h.

Promises under Seal

Royal Bank of Canada v. Kiska, Cb.: 252, [1967] Ont. C.A.
Facts: P and D made a contract regarding payment of a loan; the contract was not signed
under an official seal but the word seal was printed on the contract and the Def signed his
name next to it. Excerpt by Laskin J.A. is IN DISSENT; appeal was allowed by C.A. majority
Issues: Was the instrument in question a sealed instrument?
Holding & Reasons: No, and because there was no consideration, the guarantee could only be
enforced if it was made under seal.
a. Relaxation of the level of formality required by the courts; any representation of a seal
made by a signatory will do.(252)
b. Just because the words given under seal or signed, sealed and delivered are present
doesnt mean the contract was made under seal. Some degree of formality is still required
because it serves the purpose of impressing on the signatories the seriousness of the
agreement.
c. There was no intention here, and no properly sealed instrument. Further, having the word
seal on the instrument doesnt mean that thats the seal; its merely an indication of where
the seal should go.
Ratio: If an instrument isnt signed under seal, or if the instrument says seal but there is no
actual seal affixed, then the instrument may not be binding if the signor didnt intend for it to be
binding.
Main Principles:
1) Formality has been relaxed but is still required. Seal may relieve requirement of
consideration.
2) If no consideration, intention and formality still required. Language of under seal
insufficient.
i.

Promissory Estoppel and Waiver

(i) General
Hughes v. Metropolitan Railway Co. Cb.: 201 (1877) H.L.
Facts: Def/Resp. (Metro) leased land from Pltf/App (Hughes); P rqstd D repair property within six
months; D suggested P buy the leasehold; parties negotiated but negotiations broke down; 3 days
before end of original six months D wrote to P saying they would repair the land, repairs were
completed six months from breakdown of negotiations; P served writ of ejectment to D; P sued for
enforcement of the writ; P appeal dismissed.
Issues: Did the negotiations between the parties alter or suspend the time allotted in which the Def
could make repairs to the land?
Holding & Reasons: Yes.
Effect of letter from D to P: suspend operation of the Pltfs 1st notice so that negotiations could
commence (note the suspension was implied Hughes never expressly agreed). They commenced,
then ended Dec.31. The court finds that the time before and during the negotiations cant be counted
against the time allotted to the Def for repairs. How much time should they be given from Dec. 31?
Parties themselves felt that 6 months was a reasonable amount of time; time should start running
from the date the negotiations ended. The court concludes that if parties act by consent to enter into
negotiations and that this action would lead one or both of the parties to conclude that the strict rights
arising under the contract will be suspended or not enforced at that time then the person who would
enforce those rights wont be allowed to do so if its inequitable regarding the dealings (negotiations)
that are taking place.
Ratio: If a party suspends or waives K by consent in order to negotiate the terms of K, then that party
may not enforce those rights against the other party until the negotiations between them have
concluded. Further, parties may not enforce a timeline that was set before negotiations started that
was suspended in favor of the negotiations; the timeline will be restarted from the end of the
negotiation period.
Main Principles:
1) An early example of the use of estoppel.
2) Equitable estoppel protects parties by enforcing implications of changes to the contract.
Alterations to a contract will be enforced by equity to ensure fairness.
3) Equity will protect variations w/o consideration so long as a contract already exists.

Central London Property Trust Ltd. v. High Trees House Ltd., [1947] U.K. K.B., Cb.: 203
Facts: Pltf (Central London) granted the flats to Def (High Trees); agreement included amount of rent
(1,250 pounds), based on the fact that flats werent completely leased out due to war conditions in
London; by 1945 all the flats were occupied; Pltf wrote to Def saying that the rent was back to the
original amount (2,500 pounds) and that Pltf owed 625 pounds/month in arrears; D wants either 1)
letter was agreement for whole term, 2) P estopped, 3) payment of new amount starts now, no
arrears; Court finds for P on point #3.
Issues:
1) Is the agreement by parol made between the Pltf and the Def valid?
2) Can the Def estop the Pltf from claiming the rent in arrears?
Holding & Reasons:
While some of the parol rules are relaxed and equity would allow for variations like this, it wouldnt
matter in this case. Equity wouldnt apply here b/c the variation was in regard to a representation to
the future, was made w/ no consideration and was therefore not valid.
A) The courts arent necessarily going to allow for a claim in damages for a breach of these kinds of
promises, but they will refuse to allow a party to act inconsistently based on the promise that they
have made. In this sense only is there an estoppel. B) Denning, discussing the joining of law and
equity, says that promises such as the one mentioned should be enforceable even if theres no
consideration. But what is the scope? He finds that the promise was intended to hold the parties to
the lower rent so long as the war-time conditions prevailed and that once those were gone then the
higher rent would kick in.
Ratio: If two parties make a promise re: an already binding contract, then either party may estop the
other from acting inconsistently on the promise they have made.
Main Principles:
Promises within already binding contracts may be the basis of estoppel the parties may not go back
on a variation at whim.
With reasonable notice, though, parties may end the variation.
Alternatively, if the variation has an internal time limit, it may expire. In this case, the variation
provided temporary relief, but the intention was once the situation that required the variation was
gone, the variation would be removed.

(ii) Requisite Promise

John Burrows Ltd. v. Subsurface Surveys Ltd. (1968), S.C.C. Cb.: 205
Facts: Parties entered into a contract where they had an acceleration clause that allowed
the creditor P (Burrows) to claim full amount owed if D (Subsurface) defaulted on payment
by more than 10 days on any monthly payment; D defaulted regularly but P never
enforced acceleration clause; following a disagreement, D again defaulted on clause, P
claimed full amount; lower courts allowed Ds claim for equitable estoppel; SCC overruled,
allowed Ps appeal.
Issues: Can D claim that P cant engage the acceleration clause using equitable estoppel
b/c P had established a pattern of behavior that D relied upon?
Holding & Reasons: No.
SCC says that High Trees reiterated Hughes v. Metropolitan. The only time that a Def can
rely on a suspension or abeyance of a contract is when the parties have agreed to and
entered into negotiations. An established pattern of behavior when it comes to
indulgences granted by the Pltf to the Def isnt enough to establish a suspension or
abeyance. If that were the case, then all agreements based on promissory notes would
have to be enforced to the letter by lenders.
Ratio: If a contract includes an ongoing scheme of payments and the payments are
defaulted on but the contract re: breach is not enforced, then the parties may not rely on
any indulgences made re: breach to enforce a defence of equitable estoppel.
Main Principles:
Conduct can stand in for verbal communication, which could potentially lead to situation of
estoppel. In this case, each individual allowance was a friendly indulgence
acknowledgment of need for flexibility in promissory note cases. However, SCC holds that
this isnt enough to lead to estoppel. Waiver, rather than estoppel.

(iii) Equitable Nature of Doctrine

D. & C. Builders Ltd. v. Rees, Cb.: 208 (1966), U.K. Court of Appeal
Facts: P (D&C) did work on Ds (Rees) home; D didnt pay full amount and left a
considerable amount outstanding; when P asked for full payment (450 pds), Mrs. Rees
said that the work was unsatisfactory and that they would only 300 pds; P was close to
bankruptcy and needed the money but wanted the full amount owing; Mrs. Rees
threatened to breach the contract unless P would take lesser amount as full amount owing
on the account; P ended up taking the lesser amount; lower courts hold for D&C; C.A.
dismisses Rees appeal.
Issues: Where negotiations regarding lowering the amount owed by a debtor are entered
into under duress, is the resulting new agreement enforceable?
Holding & Reasons: No.
Denning holds that the principle that when a creditor relieves a debtor of their debt or
allows a lower amount to be paid instead then the creditor will not be able to enforce
payment of the outstanding amount if it would be inequitable to do so. However, this
agreement must be a true accord between the parties. If the debtor uses threat or
coercion to obtain the agreement, it wont be binding.
Ratio: If an agreement between a creditor and a lender to pay less then the contracted to
amount is reached, then it will be enforceable under equity unless the agreement is
reached through the use of threat or coercion by the debtor.
Main Principles:
When a creditor relieves a debtor, there must be true accord for the relief to take effect.
Duress doesnt equal a true accord.
The common law would reject this relief anyway. Equity wont protect Rees b/c of the
unfair behavior.
(iv) Suspension or Extinguishment of Rights - Retraction and Reliance
Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co. (1994) S.C.C. Cb.: 211
Facts: Pltf/Resp. (SRB) paying premiums on behalf of Fikowski, deceased, to Def/App (Maritime);
annual premiums paid irregularly from 1979 to 1985; Nov/84, D sent letter to P stating the policy was
out of force and they required immediate payment of premium for 1984/85 (the waiver); Ps premises
closed so they were unaware of letter; in Feb/85, D sent notice of policy lapse to P (revocation of
waiver); P reopened premises in Apr/85 and became aware of Nov. letter and Feb. notice; searched
for missing cheque but didnt sent replacement cheque to D until July/85; cheque refused; SCC
allowed appeal of Maritime.
Issues:
1) Did the Nov. letter constitute a waiver of the Defs right to receive payment on time?
2) Did the Feb. notice constitute a revocation of the waiver?
3) Were the Defs required to give any more notice to the Pltfs than the Feb. letter?
Holding & Reasons: Yes, Yes and No.
The test for waiver: if there is evidence that the party waiving had (1) a full knowledge of rights; and
(2) an unequivocal and conscious intention to abandon them, then the party has waived that right.
Major says that the Nov. letter clearly shows that Maritime intended to waive the right to enforce
payments on time b/c they were willing to accept a payment that was late. This was clear notice of
their intention to waive.
Waiver can be retracted by reasonable notice given to the party in whose favour the waiver operates.
However, notice isnt required where reliance isnt an issue. Major explains that P wasnt relying on
the Feb. letter as notice b/c they werent aware of it until April. Further, they took 3 months to send a
cheque, so even if they had relied on it that would have been a sufficient notice period.
Ratio:
Waiver requires that the party waiving must have a) full knowledge of their rights, and b) demonstrate
a conscious intention to abandon those rights. (Waiver of rights must be unequivocal)
Waiver may be revoked by giving reasonable notice to the party in whose favour the waiver was
given. However, if the party in whose favour the waiver was given hasnt relied or isnt relying on that
waiver, then no notice is required for revocation of the waiver.

International Knitwear Architects Inc. v. Kabob Investments Ltd. (1995) B.C.C.A., Cb.: 215
Facts: P (Intl Knitwear) leased commercial premises from D (Kabob) for 5 year term from
1 May/87 to 30 April/92; rent paid monthly; 1 May/89 P had financial difficulties, D agreed
to reduce rent to $1000/mo from ~$3100/mo; no payment made for Dec/91, D distrained
for arrears of basic rent throughout the term and required payment in full from 1 Jan/92;
trial judge found for P; C.A. allowed appeal in part re: full rent for last three months of
lease.
Issues: Did D waive their right to the full rent up to the Jan/92 date? Was D required to
give notice in order to resume their right to full rent? Was the notice given sufficient?
Holding & Reasons:
Yes, D waived their right to full rent up to Jan/92. Promissory estoppel protects tenants
from the D claiming rent in arrears.
Yes, D was required to give notice. The test given in this case for notice: where notice
must be given to effect a purpose, at least two questions arise: 1) Must the notice be for a
reasonable period? 2) If so, must the notice specify the period correctly a so-called
dated notice? C.A. finds that, despite these elements missing from the contract, the
conduct of the parties suggests that reasonable notice must be given (and accepted), but
that the notice need not be dated. She says that the reasonable time for notice would be
from Dec. 24 to Feb. 1. Given that, the tenant would have to pay full rent from Feb. 1 to
Apr. 30.
Ratio: If a party waives a right they have under contract, then to resume the right they
must provide notice of a reasonable length in order to do so, but the notice need not
specify the notice length (be dated notice).
Main Principles:
When terms are waived, parties are estopped from going back and claiming what is
waived. Once notice is given that waiver is rescinded, a reasonable notice period will be
allotted to allow parties to prepare for return to original terms of the contract.
The Post Chaser, [1982] U.K. Q.B., Cb.: 220
Facts: P (Society Italo-Belged) agreed to sell palm oil to D (Palm & Vegetable Oils SDN),
who in turn contracted to sell the oil to several sub-buyers; contract required that P make
a declaration of ship as soon as possible after the vessels sailing; P didnt make
declaration until more than a month after the ship sailed; on receipt of the declaration,
some buyers protested the lateness, while others didnt; 20th January buyers requested
sellers documents, but these docs were rejected by the sub-buyers; 2 days later, buyers
also rejected docs and the sellers were forced to sell the oil elsewhere at a loss; Q.B.
found for D (buyers).
Issues: Did the buyers waive their right to reject the sellers docs? Did the sellers rely on
the waiver?
Holding & Reasons:
Yes and No. The waiver was unequivocal. However, there wasnt sufficient reliance on the
part of the sellers. The court holds that the sellers didnt act to their detriment, but they did
conduct their affairs on the basis of the buyers representations. Is this sufficient to raise
equity? The court says no. Sometimes the reliance isnt enough to raise equity. I cannot
see that, in the absence of any evidence that the sellers position has been prejudiced by
reason of their action in reliance on the representation, it is possible to infer that they
suffered any such prejudice (223).
Ratio: If Party A waives their rights under contract and Party B relies on that waiver but not
in such a way that prejudices them, then they may not raise a defence of estoppel to
prevent Party A from revoking their waiver.
Main Principles:
Reliance on the waiver must be to the partys detriment; if they rely on it but theyre not
prejudiced then the waiver becomes irrelevant. Regardless of waiver, you must show
damage.

(v) Variation of Existing or Creation of New Relationship

Combe v. Combe, [1951] K.B. C.A., Cb.: 224
Parties & Procedural History: Pltf/Resp: Mrs. Combe; Def/App: Mr. Combe; trial judge
found for the wife; C.A. overturned the judgment, found for the husband.
Facts: Upon divorce in 1943, Mr. offered to provide permanent maintenance of 100l/yr,
tax-free; 6 months later Mrs. pressed to have payments for the whole year in advance; Mr.
replied that he couldnt pay in advance; payments werent made and Mrs. never went to
court; in 1950 Mrs. brought action claiming all support in arrears; trial judge held that Mr.s
promise was enforceable b/c it was unequivocal, parties intended for it to be binding, they
intended to act on it and in fact they acted on it; trial judge found for Mrs.; C.A. overturned
and found for Mr.
Issues: Can a party enforce an equitable application of a promise when no original
contract is in place?
Holding & Reasons:
No. The purpose of equity is to protect changes or promises made when a contract is
already speaking. Equity cant be used to bring about a contract from a gratuitous
promise. In this case, the husbands promise was gratuitous (no consideration) so no
contract was formed. The wife cant enforce this promise. The principle stated in High
Trees cant be used to enforce a promise that had no consideration.
Ratio: If a promise is made without consideration, then equity may not be used to enforce
that promise.
Main Principles:
Equity cant be used to create a contract; equitable doctrines only apply to already formed
contracts.
Robichaud v. Caisse Populaire de Pokemouche Lte. (1990) N.B.C.A., Cb.: 229
Facts: Accord and satisfaction D (Caisse) agreed to remove judgments against P
(Robichaud) from their registry in exchange for $1000; P sent payment to D; subsequently,
Ds Board refused to accept cheque and remove the judgment; TJ found for D; C.A.
allowed Ps appeal.
Issues: Can a Pltf invoke estoppel in order to enforce a promise that they have relied
upon?
Holding & Reasons:
Yes. The doctrine of allowing estoppel to be used as a shield and not as a sword doesnt
meant that estoppel is only ever available to defendants in an action. Whether the
promisee is the plaintiff or the defendant if the reasons for enforcement is the promisees
reliance, such reliance may be just as strong whether the promisee appears as plaintiff or
defendant.(229) The Pltf is merely asking the Def to respect the promise that the Def
made.
Ratio: If the purpose of raising an estoppel argument is to enforce a contract that has
been relied upon, then estoppel may be raised whether the party is the plaintiff or the
defendant to the action.
Main Principles:
Estoppel is independent of the role of the parties to the lawsuit (either party can bring
estoppel).

Kornerup v. Raytheon Canada Ltd. (2008) B.C.C.A., S.M.: 48

Facts: P (Ciric) was employed by D (Raytheon) for 10 years; Jan/04, D made assurances to
employees that the practice of paying severance based on one months salary for each year of
employment would continue to apply to employees laid off from the Ds Richmond facility in the future;
employees werent offered working notice, were offered a severance package, and package declined
they were entitled to pursue common law right to payment in lieu of notice; employees laid off
between January and June 2004 received severance offers according to this practice; Sept/05 D
announced Richmond facility would close in Sept/06, employees would receive working notice; no
mention of severance made; P received notice that her employment would terminate in June/06;
notice she rcvd exceeded the working notice by one month; P thought she should also receive
severance; she continued her employment until it terminated according to the notice; TJ found for P;
C.A. overturned, allowed appeal of D.
Issues: Did the assurances of 2004 amount to a contractual obligation to pay severance? Did the Def
withdraw this offer?
Holding & Reasons:
No. The offer made by D was a unilateral offer dependant on P working to the end of her
employment. The offer was able to be withdrawn by D at any time. The performance required to
crystallize the contract wasnt performed (D laying P off): the offer was not in place when the Ps
employment was terminated.
Yes. When D gave P working notice, it constituted a withdrawal of the offer (not explicit, but
severance package wasnt on the table). P contends that it wasnt open to D to withdraw offer
because she started performing immediately upon the offer being made. The court disagrees stating
that there was no coincidence of consideration in respect of two agreements her regular
employment contract and the unilateral severance contract.
Ratio: If Party A makes a unilateral offer and then subsequently withdraws it without giving explicit
notice, then Party B may not enforce the offer if Party Bs consideration for the unilateral offer is the
same as the consideration in place for a separate agreement.
Main Principles:
Variations only crystallize if theres consideration. Here, consideration was for a separate agreement
(P couldnt use the same consideration twice). The variation could be withdrawn.
Waltons Stores (Interstate) Pty. Ltd. v. Maher (1988) H.C. U.K., Cb.: 230
Facts: Parties negotiated for a lease of land; D (Waltons, lessee) proposed demolition of existing
building to build a new facility; parties solicitors involved in communications; Ps (Maher, owner)
solicitor informed Ds solicitor that building would not be completed on time unless demolition
commenced immediately; amendments to lease remained to be agreed upon; Ds solicitor said he
had verbal instructions to accept amendments, but still needed formal instructions; Ds solicitor
incorporated amendments, and stated that he believed approval was forthcoming; this was Nov.11,
and Ps proceeded on Dec.10 with the demolition and work; on Jan.19 Ds sent letter stating they
didnt intend to proceed; TJ found for P; Hight Court dismisses Ds appeal.
Issues: Was D entitled to stand by in silence when it must have known that P was proceeding on the
assumption that they had an agreement and that completion of the exchange was a formality?
Holding & Reasons:
No. The court deals with various types of estoppel in this case. Court states that the [Ds] inaction, in
all the circumstances, constituted clear encouragement or inducement to the [Ps] to continue to act
on the basis of the assumption which they had made. D is estopped from retreating from its implied
promise to complete the contract.
Ratio: First time that equity gets to be the whole basis of a contract. All based on a future relationship.
Main Principles:
Test to establish equitable estoppel: 1) Party A assumed/expected that a legal relationship exists and
that Party B is not free to withdraw; 2) Party B has induced Party A to adopt that assumption; 3) Party
A acts or abstains from acting in reliance of that assumption; 4) Party B knew or intended for Party A
to do so; 5) Party As action will occasion detriment if the assumption isnt fulfilled; 6) Party B has
failed to act to avoid that detriment. Unconscionability is key. U.S. has adopted this approach
(expectations enforced if thats the only way to avoid injustice). Has this principle been adopted in
Canada? No (see M.(N.) case)

M. (N.) v. A. (A.T.) (2003) B.C. C.A. Cb.: 239

Facts: The parties entered into a romantic relationship; Mr. M (D/Resp.) promised to pay
the outstanding balance of Ms. As (P/App) mortgage; in reliance on that promise Ms. A left
her permanent job and moved to Vancouver; Mr. M didnt pay off her mortgage, but did
loan her $100,000 on a promissory note; those funds were applied to Ms. As mortgage;
about a week later Mr. M evicted Ms. A from her home; TJ found for Mr. M; C.A. upheld
judgment, dismissed Ms. As appeal.
Issues: Did the trial judge err in refusing to enforce the promise on which Ms. A relied to
her detriment?
Holding & Reasons:
No. The court identifies the elements for equitable estoppel from the Combe case: 1) the
Pltf assumed that a particular legal relationship existed and that the Def wasnt free to
withdraw; 2) the Def induced the Pltf to adopt that assumption. Mr. M states that neither
party thought a legal relationship had been created by the promise. From Waltons, the
court pulls out the principle that failure to fulfill a voluntary promise doesnt amount to
unconscionable conduct something more is required. Essentially, no evidence was put
forward to suggest that Mr. M intended for his promise to be binding, nor to suggest that
Ms. A believed it was binding.
Ratio: If no evidence is presented to demonstrate that either party intended for the
promise to create legal relations, then the promise will not be enforced.
Main Principles:
Rejection of Waltons principles. No contemplation of creating legal relations. But notice
the very different factual circumstances in this case perhaps Waltons is still open for
application in the right fact scenario.
D.

Privity
a.

Enforcement of Contracts by Third Party Beneficiaries

Beswick v. Beswick, [1966] U.K. C.A., aff'd [1968] H.L., Cb.: 283, 284
Facts: Peter and John (D/Resp.) Beswick entered into an agreement where John would take over the
business; the agreement stipulated that Peter would still receive a salary and, upon his death, Mrs. should
receive a weekly stipend from the business; Peter died after the agreement was in place; John provided
one stipend to Mrs. B (P/App) then refused to pay more; TJ found for D; C.A. & H.L. overturned, found for
P.
Issues: Can Mrs. B claim the stipend as a beneficiary to the contract between Peter and John? Can she
claim the stipend as executrix to the estate of Peter?
Holding & Reasons:
Denning (C.A.): Mrs Beswick can claim as third party beneficiary to the contract. General rule is that no
third person can sue or be sued on a contract to which he is not a party. However, where the third party
has an interest in the contract, the party who created the contract can sue on the third partys behalf, or by
adding him as a co-plaintiff, or if the contracting party refuses, the third party can add him as a defendant.
In this way, the third party can enforce the contract.
Further, the widow can sue as executrix to the estate and can claim specific performance on the contract.
Reid (H.L.): Court considers Mrs. Bs capacity to sue both as third party and as executrix of Peters estate.
In her personal capacity, she has no right to sue. As executrix, she would normally only be allowed to
recover nominal damages b/c the estate has lost nothing. However, she is arguing that as executrix she
has the capacity to enforce the agreement for the benefit of herself as third party through the doctrine of
specific performance. The court agrees. The defendant could on his part clearly have obtained specific
performance of it if B Sr. or his administratrix had defaulted. Mutuality is a ground in favour of specific
performance.
Ratio: If a party is both executor to an estate and beneficiary of that estate, then they may enforce any
promises made to the estate prior to the death through the doctrine of specific performance.
Main Principles:
Normally, third parties to a contract cant bring an action.
H.L. doesnt follow Dennings approach. They allow for mutuality of specific performance for Mrs. B. H.L.
doesnt open up actions to third parties.

Jackson v. Horizon Holidays Ltd., [1975] U.K. C.A., S.M.: 52

Facts: P (Mr. Jackson) and family contracted for holiday in Sri Lanka; they had wanted to stay
at a different hotel, but no availability so they stayed at Ds (Horizon Holidays) hotel for
reduced rate (1200 pds); they contracted for several particular amenities (adjoining rooms,
various amenities, particular cuisine); when they arrived, they found none of the amenities to
be available, and the rooms in a bad state of repair; after 2 weeks at the Ds hotel, they moved
to hotel they had originally intended to stay at and then came home at the end of their four
week vacation; TJ found for P; C.A. upheld trial decision, Ds appeal dismissed.
Issues: Can Mrs. Jackson and the children recover damages when they are third parties to the
contract?
Holding & Reasons:
Yes. Even though the P wasnt acting as an agent and this wasnt a trust situation, he can still
sue for recovery of the others in his party. The amount awarded by the trial judge was not
excessive when one considers that P is recovering for his family as well.
Ratio: Application of the principle that if a contract is made by A for the benefit of B, A can sue
on the contract for the benefit of B and recover all that B could have recovered if the contract
had been made with B himself.
Main Principles:
If a contract is substantially for the benefit of a third party, the contractor may sue and include
the lost benefit to the third party. Application of the Swan Tours case. Also, Dennings approach
from Beswick adopted.
However Woodar tells us that group recovery is a special circumstance.
Woodar Investment Development Ltd. v. Wimpey Construction Co. Ltd., [1980] H.L., S.M.: 55
Issues: Is the reliance that Denning placed on Lush Js assessment in Lloyds correct?
Holding & Reasons:
No. The use of the principle regarding A being able to recover for B as if B had made the
contract himself only applies to situations where you have an agent or trustee enforcing the
rights of a principal or beneficiary. Essentially, the contract IS made by B they are the
principal party to the contract. Denning erred in applying Lushs statements the way he did in
Jackson. In the case at hand, Woodar cant sue unless he can show that it suffered a loss or
that it was acting as agent or trustee for Transworld.
Main Principles:
Distinguish between contracts where a trustee is suing for a beneficiary, and a situation where
A & B are both seeking to benefit, but B has no privity of contract. These are two different
scenarios.
Privity rules arent altered there are specific narrow exceptions for third parties in certain
kinds of Ks.

b.

Reliance on Contracts by Third Party Beneficiaries for Defensive Purposes

(i) Exemption Clauses
N.Z. Shipping Co. Ltd. v. A.M. Satterthwaite & Co. Ltd., [1974] P.C. (N.Z.), Cb.: 293
Facts: The Shipper (Ajax) was shipping a drill; App (N.Z. Shipping) carried out all stevedoring (loading
and unloading cargo) for the Carrier (Fed. Steam Navigation); the App also acted as agent for the
Carrier but not in the course of their stevedoring functions; the Resp (Satterthwaite) became holder of
a bill of lading and owner of the drill on Aug. 14, 1964; on that date the drill was damaged due to
Apps negligence during unloading; bill of lading stipulated that employees of the Carrier, including
independent contractors employed by the Carrier, werent liable for loss or damage resulting from any
negligent acts performed during their employment; also, clause 11 of the bill of lading said that the
Carrier wouldnt be liable for goods valued at over 100 pds; P.C. allowed appeal of N.Z. Shipping
(App)
Issues: Can App take advantage of the exemption clause of the Carrier? Did App give consideration
would bring them under the auspices of the contract?
Holding & Reasons:
Court found that in commercial reality, there was consideration, but that it was hard to identify in
terms of classical offer and acceptance. The way the clause works is that if the Carrier or any
employee of the carrier or any person independently contracted by the Carrier is unloading the drill,
they are included under the exemption. The exemption is designed to cover the whole carriage from
loading to discharge, by whomsoever it is performed: the performance attracts the exemption or
immunity in favour of whoever the performer turns out to be(296). The performance of these services
by the App is the consideration.
Ratio: If a contract is in place to carry out an activity and there is immunity from liability written into the
contract, then the immunity will extend to any third party that carries out that activity (the contract
covers the activity rather than the parties contracting to have the activity performed).
Main Principles:
First case dealing w/ exemption clauses. We see the nexus of tort and contract.
Agency case can Stevedore be covered by a K covering the Carrier if Carrier made K as an agent?
Yes agency rules allow for more flexibility at formation.
London Drugs Ltd. v. Kuehne & Nagel International Ltd., [1993] S.C.C., Cb.: 298
Facts: App (London Drugs) contracted w/ Resp (K&N, and their employees) to store transformer at
Resps facilities; part of storage agreement limited liability of the warehouseman to $40 unless App
paid an additional charge to cover warehouse liability; App chose not to obtain additional insurance;
two employed Resps moved transformer negligently and it fell, causing ~$33k damage; App sued
claiming that Resps werent covered under K&N liability clause; App appeals re: only $40 of liability;
Resp. cross appeals that they should be completely free of liability; SCC dismisses both actions.
Issues: Can the Resps obtain the benefit of the limitation of liability clause contained in the contract of
storage between their employer and the App?
Holding & Reasons:
*Yes. Criticisms of privity as they relate to employment situations. Resps claim that employees can,
without invoking agency or trust, claim a benefit contracted by their employer if a) there is a contract
limiting liability, b) the loss occurs during the employers performance of the contractual obligations,
and c) the employees are acting in the course of their employment when the loss occurs. Court
agrees so long as this is contemplated (expressly or through implication) by the parties of the
contract.
*Court further clarifies that exception to privity is limited. 1) Exception depends on intentions of the
parties. 2) Exception must meet the four benchmarks of agency as outlined in New Zealand Shipping
Co. The exception is very specific and limited. Also, applying this exception doesnt limit parties from
also using a defence based on agency or trust.
*Meaning of the term warehouseman would have contemplated including employees of the
warehouse, meaning that the Resps werent strangers to the contract.
Ratio: If Party A has contracted with Party B and has included a limited liability clause, and Party B
sustains a loss due to the negligence of the employees of the Party A, but that negligence was done
during the course of the activities contracted for, then the employees will also be covered under the
limited liability clause.

London Drugs Ltd. v. Kuehne & Nagel International Ltd., [1993] S.C.C., Cb.: 298
Main Principles:
First Canadian exception to privity rules. A strict application of privity defeats the purpose
of this exemption clause (to protect employees from liability). Tort shouldnt be able to
circumvent contract.
Key rules: 1) employees must have been contemplated in the exemption; 2) employees
must have been performing the very services contemplated.
Four benchmarks of agency: 1) Was agent intended to be protected? 2) Does the contract
clearly show that one party is an agent and that they are protected under the K? 3) Does
the agent have authority to do the act that they are doing? 4) Any difficulties regarding
consideration are dealt with.
Edgeworth Construction Ltd. v. N.D. Lea & Associates Ltd. (1993) S.C.C., Cb.: 308
Facts: App (Edgeworth) entered into tender competition in order to win contract for building road
outside Revelstoke; bid based on drawings made by Resp. (N.D.); during project, App went over
budget; App claims drawings had errors in specifications and construction drawings and App relied on
these drawings; App had contracted with the Ministry, not with Resp., but sues Resp. as a third party
to the contract; Resp. claims that they were strangers to the contract and cant be sued; TJ & C.A.
held for Resp.; SCC allowed appeal for App.
Issues: Did the contract between the contractor (App) and the province negate the duty of care that
would have otherwise arisen on the part of the Resp.?
Holding & Reasons:
No. While the Resp. adopts the position that the Ministry assumed all the risk and thus their duty was
negated, the SCC points out that just b/c the drawings became the representations of the Ministry
doesnt mean they ceased being the representations of the Resp. The Ministry and the App didnt
assume the risk of errors in the Resp.s work. The facts of the case dont give rise to an inference
regarding employees covered under an employers contract, as was the case in London Drugs. Cl. 42
of the contract stated that the drawings were furnished merely for the general information of bidders
and [were] not in anywise warranted or guaranteed by or on behalf of the Minister(309. This clause
doesnt mean that either the Ministry nor the contractor is excluded from their right to sue the
engineers for deficiencies in their design.
Ratio: If Party A contracts with Party B and the parties rely on the work of a third Party C, and neither
A nor B guarantee the work or assume the risk of error by Party C, then Party C will be found liable
for any negligent work done.
Main Principles:
The exemption clause is required to mask the parties its exempting. If a party isnt clearly
contemplated, then theyre not exempted from liability.
Engineers in this circumstance are independent contractors that could have insured themselves.
Distinguishable from London Drugs.

(ii) Waivers of Subrogation

Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd. (1999), 176 D.L.R. (4th) 257 (S.C.C.) Cb.:
310
Facts: The barge owned by App (Fraser River Pile & Dredge) sank while under charter w/ Resp.
(Can-Dive); contract for insurance between App and their insurer contained a clause under which the
insurer waived right of subrogation against any charterer; App agreed with insurer to pursue an
action in negligence against the Resp.; TJ held Resp. liable, as TP they couldnt enforce the waiver;
SCC dismissed Apps appeal.
Issues: Can Can-Dive, as a third party beneficiary to the insurance policy, rely on the subrogation
clause to defend against the insurers subrogated action?
Holding & Reasons:
Yes. Test for exceptions to privity based on two factors: a) Did parties to the contract intend to extend
the benefit the TP seeking to rely on the contractual promise? b) Are the activities performed by TP
seeking to rely on the contractual provision the very activities contemplated as coming within the
scope of the contract in general, or the provision in particular, considering the intentions of the
parties? Subrogation clause clearly contemplated charterers.
*Did Fraser Rivers agreement w/ the insurer that they would pursue legal action extinguish CanDives benefit in the contract? No F.R. cant unilaterally revoke Can-Dives rights; CD explicitly
protected by exemption clause (charterers contemplated). Subrogation clause contained in
unrelated contract? Not compelling the issue is whether CD is doing what the parties contemplated
CD would do and they are.
*Policy reasons to favour an exception: Sophisticated commercial parties should be taken to
understand exemption clauses and will make efforts to clearly express the limits
Ratio: If a third party is exempted from liability under a subrogation clause for particular activities, and
that third party causes damage while negligently performing the contemplated activity, then the third
party will be immune from liability subject to the subrogation clause.
Main Principles:
Subrogation Party A & Party B have K; Party B negligence; Party A recovers from Insurer; Insurer
steps into Party As spot and sues Party B to recover losses paid out through insurance.
Concern: What if CD was unaware of the clause? No reliance How do you deal with it?

2.

CONTRACTUAL TERMS
A.

Implied Terms
Machtinger v. HOJ Industries Ltd. (1992), 91 D.L.R. (4th) 491 (S.C.C.) Cb.: 463
Parties & Procedural History: App: Machingter, employee who was dismissed w/o reasonable notice;
Resp.: HOJ Industries, employer; C.A. erred re: characterizing a term in law as a term in fact; SCC
imposed the reasonable term and found for the App,
Issues: On what basis does a court imply a notice period? To what extent is intention to be taken into
account in fixing an implied term of reasonable notice in an employment contract?
Holding & Reasons:
Three types of terms: 1) terms implied in fact; 2) terms implied in law; 3) terms implied as a matter of
custom. Requirements for reasonable notice in employment contracts fall into the category of terms
implied in law. In order to imply terms via custom & usage, it must be understood that custom or
usage would be applicable (based on presumed intention). Terms that are necessary for business
efficacy would obviously be assumed. Finally, there are terms that are legal incidents of a particular
class or kind of contract (464). The courts insist that there should be a contractual duty imposed on
the employer to provide the employee with reasonable notice of termination.(465) The intentions of
the party arent at issue the legal obligation of the employer is implied at law because it is
necessarily incidental to the class of contract. Since the parties didnt contract a contrary intention,
the term of notice implied by law wont be displaced.
Ratio: If a contractual term is implied by law as a term incident to the particular class of contract and
the parties to the contract dont express a contrary intention, then that term will be upheld & the
parties will be subject to it.
Main Principles:
The three types of terms: 1) Terms implied in fact (by parties); 2) Terms implied in law (statute or
common law); 3) Terms implied as a matter of custom. How each of these categories originates is key
to this case.
Business efficacy parties to the contract shared the assumption. If the term implied by the parties is
contrary to statute, the intention can still be contemplated and the term rewritten and upheld to meet
statutory standard.

B.

Express Terms
a.

Parol Evidence Rule

Hawrish v. Bank of Montreal (1969) S.C.C., Cb.: 412
Facts: A line of credit was granted by BMO (Resp.) to new company had been almost exhausted; BMO
asked Hawrish (App) for a guarantee; guarantee was in BMOs usual form; Hawrish claims he had oral
assurance from BMO manager that guarantee was to cover existing indebtedness only and he would be
released from his guarantee when the bank obtained a joint guarantee from the directors of the company;
the bank did obtain two other joint guarantees; Hawrish claims he didnt read the agreement before
signing; the company then became insolvent and the bank brought an action against Hawrish for the full
amount of his guarantee; SCC dismissed Apps appeal.
Issues: Did the contemporaneous oral agreement provide an independent agreement in which liability of
the Def (Hawrish) would be terminated?
Holding & Reasons:
No. The oral agreement was to terminate all liability, present or future, when the new guarantees were
obtained. The written agreement, however, states that there would be continuing liability that could be
terminated by notice in writing, and then only as to future liabilities incurred by the customer after the
giving of the notice.
The court puts forward Erskine v. Adeane, Morgan v. Griffith, and Lindley v. Lacey as authorities for the
idea that oral and written agreements can stand together; the writing provides for the performance and the
parol agreement may add something else. However, the court notes that there must be a clear intention to
create a binding agreement.(414) A collateral contract cant be inconsistent with or contradict the written
agreement.
Ratio: If there is a written agreement between the parties and the parties also make a collateral oral
agreement, then the oral agreement can only add something to the contract and can not be inconsistent or
contradictory to the written agreement.
Main Principles:
Key case for how to deal w/ terms based on competing modes (written v. oral). If all terms are written or all
are oral, the K will stand as is. Oral terms only allowed in to a written K if K is incomplete in some way.
Collateral contracts only allowed if theyre consistent w/ the original K. Potential protection to be offered by
part performance.
Gallen v. Butterley (1984), B.C.C.A., Cb.: 422
Facts: As a result of oral assurances as to the fact that buckwheat would smother weeds, several farmers
entered into a contract to purchase buckwheat seeds; contrary to assurances, weeds smothered and
destroyed the crop; TJ found for farmers; C.A. dismissed Allstates appeal.
Issues: Did the trial judge err in admitting the evidence as to the oral assurances?
Holding & Reasons:
No. On the evidence, Lambert J.A. finds that the document didnt contain the whole agreement the oral
representation formed the terms of another complete agreement (two contract theory). The court reiterates
that an oral agreement cant contradict a written agreement. Lambert lays out 8 comments on that
principle.
C.A. is of the opinion that the oral warranty and the written agreement dont contradict each other. Allstate
isnt responsible for the yield, but thats not whats at issue.
The court also says that harmonious construction (the parties cannot have intended to agree to
inconsistent obligations) should apply. In terms of exclusionary clauses, sometimes they will avail the
defendant and sometimes they wont it depends on the terms of the contract.
Anderson points out that the words not responsible for the crop dont clearly exclude the assurances
given in respect to the weeds.
Dissent: The Pltf knew what he was signing. There is no reason to put the statement regarding the weeds
on a different level than the other statements made between the parties.
Ratio: If the oral agreement varies, adds to or subtracts from the agreement, but doesnt contradict it, then
the oral agreement will be upheld by the courts as a collateral agreement to the written agreement.
Main Principles:
Warranty part of K; an inducement to bring a party into K (i.e. I promise the car will be rust proof).
Collateral contract separate K; superadded promise (i.e. If you buy the car (K1), I promise it will be rust
proof (K2))
Strong case for the proposition that oral and written must expressly contradict in order to ignore oral terms.

Comments from Gallen v. Butterley re: oral v. written agreements:

1) There is no objection to the introduction of evidence to establish an oral agreement
separate from the written agreement and made at the same time.(423) But its not
reasonable to have two contract that deal with the same subject matter and are
contradictory.
2) The principle cant be absolute.
3) There are several cases that could have been disposed of if the principle was absolute,
but the cases werent. This suggests that the oral agreements must have held some
weight.
4) If the contract was induced by an oral misrepresentation that is inconsistent with the
written contract, the written contract cannot stand.(424) No oral inducement through
misrepresentation.
5) If the oral agreement merely varies, adding or subtracting from the contract can be okay,
whereas contradicting is unreasonable.
6) The presumption is that if it looks like a contract, then the contract is whole. However, this
presumption is rebuttable. If the oral agreement is contradictory then the presumption is
strong, whereas if the oral representation adds to the agreement then the presumption is
less strong.
7) The presumption is more rigorous if the parties created an individually negotiated contract
(rather than a form agreement).
8) The presumption would be less strong where the contradiction was between the specific
oral representation, on the one hand, and a general exemption or exclusion clauses that
excludes liability for any oral representation, whatsoever, on the other hand(425)
Ahone v. Holloway (1988), B.C.C.A. S.M.: 67
Facts: App (Mr. Ahone) owned house, and made an agreement w/ Resp. (Mrs. Halloway) and
her husband to sell house, part of agreement was that App would live in basement suite; the
sale was made, App claimed a mortgage against the house; App made improvements to
house; Resp. separated from her husband, she sent a letter to App demanding he vacate the
premises and then had him evicted; Resp. continued to pay mortgage for a time, then stopped
paying; Resp. brought action for discharge of mortgage, App brought counter-action to have
mortgage set aside; App argued equitable lien overcame expiration of limitation period; C.A.
found for App.
Issues: Was the contract unconscionable or fraudulent? Was the action barred due to
expiration of the limitation period?
Holding & Reasons:
Yes and Yes (but equitable remedy available). The terms of written agreement didnt include
the tenancy arrangement for the App. It also didnt include any agreement regarding interest.
The parol evidence on the interest was rejected b/c it was contrary to the written agreement.
However, the written agreement didnt speak to the tenancy agreement at all. McLachlin
accepts that the trial judges finding that the tenancy was to be for the duration of the
mortgage. The tenancy was binding. The Limitation Act would normally bar the claim made by
the App, but the App has argued that there is an equitable lien against the property which isnt
barred.
Ratio: Confirmation of the parol evidence rule; if the oral agreement doesnt contradict the
written agreement, then it will be accepted as a collateral agreement to the written agreement.
Main Principles:

b.

Mere Representations or Terms of Contract

Heilbut, Symons & Co. v. Buckleton, [1913] H.L., Cb.: 371
Facts: Johnston, manager of Ds (Heilbut) Liverpool business was to obtain applications for shares in their
rubber company in Liverpool; Johnston had seen draft copy of the prospectus but didnt have a copy; he
mentioned the company to several people, including broker that acted for the P(Buckleton); P asked
Johnston about the rubber company and whether it was all right; Johnston replied that they were
bringing it out; P bought shares; after, it was discovered that rubber trees were deficient, companys
shares dropped in value; P brought action against D; D appealed jury finding; H.L. allowed appeal, held TJ
shouldnt have left question of warranty to jury.
Issues: Was the representation made by Johnston an innocent misrepresentation? If yes, is the Def liable
for the damage that results from this misrepresentation?
Holding & Reasons: Yes and No.
The Pltf must show that there was a warranty (a contract collateral to the main contract to take shares). Its
possible to make a contract as consideration for another contract. However, these collateral contracts are
viewed with suspicion if their sole purpose is to vary or add to the terms of the principal contract; they must
be proved strictly.
Johnstons statement to the Pltfs question was merely a statement of fact (a reply to a question for
information). If this is viewed as a collateral contract, that would be problematic it would negate the
principle that negative misrepresentations give no right to damages. If a party makes a misstatement of
fact and that person has no reason to believe his statement to be true, that is deceit and the courts wont
allow it. But, you need actual fraud for there to be a finding of deceit. If every statement that is made during
the course of dealing amounted to a warranty, that principle would be far too sweeping and wouldnt be
supported by the courts.
The principle should stand that innocent misrepresentations shouldnt be liable under the law.
Ratio: If a party makes a representation that he believes to be true in fact and the representation is found
to be false, then the party will not be held liable for the innocent misrepresentation.
Main Principles:
Innocent misrepresentation an incorrect statement, an honest mistake but not negligent.
Warranty if the party makes the statement w/ the intention to be held accountable for it.
No intention to be bound = no meeting of the minds; an incorrect but neutral statement.

Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd., [1965] 2 All E.R. 65 (C.A.) Cb.:
376
Facts: Bentley (Pltf) wanted to purchase vintage Bentley vehicle and asked Smith (Def) to
lookout for a vehicle; Smith found vehicle, sold it to Bentley; Smith gave Bentley oral history of
the vehicle, made assurances that the car had only been driven 20,000 miles; Bentley
purchased vehicle but it was a disappointment; he brought an action in breach against Smith;
TJ found that D had given warranty and it had been breached; C.A. dismissed Ds appeal.
Issues: Was the representation that the vehicle had only been drive 20,000 miles an innocent
misrepresentation?
Holding & Reasons: No.
The main question is whether a warranty was intended, and this depends on the conduct of the
parties (words and behaviour) rather than their thoughts. If a representation induces action,
then it will be considered a warranty, although this is rebuttable the onus is on the person
making the representation to prove that it was an innocent misrepresentation.
In this case, the dealer was in the position to know, or at least find out, the history of the car.
He didnt bother to do so (it was done later). When the history was examined, Smith turned out
to be wrong.
Ratio: If a person makes a representation with the intent to induce action, then it will be found
to be a warranty.
If a person makes a warranty and has the ability to confirm the information presented in their
warranty and doesnt, and the information turns out to be incorrect, then that person will be
found liable for that representation.
Main Principles:

C.

Classification of Terms - Right to Terminate for Breach

Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd., [1962] 2 Q.B. 26 (C.A.) Cb.: 436
Facts: App (Honk Kong) hired vessel owned by Resp. (Kawasaki) to delivery goods from U.S. to Japan;
upon delivery of the vessel it was found unseaworthy, and that engine staff was incompetent; during the
voyage to Japan, vessel required 5 weeks of repair, when it arrived in Japan it was found to need 15 more
weeks of repair; vessel would have been available for 17 more months to App; there was a steep fall off in
freight prices during repair period and App wrote to Resp. repudiating the K; C.A. upheld TJ finding,
wouldnt allow App to repudiate whole contract.
Issues: Can a party repudiate a full contract if a breach doesnt actually cause them to lose the benefit of
the contract?
Holding & Reasons:
No. In past cases, it was noted that it wasnt the breach that relieved the parties from their obligations
under the contract, it was the events that resulted from the breach.
The court recognizes that there are more than just conditions (the breach of which gives rise to an event
which relieves the party not in default of further performance of his obligations) and warranties (the
breach of which does not give rise to such an event). Unseaworthiness is an undertaking more
complicated than either of these obligations. Its neither a warranty nor a condition.
The central concern is whether the App has been deprived of the whole benefit of the contract due to the
breach of the Resp. The trial judge found that the actions of the Resp. when taken together didnt deprive
the App of the whole benefit of the contract, and as such the App should not be allowed to rescind.
Ratio: Innocent parties dont have the right to unilaterally repudiate/rescind in every circumstance. Certain
situations may give rise to repudiation or rescission; the severity of the breach is the key. This can be
determined at formation or post-breach (warranties/conditions descriptors of breach gravity postformation).
Main Principles:
Conditions v. Warranties v. Innominate term: Conditions and warranties are established at the beginning of
the K, whereas innominate terms are based on a future breach and come about at that time.
Rescission v. Repudiation: Repudiation = breach, K stopped for some reason; Rescission = breach so
serious that K is undone. The key: Have you been deprived of substantially the whole benefit of the
K?

Krawchuk v. Ulrychova, [1996] Alta. Prov. Ct., S.M.: 74

Facts: P (Krawcuk) purchased horse from D (Ulrychova); D was aware that horse had habit of
cribbing (sucking on wood) but didnt tell P; when P discovered cribbing, P sued D for breach
of warranty and attempted to repudiate the contract; TJ found breach of warranty, not sufficient
to repudiate contract; damages awarded.
Issues: Is a breach of warranty sufficient to repudiate a contract?
Holding & Reasons:
No. The trial judge was dealing w/ a sale of goods so was required to consider various
provisions of the Sale of Goods Act. The cribbing could be mitigated w/ a cribbing collar. The
cribbing doesnt prevent the horse from being used for the particular purpose it was purchased
for (riding). The trial judge also noted that the P discovered after purchase that the horse
bucked, though this didnt go to the soundness or health of the horse and so couldnt affect the
contract warranty. The breach was thus merely a breach of the warranty and wasnt a breach
of a fundamental condition sufficient to allow for a repudiation of the contract.
Ratio: If a warranty to a contract is breached but the breach doesnt touch a fundamental
condition of the contract, then the breach wont be sufficient to repudiate the contract.
Main Principles:
Canadian adoption of Hong Kong Fir and language of substantially the whole of the contract.
Context and intent will be important for establishing what is the core of the deal. If horse had
been purchased for breeding rather than riding, the cribbing problem may have been a more
fundamental breach.

3.

DAMAGES FOR BREACH OF CONTRACT

A.

Measure of Damages: The Interests Protected

Fuller and Perdue, The Reliance Interest in Contract Damages Cb.: 783
Three interests:
Restitution interest: unites two elements 1) reliance by the promisee, 2) a resulting gain by the
promisor.
Expectation interest: Promise by B, no loss on the part of A, but there was an expectation created
that A lost out on. Recovery is based on the loss on the expectation.
Reliance interest: Because of your promise, I acted and now Ive lost out. Whatever I relied upon is
now gone and Ive lost the money/time/effort I put out when I relied on what you promised.
The goal of contracts: To put the party in as good a position as they would have been in had there
been no breach.
McRae v. Commonwealth Disposals Commission (1950) Aus. H.C., Cb.: 793
Facts: Set out in a different excerpt; essentially, P (McRae) were to recover a sunk tanker based on information
from D (Commission); after having set up their expedition it was discovered that there was no tanker at the
location in question; this excerpt dealt w/ how P should be compensated for damage.
Issues: Can the Pltfs recover the amount of their wasted expenditure or any part of the damages for breach of
the Defs contract that there was a tanker in existence?
Holding & Reasons:
They can recover some of the damages. The difficulty before the court is that its impossible to place a value on
goods that dont exist. The Def didnt contract to deliver a tanker of particular specifications, the contract was
general. The Pltfs argued that mere difficulty of estimating the damages doesnt mean that no damages can be
awarded. If this case was a case of a promise to deliver and there was a failure to deliver, the Pltfs would only
receive nominal damages but what is the case here is that the Defs promised something that doesnt exist. How
should the court deal with this? The court points out that the Pltfs should recover the expense they incurred.
The fact that the expense was wasted flowed prima facie from the fact that there was no tanker; and the first
fact is damage, and the second fact is breach of contract. The burden is now thrown on the Commission of
establishing that, if there had been a tanker, the expense incurred would equally have been wasted. This, of
course, the Commission cannot establish.(795)
Ratio: If Party A relied on information from Party B, the information turns out to be false and Party A has incurred
expenses based on this information, then Party A may be awarded damages for the losses they have incurred.
Main Principles:
Ds mistake & breach would have left P in losing position all around. Award is based on Ps reliance.
Expectation award not granted; you cant base your claim on reliance AND expectation. You can only have one.

Bowlay Logging Ltd. v. Domtar Ltd. (1982), 135 D.L.R. (3d) 179 (B.C.C.A.) Cb.: 797
Facts: App (Bowlay) hired to cut, skid and load logs for the Resp. (Domtar); the App didnt want to
be in the position they would have been had there been no breach, as the App would actually have
lost money the App wanted to be in the position they would have been in had their been no
contract; the Resp. claims that losses incurred by the App are not the result of the breach but are
the result of poor business practices; TJ awarded App w/ nominal damages; BCCA upholds TJ
award and dismisses appeal.
Issues: Should a Pltf be awarded damages in the case of a breach where, had there been no
breach, they would have been in a worse position then they are in due to the breach?
Holding & Reasons:
No. The whole point in this case is that the Apps losses are based on the Apps own poor
practices. The App claims that the expenditures they made were based on other future contracts
that became futile due to the breach of the Resp. The C.A. finds this approach is too uncertain and
remote to result in an award for damages. It seems clear that the appellant was losing heavily, not
because of the respondents breach, but because of an improvident contract and grossly inefficient
work practices.
Ratio: If Party A incurs losses that arent based on Party Bs breach, then they will not be
compensated for those damages.
Main Principles:
If the only expectation the party can show is that they would have lost more but for the breach, then
they will be depending on reliance entirely. Court finds that outcome P is relying (future contracts
flowing from this contract) upon is too remote, so reliance not allowed. If the K results in loss
anyway, the only way P will get damages if the breach resulted in MORE loss than would have
occurred w/o the breach. Expectation v. Reliance: I have $5 and I would have earned $7, so
damages are $2 (expectation). I have $5, I spend it in anticipation of earning $7, damages are $7
($5 output + $2 anticipated profit) (reliance).
Peevyhouse v Garland Coal & Mining Co. (1962) Oklahoma, BB
Facts: P leased farm to D for 5 years for a strip-mining operation; aside from usual covenants, D also agreed to
perform restorative and remedial work at end of the lease; cost of the remedial work would have been about
$29k; at trial Ds conceded this work wasnt done; verdict was returned for P, and jury was left to consider
damages; jury returned verdict for $5k; P appealed jury finding; Majority found for D; strong dissent for P.
Issues: If a party agrees to perform an action under contract and that action isnt performed, how will damages
be assessed?
Holding & Reasons:
The important distinction in this case is between cost of performance v. value. The court points out that the
authorities arent in agreement on this issue. The court says that the cost of repair ($29k) is significantly greater
than the increase in value of the land as a result of the repairs ($300). If they were closer in value, then a
breach would result in an award reflecting the reasonable cost of the work. Because the provision breached
was incidental to the main purpose of the K, and because the economic benefit to the lessor is grossly
disproportionate to the cost of performance, damages are limited to the reduced value resulting to the premises
b/c of the non-performance.
Dissent: The dissents big concern is that the Def knew that the cost of performance and the value were
disproportionate. They gained the benefit (which was great) but then didnt hold up their end of the bargain to
the detriment of the Pltf. The dissent argues that the value of performance should be considered when
measuring damages for breach, and so should the value of the benefits received under the contract by the
party who breaches. The dissent also points out that some of the authorities cited are based on situation s
where the contractors breach of a contract was in bad faith, which isnt analogous to this situation. In this
situation, the contractor didnt try to hide the breach or act fraudulently, they flat out breached. If the Pltf is
denied benefit then the court will have acted inequitably.
Ratio: If a Party A breaches their contract and the benefit lost by Party B is disproportionate to the cost of
performance for the activity left unperformed by the breach, then Party B may only recover difference in value
resulting from the breach.
Main Principles:
If the difference in cost between performance and non-performance is significant, the courts may be concerned
w/ a windfall. They wont benefit one party or another disproportionately w/r/t damages.
Dissent: Courts should let parties be bound by the contracts they make.

Nu-West Homes Ltd. v. Thunderbird Petroleums Ltd. (1975) Alta. C.A., Cb: 821
Facts: App (Thunderbird) contracted w/ Resp. (Nu-West) to build a house; house was built in
shoddy condition and App ended up hiring another company to tear up a large portion of the floor
and do a bunch of work to fix the shoddy work; the work done by the new company, Larwill, cost
$16k, but the trial judge only awarded ~$4k; App brought action on the issue of damages; C.A.
found that the App was entitled to the full cost of the repairs.
Issues: Did the aggrieved party act reasonably so as to be entitled to damages for the repair they
undertook?
Holding & Reasons:
Yes. If a person contracts for something, then the standard for damages if the contract is breached
is to put the person in the position they would have been in had the contract not been breached.
That being said, the court puts a restriction on this rule so that if the cost of the rectification is great
in comparison to the defect, the Court isnt going to enforce the contract to the letter if its
unreasonable to do so. The wrongdoer is entitled to expect that the person they have aggrieved will
act reasonably (though not perfectly).
In this case, acting reasonably means that Thunderbird consulted with experts on how to mitigate
the damage that existed in the house. Tearing up the floor was reasonable under the
circumstances.
Ratio: If a contract is breached so as to require damages to be awarded, then the damages
awarded may be restricted if the cost of rectification is much greater than the defect, and the
aggrieved party will be expected to act reasonably in the circumstances.
Main Principles:
Modification of Peevyhouse court wont allow P to go wild when mitigating an error by D.
Reasonable remedial changes will be compensated; grossly disproportionate reactions wont be
compensated. Failings by D must be non-trivial; Ps remedial response must be reasonable. Market
value not generally used; rather, court will consider loss of amenity subjective, personal remedy.
Damages for Breach: Key Points
*Repudiation claim: Actions of the parties are important. Were not weighing terms at this point.
(Hong Kong Fir v. Nu-West)
*Conclusion: Damages only. We only weigh the terms if the claimant wants something more.
*Presume the terms of K will be enforced unless to do so would be unreasonable. If unreasonable,
courts will look at how disproportionate the loss is compared to the cost of repair. Objective
whats reasonable; subjective your specific contract.
*Whats unreasonable? Social waste in cost compared w/ object OR the scale of fixing the breach
is grossly disproportionate. Reasonability will be objectively determined.
*Courts want to avoid windfall to either party.
*Negligent misrepresentation wont apply to damages. NM covers failures re: the underlying
substance of the K, not failures in performance.

B.

Certainty
(i) Loss of a Chance
Chaplin v. Hicks, [1911] U.K. C.A., Cb.: 814
Facts: D (Chaplin, theatrical manager) announced a competition for aspiring actresses; P
(Hicks, aspiring actress) submitted photo, was invited to later rounds; P was to meet w/ D for
final interview but P missed the call; b/c P was unable to see D, D selected 12 other winners; P
sued for loss of chance; jury found D didnt give P reasonable opportunity to present herself; D
appealed; C.A. dismissed the appeal.
Issues: Considering all the circumstances, should the P have been awarded damages for her
loss?
Holding & Reasons: Yes
The court is grappling with the idea that if the contingencies of an agreement are numerous
and difficult to deal with, in the past the courts have found that they wont award damages for
the breach. However, the court finds that this isnt acceptable. Just b/c damages cannot be
assessed with certainty doesnt mean the wrong-doer should get away with not paying
damages for their breach. In this case, the court recognizes that theres no commodity, per se.
However, the jury recognizes that if someone had traded places w/ the Pltf, there would have
been a recognized good price for that position. The jury came to the conclusion that the taking
away from the Pltf of the opportunity of competition, as one of a body of fifty, when twelve
prizes were to be distributed, deprived the Pltf of something which had monetary value.
Ratio: If a person is in a situation where their position represents one where they may profit
based on a contract, then if they are deprived of the ability to realize on that contract they will
be able to claim for damages.
Main Principles:
Uncertainty wont be a bar to recovery. (see McRae) Loss of Chance doctrine considers: 1)
Type of loss in contemplation (remoteness) and 2) Actual loss. Damage measured based on
what the chance would be worth to someone else in that position.

C.

Causation
Hodgkinson v. Simms, [1994] SCC, Cb.: 850
Facts: P (Hodgkinson) sought advice from D (Simms) re: tax sheltering, real estate tax shelter investments in
particular; P purchased 4 MURBs, (income tax sheltered property); P lost heavily on investments when market
fell; P learned that D was acting for MURB developers and had received a commission on the sale as well as a
fee; P sued D for breach of contract & breach of fiduciary duty; TJ awarded damages to P based on breach of
contract & fiduciary duty; C.A. reversed; SCC allowed Ps appeal.
Issues: 1) Does it matter whether or not the P would have invested in the MURB market regardless of the Ds
advice? 2) Is the non-disclosure of the D acting for the MURB developers proximate to the Pltfs loss? 3) Is the
loss causally connected?
Holding & Reasons:
1) No. P made out case of non-disclosure, so equitable principle kicks in. Onus on D to prove P would have
suffered loss regardless. D didnt put forward evidence to show the P would have acted in this way
anyway.
2) Yes. In the present case the duty the [D] breached was directly related to the risk that materialized and in
fact caused the [Ps] loss. If a party can show that but for the relevant breach it wouldnt have entered into
a given contract, then that party is free from the burden or benefit of the rest of the contract. Breaching a
fiduciary duty in this manner goes to the heart of the fiduciarys duty. If the Def were allowed to get away
with a breach of a fiduciary duty with no penalty, then similarly situated fiduciaries would gamble with other
peoples money the beneficiary would carry all the risk, and the fiduciary would earn all the benefit.
3) The court says that the misrepresentation isnt causally connected to the devaluation of the MURBs they
are separate from each other. The question to ask is whether the loss sustained by the appellant arose
naturally from a breach thereof or whether at the time of contracting the parties could reasonably have
contemplated the loss flowing from the breach of the duty to disclose. The loss cannot be said to have
arose naturally from Ds breach the losses werent foreseeable.
Dissent: loss doesnt naturally flow from breach of contract.
Ratio: If the losses suffered by the Pltf do not flow directly from the actions of the Def, then those losses will not
be will not be caused by the Defs actions (a.k.a. no causal connection). Consider in relation to Bowley.
Main Principles: High standard for breach of fiduciary duty (equitable standard). Damages in this case given b/c
of breach of FD. Ps damage wasnt caused by the breach, it was caused by the market drop. But, b/c of the
breach of FD, D is still made to pay.

D.

Remoteness of Damage

Hadley v. Baxendale (1854) Court of Exchequer, Cb.: 858

Facts: Ps (Hadley) mill stopped when the crank shaft for their mill broke; P hired D (Baxendale,
courier) to take shaft to another town so that it could be replaced; P told D mill had stopped, shaft
needed to be sent immediately; D said it would be delivered that day, but it was delayed; P lost
profits, sued for profits they would have received; Jury found D liable for damage; Exch Ct. held
damages too remote, overturned and sent case back to trial.
Issues: Is the damage too remote for the Def to be held liable?
Holding & Reasons:
Yes. The rule is that if a contract is breached, the damages that the wronged party can claim must
be based on what was reasonably contemplated by both parties at the time the contract was
formed. If there are special circumstances that werent contemplated, then damages arising from
those special circumstances wont be considered when awarding the damages. The only time
special circumstances will be considered in the damages awarded will be if both parties
contemplated those circumstances and specifically provided for them in the contract. Note in this
case we rely on the weight of the principles, not the outcome (the outcome is not great). Courier
breached, but not held liable.
Ratio: If the damage resulting from a breach isnt contemplated by the parties, then damages will
not be awarded for that damage.
Main Principles:
Two steps for contemplating damages:
1) If theres a breach, then the damages awarded will be based on what the parties contemplated
as reasonable at the time the contract was formed. (The usual course of things)
2) If there are special circumstances that wouldnt normally be contemplated, then in order for the
parties to protect themselves in case of a breach they must specifically deal with the special
circumstances when the contract is formed. (Special circumstances communicated)
Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd., [1949] 2 K.B. 528 (C.A.) Cb.: 861
Facts: P (Victoria Laundry) agreed to purchase boiler from D (Newman); D knew P was launderer and dyer and
P needed boiler for business; boiler damaged during delivery, took several weeks to have it repaired; P suffered
loss to their business due to delay; P claimed loss of profits; TJ awards damages but not for loss of profits b/c
damage too remote; C.A. allows appeal in part re: general loss of business, matter returned to trial.
Issues: Where the Def is a merchant and not a carrier, will damages be awarded for a delay in producing the
merchandise promised?
Holding & Reasons: Yes. No loss was recoverable beyond what would have resulted if the intended use had
been that reasonably within the contemplation of the defendants, which in that case was the obvious use. If
there is a special use, that must be communicated to the seller. Several propositions are put forward by the
court:
In cases of breach, the aggrieved party can only recover what was reasonably foreseeable at formation.
Reasonably foreseeable based on knowledge possessed by parties or by party who commiting the
breach.
Two kinds of knowledge: Imputed (known in the ordinary course of things) and actual. Knowledge of
special circumstances will attract the second rule from Hadley. (Novel and unprecedented use wont be
contemplated = special circumstances)
In order to recover, party that breached, had he considered the consequences of his breach, would have
contemplated the damage that resulted.
Not required that the party in breach would have foreseen that his breach would have necessarily caused
the loss; its enough that the loss was likely to result from his breach.
D in this case would have known what purposes a boiler could be put to (a layman may not have known). D
would have known, both b/c of their general knowledge and b/c of the info relayed to them by the P, that their
delay would likely lead to a loss of business. D didnt need to be specifically informed of this.
Ratio: If the seller would generally have contemplated the sort of loss that actually resulted from their breach,
then the seller will be liable for loss of profits that stem from that breach.
Refinement of Hadley.

Koufos v. Czarinikow; The Heron II, [1969] H.L., Cb.: 868

Facts: App (Koufos, owner of Heron II) chartered by the Resp (Czarinikow, sugar dealer) to deliver cargo of
sugar to Basrah or Jeddah so that the sugar could be sold; there was an option to send it in Jeddah but option
wasnt exercised; voyage should have taken 20 days but there was a delay of 9 days; intention of Resp to sell
sugar when it was delivered to Basrah; sugar was sold in Basrah but the market price had fallen (partly due to
the arrival of another vessel); Resp sued for loss of profits; TJ held for App; C.A. overturned; H.L. upheld C.A.
decision, dismissed appeal.
Issues: Can the Resp recover damages from the App due to the loss if the loss is one which ought to have been
contemplated as not unlikely to result from a breach of the contract?
Holding & Reasons:
Yes. Loss in this case was not considered on the grounds of it being foreseeable or unforeseeable. Rather it
was considered as likely to occur in the great majority of cases. A result that would happen in the majority of
cases can be fairly and reasonably be regarded as having been contemplated by the parties. The courts dont
intend that every type of damage that could reasonably be contemplated would be recoverable if that damage
would only happen in a minority of cases, then the parties may not cover it in the contract.
The crucial question is whether, on the information available to the defendant when the contract was made, he
should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result
from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of
that kind should have been within his contemplation. Unusual risk = higher notice (not the case here).
Ratio: If the loss due to a breach is reasonably foreseeable but would only occur in a small minority of cases,
then the parties will not be held liable for such minority situations unless it is explicitly dealt with in the contract.
Main Principles: Contemplation of likelihood of damage resulting from breach. High likelihood = should be
reasonably contemplated at formation. Low likelihood = not reasonably contemplated, requires special
protection.
Contract requires that the likelihood be a serious possibility (as opposed to tort standard = slight possibility).

E.

Intangible Losses
Jarvis v Swans Tours [1973] Q.B. C.A., Cb.: 825
Facts: P (Jarvis) purchased holiday from D (Swans Tours); holiday promised good skiing, a host
that spoke English, and various other amenities at the resort; none were provided, P had
disappointing holiday; P sued for value of the holiday and for mental distress; TJ awarded half cost
of the holiday; appeal to C.A.; P awarded double cost of holiday for mental distress.
Issues: Can damages for mental distress be recovered following a breach of a contract?
Holding & Reasons: Yes, though it depends on the type of contract and the losses that would be
contemplated. The statements in the brochure could be considered warranties or representations.
Normally, mental distress wont be contemplated in a commercial contract. However, where the
heart of the contract is promising entertainment and personal enjoyment then damages for mental
distress may be recoverable.
Ratio: If a contract is made for personal enjoyment or entertainment and there is a breach, then
loss of enjoyment and mental distress stemming from that loss will be recoverable.
Main Principles:
First case that contemplates recovery for mental distress. Expectation damages extended beyond
commercial context.
Quantifying lost enjoyment or feeling: parties making personal contracts must contemplate feelings
in case of breach.

Fidler v. Sun Life Assurance Co. of Canada (2006) S.C.C., S.M.: 78

Facts: P (Fidler) stricken w/ acute kidney infection, became permanently disabled; she applied to D (Sun Life)
for insurance benefits; D confirmed its decision to terminate benefits; TJ awarded damages for mental distress;
C.A. upheld and also allowed punitive damages; SCC restored TJ award of damages for mental distress only.
Issues: Should an insurance contract contemplate mental distress? Should a breach of an insurance contract
that was not due to bad faith attract punitive damages?
Holding & Reasons: Yes and No.
Application of Jarvis peace of mind exception, though this case says that it shouldnt be thought of as an
exception; rather its an application of the principle of reasonable contemplation (Hadley). When considering
damage, court should ask what did the contract promise and provide compensation for those promises. If
mental distress was in the reasonable contemplation of the parties at the time the contract was made then
compensation will be allowed. Not all mental distress due to breach will be compensable; normally commercial
contracts wont include this.
*P must prove: 1) the object of the contract was to secure a psychological benefit that brings mental distress
upon breach within the reasonable contemplation of the parties, and 2) the degree of mental suffering caused
by breach is sufficient to warrant compensation.
Note also that there are two types of aggravated damages (tort v. contract key point): 1) true aggravated
damages that arise out of a separate cause of action (usually tort) such as defamation, oppression or fraud and
2) mental distress damages which arise out of the contractual breach itself (if not contemplated, then tort).
So the question then is: is the object of a disability insurance contract to secure a psychological benefit? The
court says yes. Then, is the mental distress at issue in this case sufficient to warrant compensation? Again, yes.
What about punitive damages? Punitive damages should be based on bad faith or standards outlined in Whiten.
Ratio: If the purpose of a contract is to secure a psychological benefit and, due to the breach of the contract, the
degree of mental distress sufficiently warrants compensation, then the party in breach will be liable for damages
due to mental distress.
Main Principles:
Contemplation of peace of mind terms (not the core of the deal). Falls under Hadley.
Insurance contracts good faith referred to due to nature of contract and vulnerability of the insured.

F.

Mitigation
Mini-Framework:
Breach and actual loss
Step #1 was the loss in contemplation at formation?
Step #2 Remoteness; was the loss too remote? Not of the usual course of things?
Step #3 Mitigation; did the P act reasonably to limit the extent of their loss?

Asamara Oil Corp. v. Sea Oil & General Corp., [1979] SCC, Cb.: 871
Facts: P (Baud Corp, original owner of Asamera shares) lent shares to D (Brook, Asamera Prez) in 1957 under
agreement that dictated their final return in Dec. 1960; shares sold by D in 1958; 1960, injunction was brought
by P restraining D from selling 125,000 shares in Asamera (amount he was supposed to be holding); D
interpreted this as meaning that he must be in possession of that number of shares, not necessarily the
identical shares which he received from P; TJ awarded damages calculated based on a median amount
between 1966 and 1967; SCC upheld TJ ruling.
Issues: What recovery is P entitled to in these circumstances and what is the quantum of those damages?
Holding & Reasons: The rule for recovery is generally damages will be recoverable in an amount representing
what the purchaser would have had to pay for the goods in the market, less the contract price, at the time of the
breach. This rule is based on two principles: 1) P will be able to recover all losses that are reasonably
contemplated by the parties to the contract who are liable for the breach, and 2) responsibility will be on P to
take all reasonable steps to avoid losses flowing from the breach (mitigation).
*What action does the law require from a P by way of mitigation? In the past, where a breach left P with a
marketable asset, then P was obligated to mitigate (for example, an item to sell b/c of a lost market, or their
ability to work a new job b/c of a lost opportunity). In this case, there was no asset. Creation of an asset isnt a
prerequisite to the requirement of mitigation. P should take steps that he would have taken in the normal course
of business in order to prevent further loss. Ps will crystallize their claim either by replacement acquisition or in
some circumstances prompt litigation. (mitigate or litigate). Here, if P had taken reasonable steps then some of
the losses could have been avoided.
Specific performance: Before a plaintiff can rely on a claim to specific performance so as to insulate himself
from the consequences of failing to procure alternate property in mitigation of his losses, some fair, real and
substantial justification for his claim to performance must be found. (878)
Ratio: If Party A breaches to the detriment of Party B, then Party B may recover damages to the extent that a)
those damages are contemplated at the formation of the contract, and b) Party B took reasonable steps (such
as steps he would have taken in the normal course of business) to mitigate his losses due to the breach.
Main Principles:
Strong presumption on Ps to act reasonably/mitigate following a breach. Mitigation doesnt have to be perfect,
just reasonable (Nu-West). Mitigation = extension of remoteness thinking: Ds wont be on the hook for
unreasonable P actions (such as sitting back and waiting for an opportune time to act). If D can show P had an
opportunity not taken, good for D.

H.

Equitable Remedies v. Damages; requiring performance in lieu of money

a.

Specific Performance
John E. Dodge Holdings Ltd. v 805062 Ontario Ltd. (2003) Ont. C.A., Cb.: 904
Parties & Procedural History: App: Magna (805062 Ontario Ltd.), company performing
certain acts on the land to be purchased by the Resp.; Resp.: Dodge, potential purchaser
of the land; C.A. dismissed the Apps appeal.
Issues: Was the property unique on the date of the actionable wrong so as to attract the
remedy of specific performance?
Holding & Reasons: Yes.
Magna submits that Dodge was obligated to mitigate its losses and that Dodge refused to
do so. The actionable wrong occurred on May 11, 2000 when Magna notified Dodge it was
terminating the agreement. The Magna site offered everything Dodge wanted and no
other site offered the combination of attractive features at a comparable price. At the date
of the actionable wrong, the comparable piece of property had been sold and was no
longer available to Dodge.
Ratio: If the property in question was unique to the Pltf on the date of the actionable
wrong, then the courts may order specific performance as a remedy.
Main Principles:
To apply equity, the court must find that a common law remedy (damages) is
inappropriate.
For specific performance, the item must be unique at the time of the actionable wrong.
Uniqueness will consider the need and timeframe of P (subjective test).
Note in this case, were assuming that the transfer will go through and is not contingent
(agreement to agree situation).

b.

Personal Service
Warner Bros. Pictures Inc. v. Nelson [1936] U.K. K.B., Cb.: 910
Facts: D (Nelson) was an actress contracted w/ P (WB) production company; contract obligated D to
render services to P, included non-competition clause whereby she couldnt provide similar services
to competing production companies; D breached contract, contracted w/ third party; P brought action
for injunction to restrain D from acting in breach of her contract; TJ held for P and ordered injunction.
Issues: Is the contract an unlawful restraint on trade? Is the contract valid and enforceable? Can an
injunction be granted on these sorts of contracts?
Holding & Reasons:
If a contract involves only what D will do while in the employ of P then there is no restraint on trade.
However, courts will not enforce a positive covenant of personal service (i.e. you must work) on a
party to a contract. Courts wont enforce negative covenants if it results in positive performance. Noncompetition clauses are reasonable. Injunctions against performing for others will only go so far as to
protect the P.
Remuneration wont be considered as an element of whether or not a non-competition clause will be
enforced. If the difference between the positions the D could get without the non-competition clause
and with it is great it still wont matter to the court so long as the D can obtain gainful employment.
The key with an injunction is that if the parties recognize that the action or property they are losing out
on is unique and of special value, then an injunction may be the most appropriate avenue for
remedies, rather than damages.
Ratio: If the loss to P is great and unique, and wont be satisfied by damages, then an injunction may
be an appropriate remedy.
Main Principles:
In this case, injunction; opposite to specific performance (injunction preventing an action), but with
similar goal (providing remedy for P losing out on a unique item when CL damages wouldnt do).
Restraint on trade issue preventing D from working for competitors. Court doesnt deal w/ this
much.

a.

Incorporation
(i)

Unsigned Documents
Thornton v. Shoe Lane Parking Ltd., [1971] 2 Q.B. 163 (C.A.) Cb.: 478
Facts: P (Thornton, trumpet player) was going for an engagement at the BBC; parked in Ds (Shoe
Lane Parking) parking lot; when he arrived, meter gave him a parking ticket which he didnt read;
ticket said D not liable for damages/injuries sustained by customers at their parking lot; when he
returned to his vehicle he sustained injuries; TJ D liable for personal injuries; C.A. affirmed.
Issues: Will a party be able to exempt themselves from liability by placing conditions on a parking
ticket that create this exemption?
Holding & Reasons: No.
Prior to this case, ticket clerks sold tickets to people in parking garages and customers had the option
to reject. This situation isnt applicable in this case b/c the customer pays his money and gets a ticket.
He cant refuse the ticket or get his money back. The offer was accepted when the plaintiff drove up
to the entrance and, by the movement of his car, turned the light from red to green, and the ticket was
thrust at him. The contract was then concluded, and it could not be altered by any words printed on
the ticket itself. In particular, it could not be altered so as to exempt the company from liability for
personal injury due to their negligence.
Assume, though, that the machines act like clerks. In that case, one of two conditions must be met:
1) Customers bound if they know there is writing on the ticket & the writing contains conditions, or
2) Customers will be bound if they know there is writing on the ticket and they have reasonable
notice that the writing contained conditions. (Unusual/Extreme conditions require more explicit
notice)
If there are conditions, the customer may reasonably assume that the conditions are general and
dont take away his rights.
No evidence provided here that P knew or ought to have known there were conditions attached.
Ratio: If a party attaches conditions to a standard form contract, then they must ensure that the other
party knows or believes that there are conditions attached.
Main Principles:
Quick opt-in contracts, but no meeting of the minds. Exclusion clauses pose a problem re:
negligence. But we have presumed knowledge: party knows theres K, but whats included? If the
terms are unusual or extreme or take away rights (exclusionary), accepting party would have no
reasonable notice.

Interfoto Picture Library Ltd. v. Stiletto Visual Programmes Ltd., [1988] U.K. C.A., Cb.: 483
Facts: D (Stiletto) contacted P (Interfoto) looking for photos for advertising campaign; employee of P
sent transparencies to D; enclosed in package of transparencies was delivery note which contained
terms of obtaining the transparencies for review; among the conditions was a condition which
stipulated price for overholding transparencies at 5 pds/day; P had sent 47 transparencies to D for
review; normal holding fee for similar company was 3-4 pds/week; P claiming amount invoiced to D;
TJ awarded amount to P; D appeal allowed by C.A.
Issues: When the contract was accepted, did clause #2 (the clause stipulating the holding fee) come
into effect too?
Holding & Reasons: No.
Dillon LJ: Useful steps of modern approach: 1) If document of a kind likely to contain K terms, then
the usual terms therein are incorporated in their K; 2) Is disputed clause extraordinarily severe? If so,
then heightened notice for the stringent, onerous. When parties to a normal K see that there are
conditions attached, they will assume that they are average conditions and dont have any special
consequences.
Bingham LJ: Fair and open dealing is required. This would include P being under a duty to draw Ds
attention specifically to an onerous clause of a contract.
The tendency of the English authorities has been to look at the nature of the transaction to determine
whether there is fairness. Ds wont be relieved of liability simply b/c they chose to remain ignorant to
the terms of the contract, however if the terms are particularly onerous the P will be under a duty to
draw those terms to the Ds attention.
Ratio: If there are particularly onerous terms in a contract (terms that would not be normally
considered in a contract of that nature), then the contractor will be under an obligation to point out
those terms to the contractee.
Main Principles:
This would be a strong case for a voided condition b/c its acting as a penalty clause (though wasnt
dealt w/ on appeal). If a clause is used to penalize the other party, courts wont let it stand.
Predictable clauses allowed extraordinary clause is struck.
Since Thornton, we allow parties to be bound w/o notice, but its based on public expectation. Parties
wont be saved by their unique lack of knowledge.
McCutcheon v. David MacBrayne Ltd., [1964] H.L., Cb.: 488
Facts: App (McCutcheon, farmer) was having his car sent from Islay to the mainland, made
arrangements with his brother to have Resp. (MacBrayne, ferry co.) company deliver the car by ferry;
during the voyage the ferry sank; parties would normally have signed a risk note which would have
covered liability for this sort of accident but in this case the risk note wasnt signed; C.A. allowed
McCutcheons appeal.
Issues: What was the contract between the parties if no risk note was signed?
Holding & Reasons: There was no contract regarding liability.
Lord Reid: This case isnt going to apply the rules that would normally be associated w/ ticket cases.
In the case of an oral contract, the parties cant add qualifications after the fact and expect them to be
included in the contract. The conditions that would normally be attached to the ferry crossing were
available in the ferry office but were particularly onerous and no one ever read them. The Resp.
argued that the court should find the exemption from liability clause to be in place b/c the parties had
a normal course of dealings.
Lord Devlin: For normal course of dealings to be relevant, there must be actual knowledge of the
terms and assent to them. Constructive knowledge isnt sufficient. If there is no knowledge then there
can be no reliance on the idea of normal course of dealings.
Ratio: If a party signs a contract, then the conditions within will bind him.
If there is to be reliance on a normal course of dealings, then the party must establish that there was
a normal course, and that the other party had actual knowledge of the terms and assented to them.
Main Principles:
If theres a signed endorsement, ticket cases dont apply.
Past practices need to be consistent and if theres no ticket (only a receipt) then actual knowledge
of the condition required. Presumed knowledge based on public standard only good enough for
tickets.

(ii) Signed Documents

Tilden Rent-A-Car Co. v. Clendenning (1978) Ont. C.A., Cb.: 492
Facts: D (Clendenning) arrived in Vancouver, rented vehicle from P (Tilden); Ps employee asked D if he wanted
additional insurance coverage and he said yes, which was his custom; D didnt read terms of K before signing it;
terms included that if a person drank any intoxicating liquor insurance coverage would be null; during rental
period D was involved in an accident and there was damage to the vehicle; at trial there was evidence that it
was common practice for Ps employees to not bring these terms to attention of customers; D was convicted
criminally of driving while intoxicated; C.A. dismissed Ps appeal (dissent).
Issues: Is D liable for the damage caused to the car driven by him by reason of the exclusionary provisions
which appear in the contract?
Holding & Reasons: No.
First, the terms attaching liability to the customer are inconsistent with the idea behind the express terms,
specifically that the driver will be immune from liability. D didnt agree to those terms. The court discusses the
rule in LEstrange, namely that knowledge of terms are immaterial if the party signs the contract. However, the
court also points out that a meeting of the minds is a key requirement for contracts. Another consideration is the
speed of the transaction this sort of contract was designed to be dealt with quickly. There will often be cases
where contracting parties will attempt to rely on a signature to enforce a contract with onerous provisions, even
when one of the parties to the contract hasnt necessarily agreed to those conditions. In this case P took no
steps to alert D to the onerous provisions, and D was in fact unaware of the exempting clauses.
Dissent: D admitted to being intoxicated. Not a mere technical breach of a strict clause he was drunk. The
other terms of the contract are not unusual, oppressive or unreasonable and should be binding.
Ratio: If a contract is signed and there are particularly onerous conditions, and those conditions arent brought
to the attention of the contracting parties, then those onerous conditions may not be enforced by the courts.
Main Principles:
Rule in LEstrange: If the K is signed, then conditions apply absolutely (very strict rule). However, application of
Thornton to these cases = requiring clerks to inform clients of terms that client wouldnt reasonably know.
Unreasonable conditions still need to be brought to clients attention.
Karroll v. Silver Star Mountain Resorts Ltd. (1988) B.C.S.C., Cb.: 496
Facts: P (Karroll) sustained broken leg during ski race; injury due to a collision between P and another skier on
the downhill course P was racing on; prior to race, P signed waiver releasing D (Silver Star) from liability for
injuries she may sustain during the race; P had said to friend that waiver precluded her from suing the mountain
if she hurt herself of her own accord; P had signed waivers of this kind before; the waiver, at the top, said in
capital letters Release and Indemnity, Please Read Carefully; TJ found for D.
Issues: Is the Pltf bound by the terms of the release?
Holding & Reasons: Yes.
The rule in LEstrange (knowledge is immaterial) has three exceptions. 1) If the contract is signed in a situation
where its not the Ps act. 2) Where the agreement has been induced by fraud. New exception in this case: 3)
Where the party seeking to enforce knew the other party was mistaken as to one or more of the terms. In each
of these cases the contract wont be enforced.
*There is no general requirement that the party tendering the document take reasonable steps to point out
onerous terms or to ensure understanding (true for commercial contexts). It is only where the circumstances
are such that a reasonable person should have known that the party signing was not consenting to the terms in
question, that such an obligation arises. (499)
*P is bound unless she can show: 1) in the circumstances a reasonable person would have known she didnt
intend to agree to the release, and 2) that in those circumstances Ds failed to take reasonable steps to bring the
content of the release to her attention (Tilden). Would a reasonable person know that P didnt agree? No: 1)
The release was consistent with the purpose of the contract; 2) The release was short, easy to read, and
headed with the words Release and Indemnity, Please Read Carefully in capital letters; and 3) Signing these
sorts of releases was common for ski races. These facts negate the inference that a reasonable person in Ds
position would conclude that P wasnt agreeing to the terms.
Ratio: There is no general obligation to bring terms (onerous or otherwise) to the attention of the party signing. If
a reasonable person in the contractors position knows or ought to know that the contractee doesnt intend to
agree to, then the contractor will be obligated to ensure that the contractee understands the terms of the
contract.

978011 Ontario Ltd. v. Cornell Engineering Co. (2001) Ont.C.A., Cb.: 501 (Note)
Facts: D (Cornell) was metal stamping company; company owned by Stevens (51% owner) and Bimboga (49%
owner); Bimboga decided to sell his shares to MacD (Pltf), but MacD was required to apprentice first; MacD
turned down more lucrative employment opportunity to work for D; D advised that MacD should provide his
services through a corp, asked MacD to set one up; MacD obtained a standard contract, made some revisions;
in particular he modified the termination provisions so that if he was terminated D would pay MacD
compensation twice the total remuneration paid to MacD up to that point; MacD presented contract to Stevens
who read first page (11 page doc) and signed; later MacD was terminated and he sought to claim on the
termination clause; TJ found for D; C.A. allowed P appeal.
Issues: Could MacDonald enforce the termination clause?
Holding & Reasons: Yes.
Not reading a contract is not a legally acceptable basis for refusing to abide by it. There are three standards
through which a signed contract will become unenforceable: unconscionability, good faith and the fiduciary
standard. The court must deal with the question of when self-interested parties are required to do more than act
in their own interests. There are 5 factors where reliance can be justified (one party assuming responsibility for
the other):
1) Past course of dealing
2) Explicit assumption by one party of advisory responsibilities
3) Relative positions of the parties, particularly in their access to information and in their understanding of the
possible demands of the dealing.
4) Manner in which the parties were brought together and the expectation that could be created in the relying
party
5) Whether trust or confidence has knowingly been reposed by one party in the other.
Having one of these elements isnt always enough to impose a duty in law on the other party to the contract.
C.A. finds that Stevens will not be excepted from responsibility b/c he didnt sign the contract.
Main Principles:
In this case we have a contract 1) not in standard form (unique to the parties); 2) not in haste; 3) signed by a
person experienced w/ these types of Ks. All leads to a reasonable situation, plus the commercial context, and
therefore strict rule in LEstrange applies.

Karsales (Harrow) Ltd. v. Wallis, [1956] U.K. C.A., Cb.: 506

Facts: D (Wallis, purchaser of vehicle) was looking to purchase a second-hand Buick; Stinton
was offering a car for sale and D examined it, found it in good condition; he agreed to
purchase it if Stinton found a hire-purchase company to arrange the financing; Stinton sold
vehicle to Mutual Finance, D let the car on hire-purchase terms; car transferred but D hadnt
seen it since the initial inspection; when D picked up the car, it had been stripped and wouldnt
run; D refused to pay for the car; Mutual Finance assigned their rights to P (Karsales) who
brought the action; TJ found P entitled to payments owed by D; C.A. allowed D appeal.
Issues: Was the Pltf entitled to payments that were due under the hire-purchase agreement?
Holding & Reasons: No.
The trial judge held that the clause in the agreement regarding the condition of the vehicle
meant that the hire-purchase company wasnt responsible for the condition of the car when it
was delivered. However, when a purchaser has inspected a vehicle, then there is an obligation
on the lender to deliver the vehicle in substantially the same condition as when it was seen.
There is an implied term in the agreement that the car will be in suitable order and repair.
Exemption clauses only apply when the parties are carrying out the essential respects of the
contract. They dont avail a party that is guilty of a fundamental breach of the terms of the
contract (i.e. a breach that goes to the root of the contract).
Ratio: If a party breaches a fundamental term of a contract, then they will not be exempted
from liability under the contract.
Main Principles:
[A] breach which goes to the root of the contract disentitles the party from relying on the
exempting clause.
Notice the similarity of this doctrine to rescission (breach so serious the K comes undone).
U.K. applies language of Hong Kong Fir to the concept of fundamental = substantially the
whole of the K.
b. Strict Construction
Contra Proferentem Ambiguities read against party who incorporated term (Scott v. Wawanesa)
p. 503
If a term is unclear or vague, it will be read against the person who wrote the term
Do the vague words govern the loss in question? The benefit goes to the signor, not the writer,
of the contract.

c.

Doctrine of Fundamental Breach:

A company excludes themselves from liability re: losses or poor performance guaranteed by a
condition or a warranty. What happens if parties have a complaint under the contract?

Hunter Engineering Co. Inc. v. Syncrude Canada Ltd. (1989) S.C.C., Cb.: 514
Facts: P (Syncrude) contracted for a supply of extraction gearboxes from D (Hunter Engineering); contract
included warranty that ensured equipment should conform to expectations in the contract for a given term; term
was 24 months after delivery or 12 months after the gearboxes entered service; contract also stipulated the
contract was governed by Ontario law (Sale of Goods Act), though in an amended clause it stipulated that the
warranty wouldnt be subject to statutory law; SOGA states that an express warranty or condition doesnt
negative a warranty or condition implied by the Act unless its inconsistent; just under 2 years after delivery
gearboxes were found defective; D denied liability, relied on expiry of the contractual warranty; TJ found
statutory warranty excluded by amended clause in K; C.A. allowed P appeal, found fundamental breach; D
appeal to SCC; SCC allowed appeal on issue of exclusion of liability and fundamental breach.
Issues: Does this action amount to a fundamental breach?
Holding & Reasons:
Wilson J.: Fundamental breach = a breach going to the root of the contract. Think of Hong Kong Fir: denied
substantially the whole benefit of the contract = fundamental breach. Fundamental breach means the wrong
party may dissolve the remaining terms of K that are unperformed.
In this case: Does the breach in this case amount to a fundamental breach? Wilson says no. The inferior
performance of the gearboxes didnt deprive the parties of substantially the whole benefit of the contract. The
doctrine of fundamental breach isnt meant to be applied if the parties get most of what they bargain for.
Discussion of fundamental breach: Two competing views 1) fundamental breach brings a contract to an end
(including exemption clauses); 2) exemption clauses will run regardless of fundamental breach. In terms of
exclusion clauses, there is no rule saying they wont operate in cases of fundamental breach. How does the
court deal with this contradiction?
The court can either, a) do away with fundamental breach (courts can focus on strict construction and whether
liability was excluded), or b) import reasonableness (looking for fairness in the context of the K).
Either way, the question will be: in the circumstances that have happened should the court lend its aid to A to
hold B to this clause? More flexible approach.
Doctrine of unconscionability: standard-form contracts may allow purchasers to argue that it would be
unconscionable to enforce an exclusion clause. The court is concerned about the abuse of freedom of contract.
Equal power doesnt mean courts will get involved they can look to subsequent events to determine fairness;
theyll consider policy grounds that require withholding assistance to either party to K.
Dickson CJC:
Construction of a contract must be clear to exclude fundamental breach. And, why would there be special rules
for exemption clauses, but not other clauses that produce harsh results? Only where the contract is
unconscionable at formation (due to unequal bargaining power AND exploitation) should the courts interfere.
Difference in the use of the term fundamental breach.
Main Principles:
Tercon change in the law; not only does the contract need to be unconscionable at formation, but the court
will require a public policy reason too in order to step in and impose liability. Severe limitation of doctrine of
fundamental breach but SCC wont get rid of it altogether leaving it to the legislature. Summary courts will
only lend aid to a party if theres a) unconscionability and b) a public policy reason to do so.
Wilsons approach is rejected; courts wont look post-formation.

5.

CONTRACTS INDUCED BY MISREPRESENTATION

A.

Meaning of Misrepresentation
Redgrave v. Hurd (1881) C.A., Cb.: 355
Facts: P (Redgrave) wanted to sell his law practice to a younger lawyer; D (Hurd) made inquiries to
purchase; P claimed the practice yielded btwn 300-400 pds/year; when D reviewed receipts, the
business only amounted to 200 pds/year; P claimed the difference was made up by other business
not on the books; D purchased business for 1600 pds, made a deposit for 100 pds; D moved to
Birmingham, took possession of the house, discovered the practice was worthless; D refused to
complete transaction; P brought suit for specific performance, counterclaim by Def for rescission
based on misrepresentation; TJ found for P, dismissed D counterclaim; C.A. found for D.
Issues: Were the representations made by P intended to induce D into the deal?
Holding & Reasons: Yes.
Misrepresentation is dealt with in Equity & CL. Equity views it in two ways: either a man should not
get a benefit from a statement which he now admits to be false, or it is morally delinquent for a man
who obtains a beneficial contract through a false statement to insist on keeping that contract. The
onus shouldnt be on the innocent party to investigate (it may work in some cases but not others).
In this case there were no books for D to review to discover the true state of affairs of Ps business.
If representations are meant to induce a party into a contract, you may be able to get contractual
recovery if theyre false.
In this case we see Specific Performance (wanted by P) v. Rescission & Damages (wanted by D).
D wins, but he cant have an equitable remedy AND a common law remedy. He gets rescission, but
no damages. Note, too, that timing isnt an issue for the equitable remedy in this case.
Ratio: If a statement is made by a Party A to induce Party B into the contract, and there is no
evidence on which Party B could rely on other than the statement, then if that statement is false
and Party B relies on it Party B wont be bound to the terms of that contract.
Main Principles:
Smith v. Land and House Property Corp. (1884) U.K. C.A., Cb.: 359
Facts: P (Land and House Property) owned a hotel that they were selling; hotel was leased to
Fleck, a most desirable tenant; D (Smith) purchased the hotel; shortly thereafter Fleck went
bankrupt; D refused to complete the transaction on the basis of misdescription of Flecks virtues;
C.A. held for D.
Issues: Can an opinion expressed by one of the parties be relied upon as a statement of fact, and
can it therefore be the basis for a misrepresentation?
Holding & Reasons: Yes.
If the facts are equally known to both sides, then the statement of opinion can be appropriately
weighed by the parties. But if the facts are not equally known to both sides, then a statement of
opinion by the one who knows the facts best involves very often a statement of a material fact, for
he impliedly states that he knows facts which justify his opinion. (359)
P in this case isnt guaranteeing that the tenant will continue to pay rent, but is indicating that there
is nothing questionable about the tenants behaviour that would lead them to say that he is other
than a desirable tenant. In this case, though, there were facts known to the court that would lead a
landlord to say otherwise.
Ratio: If the facts arent equally known to both parties in a contract, then statements made by one
of the parties will be taken as fact and, if they are misleading, may be the basis for a claim in
misrepresentation.
Main Principles:
Description isnt a warranty (different implications for remedies). However, inducement + opinion as
to particular information known only to one party leads to misrepresentation if its objectively false.
Compare w/ innocent misrepresentation (Dick Bentley) was the basis of the statement
reasonable or not?

B.

Remedies
a. Fraudulent Misrepresentation
b. Negligent Misrepresentation, supra, 2 C
c.

Innocent Misrepresentation
Whittington v. Seale-Hayne (1900), 82 L.T. 49 (Ch. D.) S.M.: 90
Facts: P (Whittington) are poultry breeders; P alleges D (Seal-Hayne) represented as to
sanitary conditions and good state of repair of a house and premises P purchased; D denies
he made these representations; P executed lease agreement w/o reading (thought it was in
accordance w/ parol agreement); lease contained additional covenant re: repairs required; P
ended up having to make significant repairs, and lost much of their poultry; P claims
rescission, damages & indemnity; TJ holds P entitled to indemnity for rights under K.
Issues: Can P get both rescission and damages?
Holding & Reasons: No.
The action is between Equity - rescission (just getting P out of the deal) and Common Law damages (getting P back to pre-K position). P has the ability to choose one or the other, but
cant have both.
Innocent misrepresentation has no common law remedy, so youre under equity. No CL
damages will be allowed. However, court will allow indemnity (the offending party pays for any
losses under the terms of K).
So, P gets rescission (contract dissolved) and indemnity (losses covered under the K, such as
the repairs to the property which were covered in the K). NO DAMAGES for loss arising out of
K (such as the lost profits due to poultry deaths).
Ratio: In the case of innocent misrepresentation, the injured party is entitled to be indemnified
for rights and obligations necessarily created by the K such as rents and repairs, but not on all
other losses.
Main Principles:

C.

Bars to Rescission
a. Affirmation - Lapse of Time
Leaf v. International Galleries, [1950] K.B. C.A., Cb.: 378
Facts: P (Leaf) purchased painting from D (International Galleries); painting was of the Salisbury Cathedral and
was purported to have been painted by Constable (high value); P purchased it on the assumption that it was an
original; five years later P decided to sell the painting and took it to have it appraised; he discovered that
painting was merely a copy; P brought claim of rescission; at trial P attempted to amend pleadings to include a
claim for damages but it was disallowed; TJ finds for D; C.A. dismisses P appeal.
Issues: Is the Pltf entitled to rescind the contract?
Holding & Reasons: No.
*This contract was for a sale of goods. There was a mistake about the quality of the painting and the mistake
was, in a sense, essential and fundamental. *The court discusses whether there was a term regarding the
subject matter and if there was, whether it was a warranty or a condition: If it was a condition, the buyer could
reject the picture for breach of the condition at any time before he accepted it or was deemed to have accepted
it, whereas, if it was only a warranty, he could not reject it but was confined to a claim for damages. *The term
was a condition (unfortunate pleadings, court may have found a warranty and allowed damages if they had
been claimed). Should the time limit be extended beyond the time of purchase? Yes the court discusses the
statutory law that allows for flexibility by giving a reasonable time in which a purchaser of a chattel may have
the goods in his possession before rejecting them. However, if he keeps the chattel beyond the reasonable
time, then the option to return in expires and hes limited to damages only. *The court discusses the fact that the
misrepresentation was innocent. The misrepresentation was to the quality of the thing, not the substance of the
thing itself.
Main Principles:
Extension of time period for rejection of a good post-acceptance court wants to give buyers time to consider
the chattel before rejecting it. Conditions open up rescission but only up to acceptance; this case extends this
period, but only for a reasonable period (5 years, in this case, is too long).
An example of no mistake being found you got what you wanted: a painting of Salisbury Cathedral. By
Constable was incidental (not part of the core).
Innocent Misrepresentation Steps: 1) IMR = rescission available; 2) claim CL damages too; 3) look at timing
are you within a reasonable period? 4) Goal return to original position. *If fraud timing doesnt matter.

b.

Restitution Impossible
Kupchak v. Dayson Holdings Ltd. (1965) B.C.C.A., Cb.: 363
Facts: P (Kupchaks) purchased shares in motel company from D (Dayson); in exchange, D took P
properties and mortgages on the land and chattels owned by motel company; 2 mos later P learned that
representations about motels past earnings were false and stopped making payments on the mortgages;
Ps solicitor notified Ds solicitor that they would be withholding payment; D proceeded to sell an undivided
half interest in on the properties formerly belonging to Ps, tore it down and built an apartment building; P
brought action for rescission; TJ denied rescission to P but awarded damages; C.A. set aside damages
and awarded rescission and compensation (equitable damages).
Issues: Is P entitled to rescission? Are they barred from rescission by the principle of laches? Did P elect to
adopt the contract?
Holding & Reasons: Yes, No and No.
*Problem #1 b/c the Def tore down the Haro St. property, there can be no rescission for that property
(cant recreate beginning position). In cases of fraud, rescission shouldnt be barred unless its impractical
or so unjust that it shouldnt be imposed on the guilty party. If parties are claiming in equity and the normal
equitable remedy (i.e. rescission) isnt available, then the court may impose restitution (in other words,
equitable damages).
*Laches: acts as a waiver if the Pltf delays in acting. Laches is based on the length of the delay and the
nature of the acts done during the delay. If you waive under laches, no rescission available.
*Election: election is sometimes seen as a defence to rescission. Election asks did the person who knew
there was fraud elect to continue w/ the contract anyway? Election may be implied (if so, no rescission).
*Putting these two items together, the court asks about the time it took to bring the action and the Pltfs
actions during that period. Neither leads the court to find that the Pltf should be barred.
Dissent: The Pltf retained the shares and stayed on the register. These actions are positive acts that are
evidence of the Pltfs asserting their rights under the contract (election).
Main Principles:
If rescission is impractical, courts may allow compensation in lieu of rescission.
Introduction to Doctrine of Laches and the defence of Election.
Note if misrepresentation had been innocent, no rescission no going back once K is executed.

c.

Executed Contract
Ennis v. Klassen, [1990] Man. C.A., S.M.: 95
Facts: D (Klassen) owned a BMW 728, brought to Canada illegally (doesnt conform to
Canadian standards); he advertised the car for sale as a BMW 733i (a model available in
Canada); P (Ennis) looked over the vehicle and test drove it; P wasnt told it was a 728; P
purchased the car; D then gave P info showing it was a 728, but refused to refund the money
or accept the car; since discovering it was a 728, P parked the car and didnt drive it; P seeking
rescission to the purchase contract; TJ dismissed claim; C.A. allowed appeal and granted
rescission.
Issues: Was there a misrepresentation of the vehicle such that rescission would arise? If yes,
was the remedy lost upon the execution of the K and delivery of the car?
Holding & Reasons: Yes, and No (depending on circumstances).
When there is an innocent misrepresentation rescission is possible (for land, up to execution;
for chattels, past execution for a reasonable amount of time). Courts want buyers of chattels to
have a reasonable amount of time to examine the item and return it if desired.
In this case, the misrepresentation was known two days after delivery; P parked the car and
took steps for rescission. The past rule of no rescission after execution is relaxed in this case,
in particular b/c P was induced by the misrepresentation.
Party is arguing a misrepresentation as to a condition. TJ had said the issue wasnt
fundamental; C.A. disagrees. P got a car, but its only good for parts so cant be used as a car
(for the purpose P bought it for). Thats substantially the whole of the deal. Note, though, P
claims some damages and gets none (equity only).
Ratio: If Party A is induced to purchase by an innocent misrepresentation and executes a
contract, then rescission may be still be available post-execution if the item is a chattel and if
Party A hasnt implied election.
Main Principles:

d.

Third Party Rights

e.

Exemption Clauses

6.

CONTRACTS CONCLUDED UNDER MISTAKE

A.

Mistakes in Assumptions
a.

Common Law

Bell v. Lever Bros. Ltd., [1932] H.L., Cb.: 560

Facts: P (Lever Bros.) had a controlling interest in Niger Co., and appointed Ds (Bell & Snelling) chair and vicechair of the Board of Directors; Ds speculated in the companys business to their private advantage; P
terminated their appointments; later, Ds were terminated; termination agreement amounted to $30k and $20k
respectively but was negotiated prior to P learning of Ds breach; if P had known of breach, would have
negotiated lower amount; TJ & C.A. found for P on basis that agreement were void b/c they were made under
mistake; H.L. allowed D appeal.
Issues: When will mistake lead to the K being void and when will it be merely voidable?
Holding & Reasons:
Void = no consent to K from the outset, K never formed so no lingering enforceability. Voidable = void after
formation, something results in K being unenforceable.
If the mistake is mutual, and it means one party is deprived of essentially the whole of K (as in, you didnt even
get what you bargained for you got a badger instead), then K will be void. If a contract is formed and there is
a mistake that leads to one of the parties being unable to enforce it, then K is voidable.
Differentiate this from misrepresentations as to quality those are condition and warranty cases where the
representation differs from the thing you actually obtain. Courts wont void a contract based on mistake of
quality.
In this case, the parties terminated a contract that could have already been terminated due to the breach. P
says they were mistaken as to the breach and want the original K voided so as to eliminate their obligation to
pay the termination amount under the K. But P got what they wanted out of the deal. Policy concern:
dangerous for the courts to impose terms or create a K that the parties themselves didnt contemplate if that will
make it more fair.
Main Principles:
If you have a mutual mistake and you dont get what you bargained for (you wanted a desk and you got a duck)
then theres a mistake and K is void. However, if the mistake is merely to the quality (you wanted a green desk
but you got a pink desk) then youre in the realm of conditions and warranties.

McRae v. Commonwealth Disposals Commission, supra, 3 A Cb.: 565

Facts: Contract for an oil tanker that wasnt even there
Issues: Can a party rely on mutual mistake if they used their mistaken knowledge to induce the
other party into the deal?
Holding & Reasons: No.
A party cant rely on mutual mistake where, on one hand, the mistake is entertained by him without
reasonable ground and, on the other hand, he uses it to induce the other party into the contract. In
this case, the mistake as to the tanker not being there was due to the Commissions culpable
conduct in not checking their information. By using this information to induce McRae, the
Commission cant now rely on mutual mistake so they can get out of the deal.
Concern is abuse of strict construction rules for contract: were not concerned about mistake, the
resulting disappointment and Ps ability to give back the item. Were concerned with there being no
item and so no true formation of K. Past precedent allowed P to collect damages but couldnt
enforce K. This is an extension. If there is no tanker, the contract will still form; it may be rendered
powerless due to circumstances but not void ab initio.
Ratio:
Main Principles:

b.

Equity

Solle v. Butcher, [1950] K.B. C.A., Cb.: 571

Facts: D (Butcher) owned several flats which he repaired w/ his business partner P (Solle); P
wanted to rent one of the flats; P advised D that flats wouldnt be subject to rent control and,
assuming that was correct, entered into 7 year lease for annual rent of $250; flats were, in fact, rent
controlled at $140, though D could have had higher rent if P had given notice and met formalities;
after discovery of error, P sued for recovery of overpayment; D counterclaimed for rescission of
lease on grounds of mistake; C.A. allows P to choose to have lower rent from judgment day or to
leave the lease.
Issues: How will the courts treat an equitable mistake (i.e. a contract that is voidable)?
Holding & Reasons:
Mistakes are dealt with at common law by rendering the K void. Some mistakes, though, are only
voidable and can be set aside by the court as it sees fit. When will a K be voidable? A contract is
also liable in equity to be set aside if the parties are under a common misapprehension either as to
facts or as to their relative and respective rights, provided that the misapprehension was
fundamental and that the party seeking to set it aside was not himself at fault.
In this case, P was the one who brought forward the mistaken information that D relied on. Once
they discovered the mistake, P wanted to take advantage of the mistake and get his money back
contrary to the K he had negotiated with D. The K was for a rent he agreed to and was for rent
permitted by law.
Main Principles:
This case adds to the categories of results for mistake: 1) Void, so no contract; 2) Voidable
contract, but unenforceable due to mistake; 3) (NEW!) Avoidable between the two parties the K is
offensive, it can remain but is avoidable.
*This case has been overturned in U.K. but may still be persuasive in Canada.