Professional Documents
Culture Documents
The Supply ProblemThe Supply Problem: Courts will generally see price quotations and
advertisements as invitations to treat, not offers, because it is possible that a customer could respond to
such an offer with an accepting order to purchase more than the supplier has. Accordingly, it is
inferred that no reasonable person could have a willingness to be bound in such a situation. Thus, the
offer must originate with the customer.
Other examples: department store catalogues, Home Shopping Network.
Negative examples: specific advertisements (e.g. One Only!) can be construed as offers - no supply
problem, nothing left to negotiate. (Lefkowitz v. Greater Minneapolis Surplus Store) This could be a
unilateral contract: customers act constitutes acceptance.
In self-serve retail outlets, offer to purchase is made by customer and accepted by store:
Pharmaceutical Society of Great Britain v. Boots Cash ChemistsPharmaceutical Society of
Great Britain v. Boots Cash Chemists
Pharmacy and Poisons Act required a pharmacist to supervise all sales of drugs involving
substances on the Poisons List. Boots was a self-serve drug store. Two customers were permitted to
purchase poisons, and PSGB contended that the sales were not under proper supervision as the
contract is made as soon as the customer places the item in her basket, accepting the shopkeepers
implicit offer to sell everything in the store.
Court held that the customer must make an offer to purchase, which is then accepted by the
shopkeeper or authorized agent (e.g., cashier). The self-serve concept connotes no implicit offer to
sell, as suggested. If this were true, the customer would be bound to purchase everything in her
basket: absurd!
R. v. DawoodR. v. Dawood
Dawood replaced an items price tag with a cheaper tag, and the cashier rang in this false price.
If the vendor consented to the transfer of property, it was not theft. According to Boots, D was making
an offer which the cashier had the authority to accept on behalf of the store, but it was a voidable
contract as having been induced by fraud. Nonetheless, property in the item passed; there was no
theft.
Per Clement J.A. (dissent): the offer is the price tag and the acceptance is the customers
selecting the item and taking it to the cashier. As the cashier did not have the authority to accept Ds
counter-offer, there was no contract; D did not accept the original offer made by the store.
Contra proferentum:Contra proferentum Courts will tend to read advertisements or other documents
as they would be reasonably construed by the average person - and to the disadvantage of the party who
proffers them.
Bilateral contractBilateral contract: exchange of promise for promise.
Unilateral contractUnilateral contract: exchange of promise for act. Performance of the act
makes the contract; it functions as acceptance. Communication of acceptance is not required in
advance, if it is required at all. Notification can be seen as contemporaneous with the act.
Unilateral contract is accepted by action and not necessarily communication of acceptance:
Carlill v. Carbolic Smoke CoCarlill v. Carbolic Smoke Co.
CSC advertised that it would pay anyone who used its Carbolic Smoke Ball as directed and still
got the flu. Carlill did this and got the flu, but CSC refused to pay her, saying it harboured no
willingness to be bound. Court found that reading the advertisement as it would be construed by the
average person seemed to indicate the presence of an offer. Carlills performance of the stipulated
condition led to a unilateral contract. As for CSCs contention that interpretation in this way would lead
to the absurdity of a contract with the whole world, the court says that it is indeed an offer to the
whole world, but that an individual contract is formed with each person who accepts it.
Consideration: any act of offeree from which offeror derives benefit or any inconvenience sustained
by offeree motivated by the offer.
Bilateral contract made by actBilateral contract made by act: looks like a unilateral contract,
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except that the act doesnt complete the transaction - there still remains more to be done.
Collateral contractCollateral contract: two contracts: a primary contract and a collateral (sidebar,
secondary) contract.
Contract is breached if the main contract is fulfilled but the collateral contract is not:
Goldthorpe v. LoganGoldthorpe v. Logan
L advertised hair removal by electrolysis with guaranteed results. Results were also personally
guaranteed. G paid for and submitted to treatments, but they failed. Court finds breach of contract:
although the main contract (treatments for money) was fulfilled, the collateral contract (guaranteed
results for entering contract) was not. Remedy: to be put in the same position as if contract had been
fulfilled; since this is impossible, damages are appropriate.
Note: husbands suit was not allowed: privity of contract.
Wong v. Lakehead University
University calendar advertised that each grad student receives scholarship. W registers
in diploma program, asks for money, told that only degree students receive money (this was not
in the calendar). Court found that the fellowship offer constituted a collateral contract which was
breached: main contract: enrolment for fees; collateral contract: fellowship for enrolment.
Steinberg v. Chicago Medical School
Unilateral contract (offer to consider applications according to published standards,
acceptance by applying) breached when school used admission standards other than those
advertised. (Secret preference)
Auctions:
FIrst Shot Theory: The parties to a negotiation have the obligation to draw material changes to each
others attention. If this does not occur, then the contract is made pursuant to the terms of the original
offer:
Tywood Industries Ltd. v. St. Anne-Nackawic Pulp & Paper Ltd.
S issued a call for tenders, the reverse side of which contained terms and conditions which did
not contain an arbitration clause. T responded with an offer containing different terms and conditions,
including a prevail clause anticipatorily rejecting any changes to the terms and conditions. A revised
proposal by T followed. Reverse of Ss subsequent order form included a clause referring all disputes
to arbitration. T never returned the tear-off portion of the form, but did deliver the goods. Dispute
arose and S wishes to avoid court and go to arbitration, pursuant to the later clause.
Since the documents alone cannot resolve the situation, the intentions of the parties are
considered (as suggested by Denning in a dictum in Butler) . Apparently, neither party considered any
terms and conditions other than those on the faces of the documents, when making the initial
agreement. Since Ts attention was never drawn to the arbitration clause, it cannot be taken to have
accepted the term.
Ontario Law Reform Commission suggests that the traditional view (Mirror Image Rule: completed
contract must contain no variant terms) is out of step with commercial reality, since performance has
often occurred before the contractual problem is realized; thus, it is unrealistic to find that no contract
was formed. Recommendation is to take into account conduct as well as documents (as in Tywood).
Condition precedent to formation: before a contract can be made, condition(s) must be met (e.g.,
Carlill v. Carbolic Smoke).
Condition precedent to performance: there is a contract in the meantime, but condition(s) must be
met before its terms are to be carried out.
Tendency for courts to find bilateral rather than unilateral contracts; condition precedent to performance;
silence does not constitute abandonment of agreement:
Dawson v. Helicopter Exploration Co.
D located and staked mineral deposits, and communicated with H regarding their exploitation. H
and D agreed to go by helicopter to view the deposits. D was sent overseas, but before departing,
advised H that the exploration could likely proceed, pending his getting leave. H later sent D a letter
of repudiation, saying that conditions were not conducive to proceeding, but proceeded alone two
months later. When D returned, he immediately investigated what had happened, and sued for
breach of contract. H alleges that its offer ought to have been accepted by Ds arranging for leave,
which he did not do (i.e., this ought to have been a unilateral contract). Court holds that it was
actually a bilateral contract with conditions precedent to performance: i.e., D needed to obtain leave,
but there was a contract in the meantime which was breached by H. Instinct with an obligation: D
clearly intended to accept the offer, and only altered his intention upon receiving the letter of
repudiation. Also, silence alone does not constitute abandonment, particularly considering the
relatively short period of time; Ds actions upon returning home clearly indicate a continued desire to
proceed with the arrangement.
Andre & Cie S.A. v. Marine Transocean Ltd: The Splendid Sun
Inferred agreement to abandon arbitration after eight years of silence and inactivity
between appointment of arbitrators and delivers of owners claim.
Allied Marine Tpt. Ltd. v. Vale do Rio Doce Navegacao SA: The Leonidas D.
Same court doubts whether a similar result to Andre can be reached after 5 1/2 years of
silence and inactivity; suggests that this implies an interim satisfaction with the status quo, which
is not the same as a binding agreement to abandon arbitration.
Application of Dawson to tendering process:
Collateral contract with condition precedent to performance. Sub-contractors submit bids to
general contractor, so collateral contract is formed: to have bids considered by the general contractor.
The main contract is made when the general contractor submits the overall bid and names the sub6
contractors. Now, the main contract is made, with a condition precedent to performance: that the bid
be accepted before the sub-contractors can perform their assumed duties. The general contractor is
bound to use the sub-contractors named in the tender if it is accepted, and the sub-contractors are
bound to perform.
Daves Plumbing & Heating v. Voth Bros. Construction
Communication of acceptance of tender to sub-contractor is not necessary.
Importance of communication of acceptance; silence is not generally an adequate indicator:
Felthouse v. Bindley
F agreed to purchase his nephews horse, but there was a misunderstanding about price. F
wrote to the nephew, offering to split the difference, and if I hear no more, I consider the horse mine:
foisting a contract (see below). Nephew never responded, but when arranging to auction his farm
stock, instructed the auctioneer (B) to reserve the horse in question as it was already sold. B forgot to
do so and sold the horse. Nephew informed F in writing, making reference to having sold F the horse
previously. F sued B for conversion. B argues that property in the horse never transferred to F. Court
holds that there was no transfer of property, as the acceptance had not been communicated to F.
Note: notification requirement cannot be waived, as in Carlill v. Carbolic Smoke, because silence
would essentially constitute doing nothing - no act. In Felthouse, anyway, a bilateral contract was
intended, so acceptance which is not communicated is utterly irrelevant.
Inertia selling: Foisting a contract
i.e., if you dont explicitly refuse, something will be done on your behalf. Courts will not generally
allow this tactic (detrimental to consumer), but this also leads to uncertainty: it is possible for an offeror
using an inertia selling tactic to later disregard the contract is it is alleged to have been accepted (i.e., the
prohibition works in both directions).
Where silence is said to constitute rejection of an offer, the test is to examine the partys conduct. If he is
the knowing beneficiary of work which cannot reasonably be expected to be performed for free, his
acquiescence is seen as a request for its performance and he is liable for payment:
Saint John Tug Boat Co. v. Irving Refinery Ltd.
SJ provided tug boat service to IR, and when the availability of tug boats to SJ became limited, it
notified IR that additional boats could be made available for a stand-by charge. IR agreed to this
for a certain term, which was extended on several occasions. After the final extension had lapsed, SJ
continued to provide the service and IR continued to utilize it while ignoring SJs invoices. SJ sued
for breach, and IR contended that it had not agreed to having the service provided beyond the last
extension. Court held that IRs conduct constituted acquiescence to the provision of the service and
construed this as a request. IR was liable.
Restitution:
If the court in Saint John Tug Boat had not found Irving liable, SJ might still have been able to recover
the fees for the days the boats were used. Restitution is an equitable remedy which holds that it is unfair
for a party to derive unjust enrichment. Requirements: (a) unjust enrichment; (b) expectation of
payment; (c) method of valuing benefit; and (d) acquiescence to provision of the benefit. Remedy is for
party to disgorge the benefit, or pay market value - quantum meruit.
Manco Ltd. v. Atl. Forest Products
Machine was provided by M on a trial basis. A decided not to purchase, but continued to
use the machine, and M made no effort to retrieve it. A began to send rental invoices. No
contract was found, but As conduct was unacceptable and exploitative, so the court awarded
restitution in the form of a fair rental rate for the amount of time the machine was used.
Distinguishable from Saint John Tug Boat in that this was not a continuation of a previous
arrangement, so implying a contract is less likely.
Acceptance of an offer must generally be in the mode specified by the contract, provided the offeror is
emphatic that the instructions be followed precisely:
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Eliason v. Henshaw
E offered to purchase flour from H, and specified that acceptance should be by return of the
same wagon and to a specific place. H responded by mail in approximately the same time frame as
the wagon mode, but sent acceptance to a different location. E refused to accept the flour when it
was sent, saying that the offer had not been properly accepted. Court held that although the offer had
been accepted within a reasonable time (mail or wagon didnt matter, as the intention was a time
frame), the acceptance had been to the wrong location and the terms of the offer were altered to such
an extent as to invalidate it. E was then free to choose to accept or reject what amounted to a
counter-offer by H. E refused to do so, and so there was no contract.
Heron Seismic Ltd. v. Muscowpetung Indian Band
H undertook well drilling on reserve pending approval of a grant, which came through
only partially. Held: no acceptance of offer until properly authorized by the band council.
Nobody else had the authority to accept on behalf of the reservation, so no other agreement was
binding.
Sufficient compliance within a reasonable time from deadline:
Carmichael v. Bank of Montreal
At issue was the closure of a land transaction, with C and his agent making every reasonable
attempt to accept the Banks counter-offer in the mode specified. Agent tried to accept through
assistant bank manager, who did not have the requisite authority, and also left messages for the bank
manager and the listing agent. He also left written notice of acceptance with the listing agents wife
fifteen minutes after the deadline. Court found that bank manager knew of the acceptance before the
deadline, and alternatively, that the notice fifteen minutes late was still within a reasonable time.
Note: Hamilton J.s statement that an offeror has the obligation not to make the offer impossible
to accept is a wrong statement of law; before acceptance, an offer is only a promise, which has no
legal status.
Intentions of the parties, conduct, common practices as determinants of acceptance:
Jen-Den Investments Ltd. v. Northwest Farms Ltd.
All communication took place through a third party. Offer to purchase and counter-offer made in
writing. JD orally accepted the counter-offer and made arrangements to finalize the deal in writing a
few days later. Before that day, though, NW had second thoughts and communicated their wish to
revoke the offer. JD said that revocation was impossible, as the offer had already been accepted.
Court held that oral acceptance was not sufficient, as the conduct of the parties, the presence of an
agent, and the fact that a written memorandum of the transaction would be required (Statute of
Frauds) all pointed to the mutual intention to complete the transaction in writing.
Megill-Stephenson Co. v. Woo
Acceptance by telephone was not enough to close a land transaction. Even though the
Statute of Frauds had by this time been repealed, its underlying ideas are still valued by the
courts, and its requirements are now the common practice in land transactions (speaks to
intention question).
(iv) Communication of Acceptance
The General Rule: Instantaneous communication
General Rule: The contract is made at the time and place where the offeror receives the acceptance:
Brinkibon Ltd. v. Stahag Stahl Und Stahlwarenhandelsgesell schaft mbH
Issue was determination of jurisdiction for suit: was the contract made in England or in Vienna?
S made counter offer to B, and B telexed acceptance to S in Vienna. Court holds that the contract
was made in Vienna, when S received the acceptance. Alternatively, if the offer had been accepted
by Bs conduct in opening a line of credit, the contract would still have been made in Vienna, when S
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was notified of this action (i.e., at the place of notification, not at the place of action).
John Balcom Sales v. Poirier
Communications by fax are subject to the general rule.
Postal Rule: The contract is made at the time and place where acceptance is placed in the hands of the
postal service:
Household Fire and Carriage Accident Insurance Co. v. Grant
Acceptance of Gs offer to purchase shares was mailed but never arrived. H entered the
transaction as completed and credited the shares against Gs account; also credited him with
dividends. When H is liquidated, G is requested to pay as a shareholder and refuses, saying that no
contract had been completed as he received no notification. Court finds that the postal rule applies:
the contract was made when H mailed the acceptance.
Postal rule is held to be justifiable in that it prevents fraud (i.e., I never received the acceptance,) and
in that it avoids the ping-pong effect, whereby each party repeatedly requires confirmation of receipt of
mailed documents before being secure in their transaction.
Postal rule seems to apply to acceptance only, not to offer or withdrawal.
Hawthorn v. Fraser
Where both parties intend that the postal service be used, the postal rule applies (but
this is not a necessary condition, merely sufficient).
Smith & Osberg Ltd. v. Hollenbeck
Postal rule applies to telegrams.
R. v. Commercial Credit Corp.
Postal rule applies to communications via courier.
Postal rule does not apply where terms of acceptance imply otherwise:
Holwell Securities v. Hughes
Offer to sell land included provision that acceptance be by notice in writing. Court holds that
this statement implies that the postal rule was not intended to apply in this transaction, that the
acceptance needed to reach its intended target before causing formation of a contract. Postal rule
only applies where its intended use can be reasonably inferred. (Obiter: postal rule may not be valid
where its use would produce manifest inconvenience and absurdity, i.e., more absurdity than is
inherent in the rule itself, but this is difficult to define.)
(v) Termination of Offer
(a) Revocation
Postal rule does not apply to termination. Uncommunicated revocations are of no force and effect, as an
unexpressed state of mind cannot reasonably be expected to enter into a transaction:
Byrne v. Van Tienhoven
Offeror mails revocation of offer before acceptance is mailed, but acceptance is mailed before
revocation is received. Court finds that the acceptance is valid, as revocation is of no effect until
actually received by the offeree (postal rule does not apply).
Streeting v. Canada (Minister of Employment & Immigration)
S sent letter of resignation by courier and followed this with a letter of revocation, but a
letter accepting her resignation was mailed prior to actual receipt of the revocation, and since the
postal rule does not apply to termination, S was found to have resigned.
Conflicting jurisprudence:
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Werkheim v. Arndt
Revocation of a mailed acceptance is worthless, even if it reaches the offeree first.
Countess of Dunmore v. Alexander
Revocation of a mailed acceptance is valid if it is received before the acceptance.
Per Vincent: since the postal rule seems so stupid, why apply it to cases like these, where
nobody is harmed by its absence?
Once a person is aware, even indirectly, that the subject matter of an offer is no longer available, he is no
longer capable of accepting that offer, as there is no consensus ad idem:
Dickinson v. Dodds
Dd. offered to sell land to Dn., and indicated that the offer would be open for acceptance until a
specified time. In the interim, Dd. sold the land to a third party, and Dn became aware of this through
his agent but still attempted to accept the offer. Court found that the offer was effectively revoked
once Dn. knew that the property was sold. This also applies to cases where the offeree is made
aware of the offerors performing actions inconsistent with the continuation of the offer. In all cases,
the knowledge must be gained through reliable sources.
A collateral contract may be implied to provide that performance of an act intended to satisfy the
acceptance requirement for a unilateral contract cannot be interfered with once it has begun:
Errington v. Errington and Woods
Father had made down payment on house for grown children, and stated that once they had paid
off the mortgage, the house would be theirs. The children made regular mortgage payments. When
father died, his widow attempted to revoke the offer and reclaim the house. Court (Denning) found
that the father had entered into a unilateral contract with his children, which does not cease to exist
simply because of his death. The offer cannot be revoked so long as the act of accepting it is still
being performed, because there is an implied collateral contract not to interfere with performance
once it has begun .
Note: in a true unilateral contract, the offer can be revoked at any time. Denning only implied
the collateral contract because he was unable to find a bilateral contract, which is much preferred by
the courts on equitable grounds.
In a unilateral contract where acceptance is by procurement of items, offerors obligation cannot be
escaped by refusing to accept the items:
Daulia v. Four Millbank Nominees
F offered to sell property to D, subject to the performance of terms including the procurement of
certain documents. When this was done and D attempted to tender the documents to F, F refused to
accept them. Court found that the unilateral contract was complete anyway, since D had already
complied with the terms of the offer. Obiter: good faith obligation not to revoke the offer once or to
hinder performance of the terms once performance commenced.
Petterson v. Pattberg
Pat offers to discharge Pets mortgage if Pat pays it in full before a certain time. Pet
arrives at Pats door and tells him that he is there to pay, but Pat refuses to open the door. Court
finds that the offer was revoked before the act of payment had been performed, as Pets
statement of intent is not sufficient to constitute performance. (Contrast with Errington: although
performance wasnt complete, hadnt the act begun?)
Beer v. Lea
Parties agreed to meet to settle a deal, but the offeror never arrived. Court found that no
contract was made, as the offer was revoked prior to acceptance, notwithstanding that the parties
had previously contemplated closure together (which might signify commencement of
performance along the lines of Errington).
Re Irvine
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Irvine asked son to mail acceptance and immediately became seriously ill and died
shortly thereafter. Son forgot to mail the acceptance, and only did so after Irvines death. Court
held that there was no contract, as the death of the offeree automatically terminates the offer.
Condition precedent to formation: offeree must be alive to accept the offer.
Death of Offeror: Generally
If the terms of and offer can be fulfilled by the estate of the deceased, and the offeree
does not know of the offerors death, then the offer is still open for acceptance. If the offeror
must be alive to comply with the terms (e.g., performance of service), then the offer dies with
him.
(b) Lapse
Withdrawal theory: If offer is not accepted within a reasonable time, as defined by the particular
circumstances of the case (i.e., subject of the transaction, parties conduct, usual business practices,
etc.), it is considered withdrawn:
Barrick v. Clark
Bs counter-offer to Cs offer to purchase land was not accepted for approximately six weeks after
it was made, and after receiving a letter from Mrs. C. asking that the offer be held open for another
ten days until C returned from a trip, B sold the land to a third party after that extended period had
elapsed and one week before C mailed his acceptance. Court found that there was no contract, as
Cs acceptance was not within a reasonable time: there was demand for the land, both parties had
contemplated speedy closure of the deal, and the date of Cs acceptance was too close to the
proposed possession date to be valid.
Rejection theory: If offer is not accepted within a reasonable time (see Barrick), the offer is considered
to be rejected:
Manchester Diocesan Council v. Commercial & General Investments
C submitted tender for purchase of land. M accepted that tender subject to mandatory approval
by the government, and notification of that approval did not take place for about six months. When C
was finally notified, they said that there was no contract because acceptance wasnt within a
reasonable time. Court found that there was a contract, either because the third party approval was a
condition precedent to performance or because Cs conduct did not indicate rejection of the offer.
Court prefers rejection theory because it is less subjective; hinges on the conduct of the parties after
the offer is made, not the intentions and state of mind of the offeror at the time the offer is made.
(c) Conditional offer
If the subject matter of an offer is substantially altered or damaged, the offer ceases to exist. There is an
implied condition that the offer is contingent on the continued existence of its subject:
Re: Reitzel and Rej-Cap Manufacturing Ltd.
Reitzel offered to purchase land, and Rej-Cap made a counter-offer. The building was destroyed
by fire, and when Reitzel heard this, he immediately accepted the counter offer. Court found that the
offer could not be accepted and did not even need to be revoked, because the subject was altered
and destroyed to such an extent as to nullify the offer.
Financings Ltd. v. Stimson
Before dealership manager signed Ss offer to purchase car, the car was stolen and
vandalized. Unaware of the vandalism, the manager signed the contract. Court held that the
substantial damage to the car caused Ss offer to be stricken down - so this rule applies to offers
to purchase as well as offers to sell (Reitzel).
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In land transactions where the mode of payment is left to be agreed in the future, the type of mortgage is
important:
Mortgage back: Vendor finances purchaser, so the only limit is the negotiating skills of the parties.
Therefore, if the terms of lending are left to future agreement, the contract is overly vague.
Third-party mortgage: The contract is contingent on a condition precedent to performance; in the
interim there is a contract between the parties. Good faith agreement: purchaser is to make his best
efforts to secure financing and the vendor is to refrain from dealing with other parties.
Land transactions where the date of possession is absent:
Harvey v. Pratt
In a leasing arrangement, if the possession date is left to future agreement, the contract
is void for uncertainty as the right of possession, not an ownership interest, is the actual subject
of the contract. The lease is completely time-bound; if it specifies no possession date, there is
no way for the court to know when the lessee becomes a lessee. Generally, leases must have
start and termination dates (absence of a termination date will tend to imply a month-to-month
arrangement).
Anderson v. Chaba
In a land sale agreement, the lack of possession date is not fatal because the acquisition
is of an ownership interest, which is potentially forever and certainly not as time-bound as a
lease.
(iv) Good Faith Negotiations
In a renewal clause, where mutual agreement on fair market value is contemplated, the implication is
that the parties will negotiate in good faith to reach such an agreement and will not withhold agreement
unreasonably. Legal effect is obviously intended, so the clause ought not to be construed as fatally
uncertain:
Empress Towers Ltd. v. Bank of Nova Scotia
Lease included the right of renewal for two successive five-year terms, at prevailing rental rates
as mutually agreed by the parties, with the provision that the agreement would be terminated if a rate
could not be agreed upon within two months of exercise of the option. E did not respond to Bs offer
until the last minute, and then proposed a substantially altered agreement, much to Bs disadvantage,
due to ulterior motives. Court found that the implied terms, namely the obligation to negotiate in good
faith and not to withhold agreement unreasonably, were violated by E and therefore refused to grant a
writ of possession.
Walford v. Miles
Court is concerned that the determination of when the obligation to negotiate in good
faith has been satisfied is too subjective, as even good faith negotiations dont always end in
agreement and the adversarial nature of contract negotiations requires parties to be able to
threaten to withdraw at any time.
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Riches v. Hogben
Mother proposes to move entire family to Australia and promises to give the house she
buys there to her son and his family if they move with her, but never does so. Contract is found,
as the son successfully rebuts the presumption against intention by playing up his reliance and
her subsequent behaviour.
Mooney v. Grout
M leaves her family to move in and care for her ailing sister, but doesnt get all that her
sister promises her upon her death. Court holds that there was no contract, that Ms actions were
no more than any caring sister would do and therefore dis not constitute consideration for the
alleged contract. Would have been different if the caregiver had been a stranger.
Corea v. Corea
Daughter goes to care for ailing father, and court finds that she did much more than any
ordinary, loving daughter would do. Also, there was a letter drawn up by the deceaseds lawyer
expressing gratitude and stipulating that the daughter should receive an allowance. While
formalization is rarely present, it is usually helpful.
Osorio v. Cardona
Betting pool wins $700,000 but the actual placer of the bet refuses to share. Court finds
intention; he had always behaved like he intended to honour the unwritten agreement between
the members of the pool.
Zecevic v. Russian Orthodox Christ the Saviour Cathedral
Priest interrupted memorial service and refused to perform funeral for political reasons.
Court finds no contract, as this situation is a spiritual one, and also because there was no
payment discussed (as is the custom, although payment is always expected) and so no
consideration. Adds religious arrangements to the list of situations in which the presumption
against intention applies.
(ii) Commercial Arrangements
Here, there is a strong presumption of intention to create legal relations. The burden of proof is on he
who seeks to prove that there was no such intention, usually the defendant.
In a business transaction, denial of intention to create legal relations must be expressed explicitly and
precisely (in either written or oral form) in order to rebut the presumption:
Rose and Frank Co. v. J.R. Crompton and Bros. Ltd.
Distribution agreement contained clause explicitly denying intention to create legal relations:
agreement not subject to legal jurisdiction. D accordingly refused to fulfil the agreement. Court
found no contract as a result of the clarity of the exemption clause. However, orders made pursuant
to the agreement were binding as separate contracts of sale
Note that at trial, it was held that the exemption clause was repugnant to the rest of the
agreement and against public policy as an ouster of the courts jurisdiction, impeding the publics
access to judicial remedies. This argument was dismissed by Scrutton L.J.; as there was no contract,
the courts jurisdiction was not ousted.
Baker v. Jones
Weight-lifting associations rules stipulate, inter alia, that disputes are to be resolved by
the clubs executive, not by the court. Although there is a valid contractual agreement, this
particular clause is severed as an ouster of the courts jurisdiction and an affront to public policy,
impeding access to justice.
Re Portnoy
Contract stipulated that agent had total jurisdiction to fix business troubles, and that
parties would not go to court. Court found that this was acceptable, as it amounted to a
voluntary alienation of rights (more overt than a buried clause in a membership agreement).
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When an offer to settle impending litigation is made, it is generally headed Without Prejudice. This
means that the document is not admissible in court as an admission of the offerors guilt and/or liability.
However, if the offer is accepted and the offeror subsequently has a change of heart, the agreement is
still enforceable inasmuch as it constituetes a binding contract; the without prejudice stipulation has no
bearing on the offerors intention to be bound by his offer to settle.
Bettison v. Insurance Corporation of British Columbia
Lawyers meet in elevator and one jokingly offers the other a sizable settlement in a
pending case, but it is construed as a legitimate offer by the offeree. Although this was in bad
taste, says the court, it was clearly not indicative of any real contractual intent.
Moir v. Porter
M retiring; received letter setting out benefits he will receive, but stipulating that this was
at the discretion of the board and not legally binding. Court held that the presumption of
intentionality was rebutted by the expressly-stated provision.
Edwards v. Skyways
Agreement made with union that if there are layoffs for redundancy, ex gratia payments
will be made. Court finds that these payments, notwithstanding that they were depicted as mere
gifts, were in fact legally binding because they were meant as a term of the contract.
Parke v. Daily News
Unlike in Edwards, the redundancy had been declared before the promise of ex gratia
payments was made. Now, the payments were to be pure gifts, and the company was not,
therefore, bound by its promise to pay.
Esso Petroleum v. Comm. of Customs and Excise
Promotion in which Esso gave away dinnerware with gas purchases was a contractual
obligation, not a gift.
Often, parent companies will offer Letters of Comfort so banks will lend money to smaller subsidiaries.
The letters, in effect, offer some degree of assurance that the subsidiary will be able to repay the debt if
only because of its involvement with the parent. Issues of intention arise, but the letters are generally
considered not to be binding.
Kleinwort Benson v. Malaysia Mining
Letter of Comfort is held not to be contractual, as there is no intention to be bound.
Assurance of involvement with the subsidiary is a mere statement of existing fact, not a
contractual promise.
Banque Brussels Lambert SA v. Australian National Industries Ltd.
Opposite of Kleinwort Bensonwhat is the purpose of a Letter of Comfort if not to give
legitimate and actual assurance?
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V. CONSIDERATION
(i) Introduction
Consideration is the exchange of benefits between parties to a contract. There is no premium placed on
fairnessits just an exchange, no matter how good or how bad. Consideration has become the primary
basis for determining the enforceability of a contract. The theory is that the presence of consideration is
a good clue as to intention to be bound. A criticism of this approach is that there ore other, arguably
better, indicators of intention: written agreements, sealed documents, etc.
(ii) Past Consideration
Past consideration is of no concern to the law in determining the enforceability of a promise. If a
promise is made out of gratitude for benefits conferred in the past, it is unenforceablethe benefits were
voluntarily conferred, and therefore are not good consideration; the promise had no bearing on the
conferring of the benefits:
Eastwood v. Kenyon
E cared for Ks wife from the time of her fathers death when she was an infant, and borrowed
money for her education. When she came of age, she promised to pay back the money he borrowed,
and when she married K, he also promised to pay this amount. The court held that this promise was
unenforceable, as it was made after the benefits were conferred. Therefore, there was no
consideration for the promise; the money had been voluntarily borrowed and were not in any way
motivated by any promise to pay it back.
If a benefit is requested and a subsequent promise is made to pay for it, the promise is enforceable; it is
seen as concurrent with the request:
Lampleigh v. Brathwaite
B requested L, a lawyer, to perform legal services for him. L did so, and B subsequently
promised to pay him 100, but never did. Court held that this promise was enforceable; to hold
otherwise would be to allow B unjust enrichment.
Per Vincent: This result depends largely on the circumstances; i.e., more likely with professional
relationships than with family relationships. There is also a possibility that this is not contractual at all,
but rather quantum meruit.
Burroughs v. Burroughs
Son grants mother a mortgage to secure repayment of money she has lent him over the
past five years (past consideration). Court finds that these repayments are voluntary mother
likely made the initial payments voluntarily and did not expect to be repaid. Even if she did
expect repayment, no such promise was made when she made the payments.
(iii) Nature of Consideration
Consideration must flow from the promisee, not the promisor. Also, there is a distinction between real
consideration and a mere motive. However, in many cases, the courts will do their best to find sufficient
consideration:
Thomas v. Thomas
Shortly before his death, T had made an oral declaration of his wish that his wife should get
certain benefits over and above what his will provided. Although this was a nuncupative will, his
brothers, the executors of his will, entered into a written agreement with his widow to carry out his
wishes. They state that the consideration is their desire to carry out his wishes, but this is found to
be not consideration but a motive. Also , this consideration flows not from the promisee, the widow,
but from the promisors, who appear to receive nothing in return. However, the court does find some
consideration: the widows agreement to pay a nominal rent and to maintain the house and premises
in good repair, which is an obligation not to the landlord but to the executors.
Harding v. Harding
$1 found not to be good consideration for a land transaction (anomalous decision).
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Mountford v. Scott
1 is good consideration for a land transaction - nominal consideration is good. Per
Vincent: anything of value will be acceptable as consideration, except when the inadequacy of
the consideration is a clue to something else, e.g., duress.
Re Hogg Estate
Land was given in will to nephew; direct heirs of testator wanted compensation, and
argued that the nephew had already gotten the land in a contract made before the testators
death, and that he therefore owed money to the estate. Prior to the testators death, he agreed
to forego each payment as it came due. Court found that this was, in fact, his intention, and that
the agreement represented a gift which looked like a contract. The consideration was a mere
formality, and so the promise to pay was not enforceable.
Irving v. Irving
Wife was leaving her husband but, concerned about his health, promised him three
years of possession of the marital home, to which he was not entitled. Court found no
consideration; the promise was made only out of the wifes desire to escape her guilt about
leaving, which was not consideration but a motive which had no legal weight.
Copy Cats v. Rosney
R offered cheque in payment of a debt owed to C by a company, now defunct, of which
he was a co-owner. He asked C to defer cashing the cheque for a few days, because he was
overdrawn. When C did cash the cheque a few days later, it bounced. R argued that because
the debt was owed by a separate entity, his promise to pay was unenforceable. Court found
consideration in Cs forbearance to cash the cheque and in a somewhat ambiguously-worded
statement in the cover letter accompanying the cheque, promising a future business relationship.
Court went to great lengths to find consideration.
Some special types of consideration...
Not doing something - e.g., smoking cigarettes. Note that quitting marijuana would not be good
consideration, as there is already a pre-existing legal duty not to smoke marijuana.
Sending in warranty cards when requested to do so - although this has no real value, it is good and
valuable consideration in the eyes of the law.
(iv) Forbearance
Forbearance to sue may be valuable consideration, provided that the forbearing party believes
(subjectively) that there exists a bona fide right to do that which is agreed not to be done:
Stott v. Merit Investment Co.
S was a trader wroking for M, and signed an agreement accepting responsibility for a clients
losses. He did so having been assured by his boss that he would never be required to pay, but sums
were subsequently deducted from his commissions. When he resigned, he brought action to recover
the deductions, and M counterclaimed for the balance owing. S argues that the right to sue was not
one that M had, as the responsibility wouldnt have been his had he not assumed it, so the
forbearance was no good as consideration. Court, however, finds that there was good consideration.
The policy reason for this is to encourage out-of-court settlement. M thought it would have a claim
against S if he didnt sign the agreement.
There is also an economic duress argument made, but the majority answers it by saying that S
went along with the duress at all times, thus affirming what might otherwise have been a voidable
contract. As for the lack of evidence of forbearance in the document signed by S, the court simply
implies a request by S that M refrain from suing, and also holds that the actual forbearance is good
enough.
Dissent: M was motivated not by a bona fideief in its right to sue, but by a desire to force S into
accepting responsibilities which were not otherwise his and ought not to have been.
Manitoba Public Insurance Corporation v. Co-operators General Insurance Co.
Although an agreement was made in light of an uncertain understanding of an unsettled
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point of law, and MPIC didnt really have to pay as much as it did, the agreement to forbear from
suing was upheld.
Royal Bank v. Kiska
Defendant guaranteed his brothers bank loan, and while the bank did not expressly
agree to forbear, it did not actually claim the brothers securities until four months later. Court
found that this was sufficient forbearance.
(v) Pre-existing Legal Duty
(a) Public duty
(b) Contractual duty to a third party
(c) Duty already owed to the promisor
(a) Public Duty
If a person agrees to perform a public duty in exchange for a promise, there is no consideration.
Consideration can only be found if the promisee provided something extra, beyond the requirements of
the public duty:
Glasbrook Brothers Ltd. v. Glamorgan C.C.
P requested protection from D (police services) for strike-related activities, and agreed to pay
extra money for more protection than D was initially willing to provide. Later, P refuses to pay,
arguing that P was doing no more than its public duty. House of Lords held that the police gave more
protection than they normally would have, so this was good consideration.
Per Vincent: there is a public policy problem here, since the Chief of Police was the one who
decided what was the extent of the publice duty, but also stood to gain from the additional payments.
Conflicts of interest are often at issue in public duty/consideration questions.
Ward v. Byham
English law imposed duty on mothers to care for illegitimate children without any
obligation for support by the fathers. Still, an agreement wherein the father offered to pay a
weekly allowance to the mother in return for her ensuring that the child is well looked after and
happy and given the choice of which parent to live with was held to be backed by consideration
because of the requirements over and above basic care.
Denning L.J., in a partial dissent, preferred not to find any additional requirements but
instead to hold that the promise to perform an existing duty is good consideration because of the
benefit it confers upon the promisee.
(b) Duty Owed to a Third Party
Shadwell v. Shadwell
Nephew becomes engaged, which leaves him with a contractual obligation to marry his
fiancee. Uncle promises him 150 per year if he marries, and pays him this sum until he dies,
when his estate refuses to continue paying. Court finds good consideration.
Scotson v. Pegg
Applies Shadwell in a commercial context. S had a contract to sell coal to X and to
deliver it to whomever X said. Before the coal arrived, X sold it to P and instructed S to deliver it
to P. P made a subsequent promise to S, to unload coal at a certain rate in return for delivery,
and although P unloaded it too slowly, S still had to deliver it. Court found that the pre-existing
duty owed by S to X was good consideration.
Fulfilling a pre-existing obligation to a third party is still good consideration, as it gives the promisee a
direct action against the promisor:
Pau On v. Lau Liu Long
D trades shares in a private company to Ps company (FC) in exchange for a building. P agrees
to hold on to the shares for a time in order to avoid great devaluation resulting from a large-scale sale
of shares. A subsequent deal is made in which D agrees to guarantee the value of the shares until
the time when it is agreed that P can sell them. The value drops, and D refuses to fulfil the
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guarantee, arguing that Ps promise not to sell was made as part of an already-existing contract with
FC, and was therefore not good consideration. Court disagrees, holding that by making the additional
agreement P exposed itself to a direct action, which D would not have had if the second agreement
had not been made. This benefit to D is therefore good consideration.
Ds alternative argument was that the second agreement was made in response to past
consideration (the original agreement of sale), but the court responded that P didnt sell was because
they were asked not to, and shortly after the agreement was made, they were told that they would get
an indemnity in return. This was the real consideration, and was only a quantification of what
everyone knew would be given as consideration when the second contract was made.
(c) Duty Owed to Promisor
An agreement to vary a contract which is already in place is not backed by good consideration and is
therefore unenforceable. When a contract is to be altered, each side must give new consideration:
Gilbert Steel Ltd. v. University Construction Ltd.
G agreed to provide steel bars to U for a project, and did not include an escalator clause in the
agreement. Subsequently, Gs materials costs rose, and the parties entered into a new contract,
rescinding the old one. When costs rose again, the parties agreed to a price increase, but did not
enter into a new written agreement. Court finds that Us agreement to do something it was not obliged
to do is unenforceable, because it is not backed by any new consideration on the part of G. Court
also rejects argument of rescission and substitution, as the new agreement is identical except for the
increased price. Also rejects increased credit argument.
Per Vincent: In this type of case, the issue is often duress; since the building was already
partially built, U would have had problems had it refused Gs request. Still, many argue for the
enforcement of promises, freely made, for the alteration of existing contractsthis is more reflective
of commercial reality.
Stilk v. Myrick
Ship crew is asked to work shorthanded after some sailors jump ship, and a bonus is
promised in return. Court holds that the promise is unenforceable, because all they were doing
is working the ship home, which was the subject of the original contract; nothing else has
changed.
Hartley v. Posonby
Half of ships crew falls ill, and remaining crew is offered a bonus if they work
shorthanded. Unlike in Stilk, the court here holds that the circumstances were beyond the
normal hazards of voyage, and so the promise is enforceable.
Smith v. Dawson
S agrees to build a house for a lump sum. When he is almost finished, it burns down,
and D collects insurance. S demands more money or he will not continue. Forbearance from
breaking an existing contract is not good consideration for another contract.
Metric Excavation v. 619908 Ontario Ltd.
The excavation which M was contractually bound to do was more than was originally
anticipated, so the defendant agreed to pay 6% more for some of the additional work. However,
part of the additional cost was created by the defendants request to delay some of the work,
which moved the project into winter. Therefore, the agreement to pay more was enforceable, as
each side was getting consideration.
Modular Windows of Canada v. Command Construction
M had agreed to supply windows to C, but did not do so in time and later demanded that
C sign a contract obliging it to pay an additional $6000. The new agreement entailed exactly the
same obligations as before for M. Court found this unenforceable, both because there was no
new consideration and because of economic duress.
Maier v. E & B Exploration Ltd.
Stock option plan offered in lieu of bonus scheme, with no change to employees
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obligations. Court upholds the agreement; employees continuing in the job is sufficient
consideration.
Hidrogas Ltd. v. Great Plains Development Co.
G contracted to supply gas to H at a certain price with an option for termination with 60
days notice. Market was rising, and H feared termination, so voluntarily offered to pay more for
the same service with an understanding that a new contract would be negotiated at a certain
date. Court found that Gs consideration was offering the gas to H at market price before offering
it to others.
North Ocean Shipping v. Hyundai Construction Co.
H agreed to build a ship; N to pay in instalments. After the first instalment, H requested
a 10% increase to accommodate the devalued U.S. dollar. This was economic duress, but N
affirmed the contract by continuing to pay the increased price after escaping the duress (had
acquired a lucrative new account). Consideration was Hs agreement to increase their letter of
credit.
DeLuxe French Fries v. McCardle
P agreed to buy 20,000 bags of potatoes at a given price, but after some were delivered,
D demanded an increased price. P paid it, but later claimed damages for breach of contract
after D refused to deliver any more potatoes without another increase. Court held that there had
been rescission and substitutionthat is, a new contract had replaced the original one, which
had been rescinded. Therefore, the plaintiffs damages were calculated based on the new price.
O.L.R.C. suggests that consideration ought not to be required to alter a contract, provided the agreement
to do so is made in good faith. Also, the doctrine of frustration provides that a material change in
circumstances makes a promise to continue to carry out a contract into a new contract; this is like
rescission and substitution, but by operation of law rather than by mutual agreement.
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Practical consideration and the bird in the hand argument: Consideration may be found in the practical
benefits derived from continuing in a contractual relationship with the same person rather than having to
find someone else to do the work and/or to sue for breach of contractforbearance from laying down
the shovel and miscellantous other practical benefits inherent in business:
Williams v. Roffey Bros. & Nicholls (Contractors) Ltd.
W is sub-contractor and R is contractor. W working slowly and causing R to fear penalties for
late completion. R offers an incentive bonus for completion of the agreed-upon work, but refused to
pay after a while. Court finds consideration: getting the work done in time to avoid penalty (which
would be more expensive than the bonus), not having to find someone else to do the work,
continuance of relationship. This is not economic duress, as the bonus was offered by R and never
requested by W; this is also further consideration, in that R avoids having to sue W for breach.
Per Vincent: The question of duress must always be addressed in cases of this type, but if the
promise is freely made, consideration will usually be found.
Anangel v. IHI
D supplying ships to P over a period of time and at an agreed price. When the shipping
industry goes sour, D gave P certain benefits voluntarily, in order to keep up good relations.
There was no duress; the promises were enforceable as the consideration was found in the
continuing good relations with the customer. Williams v. Roffey applied
Husky Oil v. Forest Oil
H compromised a right of first refusal in return for Fs provision of certain information
already required under a previous agreement. This was good consideration; the actual
information in hand was worth far more than a mere cause of action for damages.
(i) Accord and Satisfaction
Accord and satisfaction applies to cases involving executed contractsi.e., where one party has
fulfilled his obligations under the contract, and obligations are outstanding on the part of the other party.
Once the contractual duty has been executed, alterations in terms are not generally enforceable without
new consideration. For example, if X lends Y $100 and subsequently agrees to take only $90 in return,
thats probably unenforceablewhat did W get in return for this promise, other than less than she was
already owed?
Accord=Promise
Satisfaction=Consideration
obiter.
Robichaud v. Caisse Populaire de Pokemouche
C was Rs judgment creditor and agreed to remove the judgment of $3780 in return for
one payment of $1000. Cs board refused to ratify the agreement, did not cash the cheque, and
sued R fot the whole amount. Court found for R, saying that C got consideration, in the form of
the good ol bird in the hand.
This is only a suspensory agreementi.e., if the lesser amount is not paid, the original
debt again comes into force.
Gencon Construction v. M & Y Construction
Composition with creditorsi.e., when all creditors of X unanimously agree to accept a
lesser sumis treated as good consideration. Its not really about consideration, thoughthe
court just doesnt want to be used as an instrument of fraud, potentially allowing one creditor to
bolt from the agreement and sue for all the money.
Budget Rent-A-Car Ltd. v. Goodman
Where a debt is purported to be satisfied by a lesser amount paid by a third party, this is
treated as good consideration; to hold otherwise would allow the contract between the creditor
and the third party to be broken with impunity.
A promise to satisfy a debt in a different manner than originally contemplated (e.g., cheque rather than
cash) may be good consideration for a promise to accept a lesser sum:
Foot v. Rawlings
F agrees to allow R to pay a lesser sum in satisfaction of a debt, provided that R pays in the form
of a series of post-dated cheques. In the written agreement, F states that he is motivated by a desire
to get what he can out of the deal before he dies. S.C.C. finds that the promise to pay in the specified
mode is good consideration for the promise to accept less. A negotiable instrument may be more or
less valuable; its value is uncertain. The bird in the hand argument is rejected, though; the creditors
motive is irrelevant.
S.C.C. adopts reasoning in Sibree v. Tripp, infra.
Sibree v. Tripp
Debt of 500 satisfied by three promissory notes in the amounts of 125, 125 and 50.
Held that any material variation in the mode of payment may be good consideration for
accepting lesser value in respect of the sum owed. Disdain for the doctrine in Pinnels Case is
clear.
D & C Builders v. Rees
English C.A. distinguishes Sibree v. Tripp, but holds that it is not good consideration to
substitute a cheque for cash, as no discernible difference can be found between the two. (Some
even argue that a cheque is less valuable than cash, as it is not immediately liquid and could
bounce). Also, economic duress is found in the promise to take less than is owed, as P was
having a cash flow problem and D was well aware of that fact when it extracted the promise.
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29
O was to pay M for work on an addition, within a certain time after the granting of an
architects certificate, but didnt do so. M subsequently wanted to get out of the deal, but had
promised to seal the agreement notwithstanding that O hadnt paid in time. Court estopped M
from going back on its word.
Reasonable interpretation will be attempted to interpret what was intended by a partys
activity or inactivity. Here, the promise could logically be interpreted as an agreement to
postpone Os obligation.
Rosenblood Estate v. Law Society of Upper Canada
Client sued lawyers estate, which was assisted by D, the insurer. Later, D realized that it
didnt have to pay for this particular type of claim, but court allows the estoppel argument: by
taking the case, the insurer implicitly promised to pay.
Maracle v. Travellers Indemnity Co.
P was injured in a car accident and D offered to pay, but P didnt file a statement of claim
until the statutory limitation period had emapsed. Court held that the promise to pay did not
amount automatically to a promise not to rely on the statute. The admission of liability was only
meant to facilitate settlement, not to foreclose their rights.
Marchischuk v. Dominion Industrial Supplies
Similar facts to Maracle, except dealing with fire damage.
(b) The Equities
There is no estoppel where there is no true accord, so economic duress in the making of a promise
precludes the promisor from being estopped:
D & C Builders Ltd. v. Rees
Executed contract, with money still owing to P. D is aware of Ps precarious financial situation
and extracts a promise to take less money than is owed by saying that if they dont accept 300 in
satisfaction of the 480 owed, they will get nothing. Lord Denning M.R. finds that the promise was
made under economic duress, so the promise cannot be estopped. A threat to break an enforceable
agreement is not acceptable as a precursor to a promise worthy of estoppel.
(c) The Notice
Even a promise capable of being estopped can be revoked after a certain time, but there must be notice
that the promise will elapse. Whether the notice must be specific as to when the promise will elapse or
merely an intimation that the promise will elapse after a reasonable time is still unclear:
Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co.
S sent a cheque which never arrived. After the grace period had elapsed, M made an offer of
late payment, which S ignored, thinking it had already paid. Subsequent correspondence never really
came to Ss attention until several months later, and it eventually reissued the cheque exactly one
year later, specifically because one of the insured was by now uninsurable due to ill health. Court
found that there was indeed representation by M of a promise to suspend its rights, but that there was
notice that the promise was about to terminate (received three months before payment.
Per Harradence J.A.: All the notice that was required was a plain intimation that the promise will
soon elapse; a specific date is not required. S did not respond to the notice within a reasonable time;
three months is more than enough time to cancel a cheque and issue a new one. (However, appeal
allowed on different grounds).
Per Hetherington J.A.: More specific notice was required; for the promise to be properly revoked,
the notice would have had to state a date on or before which payment was required to be received.
Therefore, the estoppel had not lapsed.
(d) The Reliance
In order for estoppel to be indicated, it must be inequitable for the representor to go back on his
representation. For waiver to be so binding, the other party must act on the belief induced by the
representorbut need not necessarily act to his detriment:
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can be used pre-emptively as a shield against the expected claim of the other side.
Estoppel is to create no new causes of action. It doesnt create a contract; it can only be used within an
existing contract, where legal relations exist and where the promise was intended to alter the relations
and be acted upon, and was in fact acted upon. The contract must have been enforceable in the first
placethat is, supported by consideration. Estoppel is not consideration:
Combe v. Combe
In a divorce settlement, husband had agreed to pay his wife a yearly annuity as permanent
maintenance, notwithstanding that his income was less than hers. He never made any payment, and
after seven years, the wife sued for the arrears. Trial judge held that although there was no
consideration for the husbands promise, it was still enforceable under estoppel, as in Central London
Property v. High Trees House. On appeal, Denning held that the High Trees principle operates not to
create new cause of action, but only to prevent a party from insisting on his strict legal rights when it
would be unjust for him to do so. There must have been an enforceable contract to begin with, and
therefore, there must have been consideration. Thus, since the husbands promise was not backed by
consideration, it is not enforceable. The wifes forbearance to sue was not good consideration, as it
was not by the husbands request.
Essential: ESTOPPEL IS NOT CONSIDERATION! Estoppel enforces non-contractual promises.
Major breakthrough in estoppel in Australian High Court. Promissory estoppel allowed to be used to
create a new right where no contract exists. Notwithstanding the lack of a contract, estoppel may now be
used to hold a representor to a non-contractual promise where the usual requirements for estoppel are
satisfied and where it would be unconscionable to allow the representor to escape his statements. The
remedy will reflect what justice demands:
Waltons Stores v. Maher
Pursuant to an agreement subject to contract, which in Australia means that no contract exists,
D begins to develop property to Ps specifications. D knew this was happening and made
representations of approval (everything O.K. unless you hear otherwise, silence on receipt of
executed documents, etc.) Several weeks later, P tells D that they are no longer interested. Combe
v. Combe would not allow estoppel, as there was no contract, but this court is prepared to change the
law, allowing the use of promissory estoppel to create a right. Court looks to American authority,
which states that a promise which the promisor should reasonably expect to be acted upon and which
is in fact acted upon should be enforced to avoid injustice (even going so far as to suggest that
reliance = consideration, and applying this to charitable pledges). The only limitation in Waltons is
that it must be unconscionable to allow the defendant to escape scot-free; here, the plaintiff would
never have done what he did without the encouragement of the defendant.
TRADITIONAL ESTOPPEL (Central London Property, Combe v. Combe):
(a) Promise freely made and intended to be binding.
(b) Promise intended to be acted upon .
(c) Promise indeed acted upon.
(d) Significant reliance (not necessarily detrimental to representee).
(e) Not revoked with reasonable notice.
(f) Made in the course of existing legal relationsi.e., enforceable contract, backed by consideration
where it would be unjust to allow the representor to return to his strict contractual rights.
NEW ESTOPPEL (Waltons Stores):
(a) Belief induced by the defendant.
(b) Defendant knew plaintiff was acting on belief.
(c) Significant reliance.
(d) Unconscionable not to enforce promise.
(e) Not necessarily made in the course of existing legal relations.
Litwin Construction (1973) Ltd. v. Pan
All parties were under the mistaken assumption that certain legislation didnt apply to the
transaction, and when they later realized that L had to do something, it was too late. Investors
wanted to bail out as a result, saying that as a result of Ls inaction, the contracts were
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unenforceable. Court enforced the contract, as investors had repeatedly reaffirmed their
contracts with L until all of Ls work was completed: estoppel by convention.
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insurance; i.e., beneficiaries are, in essence, third parties, but they are still entitled by statute to sue an
insurance company if it refuses to pay out.
A model of statutory privity: Saskatchewan Consumer Products Warranties Act
1. Vertical Privity: Manufacturers liability for statutory warranties
How can the manufacturer be held to its promises, considering that the contract for the sale of goods
is between the retailer and the customer?
Possible collateral contract with the manufacturer (and see Misrepresentations and Terms, infra,
Section IV).
Some provinces have statutes allowing customers to sue manufacturers directlyfor policy reasons,
since the manufacturer is primarily responsible for the shoddiness of the goods, and it is also circuitous
to sue the retailer, who must then sue the manufacturer.
2. Horizontal Privity: Third party beneficiaries of statutory warranties
This affects the original purchaser of a good as well as its ultimate users and subsequent owners
whoever might reasonably be expected to use the product.
Limitations on actions:
1. Only for personal injury, not pure economic loss.
2. Only applies to defective consumer products and for the reasonable life of the product.
The Manitoba Business Practices Act holds whoever makes statements to consumers liable for the truth
of the statements and leaves them unprotected by the doctrine of privity. This is reliance-based and is
similar to the tort of negligent misrepresentation.
(b) Specific Performance
The estate of a deceased party may sue for the full amount owing on a contract, notwithstanding that the
benefit is for a third party. Damages may be in the form of specific performance or whatever other form
is appropriate on the facts. However, the third party may not sue for the benefit in the name of the
deceased:
Beswick v. Beswick
B had agreed to transfer his business to his nephew on the condition that Bs wife be paid a
weekly annuity commencing upon his death and continuing for the duration of her life. The nephew
paid the first instalment and then refused to pay any more. Mrs. B. sued for specific performance and
arrears both in her personal capacity and as administratrix of her husbands estate. At trial, court
ruled that she could not recover, as she was no party to the contract between her husband and his
nephew. On appeal, the majority ruled that she could recover only as administratrix, but Lord
Denning maintained that she could also enforce the contract in her husbands name, but in her
personal capacity.
House of Lords, on the nephews appeal, agreed with the majority and also found that Mrs. B.
was entitled to specific performance on the facts of the case; damages are to be in whatever form is
appropriate and in the full amount owing (so here, because the issue is an annuity, lump sum
damages would not be appropriate).
Jackson v. Horizon Holidays
Husband contracted with D for a family holiday, which ended up a disaster. As specific
performance was not available, the question was whether the husband could recover full
damages for the other beneficiaries, namely his family. Per Lord Denning: can recover (in trust)
for anything family would have been entitled to had they been able to sue.
Woodar v. Wimpey Construction
Sale of land contract where part of the purchase price was to be paid to a third party.
Party sues both for himself and for the third partys share. Although no breach was found by
H.L., it takes an obiter opportunity to reject Dennings decision in Jackson, so this remains an
open question.
(c) Agency
If a party to a contract enters into it as an agent for a so-called third party (the test being whether the
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partys conduct bears this out, not whether there is an explicit agency agreement), the third party is
actually a party and the agent is a stranger to the contract. This may be implicit in the wording of the
agreement:
McCannell v. Mabee McLaren Motors Ltd.
Both parties were Studebaker dealers. The contract with Studebaker stipulated, inter alia, that if
a dealer sold a car to a customer living in another dealers territory, he must pay to the other dealer
half of the profits. Court held that this clause constituted a contract between each new dealer and all
Studebaker dealers present and future, made on tthe new dealers behalf by the Studebaker
Company. Dealer A agrees with Dealer B to carry out the terms of the clause; in this sense,
consideration flows form dealer to dealer, not to Studebaker, which is a stranger to this aspect of the
larger contract.
The Satanita
In a yacht race, the contract with the race organizers included a clause stipulating that
yacht owners would be liable for damage to others crafts resulting from breach of the rules.
Court interpreted this as the owners contracting with each other, with the organizers acting as the
agent of each owner in his contracting with all the others.
Four requirements for an agency argument, per Lord Reid in Scruttons v. Midland Silicones:
1. Contract clearly states that third party is to be included.
2. Contract clearly states that party is contracting as agent for the third party.
3. Agent is acting with the third partys authority.
4. Consideration flows from the third party.
When a party to a contract acts simultaneously as an agent for a third party, it may be possible to
incorporate the third party using a unilateral contract analysis: the agreement made with the agent
constitutes an offer by A to C, capable of acceptance by Cs conduct, which is also the consideration. If
this offer is accepted, then C is included under all exculpatory clauses and other provisions just like any
other direct party:
New Zealand Shipping Co. Ltd. v. A.M. Satterthwaite & Co. Ltd.
Shipper agrees with carrier to ship a drill to S; agreement in the form of a bill of lading, which
includes a limitation of actions clause with respect to actions regarding damage to the shipped goods
resulting from the carriers actions. The clause purported to protect the carrier and its servants and
agents. N was the stevedore, hired by the carrier, and caused damage to the drill during unloading.
Court held that the clause did apply to N, using Lord Reids four requirements and satisfying the
consideration requirement using the unilateral contract analysis, wherein the stevedores conduct
represented both the acceptance and the consideration: Shipper offered to extend the exemptions to
the stevedore, and the stevedore accepeted the offer by doing the work. This was done
notwithstanding that the stevedore had a pre-existing legal duty to the carrier to perform the work in
question; held that this could still be good consideration.
Per Vincent: The contract could also
have been bilateral, with the stevedore promising to unload the ship in return for the promise of
exemption. This would prevent the owner from revoking the offer once performance had begun but
before the act of acceptance was complete.
Court adjusts the law to reflect commercial reality, business efficacy: exemption clauses result in
less required insurance, which results in lower freight rates for the shipper (benefit!).
Adler v. Dickson
Himalaya Clause: privity through an agent (applies to all of these cases).
Dyck v. Manitoba Snowmobile Association
S.C.C. came to a conclusion similar to New Zealand Shipping. Dyck had signed a
release exempting the MSA from liability for injuries and damage. He later sustained injuries as
a result of a flag mans negligence in standing on the course. Court found that the employee
was protected by the exemption clause, that the MSA was acting as the employees agent so that
there was privity between Dyck and the employee. The consideration flowing from the employee
was the performance of a function necessary to the operation of the race. The authority for the
agency is unclear, but the Himalaya clause is often used to gloss over this requirement.
(d) Employment
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Employment is a genuine exception to the doctrine of privity. Even if the agency requirements are not
satisfied, employees are able to take advantage of limitation or exemption clauses protecting their
employers. This involves relaxing the doctrine as a matter of public policy and commercial reality; it is
simply unrealistic to hold employees liable separately from their employers for damage caused during
the course of their employment if the employers intended that immunity clauses should apply to the
employees:
London Drugs Ltd. v. Kuehne & Nagel International Ltd.
Warehousing agreement included a clause limiting liability for damage caused to $40 unless
more insurance is purchased by the owner. LD does not do so, and suffers $34,000 damage to its
transformer when it is handled negligently by workers. When the clause stands up with respect to a
claim against K&N, LD tries to sue the workers directly, saying that the contract is with the company,
not with the employees. Court finds that the commercial reality is that employers intend for these
clauses to apply to their employees.
Court considers Greenwood Shopping Plaza v. Beattie and Pettit, in which the defendants,
employees of Canadian Tire, were welders who burned down the store as a result of their negligence.
Since Canadian Tire was not responsible, GSP sued the welders. It was argued here that the
inclusion of the employees in the contract should be implied, since this was the intention of the
employer. This line would only succeed if necessary for business efficacy...
OFFICIOUS BYSTANDER TEST: The presence of the term goes without saying, so its
not expressly included, but without it, the entire contract would be unworkable.
The test failed in Greenwood, because the employees were welders and were not absolutely
required for the success of the leasing contract. This was the basis for distinguishing Greenwood in
London Drugswithout the warehouse workers, the contract could not have succeeded, because who
else would have performed the duties that were the subject of the contract? This is the commercial
reality; since so much of the subject of commercial contracts is carried out by employees of the
contracting parties, they must be deemed to be included in any liability exemptions extended to their
employers. The Himalaya clause, therefore, need not apply only to independent contractors.
Limits to London Drugs immunity:
1. Damage caused in the course of employment.
2. While doing the thing that is the subject of the contract.
3. Clause must implicitly or explicitly include the employees.
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VII.
(i) Introduction
A contract includes its terms and nothing else; extra-contractual statements may be mere puffs, which
have no legal weight, or representations, which carry limited legal consequences.
(ii) Misrepresentation and Rescission
(a) Introduction
If a misrepresentation made by a party to a contract led the other party to enter into that contract, the
result may be rescissionthe contract may be erased altogether, so that neither party has any
obligations. A rescinded contract is treated as if it never existed. However, rescission is a discretionary
remedy, and may be barred by several potential restrictions. Note also that a material misrepresentation
makes a contract not void but voidableit can be rescinded (avoided) or affirmed at the option of the
misrepresentee.
It is also possible that a misrepresentation may give rise to a torteither deceit or negligent
misrepresentationfrom which a claim for damages may flow. If it was an innocent
misrepresentation, though, there is no tort, and the only potential remedy is rescission. If so, the only
money that will change hands will be in the form of restitution, not damages (no damages because no
contract).
(b) Generally
An individual must not be allowed to benefit from his misrepresentation, regardless of whether or not he
knew it was false. Similarly, a misrepresentee will not be held to a contract made on the basis of a
misrepresentation simply because he was negligent in not discovering the untruth of the statement. A
material misrepresentation will give rise to an assumption that the representees conduct was induced by
it, unless contrary evidence is shown:
Redgrave v. Hurd
D agreed to become a partner in Ps law firm and to buy his house based on Ps claim that the
firm made around 400 per year, when previous financial statements appeared to show annual
earnings of only about 200. P claimed that the shortfall was made up by additiona business, proof of
which was to be found in a stack of papers which D did not examine. As it turned out, the practice
was nearly worthless. Court granted rescission, as Ps statement was material and calculated to
induce D to contract. Ds negligence in not examining the papers was irrelevant; P cannot be allowed
to benefit from his misrepresentation, even if it is innocently made (as it appears to be here, as no
deceit is found).
If one party is in a better position than the other to know the facts of a situation, that partys statements
will be taken as statements of fact even if they were supposedly intended as statements of opinion.
Thus, such a statement of opinion will be considered a misrepresentation of fact if the facts which it
alleges turn out to be false:
Smith v. Land and House Property Corp.
D agreed to buy a hotel from P, having been told that it was currently leased to a most desirable
tenant. This turned out to be false, as the tenant went bankrupt shortly thereafter, and there was
evidence that P knew beforehand that the tenant was having financial problems. Court found that
although an honest statement of opinion cannot be a misrepresentation , when the representor has
better information than the representee, his opinion may in fact be taken as a statement of facthe
impliedly states that he has facts to justify his opinion.
Wauton v. Coppard
Court construes one partys statement about the others legal position not as a statement
of opinion, but as a statement of fact.
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When parties are moving from an existing contract to a new one, failure to disclose material facts
(whether or not they are requested) can constitute a misrepresentation of fact, because the other party
obviously wants and needs to know his position and whether anything has changed:
Bank of British Columbia v. Wren Developments Ltd.
B loaned money to W, receiving shares as collateral and a personal guarantee from A, a director
of the company. The company defaults and a second deal is struck, and A is again asked to
guarantee the loan. Unbeknownst to A, B had been dealing with the shares on the advice of S, the
companys president. Before making the second guarantee, A aksed about the state of the collateral
and was advised by the credit supervisor that he didnt know particulars but would investigate and
advise him. As it turned out, As own financial situation had been severely jeopardized by the dealings
with the shares. Court finds that had A known what really happened, he would not have made the
guarantee. Thus, the bank, by its failure to disclose material facts, made a misrepresentation of fact
and A is entitled to rescission.
(c) Bars to Rescission
(1)
(2)
(3)
(4)
If restitutio in integrum cannot be achievedif either the representee or the representor cannot be
restored to his exact pre-contract positionthen it might be unfair to order rescission. In such a case,
damages may be a more appropriate result, unless the situation has been created by the representors
fraudulent dealings. Similarly, if the representee, since becoming aware of the misrepresentation, has by
his actions affirmed the contract, then rescission will not be ordered:
Kupchak v. Dayson Holdings Ltd.
P purchased a motel from D in exchange for two properties and mortgage back. When it comes
to light that D lied about the past earnings of the motel, P informs D of its intention to sue and stops
making payments. In the meantime, D sells a part interest in one of the properties and makes
substantial improvements to the other part. A year later, P sues. Court finds that rescission is the
appropriate remedy, and orders compensation to P in the value of the properties on the day they were
conveyed, as they cannot be returned in the condition in which they were received. Court has the
power to do what is practically just when perfect equity is not possible, andwill not allow the restitutio
bar to prevent rescission, as the situation was created by Ds fraud and subsequent unjust dealings
with the land. There was no affirmation by P, either, and laches does not applyupon discovering the
fraud, they immediately informed D of their intention to rescind.
Wandinger v. Lake
Fraudulent misrepresentation on sale of motel. P could not make perfect restitution
because they no longer had all the chattels they had received under the contract. Because of
the fraud, the court ordered rescission anywayexercising the power to do what is practically
just, as it would be unjust to let the contract stand.
Whittington v. Seale Hayne
P leased land, having been told incorrectly that it was in good sanitary condition. P had
incurred several expenses, including poultry that died as a result of the conditions. Court set
aside the contract and ordered repayment of the rent and taxes, as well as some compensation
for improvements. Vincent: Court should have charged occupation rent.
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Execution bar: In the case of an innocent misrepresentation, if the contract has already been executed,
there can be no rescission. Additionally, the jus tertii bar is contemplated; the court will not divest an
innocent third party purchaser for value of his interest:
Redican v. Nesbitt
Leasing agreement in which Rs agent made a misrepresentation to N, who was not in a position
to inspect the property personally, about whether or not the property was electrically lit. At trial, jury
found that this was an innocent misrepresentation. As the contract has been executedcheque was
remitted, even if it wasnt cashed immediatelythe execution bar applies, so no rescission. Judge
orders new trial, though, saying that the jury , if properly directed, might plausibly find fraud in the
agents representation. Jus tertii consideredCity of Toronto consented to the replacement of their
old tenant with this specific tenantbut not applied specifically.
(iii) Representations and Terms
In order to claim damages for breach of contract, a misstatement must be shown to be a term and not a
mere representation. There is no definitive test for this; the court must look to the parties intentions and
look for animus contrahendi. In some cases, a representation may be seen as giving rise to a warranty
by way of collateral contract, but this is rare:
Helibut, Symons & Co. v. Buckleton
D purchased shares in a company, which were underwritten by P, a reputable rubber merchant.
Ds understanding was that the company was a rubber company; this notion stemmed from Ps
reputation and from a vague conversation with an agent of P. The shares fell in value, and it came to
light that the company was not really a rubber company. Trial judge found no fraud in the
representation, so there was no tort claim. As for any breach of contract, it was held on appeal that
the representation was neither a term nor a warranty. D argued that there was a contract collateral to
the main contract of sale, in which P guaranteed that it was a rubber company, but there was no such
evidence found and courts tend to view collateral contracts under these circumstances with suspicion
if this was intended as a term, then why wasnt it included in the original contract?
Potential indicators of intention: animus contrahendi:
Assumption of responsibilityI promise, etc.
Parties knowledge.
Was statement made voluntarily, or was it a response to a question?
Custom, convention.
Past dealings.
Subsequent conduct.
Timingthe closer to the actual contract, the more likely the statement is to be a term.
Formalitywriting is an excellent indicator.
Derry v. Peek
Fraudulent statements or false statements made recklessly will give rise to damages for
misrepresentation.
A representation made in the course of dealings and for the very purpose of inducing the other party to
enter into the contract will be seen prima facie as a term. The onus is then on the representor to rebut
this presumption. If the statement is a term, and turns out to be false, the contract is breached and
damages will flow, even if the representor honestly believed it was true:
Dick Bentley Productions v. Harold Smith (Motors) Ltd.
P agreed to buy a car from D after being told that it had been fitted with a new engine 20,000
miles ago. Although D may have believed this, he was in a position to find out the truth, which was
considerably less attractive. Car turns out to be a major disappointment. D argues that his statement
of the cars history was just a representation, not a term. Court disagreesit was made voluntarily,
around the time of the contract, and with apparent knowledge. It doesnt ultimately matter whether
the representor believed the statement was true; if it is a term and turns out to be false, damages for
breach of contract will flow.
Denning M.R. treated it as a collateral contract. Salmon L.J. says that it could also have been
part of the main contract.
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Field v. Zien
Contract for sale of a business stipulated that on the closing of the transaction, the firms
receivables would exceed its accounts payable by $109,865. It fell short of this figure by
$14,000. S.C.C. employed a method similar to the Hong Kong Fir analysisan examination of
the seriousness of the breachand held that on balance, the detriment suffered by the purchaser
as a result of the breach was not sufficient to justify repudiation of the agreement. Damages
were an adequate remedy.
Wickman Machine Tool Sales Ltd. v. L. Schuler A.G.
This is an example of the traditional approach in action. P was to distribute Ds product
in England, and the contract stipulated that he or a representative was to visit each sales outlet
weekly to sell the product. A few visits are missed, and D attempts to repudiate contract. A
general termination clause requires 12 months notice before cancellation unless there has been
a material breach that has gone unremedied for 60 days, but D argues that the breached term
was a condition, so the contract can rightfully be repudiated. H.L. finds that the breach is not
unremediable, and says that in the larger context of the contract, it is unreasonable to suppose
that this relatively insignificant breach can lead to repudiation of the entire contract. Therefore, it
finds that the term is a warranty, and denies D the right to repudiate.
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45
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New rule: A mere signature is not enough; evidence of notice must be shown by the party relying on the
clause. The burden of proof seems to have shifted:
Tilden Rent-A-Car Co. v. Clendenning
D signed a rental contract and paid an extra fee for extended coverage which supposedly limited
his liability for damage to nil. However, conditions printed faintly on the back included that the vehicle
would not be driven in violation of any law or by any person who is intoxicated or has consumed any
amount of liquor. He crashed the car and pleaded guilty to a drunk driving charge, so P claimed that
the exemption didnt apply. Court held that he couldnt have been taken to have agreed to the
conditions on the back, as they were technically quite onerous and wholly inconsistent with those
apparent on the front. No notice was given of the inconsistencyin fact, clerks were instructed not to
mention it, and if asked, to make a mild misrepresentation (i.e., dont drive drunk, dont violate the
Criminal Code).
Obiter dictum revisiting concepts of past consideration and sufficiency of notice with respect to liability
limitation clauses:
Delaney v. Cascade River Holidays
Ps husband was killed on a white water rafting trip organized by D. It was alleged that his death
was the result of Ds negligence in not supplying adequate life jackets, but the majority could not find
causation and dismissed the claim. In his dissent, Nemetz C.J.B.C. found that the waiver was signed
after the contract for the trip was completed, so there was no consideration to support the new
agreement (only past consideration). The majority disagreed, saying that the consideration was
allowing him to carry on with the trip, as it was Ds policy not to allow people to travel without having
signed the waiver (but isnt that forbearance from breaching a contract?). As for notice, Nemetz
found that the hurried manner in which the waiver was signed and its overwhelming and misleading
content makes the notice insufficient, even though it was a very simple contract. Again, the majority
disagrees, choosing to apply LEstrange.
Trigg v. MI Movers International Transport Services Ltd.
No evidence that contract was executed in a hurried manner, and it wasnt particularly
onerous, but the Clendenning principle was applied, thus extending the principle to require
sufficient notice in all cases in which standard form agreements are signed.
Crocker v. Sundance Northwest Resorts Ltd.
P went tubing while drunk and was rendered quadriplegic. Organizers encouraged both
his excessive drinking and his tubing while drunk, and were found 75% liable for his injury. He
had signed a liability waiver, but S.C.C. held that he wasnt bound by iteven though it was a
simple contract, there was insufficient notice. Seems to apply Clendenning. Possible mitigating
factors (per Vincent): consumer transaction, personal injury, might have been drunk when signing
waiver.
(iii) Fundamental Breach
An exclusion clause only works when the contract is being carried out in its essential respects. If the
clause purports to cover a breach that goes to the root of the contract, it will not be valid:
Karsales (Harrow) Ltd. v. Wallace
W agreed to purchase car from K after having inspected it and finding it to be in excellent
condition. When it was delivered, though, it was in deplorable condition and would not go. K
attempted to rely on an exemption clause stating that No condition or warranty that the vehicle is
roadworthy or to its age, condition or fitness for any purpose is given by the owner or implied herein.
Denning held that this clause could not apply, as an essential term of the contract, particularly in light
of the initial inspection, was that the car was in good condition. Failure to deliver in that condition
constitutes a fundamental breach which cant be excused by an exemption clause.
Suisse Atlantique... v. N.V. Rotterdamsche...
Instead of Dennings formulation as a rule of law (i.e., if x, then y), the question of
fundamental breach should be one of construction. Parties intentions should be looked at along
with the contract as a whole, and it should not automatically be assumed that the parties did not
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X. MISTAKE
(i) Introduction
Three types of mistake:
Common mistakeParties have reached an agreement but share the same mistaken perception.
Mutual mistakeBoth parties are mistaken, but do not share the same mistake. Is there any
agreement at all?
Unilateral mistakeOnly one party is mistaken, but the other party knows about it
The statement on mistake: The crucial distinction is whether the plaintiff believes that the defendant
shares his mistaken perception, and the defendant is aware of all this, or if the plaintiff has reached his
conclusion without considering the defendants probable state of mind. In the former case, the mistake is
about a term and there is no consensus; in the latter case, the mistake is merely an assumption, and
caveat emptor. Youll see what I mean in a minute:
Smith v. Hughes
H contracted to purchase oats from S, but refused delivery of the new oats S sent, claiming he
had expected old oats. S had given H a sample of the oats, which he inspected and on the basis of
which he ordered. S claims he had no idea that H wanted old oats, and only has new oats. The trial
judge, inter alia, asked the jury whether the plaintiff thought that the defendant thought that he was
contracting for old oats. On the basis of this ambiguous wording, the C.A. ordered a new trial. Why?
Two possible interpretations of the question, each with very different meaning and implications:
(a) Did P think that D thought that D was contracting for old oats?
In this case, as long as P didnt contribute to the mistaken impression, the contract is
good. Here, the mistake would be self-induced on the part of D, and P is under no duty to
correct the mistakecaveat emptor. The mistake is not about a term, because all P has said is
that he is selling oats, not what kind of oats hes selling. Its a unilateral mistake about quality, a
mistaken assumption, and too damn bad for D.
(b) Did P think that D thought that P was contracting for old oats?
That is, did D believe that P warranted the subject matter of the contract to be old oats?
If this is the case, and P knew or ought to have known that D thought this, then the mistake is
about a term, and there can be no contract as there is no consensus ad idem. Note that P must
have known about Ds perception of Ps state of mind. Therefore, P would argue either that he
didnt contribute to Ds mistake, or that he didnt know that D was basing his assumption on a
mistaken perception of Ps state of mind.
Got that? Well, let me try to summarize the principles, if I can:
1. If it was a self-induced assumption, i.e., that D, without any help from P, developed a mistaken idea
of what was involved in the contract, then the contract stands. There is consensus about the terms, just
not about the quality. Further, P has no duty to correct a self-induced mistake on Ds part, even if he
knows about itcaveat emptor.
2. But if the mistake was induced by what D thought P was thinking, and if P knows this, then the
contract cannot stand, as there can be no consensusthe mistake is about terms, not assumptions. P
has a duty to correct the mistake about terms, or there can be no contract, as he knows the other party is
of a different mind.
3. It is no use to come forward after a contract is made and say I didnt understandunless the
other party knew you didnt understand before entering into the contract, in which case the contract is no
good due to lack of consensus.
4. The evidentiary burden is on the offeree to prove that the offeror knew of the offerees mistake as to
the offerors state of mind; that the offeror knew that the offeree thought that the subject of the mistake
was being warranted.
Whew. Lets move on (arent you glad this is open book?)
(ii) Mistaken Assumptions
(a) As to underlying facts
At common law, a mistake either voids the contract or has no effect whatsoever. A common mistake
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about quality will generally fall into the latter category, as the offeree is still getting what he paid for; there
is no question about the actual subject matter, only about its quality. There was still an operative
consensus ad idem:
Bell v. Lever Brothers Ltd.
L wished to terminate Bs contract and the parties agreed to a compensation scheme, but it later
came to light that due to Bs previous misconduct, the contract could actually have been terminated at
any time, without any compensation at all. Court finds that the mistake does not void the contract, as
L is still getting what they paid for. It doesnt matter that L could have gotten it some other way, or that
they would not have entered into the contract, had they known the true facts. The point is, at the time
the contract was made, both parties thought it was valid, so there was definitely consensus ad idem.
Prof. Vincent says that the only time a mistake about quality will void the contract is when it is so bad
that it goes to the root of the contractbut she doesnt know of any case where this has happened!
Actually, the fact is that mistake seldom operates, because the courts are reluctant to kill contracts,
especially when a third party becomes involved, because he will be left out in the cold title doesnt
pass in a void contract, only in a voidable one.
And speaking of voidable contracts, here comes Lord Denning...
Equity will permit a contract to be voidable, not voidso the new concept of rescission on terms is
introduced, wherein the court imposes certain obligations on the parties, based on the terms of the
contract that bears the error. Thus, the parties have the option to affirm the contract or void it by
breaching the court-imposed terms:
Solle v. Butcher
Both parties thought that the apartment which B rented to S was not covered by a rent-control
statute, when in fact it was. Thus, B charged a rate higher than the statute would allow, and when S
discovered that the statute did apply, he sued for the difference in rates. B counter-claimed for
rescission based on the mistake. Lord Denning looks to equity and comes up with the concept of
equitable mistake:
1. The mistake is common to both parties.
2. It is a fundamental mistake, not a trivial matter.
3. The party seeking to set aside the contract is not himself responsible for the mistake.
In such a case, at the courts discretion, the contract can be set aside. Alternatively, the result can be
rescission on termsinstead of immediately declaring the contract void, the court can make it
voidable and give the parties the option to affirm it notwithstanding the mistake, or follow other, courtimposed terms to keep the contract going. If, however, the terms are breached, then the contract will
be void.
A common mistake of existence will not void a contract. The court will imply existence as a condition
precedent which is a term of the contract, placing the risk on the vendor, who ought to have better
information about the existence of the subject matter. Thus, if the article was not in existence at the time
of formation, a breach of contract occurred:
McRae v. Commonwealth Disposals Commission
D had no reasonable grounds to believe that the subject matter of the contract existed, but
contracted on that basis anyway. This was a common mistake, but it was recklessly induced by D,
who cannot therefore rely on it to avoid the contract. The contract is valid, and the fact that the
subject matter is not and may never have been in existence constitutes a breach of contract the
existence of the subject matter is an implied condition precedent and a term.
Note the following distinction:
Common mistake of quality (Bell v. Lever Bros.)purchasers riskcaveat emptor
Common mistake of existence (McRae)vendors riskbetter information
In both cases, contracts existthey are not void. In the first, the purchaser has no claim for damages,
but in the second, he does.
Note also that the Sale of Goods Act provides that if the goods had perished before the contract was
made, then the contract is void. However, there is a difference, as noted above, if the goods never
existedand thats better for the purchaser, who has a claim for damages (as opposed to nothing if the
contract is void).
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operative if it was on the face of the tenderi.e., if the tender was obviously defective (e.g., missing
page or egregious pricing error). So in this case, mistake law doesnt apply and the deposit is still
irretrievable. Are we back to Impreial Glass, since Belle River is held not to apply?
Calgary v. Northern Construction Co.
Prior to Cs awarding a contract to N on the basis of its tender, N informed C of a serious
calculation error, but C tried to snap up the offer anyway. When N refused to perform pursuant to
Contract B, C sued for damages in the amount of the difference between Ns bid and the next lowest
bid. Court again finds that Contract B never came into existence, as it was not executed by both
parties, so the mistake is irrelevant as it doesnt affect Contract A.
Judge says, though, that if damages are to be calculated with reference to Contract B, then its
validity should be considered in some manner, but goes on to say that the present case is only a
mistaken assumption, not a mistake of termsthe motive for the offer was based on a mistake, but
there was no mistake in the offer itself (Imperial Glass).
Since the courts in both Ron Engineering and Northern Construction refuse to follow Belle River, it seems
to have been overruled. So, if there is a blunder...
(a) ...on the face of the bidno Contract A
(b) ...mistake as to termsno Contract B
Mistaken assumptions dont generally matter insofar as they dont include mistakes as to terms.
(iii) Mistake as to Terms
In case of a mutual mistake as to terms, the test is one of reasonablenesswhat would the reasonable
person think is happening? If, on the facts, one partys position is more reasonable than the others, then
that will constitute the terms of the contract. If the situation is completely uncleat, then the contract will
be void:
Lindsey v. Heron & Co.
P asked what D would pay shares in Eastern Cafeterias of Canada, and D responded with an
offer to pay a certain price for Eastern Cafeterias, which P accepted. As it turned out, Ds price was
based on Eastern Cafeterias Ltd., a different company, which he now says is what he intended to
buy and wants the contract declared void. Majority: Since the plaintiff clearly spoke of Eastern
Cafeterias of Canada, the terms were set there and were unambiguous; the defendants use of
ambiguous language in response to unambigugous language cannot be taken to have altered the
terms.
Dissent: Would begin analyzing with Ds offer, not with Ps inquiry, but Vincent doesnt like this
the test is one of words, conduct and surrounding circumstances.
Further application of the reasonable man test:
Staiman Steel Ltd. v. Commercial and Home Builders Ltd.
P was led to believe, honestly and innocently, that new steel was to be included in a lot of steel
which he then purchased at auction. In fact, the lot only included used steel, and was only ever
intended to include used steel. P was willing to accept the used steel, but D wouldnt deliver unless P
signed a waiver giving up his claim to the new steel. Court found that this was a breach: The
reasonable third party would determine in such a case that the parties intended a contract, because
the circumstances were not so ambiguous as to suggest a lack of common intention. Attempting to
force P to sign a waiver was attempting unilaterally to introduce a new term.
Raffles v. Wichelhaus
Two ships named Peerless sailed from Bombay, one in October and one in December,
and each party thought it was contracting with reference to a different ship. No contract
reasonable man would have no way to decide which position was more reasonable.
Scriven Brothers & Co. v. Hindley & Co.
Purchaser thought he was bidding on hemp but was actually bidding on tow, which for
some reason is less valuable (I cant imageine why). He had seen the hemp, but at the auction,
the tow was identical and even bore the same shipping mark, so he didnt bother to inspect it
again. As it was not known in the trade that hemp and tow were given the same shipping mark,
the plaintiffs assumption was reasonable and there was no contract.
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There can be no contract when one party knows that the other party is under a unilateral mistake as to
termsthere is no consensus ad idem. This is particularly so when the mistake was induced by that
party:
Glasner v. Royal LePage Real Estate Services Ltd.
Original offer to purchase included the warranty that the house had never been insulated with
UFFI. P knew this wasnt so, but also knew that the house was currently free of UFFI, so he redrafted
the agreement to include that less stringent term and didnt draw it to Ds attention. However, despite
instructions not to do so, Ps agent drew it to Ds attention after the contract had been completed, and
D refused to complete. Court: There was no contract. Obviously, P knew about Ds mistake as to
terms and was under the obligation to correct it (particularly since he had induced it). Since he did
not do so, there was no consensus ad idem, because P knew of the Ds mistake as to Ps intentions
(Smith v. Hughes).
MISTAKE: SUMMARY
1. Mistaken assumption
(a) As to underlying facts
If self-induced, whether the other party knows about the mistake or not, there is still a contract. The
other party is under no duty to correct a self-induced mistake. (Smith v. Hughes)
Common mistake of quality: purchasers risk and still a contract unless fundamental mistake (Bell v.
Lever Bros.)
Common mistake of existence: vendors risk, with condition precedent implied; if no existence, the
contract still exists, but the vendor has breached it (McRae v. Commonwealth Disposals)
Equitable mistake can make the contract voidable, not void; rescission on terms (Solle v. Butcher).
Even in compromise agreements, which for policy reasons are usually valid no matter what, a
mistake may sometimes be so bad as to invalidate the contract; e.g., if a fundamental assumption on
which the contract is based is later found to be false (TD Bank v. Fortin).
(b) As to calculations: Snapping Up
Belle River is overruled by Ron Engineering and Northern Construction; even if the accepting party
knows that the quotation is mistaken, it can still be accepted if the mistake is not apparent on the face
and Contract B has not been reached (i.e., in tender situations).
Northern Construction returns to the Imperial Glass idea of a calculation errors being a mistake as to
motive for offering, not a mistake in the offer itself. Thus, its a mistaken assumption, not a mistake of
terms.
So in tendering, Contract A will only be void if there is a mistake on the face of the tender. Contract
B will be void if the calculation error constitutes a mistake as to terms (but note Northern Construction).
2. Mistake as to Terms
Reasonable Man Test for mutual mistake: Having regard to words, conduct and surrounding
circumstances, would the reasonable man see one partys position as more reasonable than the others?
If so, there is a contract on the more reasonable interpretation of the terms (Lindsey v. Heron). If not,
then there is no contract (Raffle v. Wichelhaus).
If it is a unilateral mistake as to a term and the other party knows about it, then there is no contract,
as there is no meeting of the minds. If there is to be a contract, the non-mistaken party has a duty to
correct even the other partys self-induced mistake as to termsand this is particularly so if the nonmistaken party has somehow induced the mistake (Glasner v. Royal LePage).
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DURESS
Coercion of the will such as to vitiate consent e.g., commercial pressure, implied threats, economic
pressure, etc.
Pau On v. Lau Liu Long
DURESS TEST Requirements:
1. Did protest situation
2. Had no other alternatives available
3. Tried to avoid contract once entered
4. Was not independently advised (but this requirement is relaxed)
REMEDY: Voidable contract
Gordon v. Roebuck
Introduces concept of justifiable economic duressthe plaintiff was not shown not to be entitled to the
money he demanded, so the duress he exerted was justifiable.
UNDUE INFLUENCE
Equity-based remedy which addresses the unconscientious use of power by one party over another in
order to form a contract.
an objective power of persuasion which rises out of the parties private relations
Must prove either:
1. Actual undue influence (i.e., operative effect on the choice made)
2. Special relationship (e.g., advice given by one party to the other on the matter)
Resulting contract must actually be disadvantageous to the complaining party.
Formerly, domination was required (Goldsworhty v. Brickell) but now only a position of influence and
potential trust.
Geffen v. Goodman Estate
Presumption of undue influence should not be applied to every relationship of trust and confidence; must
be manifestly disadvantageous. (Presumption shifts onus of proof to defendant).
UNCONSCIONABILITY
Morrison v. Coast Finance
Original test: A presumption of fraud is created where any inequality arising out of ignorance, need or
distress of the weaker party is present and unfair bargain resulted.
Traditional doctrine: (1) Improvident bargain (2) Inequality in parties positions
Lloyds Bank v. Bundy
DOCTRINE OF INEQUALITY OF BARGAINING POWER: Lord Denning takes on unconscionability,
devises five categories:
1. Duress of goods voidable e.g., forced to overpay to get urgently needed good.
2. Unconscionable void e.g., complainant forced to sell good for less than worth any
unconscientious use of power by a stronger party against a weaker party. (no indept advice)
3. Undue influence fraud perpetrated or relationship abused to gain advantage from weaker.
4. Undue pressure exertor in a position of power where others have no choice but to agree.
5. Salvage situation i.e., rescuer is in an unfairly strong bargaining position.
Criticism: does every contract now have to be closely examined for inequality in bargaining or unfair
results?
Harry v. Kreutziger
General principle applied: There is unconscionability because of the plaintiffs infirmity, lack of
education, resistance overall, he was dominated by the respondent; under his power.
Lamberts new, generalized principle: Is the transaction so divergent from community standards of
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