for the benefit of his son, natural love and affection between the father and son gives the son the right to sue as if the consideration has proceeded from himself. The Court holds that natural love and affection are not sufficient consideration whereon an action of assumpit may be founded.
31 Dunlop Pneumatic Tyre Co. Ltd. v Selfridge & Co. Ltd. [1915] AC 847 (HL) Facts: • The appellants are tire manufacturers, and sole their tires to Dew and Company who were wholesale merchants on the terms that Dew would not sell the tire at below Dunlop’s list price, except to customers legitimately engaged in the motor trade. • To such customers, Dew ere entitled to see at 10% below list price if they obtained an undertaking that the customers, in turn, would observe the appellants’ list price. • The respondents, are a large department store, who agreed to sell Dunlop tires to two customers at prices below those specified by the appellants. • The respondents obtained the tires from Dew and signed an agreement on January 2 under which they promised not to sell or offer them below list price and agreed to pay $5 to the appellants by way of liquidated damages for every tire sold or offered in breach of the agreement. • The respondents then delivered on tire to a customer and charged him less than the list price. • The appellants commenced an action against the respondents for an injunction and damages in respect of the breach of the agreement of January 2.
• Contract 1 between Dunlop and Dew -> Dew can only sell tires to his retailers who agree to the same terms that Dunlop and Dew agreed to (retail price maintenance clause) • Contract 2 between Selfridge and Dew -> Selfridge says that they to Dew that it would not sell below list price. Selfridge agrees to pay Dunlop $5 per tire by way of liquidated damages clause in force of Breach.
Issue: • The trial judge granted the injunction, but the judgment was reversed by the Court of Appeal. • Can Dunlop sue Selfridge for breach of the Jan 2 contract?
Analysis/Holding: • Haldane: fundamental principles of English law: • 1) only a person who is a party to a contract can sue on it. There is nothing in the law for the right of a third party to recover arising by way of contract. • 2) that if a person with whom the contract not under deal has been made is able to enforce it consideration must have been given by him to the promisor or to some other person at the promisor’s request. • 3) That a principal not name in the contract may sue upon it if the promisee really contracted as his agent, but again to sue he must have given consideration either personally or through the promisee acting as his agent in giving it. • Dew sold the respondents good which they had a title to obtain from the appellants independent of this contract. The consideration by way of discount under the contract of January 2 was to come wholly out of Dew’s pocket and neither directly or indirectly out of that of the appellants. • The only consideration disclosed by the contract is one given by Dew, not as agents to the appellants but as principals acting on their own account. • Appeal dismissed.
• Dunedin: The agreement sued in is an agreement which on the face of it is an agreement between Dew and Selfridge. I should have no difficulty in the circumstances of this case holding it proved that the agreement was truly made by Dew as an agent for Dunlop, or in other words that Dunlop was the undisclosed principal, and as such can sue on the agreement. • Nonetheless, in order to enforce it he must show consideration moving from Dunlop to Selfridge. • The agreement in question is not an agreement for sale. It is only collateral to an agreement for sale: but that agreement for sale is an agreement entirely between Dew and Selfridge. • The tires the property in which upon the bargain is transferred to Selfridge, were the property of Dew not Dunlop, for Dew under this agreement with Dunlop held these tires as proprietor and not as agent. 32
• Did Dunlop forbear to do in question with Selfridge? No. • Appeal dismissed.
Notes: • Is there an agency connection between Dunlop and Selfridge, whereby Dew is the agent? • Is Dew stipulating rights under Contract 2 as an agent for Selfridge? • Even if you can show that Dew is an agent, you still have to show consideration from Dunlop to Selfridge. • The Court finds no agency relationship, but Dunlop is trying to argue one and it seems that it is an ex-post agency relationship.
• What could have Dunlop done? • In contract 1, Dunlop put a contractual obligation on Dew in its future contracts to pass on savings given by Dunlop to its future customers to show consideration. • Expressly articulate the agency relationship between Dunlop and Dew in contract 1.
• Dew could have sued Selfridge on contract 2. Dunlop could require in its contract 1 with Dew that for breaches of subsequent contracts between Dew and retailers that Dew sue.
WAYS IN WHICH A THIRD-PARTY MAY ACQUIRE THE BENEFIT • Statute: Legislatures have decided that third-party bar would be inappropriate or unfair. • Insurance legislation typically allows for third-party beneficiaries of automobile or life insurance to enforce the payment of insurance money. • Consumer protection legislation has also set up rules to exclude privity of contract. • Lord Denning decides not follow the rule: see Smith • The plaintiff can proceed with an action in Tort. • Sue for negligence for property damage. • The plaintiff can establish a collateral contract. • P sues manufacturer pursuant to a collateral contract containing the warranty. The consideration for this contract is in P entering the main contract to purchase the product from the retailer. • Provided the manufacturer’s warranty was in some way communicated to the P at the time of purchase, you may be able to find a collateral contract with the manufacturer and the consumer. • May also be avoided if the promisee is able and willing to bring action for specific performance of the promise. • In cases where there is some sort of relationship amongst the parties, the privity rule may be inapplicable, such as a trust or agency relationship. • Common law exceptions: limitation of liability clause falls with London Drugs; the waiver of rights clause falls within Fraser River.
Specific Performance: Beswick v Beswick [1966] Court of Appeal of England Facts: • Peter Beswick was a coal merchant who used to bag coal and take it around to his customers. He was over 70 and not in good health. • His nephew helped out from time to time and was anxious to get a hold of the business so an agreement was drawn up where the nephew would get the business and he would pay Peter an allowance for the rest of his life, and upon his death, an allowance to Peter’s wife. • Peter died and the Nephew made one payment of $5 to the widow and then stopped.
33 • She brought action against the nephew as the administrator of the estate and in her personal capacity in claiming 175 pounds in arrears. • The trial judge held that she had no right to enforce the agreement and dismissed the action.
Issue: • Does the privity rule prevent Mrs. B from successfully bringing this action?
Analysis/Holding: Lord Denning • It would be deplorable if the trial judge’s decision represented the law of England. It would be an unjust result. • Where a contract is made for the benefit of a third person who has a legitimate interest to enforce it, it can be enforced by the third person in the name of the contracting party or jointly with him. • It is different if the third person has no legitimate interest as was the case in Dunlop. • The widow sues in her capacity as executrix of her husband’s estate (and therefore as contracting party) and also in her personal capacity (and therefore as a third person). The joint claim is clearly good. • She is entitled to an order for specific performance of the agreement. • The money is to be recovered for the benefit of the widow and not the estate. • Two judges concurred with Denning as to the result on the grounds of the widow being the administrator to the estate but were not willing to go as far as Denning on the personal interest.
Beswick v Beswick [1968] AC 58 (HL) Analysis/Holding: • Lord Reid: it is necessary to consider the widow’s rights both as the administrator and in her personal capacity. • The respondent, in her personal capacity has no right to sue but she has a right as administrator of her husband’s estate to require the appellant to perform his obligation under the agreement. • The appellant suggests the administrator could only sue for breach of contract not specific performance. The Court holds that if that were the remedy available, it would be grossly unjust. • The appellant would get to keep the business while paying a mere amount of damages and not paying the rest of the price agreed upon in the form of the annuity. • Reid orders specific performance. • Lord Pearce: The result suggested by the plaintiff as to only paying damages and not specific performance would be wholly repugnant to justice and common sense. • The administrator is entitled if she prefers to enforce the agreement rather than accept its repudiation and specific performance is more convenient than an action for arrears of payment followed by separate actions as each sum falls due.
TRUST • The application of the third part bar amounts to a conclusion that there is no legal relationship between the promisor and the third-party beneficiary. • That conclusion cannot be reached where the third part can prove the relationship of some kind. • One such relationship is the trust (agency is the other). • A person (the settlor) may gratuitously or for consideration transfer property or rights to a trustee to be held or managed for the benefit of a third party (the cestui que trust or beneficiary). • Alternatively, again gratuitously or for consideration, a person may declare himself or herself to hold property or rights as trustee for the benefit of a specified beneficiary. • Once a trust is created, the beneficiary is entitled to enforce the trust obligation directly.
34
• Express words of trust are not required in order to create a trust obligation, generally speaking, it is enough if there is some kind of evidence to establish an intention to create a trust. • A promise to benefit of a third person is evidence of this kind and in a number of cases a trust has been implied to give effect to such a promise.
Agency • If the promisee is actually contracting as agent on behalf of the third party, the doctrine of privity simply has no application. • The promisor and third party are the contracting parties. They are in a direct contractual relationship.
New Zealand Shipping Co. Ltd. v AM Satterthwaite & Co Ltd. [1975] AC 154 (PC) Facts: • A drilling machine was to be boarded on the ship Eurymedon for shipment to Wellington pursuant to a bill dated June 5, 1964. • The shipper also made the drill (Ajax). The bill was issued by agents for the Federal Steam Navigation Co. The cosignee was Satterwaithe. • New Zealand Shipping Co is the stevedore who does the docking and undocking of ships at the port in Wellington. • In addition to this, New Zealand Shipping Co also generally acted as agent for the carrier in NZ and in such capacity as general agent they received the bill at Wellington. • The cosignee became the holder of the bill and owner of the drill prior to August 1964. • On that date the drill was damaged as a result of NZ Shipping Co’s negligence during unloading. • Contract #1 is a bill of lading* which provides (is between Ajax, the maker of the drill and Federal steam; Satterwaite is also a party to Contract 1 as a cosignee): • “In accepting this bill of lading, the shipper, consignee and owners of the goods…agree to be bound [as follows:]… • ”No servant or agent of the carrier (including an independent contractor) shall… be under any liability to the shipper, • consignee or owner of the goods… for any loss or damage… • The carrier will not be accountable… beyond £100…” • NOTE: Bill of lading also incorporated the carriage of goods by Sea Act which imposed a one year limitation period.
• Contract #2 is between Federal Steam and NZ Shipping co.
Issue: • Can NZ Shipping Co take the benefit of the time limitation provisions? • Does the contract meet Lord Reid’s propositions?
Analysis/Holding: • The general proposition is that a contract between two parties cannot be sued on by a third even though the contract is expressed for his benefit. • Lord Reid in a prior case, Scruttons, set out the requirements for the validity of an agency contract. • 1) the bill of lading makes it clear that the stevedore is intended to be protected by the provisions in it which limit liability • 2) the bill of lading makes it clear that the carrier, in addition to contracting for these provisions on his own behalf, is also contracting as agent for the stevedore that these provisions should apply to the stevedore
35 • 3) the carrier has authority from the stevedore to do that or perhaps later ratification by the stevedore would suffice; and • 4) that any difficulties about consideration moving from the stevedore were overcome.
• What are the arguments? • NZ is protected by the bill of lading by way of the protections in the bill for their agent Federal Steam, which is also allowed for in the bill.
• Consideration -> bill of lading contained a unilateral contract from AJAX to stevedors of the world to unload there stuff, then they get the exemptions and limitations. • To give the appellants the benefit of the exemptions and limitations contained in the bill of lading is to give effect to the clear intentions of a commercial document and can be given within existing principles. • They see no reason to strain the law or the facts in order to defeat these intentions. • The effect of denying the validity to the clause would be to encourage actions against servants, agents, and independent contractors in order to get round exemptions (which are almost invariable and often compulsory) accepted by shippers against carriers, the existence and the presumed efficacy, of which is reflected in the rates of freight. • The appeal is allowed.
Notes: • Relationship between NZ Shipping and the Carrier” • NZ is the parent company of the Carrier, Federal Steam. To what extent is the Carrier agent of NZ.
London Drugs Ltd. v Keuhne & Nagel International Ltd. [1992] 3 SCR 299 Facts: • London Drugs is the appellant and had a contract with K&N to store a transformer for it. Included in this contract is a limitation of liability clause, which limited the warehousemans’ liability to $40 dollars. • London Drugs at the time of the contract was assumed to have known that K&N’s employees would be responsible for the moving and upkeeping of the transformer. • The respondents attempted to move the transformers using forklifts when they should have used the brackets. The transformation was ultimately damaged. • There is no question that the Respondent employees acted negligently.
Issue: • The extent to which employees can claim the benefit of their employer’s contractual limitation of liability clause. • Can the respondents obtain the benefit of the limitation of liability clause contained in the contract of storage between their employer and the appellant so as to limit their liability to $40?
Analysis/Holding: • The respondent employees are not parties to the contract between K&N and London Drugs. • The SCC contends that it is the time for a judicial reconsideration of the rule regarding privity of contract as applied to employers’ contractual limitation liability clauses. • The doctrine of privity has come under serious attack for its refusal to recognize the right of a third-party beneficiary to enforce contractual provisions made for his or her benefit. • The court recognizes that a right for third party beneficiary to rely on a limitation of liability clause should have relatively little impact on the rights of contracting parties to rescind or vary their contracts, in comparison with the recognition of a third party right to sue on contract.
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• When a person contracts with an employer for certain services, there can be little doubt in most cases that employees will have the prime responsibilities related to the performance of the obligations which arise under contract. • The Court is not suggesting that employees are a party to their employer’s contracts in the traditional sense so that they can bring an action on the contract or be sued for breach of contract. • There is simply no valid reason for denying the benefit of the clause to employees who perform the contractual obligations. • There is a policy reason to extend the law in this instance, it enables the contracting parties to allocate the risk of damage to the goods and to procure insurance accordingly.
• The employees can obtain the benefit if they can show: • 1) the limitation of liability clause, must either expressly or impliedly, extend its benefit to the employees seeking to rely on it. • 2) the employees seeking the benefit of the limitation of liability clause must have been acting in the course of their employment and must have been performing the very services provided for in the contract between their employer and the plaintiff when the loss occurred.
• The appeal is dismissed and the limited liability clause applies to the two employees on an implied basis.
Edgeworth Construction Ltd v ND LEA & Associates Ltd (1993), 107 DLR (4th) 169 (SCC) Facts: • The appellant, and plaintiff, Edgeworth, is b builder of roads for the Province of British Columbia. • Edgeworth entered a contract (contract 2) with the Province to build a road and said that it lost money on the project due to errors in the specifications of the construction drawings. • ND and its engineers provided the specifications and drawings to the Crown (contract 1). • Edgeworth is suing ND but ND states that it is covered by the limited liability clause contained in the contract two between Edgeworth and the Crown.
Issue: • Whether the contract between the contractor and the province negated the duty of care which would have otherwise arisen on the facts pleaded.
Analysis/Holding: • The engineers work was incorporated in the tender package and thereafter in the contract. This established that the representations in the designs became the representations of the province, but it does not establish the proposition that the representations made did not cease to be the representations of the engineers. • The no liability clause does not purport to protect the engineers against liability for their representations. • It must be established that the contract clause provides protection, or should by implication be held to provide protection, for the persons who, although not parties to the contract, are claiming the benefit of the exclusion. This has not been done. • There is no suggestion there should be an implied term. • The clause between the contractor and Province does not include the engineering firms.
37 Fraser River Pile & Dredge Ltd. v Can-Dive Services Ltd. [1999] 3 SCR 108 Facts: • Can-Dive and Fraser River had a charter contract for a boat. • Fraser River is the plaintiff and owns the barge. • Can-Dive is the defendant, who was allegedly negligent and sunk the barge. • Fraser River has an insurance contract for the barge. Under this contract the insurance company would ordinarily have the subrogation right to sue as the insurance company. • Once the insurer pays the insured for a loss, they insurer has the right of subrogation to step into the shoes of the insured and sue on their behalf. • But in the insurance contract the subrogation right was waived. • After the negligence, Fraser and the insurance company waived the waived subrogation right. •
Issue: • Can a 3rd party beneficiary (Can-Dive) rely on the waiver of subrogation clause as a defense to the action against it in negligence?
Analysis/Holding: • Can-Dive is a third-party beneficiary to the insurance contract where the subrogation right was waived. • The determination is made on the basis of two cumulative factors: 1) did the parties to the contract intend to extend the benefit in question to the third party seeking to rely on the contractual position? And 2) Are the activities performed by the third party seeking to rely on the contractual provision the very activities contemplated as coming within the scope of the contract in general, or the provision in particular, again as determined by reference to the intention of the parties?
Intention of the Parties • There is an express reference in the waiver of the subrogation clause to charterers, a class of intended third-party beneficiaries that includes Can-Dive. • There is no question the parties to the contract intended to extend the benefit in question to Can-Dive. • Fraser argues that their agreement with the insurance company to pursue legal action against a charterer deleted the third-party benefit. • The agreement to waive the subrogation clause was concluded subsequent to the point at which Can-Dive inchoate right under the contract crystallized into an actual benefit in the form of a defence against an action in negligence. • Fraser and the insurers cannot revoke unilaterally Can-Dive’s rights once they have developed into an actual right. Once crystalized, it became for all intents and purposes a party to the initial contract for the limited purpose of relying on the subrogation waiver.
Third-Party Beneficiary is Performing the Activities Contemplated in the Contract • Fraser argues that the waiver of subrogation clause is contained in an unrelated contract that does not pertain to the charter contract in effect between Fraser River and Can-Dive. • The Court does not agree. They say it is analogous to London Drugs where there was a service contract between the parties and contracts of employment which existed between the employer and employees. • The Court also finds sound policy reasons for relaxing the doctrine of privity in these circumstances. • Relaxing the doctrine in these circumstances establishes a default rule that corresponds closely to commercial reality as is evidence by the inclusion of the waiver of subrogation clause. • When sophisticated commercial parties enter into a contact of insurance which expressly extends the benefit of a waiver of subrogation clause to an ascertainable class of third-party beneficiary, any conditions purporting to limit the extent of the benefit is to be available must be clearly expressed.
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Privity Summary • Only a party can sue or be sued so as a default rules third parties cannot sue or be sued. • A third party beneficiary is a different scenario: • Lord Denning in Beswick disputed the rule. • NZ Shipping • London Drugs the Court specifically addressed the problem and came up with a good test. It comes down to intention. • Can-Dive the rights of parties can be frozen once a 3rd party beneficiaries’ rights have crystalized.
CONTINGENT AGREEMENTS
• The need to create a presently binding contract on established terms subject to a proviso that will release one or both of the parties from the obligation to actually perform under those terms if a contingency does not materialize may be met by making the contract conditional. • Typically referred to a condition precedent.
• A contingent condition describes an event or state of affairs that neither party to a contract has promised will come about, but the occurrence of which is a prerequisite of their obligation to perform their contractual obligations. • A condition precedent is contingent. • It is a term of an existing contract, not a term of an offer to a contract, which describes an event or state of affairs the occurrence of which has not been promised by either party, and whose fulfilment is a prerequisite of the obligation of both to complete the contract.
• A condition subsequent – the parties introduce a provision that the fulfilment of a condition or the occurrence of an event shall discharge either one of them or both from further liabilities under the contract.
Degrees of Obligation • 1) Before the event occurs, each party is free to withdraw. • EXAMPLE: agreement for sale of a patent is executed but the parties also agree that it should "not be the agreement" unless a third party approved of the invention. No agreement UNTIL approval. See Murray, cited in Weibe. • **Put another way, we have a condition precedent going to the creation of the obligation as opposed to one the fulfilment of which triggers the duty to perform.
• 2) Before the event occurs, main agreement is not binding but, so long as the event can still occur, one or both of the parties CANNOT withdraw. • EXAMPLE: A sells land to B subject to financing. A cannot withdraw before the time fixed for completion; he was bound to wait to see whether B could arrange the loan. See Smith v. Butler, [1900] 1 Q.B. 694. • There is an implied subsidiary obligation for A to wait.
• 3) Before the event, the main agreement is not binding but that in the meantime, the parties must not prevent occurrence of the event. • EXAMPLE: Football player is transferred. He is to be paid part of his fee immediately and the balance upon scoring 20 goals. He is cut before he has the change to score the goals. Held: that the team was in breach as it had not given him a reasonable opportunity to score the goals. See Bournemouth discussed in Treitel.
39 • 4) Before the event occurs, the main agreement is not binding but one of the parties undertakes to use reasonable efforts to bring about the event without undertaking that those efforts will succeed. • EXAMPLE: Hargreaves Transport Ltd. v. Lynch, [1969] 1 W.L.R. 215. Land is sold subject to the condition that the purchaser should obtain planning permission--he is bound to make reasonable efforts to get the permission but isn't liable for failing. • The principal obligation (to buy and sell) will not take effect if planning permission is not obtained. But note that there is an implied subsidiary promissory obligation to make reasonable efforts.
Wiebe v Bobsien 1985 BCSC Facts: • Bobsien is selling a property and Wiebe makes an offer to buy it. They sign an interim agreement on June 22. • The interim agreement for sale includes the terms that the sale is subject to the sale of Wiebe’s current house before August 18. • Furthermore, Bobsien had the right to continue to seek other sellers and if a bona fide offer was found he had to give Wiebe 72 hours to remove the condition precedent so their interim agreement was no longer subject to the sale of the current house. • On July 22, Bobsien decides he does not want to go through with the sale and notifies Wiebe. • Wiebe did not accept this and found a buyer for his home by August 18. • When the close date came on August 28, Bobsien refused to close.
Issue: • Is the interim agreement a form of option that could be cancelled by the defendant prior to August 18th or was it a binding agreement for sale?
Analysis/Holding: • The defendant argues that the contract of June 22 was no contract at all, but just an option of agreement. • Regarding the argument that the deal was no more than an option agreement, the Court does not really address this and focuses on the condition precedent analysis. • A condition precedent to completion of the agreement was the sale of Wiebe’s current house on or before August 18th. • A condition precedent has the effect of 1) preventing the creation of a contract or 2) merely suspends performance of some or all obligation set out in the contract until the condition is met. • This all depends on the indention of the parties. • 1) Conditions relating to the approval of the premises and of chattels imply a condition of whim, fancy, or dislike. If the purchases likes the premise or chattels then they would complete the purchase. These two conditions plus the combined effect of all taken together constituted an illusory contract that was no agreement at all. • While a purchaser must use his best efforts in doing such things as obtaining financing, getting subdivision approval, or selling his own home, there is no way the law can test whether he used his best efforts in deciding if he really likes a particular piece of property or not. Therefore there can be no contract in these instances. • 2) The law seems to lean in favour of the concept that there is a condition precedent such as a subject to clause, a contract is formed on signing of the parties. It is merely in suspense pending the completion of the condition. • Lord Denning in Smallman: if the parities have reached an agreement on all essential matters, then the clause subject to approval of the court does not mean that there is no agreement at all. There is an agreement but the operation of it is suspended until the court approves it.
• Judgment for the plaintiff.
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Principles: • The general rule is laid down that in a real estate transaction a condition precedent which must be performed by the purchaser will not usually prevent the formation of a contract but will simply suspend the covenant of the vendor to complete until the condition precedent is met by the purchaser. • A real estate contract containing a condition precedent will usually result in a binding agreement of sale and purchase. The obligation to complete the contract is merely in suspense pending the occurrence of the event constituting the condition precedent. • However, in some instances a condition may prevent the formation of a contract if the agreement itself and surrounding events indicate it was never the intention of the parities to bind themselves to a contract.
Notes: • The Murray decision is cited in this decision. This was an example of decision where there was a #1 condition precedent, meaning that there was no contract at all. This is the best example of this type of condition precedent. Wiebe v Bobsien 1986 BCCA – leave to appeal to the SCC refused. Dissent • Some condition precedents are so imprecise or depend entirely on the subjective state of mind of the purchaser that the contract process must still be regarded as at the offer stage. • An example would be subject to the approval of the president of the corporate purchaser. • In other case, the condition precedent is clear, precise and objective. • In these cases, a contract is completed: neither party can withdraw but performance is held in suspense until the parties know whether the objective condition precedent is fulfilled. • BUT there is a third class of conditions precedent: conditions that are partly subjective and partly objective. • Subject to the planning department approval of the attached plan of subdivision. • This looks objective but differs because someone has to solicit the approval of the planning department. • This has been dealt with by implying a term that the purchaser will take all reasonable steps to get the approval. • In this case what term should be implied? • A term requiring the purchaser to make all reasonable efforts to sell his house sounds ok, but it does not meet the officious bystander test because it leaves unresolved the price at which he must sell it at. • In the purchaser’s mind they are only committed to selling if they get the price he has in mind. • In this case the condition precedent is uncertain. • The way to deal with this problem is for the form of subject clause to state the price and essential terms upon which the purchaser must sell his house, then the court would have no trouble implying a term that the purchaser make reasonable efforts. • The majority of the Court of Appeal dismissed the appeal and upheld the ruling of the trial court.
RECIPROCAL SUBSIDARY OBLIGATIONS
• Contractual obligations that fall to be performed only upon satisfaction of a condition precedent may be described as the parties’ primary obligations. They relate to the ultimate objective of the contract. • However, the conclusion that a contract exists before the primary obligations become operative suggest that parties are subject to other obligations in the meantime. • There are subsidiary obligations. • They are defined as the simple obligation to refrain from withdrawing from the contract. A refusal to proceed manifested before the time stipulated for satisfaction of the condition precedent has arrived will accordingly constitute a breach of contract.
41 • Courts are readily inclined to view that one party has an implied subsidiary obligation to take steps to bring about the state of affairs constitution fulfilment of the condition. • In Wiebe v Bobsien, the purchaser had an implied subsidiary obligation to make reasonable efforts to bring about the sale of his house by the specified date. • In some case the court will imply a term that requires one of the parities to refrain from conduct that will make fulfillment of the condition less likely.
Dynamic Transport Ltd. v OK Detailing Ltd. [1978] 2 SCR 1072 Facts: • The appellant Dynamic brought an action for specific performance against OK, for the purchase of a piece of land in Edmonton. • The price for the land was 53,000 and it is now worth 200,000. • The respondent, OK, refused to complete the contract because they argue that the description of the land is so vague and uncertain as to make identification impossible and the contract is silent as to which party will obtain the subdivision approval required under the terms of the planning act.
Analysis/Holding: • The land description issue is settled and found to be sufficient. • Since the contract is silent as to who will obtain approval, the statutory prerequisite became an implied term of the agreement. The obtaining of subdivision approval was, in effect, a condition precedent to the performance of the obligations to buy and sell. • These obligations were merely in suspense pending the occurrence of the event constituting the condition precedent. • The existence of a condition precedent does not preclude the possibility of some provisions of a contract being operative before the condition is fulfilled, as for example a provision obligating one party to take steps to bring about the event constituting a condition precedent. • In appropriate circumstances, Courts will find an implied promise by one party to take steps to bring about the event constituting the condition precedent. • In a purchase and sale situation, the person who proposes to carry out a subdivision of land is the intending vendor. • They are the one who must divide the parcel, which has been one unit prior to the sale. • If the purchaser did it, they would be doing it as the vendor’s agent. • The Court does not accept that the failure to fix responsibility for obtaining planning approval renders a contract unenforceable. • The common intention to transfer a parcel of land in knowing that subdivision is required must be taken to include the agreement that the vendor makes the application uses their best efforts to obtain approval. • This is the only way business efficacy can be given to the agreement.
Notes: • Chaplin v Hicks (1911) – the plaintiff lost a chance at profit by way of the defendant’s breach of contract. She was awarded a proportion of the prize money she lost the chance of winning. Could not award the full amount but rather an expected value.
EastWalsh Homes Ltd v Anatal Developments Ltd 1993 – ONCA – Leave refused to the SCC Facts: • Anatal is the appellant and had entered into an agreement with the respondent EastWalsh. • The deal was for the appellant to sell to the respondent 147 building lots.
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• A term of the deal was that the appellant would use its best efforts to register the subdivision plan prior to the date of closing the deal. If it was not registered then the agreement would be terminated. • The appellant did not register the plan and the deal was off. • EastWalsh sued for specific performance and damages in the alternative. • The trial judge found for the plaintiff and that the defendant had not used its best efforts to have the plan registered. • The judge said if best efforts were used there would have been a 50% chance the plan would be accepted and then awarded the plaintiff 50% of the increased market value of the lots over the original sale price.
Issue:
Analysis/Holding: • EastWalsh’s claim for profits were rejected because the judge claimed that they could have reasonably mitigated its losses by buying similar lots available and did no such thing. • The appeal court agreed that there was a breach because the appellant had not discharged its best efforts to achieve registration of the plan.
Causation and Loss • It is a general rule that the burden is on the plaintiff to establish on the balance of probabilities that, as a reasonable and probable consequence of the breach of contract, the plaintiff suffered the damages claimed. • If the plaintiff is not able to establish a loss, wo where the loss proven is trivial, the plaintiff may only recover nominal damages. • A second principle is that there where it is clear that the breach of contract caused loss the plaintiff, but it is very difficult to quantify loss, the difficulty in assessing damages is not a basis for refusal to make an award in the plaintiff’s favour. • If in assessing damages, there is only a chance of receiving a benefit under a contract, the courts have attempted to estimate the value of the loss chance and award damages on a proportionate basis. • The trial judges approach followed the leading case of Chaplin v Hicks from the English Court of Appeal which has been followed by the SCC. • The SCC has said that proof of the loss of a mere chance is not enough; the plaintiff must prove that the chance constitutes some reasonable probability of realizing an advantage of some real substantial monetary value. • In Ontario 20% has been shown to be substantial in Multi-Malls. It is unclear whether anything less than that would constitute substantial.
• The trial judge applied the correct approach but the evidence did not support a 50% chance that the plan would have been approved notwithstanding the breach. • The burden rested on EastWalsh to prove breach of contract and that if the appellant had discharged its best efforts there was a reasonable probability of registration. EastWalsh failed to satisfy this burden. • In the time frame provided, the appellant’s best efforts would not have resulted in a successful registration of the plan.
Appeal Allowed.
Notes: • Costs – some rebate on your legal costs. Solicitor client costs or party + party costs. • If you win you typically get your costs.
UNILATERAL WAIVER
43 • Parties to a contract that includes a condition precedent as one of its terms can agree to vary or waive satisfaction of the condition. • In many case one of the parties wishes to waive the condition so the contract can be given effect while the other party does not. • Parities should include in the contract explicit provisions that either allowed or prohibit the waiver of conditions precedent, however, often contracts are silent on the matter.
Turney v Zhilka 1959 SCC Facts: • There is a contract with the condition that says “providing the property can be annexed to the Village and a plan is approved by the village counsel for subdivision.” • There date for sale is 60 days after the plan is approved. • Neither party to the contract undertakes to fulfil the condition and neither party reserves a power of waiver. • The purchaser made some inquiries but it appears that the prospects of annexation were remote. • After some trouble with the quantity and description of the land arose, the purchase waived this condition on the ground that it was solely for his benefit and was severable and sued immediately for specific performance fixed by the condition. • The learned judge held that the condition was introduced for the sole benefit of the purchaser and he could waive it.
Issue:
Analysis/Holding: • A waiver in these circumstances means that one party to a contract may forgo a promised advantage or may dispense with part of the promised performance of the other party which is simply and solely for the benefit of the first party and is severable from the rest of the contract. • Here there is no right to waiver. • The obligations under the contract on both sides depend upon future uncertain events that happening of which depends entirely on the will of a third party.
• This is a true condition precedent – an external condition upon which the existence of the obligation (contract) depends. Until the event occurs there is no right to performance on either side. • The parties have not promised that it will occur. • The purchaser now seeks to make the vendor liable on his promise to convey in spite of the non-performance of the condition and this to suit his own convenience only. • This is not a case of renunciation or relinquishment of a right but rather an attempt by one party, without consent of the other, to write a new contract. • Waiver at least presupposes the existence of a right to be relinquished.
Notes: • What the Judge is saying is that the subject to approval condition is more like a condition that until it is fulfilled there is no contract and therefore it cannot be waived. No contract – no waiver right. • It’s a difficult decision because it confuses the different condition precedent situations. • A strict reading of Turney would suggest that in the context of a true condition precedent there are no subsidiary obligations resting on the parties because, in Judson J.'s words, it is the fulfillment of the condition which CREATES THE OBLIGATION. This analysis is also consistent with Judson's comments on waiver. • Fridman notes, however, that cases following Turney have stated that a true condition precedent may impose duties on one party or on both. Per Dynamic Transport, (SCC): “the existence of a condition precedent does not preclude the possibility of some provisions of a contract being operative before the condition is fulfilled ... “) • The way to deal with Turney is to draft the contract around it, see O’bryne handout on this. 44
REPRESENTATION AND TERMS
• Statements made during the course of negotiations leading up to a contract can be classified in one of three categories: • 1) statements made without contractual intent – no liability attaches them • 2) mere representations, not terms of the contract but can lead to limited legal consequences. • 3) statements that are terms of a contract – serious legal liabilities attached. • The distinction is important because of different remedies available. • Parol evidence rule – no extrinsic evidence is admissible for the purpose of adding to, varying, contradicting or subtracting from a contract which has been reduced to writing. • Regarding the terms of a contract the following classifications are made: • Condition – the important terms of a contract • Warranties – the less important terms of a contract. • Intermediate terms – a hybrid introduced by Lord Denning
MISREPRESENTATION AND RECISSION
• Rescission: • The setting aside of a contract because of some defect affecting its formation, such as misrepresentation, duress or undue influence. • The discharge of an existing contract by subsequent agreement of the parties • NOT an innocent party being discharged from having to carry out their obligations under a contract because of the other party’s serious breach. • The action for damages is an action to enforce the agreement and thus has as its object the substitution of money damages for the performance which should have been rendered under the binding agreement of the parties. • The effect of a suit for rescission is to determine that the contract is one that ought not to be enforced. Any monetary award, or other order, made upon rescission should have as its object the restoration of the parities to their pre-contract positions.
Types of pre-contractual misrepresentation • Must be unambiguous, material and relied on • It is a defect going to contract formation. • This is different than mis-representation of a term, which is a defect going to performance. • remedy for innocent misrepresentation: rescission in contract; no damages but possibility of monetary; compensation as part of rescission • Reasonable opportunity to discover the truth is no issue • remedy for negligent misrepresentation: rescission in contract, damages in tort. Measure is to put P in position she would have been in had tort not occurred • Reasonable opportunity to discover the truth may be an issue • remedy for fraudulent misrepresentation: rescission in contract; damages in tort. Measure is to put P in position s/he would have been in had tort not occurred. • Reasonable opportunity to discover the truth is no issue
Ingredients of an actionable misrepresentation per Treitel • The misrepresentation must be: • A. unambiguous • B. material 45 • What is the test? Per Treitel: "it must be one which would affect the judgment of a reasonable person in deciding whether or on what terms to enter into the contract without making such inquiries as he would otherwise make." • C. relied on by the representee • **How is the reliance criterion different from the materiality criterion? Redgrave v. Hurd (CB) • If all of these are met, then there is a remedy in contract.
Liability in tort: fraudulent misrepresentation • For the purposes of this class, rely on McCamus, citing Redgrave and related case law, who states that a representation is fraudulent if either the misrepresentor knew that the statement was false or made the statement “recklessly and without care, whether it was true or false.”
Liability in tort: negligent misstatement [ie: negligence] • The leading case is Deloitte & Touche v Livent Inc, 2017 SCC 63. It is a complex torts case which we do not analyse in depth in this class. What is important for our purposes is that a prima facie duty of care exists when there is proximity and reasonable foreseeability. • proximity is established if there is a close and direct relationship between the parties. • reasonable foreseeability is established if (a) the defendant should have reasonably foreseen that the plaintiff would rely on his or her representation; and (b) such reliance would, in the particular circumstances of the case, be reasonable.
• It is possible to get damages in tort via fraud, while getting rescission under contract law. But there has to be one of the two torts above. • You cannot double recovery damages under breach of contract and damages under tort.
• In contract, for rescission, there is no requirement to investigate the truth. • In tort, where there is fraud – no requirement to investigate the truth. • In tort, where there is negligence – if the plaintiff had a reasonable opportunity to discover the truth they may be an issue, because it may counter the negligence.
Redgrave v Hurd 1881 – Court of Appeal England Facts: • The plaintiff is an older lawyer who puts an ad out to take on a partner who is willing to purchase his home as well. • The defendant is a lawyer who interviews for the job with the plaintiff. • The plaintiff states that the practice makes about 300 to 400 a year. In a second interview, the plaintiff should receipts of about 200 a year and some other papers that make up the difference. • The defendant does not look at the other papers. He buys the house and part of the practice for 1600. • He paid a deposit, took possession of the house and then realizes the practice is worthless. He then refuses to complete the deal. • The plaintiff sues for specific performance and then the defendant counter-sues on the basis the agreement was made on a misrepresentation. • The trial judge held for the plaintiff.
Issue: • Damages for the counter claim are not awarded because the defendant has not pleaded knowledge by the plaintiff that the allegations made were untrue. The remaining issues are the plaintiff’s claim for specific performance and the defendant’s counter claim as to have the contract rescinded. 46
Analysis/Holding: • On rescission there used to be a difference between the Equity and Common law, but the Judicature Act which states that equity prevails solved this. • The decision of the Courts of Equity state it was not necessary in order to set aside a contract obtained by material false representation to prove that the party who obtained it knew at the time when the representation was made that it was false. • It could be that a man is not to be allowed to get a benefit from a statement which he now admits to be false. • Or it could be that even assuming that moral fraud must be shown in order to set aside a contract, you have it where a man, having obtained a beneficial contract by a statement which he now knows to be false, insists upon keeping the contract. To do so is moral delinquency: no man ought to seek to take advantage of his own false statements. • If a man is induced to enter into a contract by false representations it is not a sufficient answer to him that if he had used due diligence he would have found the statement was untrue. He had the means afforded to discover the falsity and chose not to avail himself of them. • This would only apply under the statute of limitations. • Equity: the effect of false representation is not got rid of on the ground the person to whom it was made has been guilty of negligence.
• The court in this case reverses the trial judge’s decision. The plaintiff did not keep books showing his business and therefore it was impossible for the defendant to exercise due diligence. • There was no negligence on the part of the defendant.
Principles: • If it is a material representation calculated to induce him to enter into the contract, it is an inference of law that he was induced by the representation to enter into it, and in order to take away his title to be relieved from the contract on the ground that the representation as untrue, it must be shewn that either that he had knowledge of the fact contrary to the representation, or that he state in terms or shewed clearly by his conduct that he did not rely on the representation.
Notes: • The plaintiff’s pleadings are thrown out by the trial judge and therefore he is not entitled to his moving expenses. He did not establish fraud in tort and was therefore not able to receive damages. Only rescission.
Smith v Land and House Property Corp 1884 Court of Appeal – England Facts: • The plaintiffs are selling a hotel stating that it is least to a most desirable tenant – Fleek. • The defendants agree to buy and then Fleek goes bankrupt. • The defendants refuse to complete the transactions. The plaintiffs sue for specific performance and the defendants defend the claim on the basis that the plaintiff misrepresented the deal. • The plaintiffs claim that they were just expressing an opinion not a statement of fact.
Issue:
Analysis/Holding: • It is wrong to assume that a statement of opinion cannot involve a statement of fact. • If the facts are equally known to both parties that statements between them are typically statements of opinion or of irrelevant fact about the condition of the man’s own mind. 47 • If the facts are not equally known then a statement of opinion by the own who knows the facts best involves very often a statement of a material fact for he impliedly states that he knowns facts which justify his opinion. • The statements in those case are statements on a subject as to which prima facie the vendors know everything and the purchasers know nothing. • The most desirable tenant comment – does not mean the tenant will go on paying his rent but amounts at least to an assertion that nothing has occurred in the relations which can be considered to make the tenant an unsatisfactory one. • There was evidence that the tenant had trouble paying his rent prior to this statement and the plaintiff knew that.
Principles:
Notes:
Bank of British Columbia v Wren Developments Ltd 1973 – BCSC Facts:
• Wren took a loan from the bank and deposited shares in a number of companies by way of security. This was done via a hypothecation agreement. Hypothecate, per Black’s means ‘to pledge property as security or collateral for a debt.’ • Over time, plaintiff released some of these shares to Smith without Allan or Wren’s knowledge or consent. This negatively affected Allan’s position under his June 2, 1971 guarantee. • Allan asked about the position of the shares but did not wait for an answer — he simply signed on the assumption that there had been no change. • Bank already has default judgment against Wren on the loan and summary judgment against Smith on his guarantee.
Issue: • Does Allan have to pay $25,000 pursuant to his written guarantee?
Analysis/Holding: • The face that the loan payments were in arrears came as a complete surprise to Allan. On June 2, 1971 he went to see plaintiff’s credit supervisor who told him that Smith had recently made satisfactory arrangements for payment of the company load and had signed a new guarantee and asked Allan to do likewise saying it was a routine procedure. • Allan inquired of the credit supervisor as to the collateral security (shares) held by the bank and was told by the latter that he did not know particulars thereof but would make an investigation and report later to Allan. • Thereupon Allan signed the new form of guarantee. When he did so he did not know that any of the shares had been released of exchanged by the bank as aforesaid.
48
• Because neither Allan nor his company had ever authorized Smith to act as their agent, he felt reasonably certain that the collateral security pledged by the company was still held by the bank. • In that mistaken belief he executed and delivered the new guarantee to the plaintiff. The financial position of Allan had been materially prejudiced by the dealings with the shares the company pledged as collateral security for its loan. • The shares were released to Smith and sold or exchanged by him with the consent of the plaintiff in the mistaken belief on the part of the plaintiff that Smith was the owner thereof, which he was not – nor did Smith have the authority of the owner to deal with the shares as he did. • The Court finds that the defendant Allan was misled by the words, acts, and conduct of the plaintiff into believing that there was not change in the collateral securities held by the plaintiff and otherwise would not have signed it. • There was a unilateral mistake on the part of the defendant Allan which was induced by the misrepresentation of the plaintiff in failing to disclose material facts to him. In those circumstances the defendant Allan is not liable to the plaintiff upon the second personal guarantee. • The claim of the plaintiff must fail and be dismissed.
Principles:
Notes: • The bank’s silence is seen as a representation that everything was fine and there was no change. • It was unambiguous, material, and relied on. (see bold) • The Court is saying that the creditor (guarantor) has a positive obligation to disclose information to the debtor regarding the security that would be unusual. • This is a law of guarantee.
Kupchak v Dayson Holdings Ltd 1965 – BCCA Facts: • The appellants (Kupchaks) had purchased shares of a motel company, the Palms from the respondents (Dayson) in return for two properties conveyed to the respondents and mortgages to the respondents by the appellants on the land and chattels owned by the motel company. • Two months later, learning that representations made by the respondents’ agent as to the past earnings of the hotel were false, the appellants stopped making payments on the mortgages and consulted their solicitors. • The respondents obtained (but did not execute) a warrant to seize the furniture of the hotel pursuant to the terms of the chattel mortgage. • The respondent’s subsequently sold an undivided half interest in one of the properties conveyed to them by the appellants, tore down the existing building and erected an apartment building.
Issue: • Is the plaintiff entitled to rescission?
Analysis/Holding: • The trial judge held that the appellants were not entitled to recessions because, while they were able to restore to the respondents the shares in the motel, the respondents could not restore the Haro St. property as they had conveyed an undivided one-half interest in it. • The judge found fraud but refuse rescission. • The appellants appeal against the learned trial Judge’s refusal to grant rescission.
49 • The respondents can return the North Vancouver property, but because of their own dealing with the Haro St property they can only return the remaining undivided one-half interest in it, and that in a form so completely changes that its identity may be said to be destroyed (restitutio in integrum). • The condition of rescission is the restoration of the defendant to his precontract position. • Dealing with the Haro St property, which was acquired by fraud, ought not to bar rescission of the transaction unless it be impractical or so unjust to the respondents that it ought not to be impose upon a guilty party. • Equity’s power to remove inequities resulting from rescission and deficiencies in restitution by compensation, account, or indemnity must be kept in mind. • The appellants are asking for the value of the Haro St property which is 80,000.
• Rescission is an equitable remedy and equity has the same power, operating on the conscience of the parties, to order one to pay compensation to the other in order to effect substantial restitution under a degree for rescission, as it has to order one party to pay money on account or by way of indemnity. • Rescission is just as much an equitable remedy as account and indemnity and in applying that remedy equity may order the payment of compensation to adjust the rights of the parties consequent upon rescission, just as it may order the payment of the money upon account or by way of indemnity. • Equity as an incident of its peculiar remedy of rescission or under its power to award compensation may adjust the rights of the parties by ordering either one to pay compensation to the other to make good some deficiency in perfect restitution. • The appellants are awarded the value of the Haro St Property plus 5% interest.
• The next question is whether the appellants by conduct, word or silence have elected to affirm the exchange and whether their right to rescission is barred by laches. If a guilty party intends to allege that this victim has affirmed the contract or has been guilty of laches, he must plead and prove those defences to rescission. • This did not occur. • There is a dissent that holds that his occurred.
Principles:
Notes: • Indemnification – is the refunding of rent. It is not damages. • It can also apply to money put into repairs. • Can get deposit back. • These apply to pre-contractual mis-rep for entering into a lease. • Cannot get loss of profit through contract or money back for something that you were not required to do under the lease. • If you are seeking rescission you cannot get loss of profit. You get restored to pre-contractual state. • If you are suing for breach of contract, a term has been breached and you can get loss of profit. • Rainbow case: If the plaintiff had known the truth, they would not have entered into the contract, and therefore the plaintiff would have let other places and made money. (Its an opportunity cost argument, not necessarily loss of profit). • Bars to rescission – restitutio in integrum is impossible, impractical or unjust; fraud; conspiracy to injure.
BARS TO RESCISSION
• Bars to actions for rescission based on innocent and negligent misrepresentation • Laches • Affirmation of contract • Restitution is impossible, impractical or unjust. 50
• *Kupchak v. Dayson Holdings Ltd. • Third party rights are prejudiced • Execution of the contract in the case of land? • Execution of the contract for the sale of goods?? • *see the rule in Leaf International • Sale of Goods Act R.S.A. 2000, c. S-2: • s. 13(4) When...the buyer has accepted the goods or part of them...the breach of any condition to be fulfilled by the seller shall only be treated as a breach of warranty and not as a ground for rejecting the goods...unless there is a term of the contract expressed or implied to that effect. • s. 35 The buyer shall be deemed to have accepted the goods ... • (c) when after the lapse of a reasonable time he retains the goods without intimating to the seller that he has rejected them.
• Bars to actions for rescission based on fraudulent misrepresentation (note: whether the contract is executed or not is irrelevant) • A. Laches • B. Affirmation of Contract • C. Restitution is impossible, impractical or unjust • D. Third party rights are prejudiced
REPRESENTATION AND TERMS
Leaf v International Galleries 1950 – English Court of Appeal Facts: • The buyer buys a picture from the sellers of the Salisbury Cathedral, on which there was a label indicating that the picture was a Constable. • 5 years later the buyer goes to sell the painting and learns that it is in fact not a Constable. • The buyer sued of rescission of the contract, since the buyer had relied on the representation that the painting was a Constable.
Issue:
Analysis/Holding: Lord Denning: • This case is to be decided based on the principles of a sale of goods, which is what this contract was for. • There was a mistake about the quality of the subject matter, because both parties believed it was a Constable. • Such a mistake does not avoid the contract. • There was a term in the contract as to the quality of the subject matter, as to the person by whom the picture was painted. • This term was either a condition or a warranty. • If a condition, the buyer could reject the picture for breach of the condition at any time before he accepted it or was deemed to have accepted it. • If it was a warranty, he could not reject it buy was confined to a claim for damages.
51 • The rule is that once the buyer has accepted, or deemed to have accepted, the goods in performance of the contract, he cannot thereafter reject but is relegated to his claim for damages. • Deemed acceptance happens when after a lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them. • Denning holds that five years is a reasonable amount of time to have lapsed, so the remedy available is for damages only, a claim which was not brought before the court. • Assuming that a contract for the sale of goods may be rescinded in a proper case for innocent misrepresentation, nevertheless, once the buyer has accepted or is deemed to have accepted the goods, the claim is barred. • The buyer had ample opportunity to examine it in the first few days after he bought it. This was the time to see if the condition or representation was fulfilled. Appeal dismissed
Evershed • Appeal dismissed. • If a man elects to buy a work of art or any other chattel on the faith of some representation, innocently made, and delivery of the article is accepted, then it seems to be that there is much to be said for the view that on acceptance there is an end of that particular transaction, and that, if it were otherwise, business dealings in these things would become hazardous, difficult, and uncertain.
Heilbut, Symons & Co v Buckleton [1913] AC 30 (HL) Facts: • The appellants start a rubber company and instructed Johnston, their agent in Liverpool, to obtain applications to buy shares in Liverpool. • Mr. Wright was a broker for the respondent, and the respondent calls from Wright’s office to Johnston asking about the shares. • I understand you are bringing out a rubber company. We are. Is it alright? We are bringing it out. That is good enough for me. • The respondent explained in his evidence in that his reason for being willing to do this was that the position of the appellants occupied in the rubber trade was of such high standing that any company they should see fit to bring out was of sufficient warranty. • Afterwards, as a result of the conversation, a large number of shares were allotted to the respondent. • There was a large deficiency in the rubber trees and the shares fell in value. • The respondent brought an action for damages for breach of warranty that the company was a rubber company whose main objective was to produce robber. • The jury found that the company could not be described as a rubber company and that the appellants or Johnston or both had warranted that the company was rubber company.
Issue:
Analysis/Holding: • No doubt was the conversation a representation as to fact, and indeed it was the actual representation upon which the plaintiff rest the case. It was this representation which he alleged to have been false and fraudulent and which he alleged to induce him to enter into the contracts and take shares. • There is no suggestion throughout that he regarded it as anything but a representation. • The whole case for the existence of a collateral contract therefore rest on the mere fact that the statement was made as to the character of the company, and if this is to be treated as evidence of sufficient to establish the existence of a collateral contract of the kind alleged the same result must follow with regard to any other statement relating to the subject-matter of a contract made by a contracting party prior to its execution.
52
• It has been definitely laid down that in order to establish a cause of action sounding in damages for misrepresentation, the statement must be fraudulent or must be made recklessly not carting about whether it was true or not. • It is also settled law that an innocent misrepresentation gives no right of action sounding in damages. • An affirmation at the time of sale is a warranty (promise/term), provided it appear on evidence it is intended to be so. • The intention of the parties can only be deduced from the totality of the evidence. • The principle is that a person is not liable in damages for an innocent misrepresentation no matter in what way or under what form the attack is made. • These rules only apply with warrant or representations relating to a specific thing. This is distinct from the question that arises when goods are sold by description and their answering to that description becomes a condition of the contract. • The plaintiff fails for fraudulent misrepresentation because he does not show that the statement was made intentionally or recklessly. :
Notes: • The plaintiff did not plead negligent misrepresentation because at that time it did not exist as a pleading. So he sued for fraudulent misrep. • He was to show that the statement “this is a rubber company” is “unambiguous”, material, and relied on.
Dick Bentley Productions Ltd v Harold Smith Motors Ltd. 1965 English Court of Appeal Facts: • Bentley is bringing action against Smith for breach of warranty on the sale of a care. • Bentley had been looking for a Bentley car for some time and Smith wrote to him after having bought one for $1,500 pounds. • Smith also says that he could find out the history of the car for Bentley. • The car had a new engine and gear box with only 20,000 miles since. • The car was guaranteed by Smith for 1 year. • After buying the car, it was a disappointment and had to be taken back to Smith from time to time. • The action was then brought for breach of warranty and the judge found arrant and although the damages were more than four hundred pounds, the damages awarded were limited to $400 pounds.
Issue: • Whether this representation, namely that the car had 20,000 miles since it had been refitted, was an innocent representation or whether it was a warranty. • Warranty -> can mean either subsidiary aspect of the contract or a term. Here it is being used as a term.
Analysis/Holding: • Borrowing the words from Heilbut, the court looks at whether the warranty was intended and was evidence proves this intention. • Denning: “If an intelligent bystander would reasonably infer that a warranty was intended that will suffice.” • If a representation is made in the course of dealings for a contract for they very purpose of inducing the other party to act on it and it actually induces him to act on it by entering into the contract, that is prima facie ground for inferring that the representation was intended as a warranty. • Suffice it that the representation was intended to be acted on and was in fact acted on.
53 • The maker of the representation can rebut this inference if he can show that it really was an innocent representation in that he was in face innocent of fault in making it and that it would not be reasonable in the circumstances for him to be bound by it. • Smith was in a position to find out the history of the car and did not do so until later. When examined, the history showed that the statements made were wrong. There was no reasonable foundation for the statements. • There is ample foundation for inference of a warranty. Smith wanted Bentley to buy the car and told him of the 20,000 miles and Bentley acted upon this.
Page 392: Fair Trading Act – Consumer Protection Act • First you need a consumer contract to active this legislation. • Then you need an unfair trade practice as defined by 6(3).
CONCURRENT LIABILITY IN CONTRACT AND TORT • In Hedley Bryne & Co. v Heller & Partners, [1964] House of Lords, there could be liability in tort for a negligent misrepresentation causing pecuniary loss where a special relationship existed between the parties. • The SCC decision in Nunes Diamonds rejected the possibility of tortious liability for a misrepresentation made in the course of performing an agreement.
Sodd Corp v N Tessis 1977 ONCA Facts: • The defendant is an accountant and licensed trustee in bankruptcy who advertised a sale by tender for warehouse stock of furniture. • The defendant represented to the officer of the plaintiff company that the retail value of the goods in the warehouse was double the wholesale cost of $33,500. • The officer and the company relied on that representation in deciding to submit the plaintiff’s tender. • The trial judge found that the goods in the warehouse were overvalued by 100% in comparison with the invoices and catalogues found in the store. • The defendant was found negligent in representing the quantity and value of the items included in the assets of the bankrupt advertised for sale, and that the defendant was not entitled to rely on an exemption clause in the advertisement: • Tenders will be accepted on the basis that the purchaser has inspected the assets and title, and no warranty or condition is expressed or can be implied as to designation, classification, quantity or condition or in any manner whatsoever.
Issue:
Analysis/Holding: • The defendant as a professional accountant and trustee in bankruptcy was in a special relationship creating a duty of care to the plaintiff and was negligent in his representation concerning the retail value of the stock in trade. • The Court does not accept the appellant’s argument that since the relationship between the parties was contractual, the Hedley Byrne principle does not apply on the basis of Nunes Diamonds. • The present case did in fact involve a pre-contractual negligent misrepresentation which induced the plaintiff to submit its tender and the defendant’s liability follows. • The trial judge was correct in finding the plaintiff not negligent for relying on a licensed trustee, when the plaintiff’s opportunity for inspection was at best limited. 54
• While the plaintiff’s claim was pleaded on the basis of contract, it was clearly presented at trial as being founded upon the tort of negligent misrepresentation. • It is clear that the defendant’s representation, whether characterized as negligent misstatement or as a collateral warranty, falls outside of the exemption clause. • Appeal dismissed.
Notes: • There was a limited liability term in the actual written contract, but the representation in question, the court holds, was given in a collateral contract which has no such limited liability clause in it. • This is how the Court of Appeal found the defendant was negligent and liable. • Alternatively, the defendant as an accountant made an implied promise as to the value of the goods which does not rely on the liability clause because implicitly the defendant was waiving that when he made the representations. • This is the second way in.
BG Checo International v BR Hydro [1993] 1 SCR 12 Facts: • Nov/82: Hydro called for tenders • Dec/82: BG inspected area by helicopter – assumed that clearing process that had begun would be completed by Hydro • Feb/83: BG’s tender was accepted whereby BG contracted to construct 130 towers and install insulators, hardware, and conductors over 42 kilometers of right of way. • SUBSEQUENTLY: • Hydro did not complete clearing the right of way • “dirty” condition of right of way caused BG loss • BG sues for negligent misrepresentation or, alternatively, breach of contract. It later amended its s/c to include fraud as it emerged Hydro knew if problems with right of way clearing and how it would negatively impact the successful tenderer.
• II. The Contract • Cl 2.03 – It shall be the Tender’s responsibility to inform himself of all aspects of the work and no claim will be considered… for any misunderstanding. • Cl 404 – Contractor shall inspect and examine site… contractor shall be deemed to have satisfied himself as to correctness and sufficiency of his tender… • Cl 6.01 – Clearing of right-of-way… has been carried out by others
Issue: • Can BG sue in both contract and tort?
Analysis/Holding: • Hydro is liable to Checo for breach of contract but the Court does not agree that the conclusion precludes Checo from suing in tort. • The law should move towards the elimination of unjustified difference between the remedial rules applicable to the two actions. • The Court concludes that the contract required Hydro to clear the right of way as specified in 6.01.03 of the contract and that duty was negated by the more general clauses relating to errors and misunderstandings in tendering, site conditions and contingencies
55 • The general obligation of Checo for misunderstandings and errors in the tender documents and for satisfying itself as to the site, the work and all contingencies must not have been intended to negate the specific obligation for clearing which the contract placed squarely on the shoulders of Hydro. • Given the specific nature of Hydo’s obligation, the site inspection and contingencies referred to can reasonably be read as relating to matters other than the clearing which was clearly assigned and not a contingency. • Since it is not contended that Hydro cleared the right of way to the proper standard, the breach of contract is established. • On damages for the breach, the Court awards what is required to put Checo in the position it would have been in had the contract been performed as agreed. • Profit which the contract provided for of 15% including overhead is not awarded (but overhead is). • Checo never bargained for profit on this work which was outside of the parties’ expectations.
Claim in tort and the theory of concurrency • Does the contract preclude Checo from suing in tort? • The SCC holds that the right to sue in tort is not taken away by the contract in such a case, although the contract, by limiting the scope of the tort duty or waiving the right to sue in tort, may limit or negate tort liability. • The general rule is that where a given wrong prima facie supports an action in contract and in tort, the party may sue in either or both expect where the contract indicates the parities intended to limit or negative the right to sue in tort. • Three instances where contract and tort are applied to the same wrong: • 1) where the contract stipulates a more stringent obligation than the general law of tort would impose. • Parties are hardly likely to sue in tort since they could not recover in tort for the higher contractual duty (O’bryne does not agree about not suing in tort, always do both). • This is most commercial transactions. • 2) Where the contract stipulates a lower duty than that which would be presumed by the law of tort in similar circumstances. • Parties by the contract indicate their intention that the usual liability imposed by the law of tort is not to bind them. • The duty imposed by the law of tort can be nullified only by clear terms. • 3) The duty in contract and the common law duty in tort are co-extensive. • The plaintiff may seek to sue concurrently or alternatively in tort to secure some advantage peculiar to the law of tort such as a more generous limitation period.
CLASSIFICATION OF TERMS
• Per the Alberta C.A. in First City Trust Co. v. Triple Five Corp. (1989), the traditionally accepted test for distinguishing a condition from a warranty, pre-Hong Kong Fir, is as follows: • The question was said to be whether, in the later words of Lord Ellenborough in Davidson v. Gwynne in 1810, the term and its non-performance went to the "whole root and consideration" of the contract. This expression "the root of the contract," was generally accepted as the basis of the distinction between conditions an other, lesser terms, in particular warranties. • It is not confirmed that this is still good law by O’bryne thinks it probably is.
• Breach of condition would allow the innocent party to repudiate and/or seek damages. Breach of warranty would allow the innocent party only to seek damages. • Under the pre Hong Kong scheme, breach of term defined to be a condition triggers the right to repudiate, even if the event caused by the breach is minor. • Hong Kong Fir seeks to mitigate the potential harshness and formulaic quality of the old scheme by introducing a third possibility, namely the innominate term. Assuming the term involved is an innominate term, the innocent party will be discharged from further performance under the contract if the answer to the following test is positive: 56
• does the occurrence of the event deprive the party who has further undertakings still to perform of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing those undertakings.
Hong Kong Fir Shipping Co Ltd V Kawasaki Kisen Kaisha Ltd 1962 – English Court of Appeal Facts: • HK owns the vessel and charterers hired the vessel for 24 months. • In the contract there was a clause that the owners would maintain her in a thoroughly efficient state in hull and machinery during service. • When she was delivered to the Charterers the engine room was undermanned and the staff incompetent, and the owners knew the boat was old and need ample staff to maintain it. • On the first voyage there was a five week period when the boat was off for repairs, and then after that it needed another 15 weeks to make the vessel seaworthy. • During this time there was a fall in shipping rates as compared to what was agreed to in the contract. • The Charterers write to the owners repudiating the charter. • The owners brought an action for wrongful repudiation and during this motion the judge found the owners in breach of the clause to deliver and maintain the boat in a seaworthy state. • The Charters contend that the owners breaches of the charter entitled them to repudiate the charter, alternatively that the Charter had been frustrated.
Issue: • In what even will a party be relieved of his undertaking to do that which he has agreed to do but not yet done?
Analysis/Holding: • The test for whether an event has this effect or not is: does the occurrence of the event deprive the party who has further undertakings still to perform of substantially the whole benefit from which it was the intention of the parties as expressed in the contract that he should obtain as consideration for performing those undertakings? • Where the event occurs as a result of the default of one party, the party in default cannot rely on it as relieving himself of the performance of any further undertakings on his part and the innocent party, although entitled to, need not treat the event as relieving him of the performance of his own undertakings. • Where the event occurs as a result of the default of neither party, each is relieved of the further performance of his own undertakings and their rights in respect of the undertakings previously performed are now regulated by law. • There are two types of contractual undertakings: those collateral to the main purpose of the parties as expressed in the contract (warranty) and those which were mutually dependent so that the non-performance of an undertaking of this type was an event which excused the other party from the performance of his corresponding undertakings (condition).
• Once it is appreciated that it is the event and not the fact that the event is an result of a breach of contract which relieves the party not in default of further performance of his obligations, two consequences follow: • 1) the test whether the event relied on has this consequence is the same whether the event is the result of the other party’s breach of contract or not. • 2) the question whether an event which is the result of the other party’s breach of contract has this consequence cannot be answered by treating all contractual undertakings as falling into one of two separate categories. • 1) conditions – the breach of which gives rise to an even which relieves the party not in default of further performances • 2) warranties the breach of which does not give rise to such an event.
57 • There are many simple contractual undertakings, sometimes express but more often because of their very simplicity to be implied, of which it can be predicated that every breach of such an undertaking must give rise to an event which will deprive that party not in default of substantially the whole benefit which it was intended that he should obtain from the contract. -> a condition, non-defaulting party gets repudiation • There may be other simple contractual undertakings of which it can be predicated that no breach can give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract. -> a warranty unless agreed in the contract no repudiation. • There is a third category which is neither condition nor warranty. In these cases breaches sometimes will give rise to an event which will deprive of substantially the whole benefit. Innominate term (cant figure out the parities intentions at the time of formation).
• Look at the events which had occurred as a result of the breach at the time at which the charterers of those events deprived the charterers of substantially the whole benefit which it was the intention of the parties as expressed in the charterparty that the charterers should obtain from the further performance of their own contractual undertakings. • When taken together such as to deprive the charterers of substantially the whole benefit which it was the intention of the parties they should obtain from further used of the vessel under the charterparty.
Principles:
Notes: • Repudiation when there is a term = end the contract without future obligations. • Rescission is where there is a pre-contractual misrepresentation = cancel the contract as if it never began. • To show whether a contract has been frustrated: • Functionally impossible or illegal. • Dramatic and unforeseen • Neither party had assume risk. • There is no fault. • In this case, the parties cannot establish that the contract is frustrated. • Taylor is the leading case of the law of frustration.
Summary of test to determine whether a condition or warranty Per C.A. in T5 , approach the issue of classification in this way: • STEP ONE: apply the traditional condition/warranty test as articulated by Bowen L.J. in Bentsen as ‘a starting point’. o fyi: • Bentsen states: There is no way of deciding that question except by looking at the contract in light of the surrounding circumstances, and then making up one's mind whether the intention of the parties, as gathered from the instrument itself, will best be carried out by treating the promise as a warranty sounding only in damages, or as a condition precedent by the failure to perform which the other party is relieved of his liability [to perform]). • STEP TWO: include consideration of the commercial setting when assessing surrounding circumstances [such as, per Reardon, the ‘genesis of the transaction, the background, the context, the market in which the parties are operating’] • STEP THREE: if intent thus far not determined, “then the basis for seeking out that intent should be, as put forward by Hong Kong Fir, an assessment of the gravity of the event to which the breach gave rise.
Keep in Mind • even where the breach of a term has produced a minor event, it can be treated as a breach of a condition. See Schuler quoting Bettini: "Parties may think some matter, apparently of very little importance, essential; and if they sufficiently express an intention to make the literal fulfilment of such a thing a condition precedent, it will be one." 58
• Common sense’s role: The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear."
Wickman Machine Tool Sales Ltd v L Schuler AG 1974 – House of Lords Facts: • Schuler and Wickman enter into an agreement which granted Wickman the sole right to sell Schuler products in the UK. • Clause 7 of the contract states that Wickman will use its best endeavors to promote the products and it shall send its reps at least one a week to every largest UK car manufacturers. • Clause 11 states that if there is a material breach of the obligations, there is 60 days to remedy it, otherwise the contract can be expired. • Wickman does not comply strictly with its obligations under 7(b). • Schuler repudiated the agreement, claiming that these defaults amounted to a breach of condition and therefore conferred an absolute right to terminate the agreement.
Issue:
Analysis/Holding: Lord Reid -> House of Lords Decision • Starts with the meaning of the word remedy which is “cure so that matters are put right for the future” – this is its more natural meaning. • The question then becomes whether a breach of Wickman’s obligations under clause 7 is capable of being remedied within the meaning of this agreement i.e. clause 11. • Held: Breaches of this obligation should be held to be capable of remedy within the meaning of clause 11. • Clause 7 must be read so that a breach of clause 7 does not give Schuler a right to rescind (repudiate) but only to require the breach be remedied within 60 days under cl 11. • In the present case it is not contended that Wickman’s failures to make the visits themselves amount to fundamental breaches. What is contended is that the terms of clause 7 sufficiently express and invitation to make any breach, however small, of the obligation to makes visits a condition so that any such breach shall entitle Schuler to rescind the whole contract if they so desire. • The contract makes not provision for the possibility that one of the firms may tell Wickman they cannot receive him that week. So if the parties gave any thought to the matter at all they must have realized the probability that in a few cases out of the 1,400 required visits a visit as stipulated would be impossible. • But if Schuler’s contention is right failure to make even one visit entitles them to terminate the contract however blameless Wickman might be. • This is so unreasonable that is must make me search for some other possible meaning of the contract.
• If clause 7 is read along clause 11: • The word condition would make any breach of clause 7, however excusable, a material breach. That would then entitle Schuler to give notice under clause 11 requiring the breach to be remedied. • There would be no point in giving notice if Wickman were clearly not in fault but if it were given Wickman would have no difficulty in showing that the breach had been remedied. • If Wickman were at fault then on receiving such notice they would have to amend their system so that they could show that the breach had been remedied. • This is a reasonable construction of the contract. 59 • It follows that Schuler were not entitled to rescind the contract as they purported to do. So the appeal should be dismissed.
Notes: • In the Court of Appeal decision, there are 3 different meanings of “condition” as per Lord Denning: • Condition as a pre-req to the very existence of the agreement (condition precedent) • Condition as a provision or stipulation – meaning terms of the contract. Its effect is solely in this case on the interpretation of the contract. • A condition in the third sense is a stipulation in a contract which carries with it this consequence: If the promisor breaks a condition in any respect, however slight, it gives the other party a right to be quit of his future obligations and to sue for damages unless he, by his conduct, waives the condition, in which case he is bound to perform his future obligations, but can sue for the damages he has suffered. A condition in this sense is used in contrast to a warranty. If a promisor breaks a warranty in any respect, however serious, the other party is not quit of his future obligations. He has to perform them • Denning decides that the condition in question was in its ordinary meaning (#2 - term of the contract) and only material breaches would trigger clause 11.
CONTRACTUAL INTERPRETATION - IMPLIED TERMS
Machtinger v Hoj Industries [1992] 1 SCR 986 Issue: • On what basis is a court to imply a term in a contract? • Particularly in this case imply a notice period for employment termination and to what extent is intention to be taken into account in fixing an implied term of reasonable notice in an employment contract?
Analysis/Holding: • The intention of the contracting parties is relevant to the determination of some implied terms, but not all. • A) Intention is relevant to terms implied as a matter of fact, where the question is what the parties would have stipulated had their attention been drawn at the time of contracting to the matter at issue. • B) Intention is not relevant to terms implied as a matter of law. • Reasonable notice is a term implied by law. • A term implied as such depends on a number of factors include length of service, age, availability of similar employment, character of the employment. • In Canadian Pacific Hotels terms could be implied for: • 1) Custom or usage – there must be evidence to support an inference that the parties to the contract would have understood such a custom or usage to be applicable. • They are implied on the basis of intention. • 2) The second type of implied term is necessary to give rise to the business efficacy of the contract – these are terms which the parties to a given contract would have obviously assumed and implied on the basis of intention. • 3) The final category: not presumed on intention but as legal incidents of a particular class or kind of contract, the nature and content of which have to be largely determined by implication. • From the HL decision in Liverpool City Council – the test for implication of a term as a matter of law is necessity, • Such an obligation should be read into a contract as the nature of the contract implicitly requires, no more, no less. This is necessity.
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• It is not whether the term is necessary for the very existence of the contract. Necessary is in a practical sense to the fair functioning of the agreement, given the relationship of the parties. • Necessary – regard must be had to both the inherent nature of a contract and of the relationship thereby established. The question is whether the term sough to be implied is a necessary condition of the contractual relationship. • The SCC: it is hard to see any difference between attaching a legal incident to a contract on the ground of necessity and imposing a duty. • Where the law for many years imposed a legal duty on contracting parties, as it has in implying terms that employers must give employees reasonable notice of termination, that duty has clearly been found to be necessary. • As the parties had contracted for less than reasonable notice of termination, the court held that it would be improper to imply a reasonable notice term into the contracts, and held that the plaintiffs to be entitled only to the minimum notice periods required by the Act. • But what is at issue is not the intention of the parties but the legal obligations of the employer implied in law as a necessary incident of this class of contract. • That duty can be displaced only by an express contrary agreement. • There is no contrary agreement here, the Act having rendered what contrary agreement there was null and void, the reasonable term of notice implied by law is not displaced and will be imposed by the Court.
Gateway Realty Ltd v Arton Holdings
• Gateway and Arton then reach a deal to use this best efforts to fill the space. Arton does not fill the space and continually finds issues with the potential leasees that Gateway brings it. • “[Parties must exercise their contractual rights] honestly, fairly, and in good faith.” • “[B]ad faith [is] a conduct that is contrary to community standards of honesty, reasonableness or fairness.” • There was nothing in the lease which said Arton had to do anything in good faith. • A good faith standard was imposed on Arton as an implied term of fact. • The lease between Arton and Gateway was then terminated because the breach of the good faith term went to the root of the contract. The court saw it as a breach of a condition, that would lead the innocent party to treat the contract as at an end.
Bhasin v Hynrew (Honesty in contract performance) 2014 SCC 71
61 • We first looked at this case in terms of good faith in contract negotiations, now we are looking at the case from a contract performance perspective. Facts:
• The term of this Agreement shall be for a period of three years from the date hereof (the “Initial Term”) and thereafter shall be automatically renewed for successive three year periods (a “Renewal Term”),…unless either [Can- Am] or the Enrollment Director notifies the other in writing at least six months prior to expiry of the Initial Term or any Renewal Term that the notifying party desires expiry of the Agreement, in which event the Agreement shall expire at the end of such Initial Term or Renewal Term, as applicable.
• There are no “agreements, express, implied or statutory, other than expressly set out.” • The trial judge made a finding of fact that Can Am prioritized the needs of Hrynew over those of Bhasin. • Can Am terminated Bhasin’s contract as per the clause above and then consolidated Bhasin’s business with Hrynew’s. • Bhasin then sues for reach of contract.
Analysis/Holding Trial Judge: • Can-Am misled and was dishonest with Bhasin on a number of fronts. • The contract between the parties contained an implied term of good faith • The entire agreement clause was not a barrier to implying a good faith term because, inter alia, it would be unjust and inequitable to allow Can-Am to rely on it. • Based on the good faith term, Can-Am’s non-renewal would have to be exercised fairly. • Breaches of good faith by Can-Am are connected to Bhasin’s loss of his agency.
SCC held: • Rejects analysis by TJ, noting there is no term of good faith in the contract between Can-Am and Bhasin because it falls outside of existing situations and relationships where good faith is implied (such as insurance and franchise contexts). As well, the term cannot be implied as that would be contrary to the entire agreement clause. • Reverses CA. Can-Am is in breach of the new duty of honesty in contractual performance. This new common law duty applies to all contracts, at para 33, and means, at para 73: • simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to performance of the contract. • Had Can-Am been honest in contractual performance, Bhasin would have sought to sell or otherwise monetize his agency before Can-Am triggered its decision not to renew. • The SCC relies on the trial judge’s estimation of damages of 87,000. • Duty of honesty: • Not to be confused with a duty to disclose • Is not a term • Operates irrespective of parties’ intention • Is not ousted by a generically worded entire agreement clause • It is tied to the idea of good faith; sometimes more than honesty is required (see Dynamic Transport)
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• Canadian common law in relation to good faith performance of contracts is piecemeal, unsettled and unclear. Two incremental steps are in order to make the common law more coherent and more just. The first step is to acknowledge that good faith contractual performance is a general organizing principle of the common law of contract which underpins and informs the various rules in which the common law, in various situations and types of relationships, recognizes obligations of good faith contractual performance. The second step is to recognize, as a further manifestation of this organizing principle of good faith, that there is a common law duty which applies to all contracts to act honestly in the performance of contractual obligations. Taking these two steps will put in place a duty that is just, that accords with the reasonable expectations of commercial parties and that is sufficiently precise that it will enhance rather than detract from commercial certainty.
• There is an organizing principle of good faith that parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily. An organizing principle states in general terms a requirement of justice from which more specific legal doctrines may be derived. An organizing principle therefore is not a free- standing rule, but rather a standard that underpins and is manifested in more specific legal doctrines and may be given different weight in different situations. It is a standard that helps to understand and develop the law in a coherent and principled way.
• Under this new general duty of honesty in contractual performance, parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one’s contractual performance. Recognizing a duty of honest performance flowing directly from the common law organizing principle of good faith is a modest, incremental step.
• This new duty of honest performance is a general doctrine of contract law that imposes as a contractual duty a minimum standard of honesty in contractual performance. It operates irrespective of the intentions of the parties, and is to this extent analogous to equitable doctrines which impose limits on the freedom of contract, such as the doctrine of unconscionability. However, the precise content of honest performance will vary with context and the parties should be free in some contexts to relax the requirements of the doctrine so long as they respect its minimum core requirements.
• The Doctrine of unconscionability – have to show procedural (inequality in bargaining power, has to be gross) and substantive (goes to the deal itself) inequality in order to have a deal declared so unfair that the contract will not be enforced.
• The decision also provides a foundation for courts to address injustice but, at para 66, not in a radical way: • The application of the organizing principle of good faith to particular situations should be developed where the existing law is found to be wanting and where the development may occur incrementally in a way that is consistent with the structure of the common law of contract and gives due weight to the importance of privacy ordering and certainty in commercial affairs
• SCC recognized the three types of situations where good faith in contractual performance has been triggered, at para 47: • (1) where the parties must cooperate in order to achieve the objects of the contract; [Ok Detailing] • (2) where one party exercises a discretionary power under the contract; [Gateway] and • (3) where one party seeks to evade contractual duties. [Mason]
Notes:
63 • The entire agreement clause is meant to facilitate certainty in business and tries to close the door to implied terms in the contract.
Bhasin Summary and Taxonomy Fiduciary Duty: engages “duties of loyalty to the other contracting party or a duty to put the interests of the other contracting party first” (Bhasin, para 65). It is “a general duty to subordinate his or her interest to that of the other party” (Bhasin, para 86).
Good Faith as an organizing principle: is context-specific (Bhasin, para 69) but includes the concept that “parties must perform their contractual duties honestly and reasonably, not capriciously or arbitrarily”(Bhasin, para 63). It “exemplifies the notion that, in carrying out his or her own performance of the contract, a contracting party should have appropriate regard to the legitimate contractual interests of the contracting partner” (Bhasin, para 65). It must be “applied in a manner that is consistent with the fundamental commitments of the common law of contract which generally places great weight on the freedom of contracting parties to pursue their individual self-interest” (Bhasin,at para 70.)
Good Faith as a Term: is also a manifestation of the good faith principle. No express definition is offered by the court. While Gateway v Arton (1991) is criticized by court on one ground, it cites Gateway’s definition of good faith with no apparent disapproval.
Duty of Honesty in Contractual Performance: is a manifestation of the good faith principle. The duty applies to all contracts (Bhasin, para 33) regardless of contractual intention (Bhasin, para 74) but is not a term (Bhasin, para 74 of Bhasin). It does not mandate disclosure but does forbid lying or knowingly misleading “on matters directly linked to the performance.” (Bhasin,at para 73)
Unconscionability: is based on “consideration of fairness and preventing on party from taking undue advantage of the other” (Bhasin at para 43).
Supreme Court decision in Sattva • Per Sattva, the goal of contractual interpretation is to “understand the mutual and objective intentions of the parties expressed in the words of the contract” • Read the contract as a whole, giving the words used their ordinary and grammatical meaning [plain meaning rule] with the surrounding circumstances known to the parties at the time of the formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning.
CONTRACTUAL INTERPRETATION & EXCLUSION CLAUSES
IFP Technologies v EnCana Midstream 2017 ABCA 157 Facts: • This case goes to the principle of good faith in contractual performance and how that interacts with principles of contractual interpretation.
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• Parties expected a certain minimum standard of contractual conduct.
Issue: • A fundamental point is whether the term “working interest” with respect to oil and gas leases has any meaning in Canadian oil and gas law. In my view, it most assuredly does. This phrase is a legal term of art with a specific meaning in the oil and gas industry, a meaning which this Court should uphold in keeping with what were undoubtedly the parties’ mutual intentions when the subject contract was concluded.
Analysis/Holding: • Companies are entitled to expect that the parties with whom they contract will be honest, reasonable, candid and forthright in their contractual dealings • As a corollary to this, they are also entitled to expect that contractual terms intended to protect one contracting party from future liability will not then be turned on their head and used to gut the purpose of the contract. • Considering the surrounding circumstances of a contract does not offend the parol evidence rule. That rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract. However, evidence of surrounding circumstances is not used for this purpose but rather as an objective interpretive aid to determine the meaning of the words the parties used. • While the factual matrix cannot be used to craft a new agreement, a trial judge must consider it to ensure the written words of the contract are not looked at in isolation or divorced from the background context against which the words were chosen. • Examples of relevant background facts include: (1) the genesis, aim or purpose of the contract; (2) the nature of the relationship created by the contract; and (3) the nature or custom of the market or industry in which the contract was executed. • In the face of ambiguity, the interpretation promoting business efficacy is to be preferred so long as it is supported by the text. • There are limitations as to what parol evidence is admissible. In this regard, evidence as to the parties’ subjective intentions is generally inadmissible.
On Bhasin • Good faith contractual performance as a “general organizing principle” • The organizing principle “manifests itself through the existing doctrines about the types of situations and relationships in which the law requires, in certain respects, honest, candid, forthright or reasonable contractual performance. • It is exemplified in “the notion that, in carrying out his or her own performance of the contract, a contracting party should have appropriate regard to the legitimate contractual interests of the contracting partner” • This duty requires that “parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract” • This organizing principle of good faith contractual performance requires that, in carrying out the performance of a contract, “appropriate regard” is given to the other party. This does not compel a party to put the interests of others above its own, but it does require “that a party not seek to undermine those interests. • While reasonable expectations” does not operate as a stand-alone principle divorced from the contract actually agreed to between the parties, this does not diminish its role in informing the duty of “good faith” in contractual performance. In doing so, the reasonable expectations of the parties operate so as to imply a term limiting one party’s ability to perform a contact in a manner which undermines the interests of the other party.
Notes: • Per SCC in Sattva at para 47:
65 • read the contract as a whole, giving the words used their ordinary and grammatical meaning [plain meaning rule] with the surrounding circumstances known to the parties at the time of the formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning.
STANDARD FORMS AND EXCLUSION CLAUSES Exclusion Clauses • 1) clause is part of the contract – unsigned document by notice = Thorton • - signed document = Tilden; Karroll • 2) Does the clause cover what happened including special problem of fundamental breach = Karsales, Hunter, Teicon, Fraser, Plas-Text. Thorton v Shoe Lane Parking Ltd. [1971] English Court of Appeal Facts: • Thorton is putting his car in a parking garage. There is no person in the booth. • He took a ticket from the machine and then parked his car. • He came back three hours later, paid the charged and got his car. • There was an accident and he was severely injured. • On the ticket it reads that this ticket is issued subject to the conditions of issue as displayed on the premises. • There is a pillar in the garage with the conditions printed on it. • The conditions include a liability exclusion clause.
Issue: • The defendant parking garage, acknowledge that the accident was their fault but claim that they are protected by some exemption conditions.
Analysis/Holding (Lord Denning MR): • The rule with railways, steamships and cloakrooms where booking clerks issued tickets to customers to took them away without reading them, the issue of the ticket was the offer and the if the customer took it and retained it without objection, his act was regarded as acceptance. • The consumer had the opportunity to refuse it and decline it and ask for money back. • In this case, the ticket is given by automatic machine. There is no chance for the customer to refuse it. He is committed beyond recall and committed when he put the money into the machine, that’s when the contract was concluded. • He is not bound by the terms printed on the ticket if they differ from the notice because the ticket came too late. • Once the contract was concluded, it could not be altered by any words printed on the ticket itself. In particular, it could not be altered so as to exempt the company from liability from their negligence. • The customer is bound by the exempting clause if he knows that the ticket is issued subject to it or if the company did what was reasonably sufficient to give him notice of it. • The exclusionary clause is so wide and destructive of rights that the court should not hold any many bound by it unless it is drawn to his attention in the most explicit way. • There was no finding that the plaintiff knew that the writing contained conditions and the burden was on the defendant to prove that, which they did not.
Megaw LJ:
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• The first attempt to bring his notice to the intended inclusion of the conditions was at a time when as a matter of hard reality it would have been practically impossible for him to withdraw from his intended entry on the premises for the purpose of leaving his car there.
Tilden Rent-a-car co v Clendenning 1978 BCCA Facts: • The plaintiff is renting a car. He is asked by the clerk whether he wants extra insurance to which he says yes. • He is given a contract and signs it, but he did not read the contract first. • There is an exclusionary clause on the contract that is in very small print and hardly legible on the customer copy. • The plaintiff gets into an accident and pleads guilty to impaired driving in Vancouver. • By paying for the extra coverage, Clendenning thought that customer liability was nothing as that is what that portion of the contract said. • Unless inquiries were made, nothing was to be said by the clerks to the customers with respect to the exclusionary conditions.
Issue: • The issue is whether the defendant is liable for the damage caused to the car while being driven by him by reason of the exclusionary clause in the contract.
Analysis/Holding: • The provisions fastening liability for damage to the vehicle on the hirer are completely inconsistent with the express terms which purport to provide complete coverage for damage to the vehicle in exchange for the additional premium. • If the speed limit was exceeded by one km or if it was driven off a government road like in a parking lot, according to the clause there could be no liability. • The rule in L’Estrange v F Graucob Ltd is that when a document containing contractual terms is signed then in the absence of fraud or misrepresentation the party signing it is bound and it is wholly immaterial whether he has read the document or not. • The essential part of the test is whether the other party entered into the contract in the belief that the plaintiff was assenting to all such terms. • In this case, it was apparent to the clerk that the plaintiff had not read the document before he signed it. • It follows that the car rental place cannot rely on the provisions of the contract which it had no reason to believe were being assented to by the other party. • The clause relied in this case is inconsistent with the over-all purpose of the contract. Under such circumstances something more should be done by the party submitting the contract for signature than merely handing it over to be signed. • The signature by itself does not truly represent an acquiescence of the unusual and onerous terms which are inconsistent with the true object of the contract. • Parties seeking to rely on such terms should not be able to do so in the absence of first having taken reasonable measures to draw such terms to the attention of the other party. In the absence of such measure it is not necessary for the party denying knowledge of such terms to prove fault or misrepresentation.
Notes: • Other defences to an exemption clause even if you have signed: • Fraud • Misrepresentation by the offering party
67 • Non est factum – not my deed, where you have signed a document that is radically different that what you thought you were signing. Difficult to establish.
Karroll v Silver Star Mountain Resort [1956] 1 WLR 936 Facts: • Karroll is the plaintiff who broke her leg while skiing in a downhill competition. • The defendant let her go down the course when it was not safe to do so because someone else was on the course. • Karroll alleges negligence on the part of Silver Star. • Silver Star is relying on the terms of the indemnity waiver.
Issue:
Analysis/Holding: • “There is no general requirement that a party tendering a document for signature to take reasonable steps to apprise the party signing the onerous terms or to ensure that he reads or understands them. It is only where the circumstances are such that a reasonable person should have known that the party signing was not consenting to the terms in question, that such an obligation arises. For to stay silent in face of such knowledge is, in effect, to misrepresent by omission.” • You are bound subject to fraud and misrepresentation. • The plaintiff knew she was signing a legal document, there is no fraud or misrepresentation. • Test on page (505): applying these rules to the case we start from the fact that Karroll is bound by the release unless she can establish: • (1) that in the circumstances a reasonable person would have known that she did not intend to agree to the release she signed; • (2) that in these circumstances the defendants failed to take reasonable steps to bring the content of the release to her attention. • Were the circumstances of the signing such that a reasonable person should have known that Karroll did not intend to agree to what she had signed? No.
PRINCIPLES OF CONTRACTUAL INTEPRETATION AND EXCLUSION CLAUSES • Contra proferentem – where as contract has been drafted by one of the parties, any ambiguities in it are likely to be construed against that party.
Karsales v Wallis 1956 English Court of Appeal Facts: • Wallis inspected a second-hand car which Stinton was selling, and found the car in good condition. • Karsales bought the car and sold it to Mutual Finance which let the car out to Wallis on hire-purchase terms. • When this agreement was concluded the car was still in Stintons possession and Wallis had not yet again seen it. • When Wallis receives the vehicle, it is bad damaged. • Mutual then assigned all their rights under the agreement to Karsales who is now suing Wallis for non-payment of the hire-purchase agreement. • The hire purchase agreement includes a term about no warranty being made to the condition of the vehicle.
Issue: 68
• The defendant says that he agreed to take on the hire-purchase terms for a car that he had seen a few weeks before; and that owing to the condition of the car on delivery, there was a fundamental breach by Mutual Finance.
Analysis/Holding: Lord Denning & the Doctrine of Fundamental Breach • There is an obligation on the lender to deliver the car in substantially the same condition as when it was seen. The lender must know, from the ordinary course of business, that the hirer applies on the faith of his inspection and on the understanding that the car will be delivered in substantially the same condition. • This is an implied term of the agreement that pending delivery the car will kept in suitable order. • Exempting clauses of this kind, no matter how widely expressed, only avail the party when he is carrying out his contract in its essential respects. He is not allowed to use them as a cover for misconduct or indifference or to enable him to turn a blind eye to his obligations. They do not avail him when he is guilty of a breach which goes to the root of the contract. • If he has been guilty of those obligations in a respect which foes to the very root of the contract, he cannot rely on the exempting clauses. • In this case the breach went to the root of the contract and disentitled the lender from relying on the exempting clause.
Hunter Engineering Co Inc v Syncrude Canada Ltd [1989] 1 SCR 426 Facts: • Syncrude has a contract for extraction conveyor systems, which includes four extraction gear boxes. • The total contract is $4.1 million and includes a limited warranty clause that expired after 24 months from delivery or 12 months after first entering service. • More than a year after the gearboxes are put into service, defects are discovered and the cost of the repairs is $400,000. • Syncrude brought a claim against Allis-Chalmers on the doctrine of fundamental breach.
Issue:
Analysis/Holding: • Wilson J: The definition of a fundamental breach is “where the event resulting from the failure by one party to perform a primary obligation has the effect of depriving the other party of substantially the whole benefit which it was the intention of the parties that he should obtain from the contract. • The facts of this case do not support a fundamental breach: the contract was for 14 conveyor systems only 4 of which contained gearboxes. The gears were important components of the conveyor system but their inferior performance did not have the effect of depriving Syncrude of substantially the whole benefit… • The purchaser got a poor but repairable version of what it contracted for. This does not support the entire contractual setting being undermined. • The contractual limited warranty clause is effective. • Wilson rejects the concept that the exclusion clause in order to be enforceable must be per se a fair and reasonable provision at the time it was negotiated. The exclusion clause cannot be considered in isolation from the other provisions of the contract and circumstances in which it was entered into. • Exclusion clauses do not automatically lose their validity in the event of a fundamental breach by some hard rule. They should be given their natural and true construction so that the meaning and effect of the exclusion clause the parties agreed to at the time the contract was entered into is fully understood and appreciated.
69 • The court must still decide having ascertained the parties intention at the time the contract was made, whether or not to give effect to it in the context of subsequent events such as a fundamental breach committed by the party seeking its enforcement through the court (public policy approach).
• Doctrine of Unconscionability – in situations involving contractual terms which result from inequality of bargaining power the judicial armory has weapons apart from strained and artificial constructions of exclusion clauses. Where there is no such inequality of bargaining power the courts should, as a general rule, give effect to the bargain freely negotiated by the parties. • Even if the breach in this case was a fundamental one, there would be nothing unfair or unreasonable in giving effect to the exclusion clause. The contract was made between two companies in the commercial market place who are of roughly equal bargaining power.
• Dickson J: • The Courts should not disturb the bargain the parties have struck and Dickson is inclined to replace the doctrine of fundamental breach with a rule that holds the parties to the terms of their agreement, provided the agreement is not unconscionable. • Is inclined to lay the doctrine of fundamental breach to rest and where necessary and appropriate to deal explicitly with unconscionability. • Only if there parties of unequal bargaining power, should the courts interfere with agreements the parties have freely concluded. • These comments are restricted to the use of fundamental breach in the context of enforcing contractual exclusion clauses.
Notes: • This case as been, overall, overtaken by Turcon. • There are still portions of the decision which are good.
Fraser Jewellers Ltd v Dominion Electric Protection 1997 ONCA Facts: • Fraser, owns jewelry store, and the defendant ADT have a contract for the defendant to provide a burglar system for an annual fee. • In the contract there is a clause that limits ADT liability to the amount of the annual fee ~$900, stating that ADT is not an insurer and makes no warranty that the system prevents robberies. • Fraser is robbed and ADT is negligent in notifying the police as it did not do so for ten plus minutes. • The robbers made off with $50,000 in jewelry.
Issue: • Fraser succeeded at trial in recovering the money from ADT.
Analysis/Holding: • The ONCA on Sycnrude: • The SCC was unanimous in holding that while such provisions, prima facie, were enforceable according to their true meaning, a court was empowered in limited circumstances to grant relief against provisions of that nature. • There was however division on the test to be used for these limited circumstances. • In this case, failing to respond appropriately to the alarm was not a fundamental breach. The commercial purpose of the transaction was not thereby destroyed. • Whether the breach is fundamental or not, an exclusionary clause of this kind should prima facie be enforced according to its true meaning. Relief should only be granted if the entire agreement is viewed as unconscionable or unfair or unreasonable. 70
• Fraser had the ability to read the contract and there was no special relationship between that parties that existed to impose any such obligation to draw specific attention to the clause. • The question is not whether there was inequality in bargaining power but rather whether there was an abuse of bargaining power. • Limiting liability in this situation is manifestly reasonable.
Notes: • Even those this case was decided before Tercon (below), the mentions of unconscionability or unfairness/unreasonableness reflect steps 4 and 5 from that test, respectively. Plas-tex Canada v Dow Chemical of Canada 2005 ABCA Facts: • The plaintiffs are a group of companies that are providing pipelines to rural communities in Alberta. • Dow sold defective resin to two of the plaintiffs, with one of those contracts containing limited liability clauses that the plaintiffs would accept liability for all loss and damage resulting from the use of the resin. • It came out during trial that Dow knew the problem with the resin, before it entered into the contract.
Issue:
Analysis/Holding: • AB courts have generally held that contract should be enforced regardless of the stringency of their terms limiting liability because parties require certainty that the provisions negotiated will be enforced. • There is one important caveat: the court will intervene when the party desiring to enforce the liability limiting clause has engaged in unconscionable conduct. • A party to a contract will not bet permitted to engage in unconscionable conduct secure in the knowledge that no liability can be imposed upon it because of an exclusionary clause. • Dow knew of the defects, and it knew the respondents would be burying the pipe and that it could result in danger to persons and property. • There is no doubt that this conduct was unconscionable.
Tercon Contractors Ltd v British Columbia (Ministry of Transport and Highways) 2010 SCC 4 Facts: • Tercon is responding to an RFP from the Province of BC. • BC is the defendant because they accepted a non-compliant tender from Brentwood. • Brentwood lacked the necessary expertise so they entered into a pre-bidding agreement with EAC under a joint venture. • This was contrary to the rules of the tender, so BC accepted a non-compliant bid knowingly. • Tercon is bringing an action on these grounds. • The RFP documents had an exclusion of liability clause that by participating in this RFP they have no claim for any compensation.
Issue: • Can Tercon succeed in an action based on the breach of contract A or is the no claims clause a complete answer?
Analysis/Holding: • Majority – there is liability under contract A, the no claims clause does not provide a defense. 71 • Tercon’s claim is not barred by the exclusion clause because the clause only applies to claims arising as a result of participating in the RFP, not to claims resulting from the participation of other, ineligible parties. • So it fails at number 3 of the list below. • If the majority is wrong about the interpretation of the clause, they say that they would still hold it as having ambiguous language.
• The unanimous decision on how to approach exclusion clauses: • 1. Is there a breach of contract (here, is there a breach of Contract A)? • 2. If yes, is the exclusion clause at issue part of the contract? (SKO) • 3. If yes, does the exclusion clause apply to the circumstances as a matter of interpretation? (depends on parties’ intentions) • 4. If yes, is the exclusion clause unconscionable at the time the contract was made (versus at time of breach) • This might arise out of situations of unequal bargaining power • This might arise out of policy considerations arising from relevant legislation like the Transportation Act. • This relates to Dickson’s reasons in Hunter. • 5. Assuming validity, is there any overriding public policy that would justify the court’s refusal to enforce it? • Is it contrary to public policy (Plas-Tex decision; knew of the defects and still supplied it)? • The whole conduct is unconscionable? • This step is driven by Wilson J’s reasons in Hunter.
• Conduct approaching serious criminality or egregious fraud are but examples of well-accepted and substantially incontestable considerations of public policy that may override the countervailing public policy that favours freedom of contract. • A plaintiff who seeks to avoid the effect of an exclusion clause must identify the overriding public policy that it says outweighs the public interest in enforcement of the contract. • We don’t know exactly where the line is in terms of public policy or unconscionability. The examples given were selling poison to babies as milk, or in the case of Plas-tex fraud that could create real danger or injury.
Notes: • Although Binnie has aid that he has gotten rid of fundamental breach, the test set out by the Court, particularly in steps 4 and 5 act in the same fashion as fundamental breaches. • Therefore, decisions following Wilson J’s public policy/fundamental breach analysis are in SKO’s opinion, good law.
HOW TO ANSWER AN EXAM QUESTION: 1) statement of the issue 2) statement of the legal test (do not need to put cases names) 3) Analysis – applying the legal test to the facts to analyze the issue. 4) Conclusion with reasoning
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