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CONTRACTS

Professor Linda Vincent


1994-95
Outline by Casey Chisick
I. INTRODUCTION TO CONTRACT LAWI. INTRODUCTION TO CONTRACT LAW
(i) Origins of contracts(i) Origins of contracts
Contract law grew out of torts concerning damage to economic interests, and particularly debt. The
thrust of contract law at its inception in the 16th century was remedying harm to expectation. Futurity in
this sense was a new concern to the law. The basic remedy was for the promisee to have his
expectation met - i.e., to be put in the position in which he would have been had the contract been
carried out. Whereas tort law is concerned with expense and reliance, contract law accommodated the
additional consideration of profit.
(ii) What is a contract?(ii) What is a contract?
A contract, in its simplest form, consists of an offer and an acceptance of the offer. There is an
element of futurity, which creates expectation. Another necessary element is consideration - that is,
whats in it for each party? Consideration can be either a tangible benefit to the offeror, or a labour or
inconvenience undertaken by the offeree. A promise without consideration is of no interest to the law; it
is referred to as a nudum pactum, a bare promise.
ASSUMPSITASSUMPSIT: Contracts are assumed promises; that is, one makes them oneself. This
is not an imposed obligation, but a voluntary obligation to the other party.
(iii) Freedom of contractiii) Freedom of contract
Generally, people are free to contract however and with whomever they choose.
Exceptions:
contract to commit a crime
contract made under duress
contracts made contrary to competition laws
one or more parties incapable of contracting; e.g., infants, minors, mentally handicapped
human rights violations
if state of knowledge is distorted
In some cases, the courts will intervene to ensure that the desired end of the contract is attained. An
important consideration is intention: that is, one does not have a voluntary obligation if he didnt intend to
assume the obligation. There must be a meeting of minds between the parties.
II. OFFER AND ACCEPTANCEII. OFFER AND ACCEPTANCE
(i) Offer and Invitation to Treat(i) Offer and Invitation to Treat
Offer may be found in the intention of the offeror, as demonstrated by his language and actions:
Canadian Dyers Association v. BurtonCanadian Dyers Association v. Burton
CDA asked Burton, a former director of CDA, what his lowest selling price would be for a house
adjacent to the CDA factory. He responded in language that suggested more than a mere quotation
of price (e.g., $1650 is the lowest I am prepared to accept...if it were to any other party I would ask
more. Additionally, he complied with a request to have a deed prepared, and also received and held
a $500 deposit. Court held that this type of language and action suggested a willingness to be bound,
and that Burtons initial response was therefore an offer, not merely an invitation to treat.
Harvey v. Facey Harvey v. Facey
Language suggested mere quotation of price. (Lowest cash price $X.)
Hardy v. Gooderman Hardy v. Gooderman
More than a mere quotation: happy to have an order..will give prompt attention.
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The Supply ProblemThe Supply Problem: Courts will generally see price quotations and
advertisements as invitations to treat, not offers, because it is possible that a customer could respond to
such an offer with an accepting order to purchase more than the supplier has. Accordingly, it is
inferred that no reasonable person could have a willingness to be bound in such a situation. Thus, the
offer must originate with the customer.
Other examples: department store catalogues, Home Shopping Network.
Negative examples: specific advertisements (e.g. One Only!) can be construed as offers - no supply
problem, nothing left to negotiate. (Lefkowitz v. Greater Minneapolis Surplus Store) This could be a
unilateral contract: customers act constitutes acceptance.
In self-serve retail outlets, offer to purchase is made by customer and accepted by store:
Pharmaceutical Society of Great Britain v. Boots Cash ChemistsPharmaceutical Society of
Great Britain v. Boots Cash Chemists
Pharmacy and Poisons Act required a pharmacist to supervise all sales of drugs involving
substances on the Poisons List. Boots was a self-serve drug store. Two customers were permitted to
purchase poisons, and PSGB contended that the sales were not under proper supervision as the
contract is made as soon as the customer places the item in her basket, accepting the shopkeepers
implicit offer to sell everything in the store.
Court held that the customer must make an offer to purchase, which is then accepted by the
shopkeeper or authorized agent (e.g., cashier). The self-serve concept connotes no implicit offer to
sell, as suggested. If this were true, the customer would be bound to purchase everything in her
basket: absurd!
R. v. DawoodR. v. Dawood
Dawood replaced an items price tag with a cheaper tag, and the cashier rang in this false price.
If the vendor consented to the transfer of property, it was not theft. According to Boots, D was making
an offer which the cashier had the authority to accept on behalf of the store, but it was a voidable
contract as having been induced by fraud. Nonetheless, property in the item passed; there was no
theft.
Per Clement J.A. (dissent): the offer is the price tag and the acceptance is the customers
selecting the item and taking it to the cashier. As the cashier did not have the authority to accept Ds
counter-offer, there was no contract; D did not accept the original offer made by the store.
Contra proferentum:Contra proferentum Courts will tend to read advertisements or other documents
as they would be reasonably construed by the average person - and to the disadvantage of the party who
proffers them.
Bilateral contractBilateral contract: exchange of promise for promise.
Unilateral contractUnilateral contract: exchange of promise for act. Performance of the act
makes the contract; it functions as acceptance. Communication of acceptance is not required in
advance, if it is required at all. Notification can be seen as contemporaneous with the act.
Unilateral contract is accepted by action and not necessarily communication of acceptance:
Carlill v. Carbolic Smoke CoCarlill v. Carbolic Smoke Co.
CSC advertised that it would pay anyone who used its Carbolic Smoke Ball as directed and still
got the flu. Carlill did this and got the flu, but CSC refused to pay her, saying it harboured no
willingness to be bound. Court found that reading the advertisement as it would be construed by the
average person seemed to indicate the presence of an offer. Carlills performance of the stipulated
condition led to a unilateral contract. As for CSCs contention that interpretation in this way would lead
to the absurdity of a contract with the whole world, the court says that it is indeed an offer to the
whole world, but that an individual contract is formed with each person who accepts it.
Consideration: any act of offeree from which offeror derives benefit or any inconvenience sustained
by offeree motivated by the offer.
Bilateral contract made by actBilateral contract made by act: looks like a unilateral contract,
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except that the act doesnt complete the transaction - there still remains more to be done.
Collateral contractCollateral contract: two contracts: a primary contract and a collateral (sidebar,
secondary) contract.
Contract is breached if the main contract is fulfilled but the collateral contract is not:
Goldthorpe v. LoganGoldthorpe v. Logan
L advertised hair removal by electrolysis with guaranteed results. Results were also personally
guaranteed. G paid for and submitted to treatments, but they failed. Court finds breach of contract:
although the main contract (treatments for money) was fulfilled, the collateral contract (guaranteed
results for entering contract) was not. Remedy: to be put in the same position as if contract had been
fulfilled; since this is impossible, damages are appropriate.
Note: husbands suit was not allowed: privity of contract.
Wong v. Lakehead University
University calendar advertised that each grad student receives scholarship. W registers
in diploma program, asks for money, told that only degree students receive money (this was not
in the calendar). Court found that the fellowship offer constituted a collateral contract which was
breached: main contract: enrolment for fees; collateral contract: fellowship for enrolment.
Steinberg v. Chicago Medical School
Unilateral contract (offer to consider applications according to published standards,
acceptance by applying) breached when school used admission standards other than those
advertised. (Secret preference)
Auctions:

Traditional analysis: bids are offers to purchase which must be accepted by


vendor/auctioneer
Unreserved auctions: putting items up for bid is offer to enter into contract with highest
bidder; accepted by making highest bid (main contract: sale of goods; collateral contract:
to enter into main contract with highest bidder)

Laws governing contracting by tender


IN a fixed-bidding sale, referential offers are not to be considered or accepted, and offerees are bound to
consider offers in accordance with stated criteria, if any exist:
Harvela Investments Ltd. v. Royal Trust Co. of Canada
RT invited offers to purchase shares in a company. Conditions included confidential bidding and
acceptance of the highest bid; i.e., tender, not auction. Hs competitor made a referential bid ($X, or
$Y higher than the highest bid), which is in the style of an auction. RT accepted this bid, though Hs
bid was the highest. Court found breach of collateral contract.
Main contract: to sell the shares to the selected bidder
Collateral contract: selection process; comply with stated or usual criteria (submission of tender
constitutes acceptance of offer)
Traditional analysis of tender procedure:
Invitation to tender = invitation to treat.
Offer: submission of tender. Acceptance: selection of successful bid.
First decision contrary to traditional analysis (1981):
R. v. Ron Engineering and Construction (Eastern) Ltd.
REC submits tender for contracting; notices mistake (underestimate) when tenders are opened
and REC is found to be the lowest bidder. REC does not claim to withdraw bid, but rather that bid
was not open to acceptance due to the error. Terms of tender provide for conditions for recovery of
deposit, none of which are met, so REC must forfeit deposit.
New analysis: collateral contract
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Main contract: to award job to lowest bidder


Collateral contract: offer = call for tenders; acceptance = submission of tender.
Specific predominates over general; privilege clause (highest or any bid not necessarily accepted) not
legitimate in the presence of more specific criteria:
R. v. Canamerican Auto Lease & Rental
Tenders for auto rental counters in Canadian airports were invited by Transport Canada. Specific
conditions as to how domestic tenders would be considered as compared to foreign tenders were
given in writing to C, an American company, but these conditions were not applied in the final
selection process. This resulted in Cs having to pay more than they otherwise might have, as they
made a higher bid to ensure beating their domestic competitors. TC argued that the privilege clause
(as above) exempted them from any action for breach of contract.
Court found that a collateral contract existed with respect to how the bids were to be considered
(as in Ron Engineering), and that the specific conditions given predominated over the more general,
boiler plate privilege clause. The general clause cannot stand up in the face of more specific criteria
(custom clause), particularly where one party would be harmed severely by the others clause.
Where both parties are affected similarly, the court might not object.
Compensation for loss of opportunity to bid, not for potential value of successful bid:
Blackpool and Fylde Aero Club Ltd. v. Blackpool Borough Council
BFAC had held the contract for leisure flying concession at Blackpool Airport, which came up for
renewal. Call for tenders, and due to clerical error (admitted by defendant), BFACs bid was received
after the deadline and was not considered. The contract was awarded to another party. BFAC argued
that there was a contractual obligation to consider all offers received before the deadline; Council
responded that the call for tenders was only an invitation to treat, not an offer of any kind.
Court found that there was a collateral contract to consider all offers. Damages should take the
form of compensation for loss of opportunity to bid (and possibly for actual costs incurred in the
bidding process), not loss of potential profits, because there is no reason necessarily to believe that
BFAC would have won the contract.
Chaplin v. Hicks
Woman wrongly disqualified from beauty pageant after reaching finals; court awards an
arbitrary sum representing loss of opportunity, not loss of potential profits.
Markham Construction v. Wellington City Council
Bids submitted to purchase apartments by random ballot, which is then cancelled. Court
awards an arbitrary figure, same as in Chaplin v. Hicks
Case law suggests that a bid which doesnt conform to the criteria of the tender would not be a valid
acceptance and could not, therefore, form a collateral contract requiring consideration of the bid. This
suggests that the collateral contract may not be made until the bids are opened and evaluated (as
opposed to immediately upon submission of the bids; can bids be retracted before being opened?). Still,
the question of when the initial contract is made has yet to be decided by the courts.
(ii) Communication of Offer
Offer not communicated except expressly so by offeror; without communication, offer is not valid:
Blair v. Western Mutual Benefit Association
B, a stenographer, transcribed WMBA board minutes which contained a resolution to grant her
$8000 in retirement pay upon her retirement. When she retires, no such payment is made, so she
sues for breach of contract. Court holds that since the knowledge was attained as part of her work
responsibilities and not through official board notification, there was no communicated offer. Lack of
communication demonstrates lack of willingness to be bound. Further, B did not cite the prospect of
retirement pay as reason for her retirement, so there was no reliance and no acceptance of the offer,
as such.
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If a corporation is analogous to a person, then a board resolution is analogous to a private


thought; neither becomes anything official until communicated to its intended object.
If offeree is aware of offer, his motivation for acceptance is irrelevant:
Williams v. Carwardine
C offered award for information leading to the conviction of his brothers murderer. W had been
with the brother on the night of the murder, but had not revealed anything when questioned by the
police. Later, motivated by religious reasons and not by the reward offer, of which she was aware,
she gave information which led to conviction. Now she wishes to claim the reward. Court allows her
to recover the reward, as she performed the necessary act and formed a unilateral contract.
Fitch v. Snedaker
The motive inducing consent may be immaterial, but the consent is vital.
Offeree must be aware of offer at the time of acceptance in order to accept:
R. v. Clarke
Clarke knew about a reward offer, but subsequently forgot. He gave evidence at the trial and
provided valuable information (although the accused was acquitted), but was admittedly unaware of
the offer at that time. Court holds that Clarke is not entitled to receive the reward, because he did not
know about the offer and therefore could not accept it. There was no consensus ad idem.
Restatement of the Law of Contracts (U.S.) suggests a shift in emphasis in reward law from intention
to accept to intention not to accept; i.e., presumption of acceptance.
(iii) Acceptance
Counter-offer constitutes rejection and nullification of the original offer, and shifts the onus of acceptance
onto the original offeror. The original offer may only be revived through an explicit action by the offeror;
the offeree cannot revive it by mere acceptance:
Livingstone v. Evans
E offers to sell land for $1800; L responds with counter-offer. E responds: cannot reduce price,
and L then wires acceptance. Meanwhile, L had already sold the land to a third party. Court holds that
Es response to the counter-offer constitutes a renewal of the original offer, which was then accepted
by L; orders specific performance of the contract.
Hyde v. Wrench
Counter-offer kills original offer. To distinguish a counter-offer from a mere inquiry, there
must be a willingness to be bound and a marked departure from the terms of the original offer,
with no room for return to that offer.
Battle of the Forms
Problem arises when parties to a contract use different and dissimilar forms in offer and acceptance.
Last Shot Theory: classical view. The contract results when the last form is sent and received without
objection:
Butler Machine Tool Co. v. Ex-cell-o Corp.
B quotes price with escalator clause (price variation with market fluctuation). E responds with
counter-offer and no escalator claude, with tear-off response slip. B returns tear-off signed, along with
letter returning to the original quote. B then delivers good with escalator clause in effect. E objects,
saying that it had not agreed to this clause.
Denning M.R. holds that by signing the acceptance of Es counter-offer, B accepted the terms
and conditions therein, which did not include an escalator clause. Resolved by reference to the
documents alone: contract resulted from the acceptance of the counter-offer.
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FIrst Shot Theory: The parties to a negotiation have the obligation to draw material changes to each
others attention. If this does not occur, then the contract is made pursuant to the terms of the original
offer:
Tywood Industries Ltd. v. St. Anne-Nackawic Pulp & Paper Ltd.
S issued a call for tenders, the reverse side of which contained terms and conditions which did
not contain an arbitration clause. T responded with an offer containing different terms and conditions,
including a prevail clause anticipatorily rejecting any changes to the terms and conditions. A revised
proposal by T followed. Reverse of Ss subsequent order form included a clause referring all disputes
to arbitration. T never returned the tear-off portion of the form, but did deliver the goods. Dispute
arose and S wishes to avoid court and go to arbitration, pursuant to the later clause.
Since the documents alone cannot resolve the situation, the intentions of the parties are
considered (as suggested by Denning in a dictum in Butler) . Apparently, neither party considered any
terms and conditions other than those on the faces of the documents, when making the initial
agreement. Since Ts attention was never drawn to the arbitration clause, it cannot be taken to have
accepted the term.
Ontario Law Reform Commission suggests that the traditional view (Mirror Image Rule: completed
contract must contain no variant terms) is out of step with commercial reality, since performance has
often occurred before the contractual problem is realized; thus, it is unrealistic to find that no contract
was formed. Recommendation is to take into account conduct as well as documents (as in Tywood).
Condition precedent to formation: before a contract can be made, condition(s) must be met (e.g.,
Carlill v. Carbolic Smoke).
Condition precedent to performance: there is a contract in the meantime, but condition(s) must be
met before its terms are to be carried out.
Tendency for courts to find bilateral rather than unilateral contracts; condition precedent to performance;
silence does not constitute abandonment of agreement:
Dawson v. Helicopter Exploration Co.
D located and staked mineral deposits, and communicated with H regarding their exploitation. H
and D agreed to go by helicopter to view the deposits. D was sent overseas, but before departing,
advised H that the exploration could likely proceed, pending his getting leave. H later sent D a letter
of repudiation, saying that conditions were not conducive to proceeding, but proceeded alone two
months later. When D returned, he immediately investigated what had happened, and sued for
breach of contract. H alleges that its offer ought to have been accepted by Ds arranging for leave,
which he did not do (i.e., this ought to have been a unilateral contract). Court holds that it was
actually a bilateral contract with conditions precedent to performance: i.e., D needed to obtain leave,
but there was a contract in the meantime which was breached by H. Instinct with an obligation: D
clearly intended to accept the offer, and only altered his intention upon receiving the letter of
repudiation. Also, silence alone does not constitute abandonment, particularly considering the
relatively short period of time; Ds actions upon returning home clearly indicate a continued desire to
proceed with the arrangement.
Andre & Cie S.A. v. Marine Transocean Ltd: The Splendid Sun
Inferred agreement to abandon arbitration after eight years of silence and inactivity
between appointment of arbitrators and delivers of owners claim.
Allied Marine Tpt. Ltd. v. Vale do Rio Doce Navegacao SA: The Leonidas D.
Same court doubts whether a similar result to Andre can be reached after 5 1/2 years of
silence and inactivity; suggests that this implies an interim satisfaction with the status quo, which
is not the same as a binding agreement to abandon arbitration.
Application of Dawson to tendering process:
Collateral contract with condition precedent to performance. Sub-contractors submit bids to
general contractor, so collateral contract is formed: to have bids considered by the general contractor.
The main contract is made when the general contractor submits the overall bid and names the sub6

contractors. Now, the main contract is made, with a condition precedent to performance: that the bid
be accepted before the sub-contractors can perform their assumed duties. The general contractor is
bound to use the sub-contractors named in the tender if it is accepted, and the sub-contractors are
bound to perform.
Daves Plumbing & Heating v. Voth Bros. Construction
Communication of acceptance of tender to sub-contractor is not necessary.
Importance of communication of acceptance; silence is not generally an adequate indicator:
Felthouse v. Bindley
F agreed to purchase his nephews horse, but there was a misunderstanding about price. F
wrote to the nephew, offering to split the difference, and if I hear no more, I consider the horse mine:
foisting a contract (see below). Nephew never responded, but when arranging to auction his farm
stock, instructed the auctioneer (B) to reserve the horse in question as it was already sold. B forgot to
do so and sold the horse. Nephew informed F in writing, making reference to having sold F the horse
previously. F sued B for conversion. B argues that property in the horse never transferred to F. Court
holds that there was no transfer of property, as the acceptance had not been communicated to F.
Note: notification requirement cannot be waived, as in Carlill v. Carbolic Smoke, because silence
would essentially constitute doing nothing - no act. In Felthouse, anyway, a bilateral contract was
intended, so acceptance which is not communicated is utterly irrelevant.
Inertia selling: Foisting a contract
i.e., if you dont explicitly refuse, something will be done on your behalf. Courts will not generally
allow this tactic (detrimental to consumer), but this also leads to uncertainty: it is possible for an offeror
using an inertia selling tactic to later disregard the contract is it is alleged to have been accepted (i.e., the
prohibition works in both directions).
Where silence is said to constitute rejection of an offer, the test is to examine the partys conduct. If he is
the knowing beneficiary of work which cannot reasonably be expected to be performed for free, his
acquiescence is seen as a request for its performance and he is liable for payment:
Saint John Tug Boat Co. v. Irving Refinery Ltd.
SJ provided tug boat service to IR, and when the availability of tug boats to SJ became limited, it
notified IR that additional boats could be made available for a stand-by charge. IR agreed to this
for a certain term, which was extended on several occasions. After the final extension had lapsed, SJ
continued to provide the service and IR continued to utilize it while ignoring SJs invoices. SJ sued
for breach, and IR contended that it had not agreed to having the service provided beyond the last
extension. Court held that IRs conduct constituted acquiescence to the provision of the service and
construed this as a request. IR was liable.
Restitution:
If the court in Saint John Tug Boat had not found Irving liable, SJ might still have been able to recover
the fees for the days the boats were used. Restitution is an equitable remedy which holds that it is unfair
for a party to derive unjust enrichment. Requirements: (a) unjust enrichment; (b) expectation of
payment; (c) method of valuing benefit; and (d) acquiescence to provision of the benefit. Remedy is for
party to disgorge the benefit, or pay market value - quantum meruit.
Manco Ltd. v. Atl. Forest Products
Machine was provided by M on a trial basis. A decided not to purchase, but continued to
use the machine, and M made no effort to retrieve it. A began to send rental invoices. No
contract was found, but As conduct was unacceptable and exploitative, so the court awarded
restitution in the form of a fair rental rate for the amount of time the machine was used.
Distinguishable from Saint John Tug Boat in that this was not a continuation of a previous
arrangement, so implying a contract is less likely.
Acceptance of an offer must generally be in the mode specified by the contract, provided the offeror is
emphatic that the instructions be followed precisely:
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Eliason v. Henshaw
E offered to purchase flour from H, and specified that acceptance should be by return of the
same wagon and to a specific place. H responded by mail in approximately the same time frame as
the wagon mode, but sent acceptance to a different location. E refused to accept the flour when it
was sent, saying that the offer had not been properly accepted. Court held that although the offer had
been accepted within a reasonable time (mail or wagon didnt matter, as the intention was a time
frame), the acceptance had been to the wrong location and the terms of the offer were altered to such
an extent as to invalidate it. E was then free to choose to accept or reject what amounted to a
counter-offer by H. E refused to do so, and so there was no contract.
Heron Seismic Ltd. v. Muscowpetung Indian Band
H undertook well drilling on reserve pending approval of a grant, which came through
only partially. Held: no acceptance of offer until properly authorized by the band council.
Nobody else had the authority to accept on behalf of the reservation, so no other agreement was
binding.
Sufficient compliance within a reasonable time from deadline:
Carmichael v. Bank of Montreal
At issue was the closure of a land transaction, with C and his agent making every reasonable
attempt to accept the Banks counter-offer in the mode specified. Agent tried to accept through
assistant bank manager, who did not have the requisite authority, and also left messages for the bank
manager and the listing agent. He also left written notice of acceptance with the listing agents wife
fifteen minutes after the deadline. Court found that bank manager knew of the acceptance before the
deadline, and alternatively, that the notice fifteen minutes late was still within a reasonable time.
Note: Hamilton J.s statement that an offeror has the obligation not to make the offer impossible
to accept is a wrong statement of law; before acceptance, an offer is only a promise, which has no
legal status.
Intentions of the parties, conduct, common practices as determinants of acceptance:
Jen-Den Investments Ltd. v. Northwest Farms Ltd.
All communication took place through a third party. Offer to purchase and counter-offer made in
writing. JD orally accepted the counter-offer and made arrangements to finalize the deal in writing a
few days later. Before that day, though, NW had second thoughts and communicated their wish to
revoke the offer. JD said that revocation was impossible, as the offer had already been accepted.
Court held that oral acceptance was not sufficient, as the conduct of the parties, the presence of an
agent, and the fact that a written memorandum of the transaction would be required (Statute of
Frauds) all pointed to the mutual intention to complete the transaction in writing.
Megill-Stephenson Co. v. Woo
Acceptance by telephone was not enough to close a land transaction. Even though the
Statute of Frauds had by this time been repealed, its underlying ideas are still valued by the
courts, and its requirements are now the common practice in land transactions (speaks to
intention question).
(iv) Communication of Acceptance
The General Rule: Instantaneous communication
General Rule: The contract is made at the time and place where the offeror receives the acceptance:
Brinkibon Ltd. v. Stahag Stahl Und Stahlwarenhandelsgesell schaft mbH
Issue was determination of jurisdiction for suit: was the contract made in England or in Vienna?
S made counter offer to B, and B telexed acceptance to S in Vienna. Court holds that the contract
was made in Vienna, when S received the acceptance. Alternatively, if the offer had been accepted
by Bs conduct in opening a line of credit, the contract would still have been made in Vienna, when S
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was notified of this action (i.e., at the place of notification, not at the place of action).
John Balcom Sales v. Poirier
Communications by fax are subject to the general rule.
Postal Rule: The contract is made at the time and place where acceptance is placed in the hands of the
postal service:
Household Fire and Carriage Accident Insurance Co. v. Grant
Acceptance of Gs offer to purchase shares was mailed but never arrived. H entered the
transaction as completed and credited the shares against Gs account; also credited him with
dividends. When H is liquidated, G is requested to pay as a shareholder and refuses, saying that no
contract had been completed as he received no notification. Court finds that the postal rule applies:
the contract was made when H mailed the acceptance.
Postal rule is held to be justifiable in that it prevents fraud (i.e., I never received the acceptance,) and
in that it avoids the ping-pong effect, whereby each party repeatedly requires confirmation of receipt of
mailed documents before being secure in their transaction.
Postal rule seems to apply to acceptance only, not to offer or withdrawal.
Hawthorn v. Fraser
Where both parties intend that the postal service be used, the postal rule applies (but
this is not a necessary condition, merely sufficient).
Smith & Osberg Ltd. v. Hollenbeck
Postal rule applies to telegrams.
R. v. Commercial Credit Corp.
Postal rule applies to communications via courier.
Postal rule does not apply where terms of acceptance imply otherwise:
Holwell Securities v. Hughes
Offer to sell land included provision that acceptance be by notice in writing. Court holds that
this statement implies that the postal rule was not intended to apply in this transaction, that the
acceptance needed to reach its intended target before causing formation of a contract. Postal rule
only applies where its intended use can be reasonably inferred. (Obiter: postal rule may not be valid
where its use would produce manifest inconvenience and absurdity, i.e., more absurdity than is
inherent in the rule itself, but this is difficult to define.)
(v) Termination of Offer
(a) Revocation
Postal rule does not apply to termination. Uncommunicated revocations are of no force and effect, as an
unexpressed state of mind cannot reasonably be expected to enter into a transaction:
Byrne v. Van Tienhoven
Offeror mails revocation of offer before acceptance is mailed, but acceptance is mailed before
revocation is received. Court finds that the acceptance is valid, as revocation is of no effect until
actually received by the offeree (postal rule does not apply).
Streeting v. Canada (Minister of Employment & Immigration)
S sent letter of resignation by courier and followed this with a letter of revocation, but a
letter accepting her resignation was mailed prior to actual receipt of the revocation, and since the
postal rule does not apply to termination, S was found to have resigned.
Conflicting jurisprudence:
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Werkheim v. Arndt
Revocation of a mailed acceptance is worthless, even if it reaches the offeree first.
Countess of Dunmore v. Alexander
Revocation of a mailed acceptance is valid if it is received before the acceptance.
Per Vincent: since the postal rule seems so stupid, why apply it to cases like these, where
nobody is harmed by its absence?
Once a person is aware, even indirectly, that the subject matter of an offer is no longer available, he is no
longer capable of accepting that offer, as there is no consensus ad idem:
Dickinson v. Dodds
Dd. offered to sell land to Dn., and indicated that the offer would be open for acceptance until a
specified time. In the interim, Dd. sold the land to a third party, and Dn became aware of this through
his agent but still attempted to accept the offer. Court found that the offer was effectively revoked
once Dn. knew that the property was sold. This also applies to cases where the offeree is made
aware of the offerors performing actions inconsistent with the continuation of the offer. In all cases,
the knowledge must be gained through reliable sources.
A collateral contract may be implied to provide that performance of an act intended to satisfy the
acceptance requirement for a unilateral contract cannot be interfered with once it has begun:
Errington v. Errington and Woods
Father had made down payment on house for grown children, and stated that once they had paid
off the mortgage, the house would be theirs. The children made regular mortgage payments. When
father died, his widow attempted to revoke the offer and reclaim the house. Court (Denning) found
that the father had entered into a unilateral contract with his children, which does not cease to exist
simply because of his death. The offer cannot be revoked so long as the act of accepting it is still
being performed, because there is an implied collateral contract not to interfere with performance
once it has begun .
Note: in a true unilateral contract, the offer can be revoked at any time. Denning only implied
the collateral contract because he was unable to find a bilateral contract, which is much preferred by
the courts on equitable grounds.
In a unilateral contract where acceptance is by procurement of items, offerors obligation cannot be
escaped by refusing to accept the items:
Daulia v. Four Millbank Nominees
F offered to sell property to D, subject to the performance of terms including the procurement of
certain documents. When this was done and D attempted to tender the documents to F, F refused to
accept them. Court found that the unilateral contract was complete anyway, since D had already
complied with the terms of the offer. Obiter: good faith obligation not to revoke the offer once or to
hinder performance of the terms once performance commenced.
Petterson v. Pattberg
Pat offers to discharge Pets mortgage if Pat pays it in full before a certain time. Pet
arrives at Pats door and tells him that he is there to pay, but Pat refuses to open the door. Court
finds that the offer was revoked before the act of payment had been performed, as Pets
statement of intent is not sufficient to constitute performance. (Contrast with Errington: although
performance wasnt complete, hadnt the act begun?)
Beer v. Lea
Parties agreed to meet to settle a deal, but the offeror never arrived. Court found that no
contract was made, as the offer was revoked prior to acceptance, notwithstanding that the parties
had previously contemplated closure together (which might signify commencement of
performance along the lines of Errington).
Re Irvine
10

Irvine asked son to mail acceptance and immediately became seriously ill and died
shortly thereafter. Son forgot to mail the acceptance, and only did so after Irvines death. Court
held that there was no contract, as the death of the offeree automatically terminates the offer.
Condition precedent to formation: offeree must be alive to accept the offer.
Death of Offeror: Generally
If the terms of and offer can be fulfilled by the estate of the deceased, and the offeree
does not know of the offerors death, then the offer is still open for acceptance. If the offeror
must be alive to comply with the terms (e.g., performance of service), then the offer dies with
him.
(b) Lapse
Withdrawal theory: If offer is not accepted within a reasonable time, as defined by the particular
circumstances of the case (i.e., subject of the transaction, parties conduct, usual business practices,
etc.), it is considered withdrawn:
Barrick v. Clark
Bs counter-offer to Cs offer to purchase land was not accepted for approximately six weeks after
it was made, and after receiving a letter from Mrs. C. asking that the offer be held open for another
ten days until C returned from a trip, B sold the land to a third party after that extended period had
elapsed and one week before C mailed his acceptance. Court found that there was no contract, as
Cs acceptance was not within a reasonable time: there was demand for the land, both parties had
contemplated speedy closure of the deal, and the date of Cs acceptance was too close to the
proposed possession date to be valid.
Rejection theory: If offer is not accepted within a reasonable time (see Barrick), the offer is considered
to be rejected:
Manchester Diocesan Council v. Commercial & General Investments
C submitted tender for purchase of land. M accepted that tender subject to mandatory approval
by the government, and notification of that approval did not take place for about six months. When C
was finally notified, they said that there was no contract because acceptance wasnt within a
reasonable time. Court found that there was a contract, either because the third party approval was a
condition precedent to performance or because Cs conduct did not indicate rejection of the offer.
Court prefers rejection theory because it is less subjective; hinges on the conduct of the parties after
the offer is made, not the intentions and state of mind of the offeror at the time the offer is made.
(c) Conditional offer
If the subject matter of an offer is substantially altered or damaged, the offer ceases to exist. There is an
implied condition that the offer is contingent on the continued existence of its subject:
Re: Reitzel and Rej-Cap Manufacturing Ltd.
Reitzel offered to purchase land, and Rej-Cap made a counter-offer. The building was destroyed
by fire, and when Reitzel heard this, he immediately accepted the counter offer. Court found that the
offer could not be accepted and did not even need to be revoked, because the subject was altered
and destroyed to such an extent as to nullify the offer.
Financings Ltd. v. Stimson
Before dealership manager signed Ss offer to purchase car, the car was stolen and
vandalized. Unaware of the vandalism, the manager signed the contract. Court held that the
substantial damage to the car caused Ss offer to be stricken down - so this rule applies to offers
to purchase as well as offers to sell (Reitzel).

11

III. CERTAINTY OF TERMS


(i) Vagueness
In many cases involving vagueness, court will attempt to find a contract in spite of the uncertainty where
it can reasonably be inferred from the matrix of the situation that a contract was intended:
R. v. CAE Industries Ltd.
CAE agreed to purchase an aircraft maintenance bas no longer required by Air Canada. In
return, the federal government made, in a letter signed by three ministers, several assurances
regarding the amount of work it would provide to the company. When the workload diminished, CAE
sued for breach of contract and R. responded by saying that the terminology of the letter was too
vague to be a contract (e.g., set-aside work, best efforts). Court found that a contract had been
intended (as evidenced, by the fact that it had been partially performed and that the government had
approached CAE as a potential purchaser), and also found considerable reliance by CAE on the
assurances. Therefore, the court interpreted the vague terms to give them reasonable meaning.
Causeway Shopping Centre v. Muise
Contract found to be void for uncertainty because it purported to lease space to Muise
or nominee - identities of parties are crucial to any contract.
Westward Farm v. Cadieux
As in Causeway , but contract was for sale. Note: this was questioned by Bass, who said
that there should be a distinction between lease and sale because lease is an ongoing
relationship where the identities of the parties are more important (i.e., who really cares to whom
something is sold?)
If a vague clause is not central to the contract, the contract may still be operative if the clause is
severed:
Nicolene v. Simmonds
Acceptance stating that the usual conditions of acceptance apply is judged to be too vague, but
that clause is severable, so the contract can still be operative.
Vague clauses will not be severed if they go to the heart of the contract; in such cases, the contract must
be declared void.
Cook v. Scott
Hopelessly vague description of lot to be retained by vendor of land causes contract to
be wholly void as the clause is central and cannot be severed.
Continental Insurance v. Law Society of Manitoba
Conflicting clauses obscured the limit of Cs liability in insurance claims. Since one
implied limit was calculated according to standard practice and the other was not as standard,
the non-standard clause was severed and the contract remained in effect.
(ii) Missing Terms
Agreements to agree are not valid contracts, and result when a significant mass of detail is left to be
settled by a subsequent agreement:
Hillas and Co. Ltd. v. Arcos Ltd. (C.A.)
H negotiated with A for the purchase of timber in the 1930 season, with an option to buy more in
1931. Subsequently, A agreed to sell its entire 1931 output to another party before permitting H to
exercise the option. H sued for breach of contract, but court found that the 1931 clause was not a
contract but an agreement to agree, as too many important terms (price, specifications, shipping
dates, etc.) remained to be settled: conditions precedent to formation.
Overruling of C.A.s decision in Hillas: Parties intentions may determine that a contract to enter into a
contract is simply that enforceable contract, with provision for postponement of part of the terms.
Generally, when disputes arise, court ought to make precise what has been left undefined; gap-filling:
12

Hillas and Co. Ltd. v. Arcos Ltd. (H.L.)


On appeal, court finds that there was an enforceable contract, as the terms may be interpreted
according to standard industry practices. Since the parties intentions were clearly to make a contract,
the court must endeavour to find one, not to quash it for uncertainty. If terms left for future agreement
become problematic, the court can then interpret them reasonably. The option amounts to an offer
which is binding since it is a contractual term; all the offeree has to do is accept it, and it cant be
revoked. The offeror is bound to negotiate for 1931 to settle the uncertain terms: condition precedent
to performance.
(iii) Agreements to Agree
Inflexible approach: When an essential term has been left to be agreed for whatever reason, there is
only an agreement to agree, and the court ought not to find a contract. This is taken to apply only to
cases where the intention is explicitly left to be agreed:
May and Butcher Ltd. v. R.
Arrangement made for the occasional purchase of surplus goods, with price and dates of
payment and delivery to be agreed in the future; any disputes that arose were to be settled by
arbitration. When parties couldnt agree on a price, R. claimed not to be bound by the contract.
Court found that too many essential terms were left unsettled, and also that the arbitration clause was
no more certain than negotiation between the two parties as a mechanism for dispute settlement.
Neither is the Sale of Goods Act instructive here, as there is no specific method of agreement on
price.
This is not a popular decision, and has therefore been taken to apply only to situations where the
to be agreed intention is specifically stated. It is particularly odd since the parties had dealt with
each other in a similar manner on several previous occasions.
More flexibility: Subsequent conduct of parties is instructive in determining whether a contract has been
made when an essential term is left to future agreement:
Foley v. Classique Coaches Ltd.
Contract is for sale of land by F, with collateral agreement that C will buy all its petrol from F at a
price to be agreed from time to time. After three years of compliance with this term, C seeks to
repudiate this agreement. Court finds that the parties conduct over the three year period suggests
that both felt that a contract had been made; there was also consideration paid (presumably, petrol
agreement mitigated the price of the land) and considerable reliance.
Analyzing the Trilogy (Hillas, May and Butcher, Foley)
Reliance and consideration distinguish Hillas and Foley from May and Butcher: in the former cases,
the agreements were ongoing ones, whereas in the latter, there was to be a series of individual contracts.
Also, the agreements were underway and consideration had been paid in the former cases; this is not
true of the latter.
May and Butcher: executory contract (to be performed); Foley: executed contract (done deal).
In HIllas, there was no explicit statement of intention to agree from time to time, only silence, which
distinguishes this case from May and Butcher.

13

Sale of Goods Act


10(1): Price may be agreed in the future if there is a mechanism agreed upon in the contract or
which can be determined by the parties conduct.
10(2): Where a contract is silent on price, payment of a reasonable price is implied.
11(1): Where price is left to third party valuation and this valuation is not made, the agreement is
avoided; if goods have been delivered, though, buyer pays a reasonable price.
11(2): Where the third party valuation is prevented by the buyer or seller, the party not at fault has a
claim against the other party.
31(2): Goods must be delivered within a reasonable time if no specific time is agreed upon.
Strict requirement for inclusion of price or legitimate machinery for determination of price extends to
contracts other than for the sale of goods. A contract to negotiate is nothing more than an agreement to
agree, as it is simply too uncertain to be binding:
Courtney and Fairbairn Ltd. v. Tolaini Brothers (Hotels) Ltd.
C, a developer, agreed to assist T in securing financing for a project in exchange for Ts
instructing their representative to negotiate fair and reasonable contract sums with C for the
construction of the development (clearly, Cs understanding was that they were to be hired). While T
utilized the financing arranged by C, another party was hired to do the construction. C.A. found that T
had no contractual obligation to hire C, as there was no stated price or method by which to arrive at a
price. A contract to negotiate is too uncertain to be valid, as there is no way to predict what the
results of the negotiations would be and therefore no way to calculate damages.
Vincent: C could probably have received quantum meruit, as there was a service performed that
T could not reasonably have expected to receive for free: unjust enrichment.
British Bank of Foreign Trade v. Novinex Ltd.
Facts similar to Courtney , with price to be agreed, but plaintiff recovered reasonable
commission, probably quantum meruit.
British Steel Corp. v. Cleveland Bridge and Engineering Co.
B had agreed to provide steel nodes to C for a project, and had delivered all but one
when production ceased due to a strike. This caused C to be penalized for late completion, and
they refused to pay B for the nodes that had been received. C answered Bs breach of contract
suit with a counter-claim for the amount of the penalty. The contract was a technical failure, but
B was able to recover quantum meruit for benefit conferred. However, C couldnt recover for
their reliance interests (anticipatory expenses), because there was no contract and B had not
been unjustly enriched; no benefit to be disgorged.
Note: reliance interests can only be compensated for if there is breach of contract; if
there is no contract, there can be no recovery other than quantum meruit, for benefit conferred.
If the intention is merely that the purchaser pay a reasonable price, then there need not necessarily be a
set price and the machinery for reaching the reasonable price need not work for the contract to be valid.
The court can assess a reasonable price, and may find a contract:
Sudbrook Trading Estate v. Eggleton
Lessor provided lessee with an option to purchase the freehold reversion at a price to be agreed
upon by valuers appointed by each party, but when the option was exercised, the lessor refused to
appoint a valuer. Court found that the intention was that the lessee pay a reasonable price, and so
the contract was valid as the specific price was not an essential term and the machinery, which failed,
was simply a means of reaching the reasonable price.
Per Lord Russell (dissenting): Who is to say that a reasonable price was intended? The
convention of the market is that each party wants the best price possible, not necessarily a
reasonable price. This is simply an example of an agreement to negotiate - an invalid agreement to
agree.

14

Didymi Corp. v. Atlantic Lines & Navigation


Rent was to be determined according to ships performance. This machinery breaks
down, but court applies Sudbrook in finding that the intention was to reach a reasonable price.
Money v.Ven-Lu-Ree Ltd.
M intended to sell shares to V at a price to be agreed by the parties accountants, who
couldnt agree. Privy Council applied Sudbrook: a reasonable price was held to have been
intended. Implied a term: that an umpire should be appointed if the valuers fail to agree, and
failing that, the court should decide.
Municipal Savings & Loan v. Oswenda Investments
Sudbrook distinguished, as the only machinery specified was the price offered by a bona
fide purchaser for value. O had right of first refusal (i.e., right to meet or beat any offer), but the
bona fide offer was bound up in another offer and therefore there was no specific price offered.
Right of first refusal failed and there was no machinery for certainty.
In long-term relational contracts, the only way to introduce some element of flexibility seems to be to
include some kind of formula as a term of the original contract (e.g., escalator clause, arbitration).
Fort Frances v. Boise Cascade Canada Ltd.
Parties contracted in 1918 for the provision of hydro-electric power. Court found that the
price agreed upon in 1918 was to be in effect forever, notwithstanding that the costs involved
had obviously changed by the time the suit was brought in 1983; there had been no mechanism
agreed upon for re-evaluating the price from time to time.
Churchill Falls (Labrador) Corp. v. A.G. (Newfoundland)
C agreed to provide the bulk of its power output to Hydro-Quebec for 65 years, at a price
based on the projects capital cost. S.C.C. denied NFs claim to a greater share of the power,
based on a clause in Cs original lease stating that the government of NF was to be given priority
upon request and where feasible, by holding that the lease was superseded by the contract with
Hydro-Quebec. Thus, the effect of the clause in question concerning renegotiation of terms was
not decided.
British Bank of Foreign Trade v. Novinex
Possibility of future transactions between N and the associates introduced to them by B
is considered. Since a finders fee is the industry norm, restitution would be indicated, and
since there is no specified termination date, commission must continue to be paid indefinitely.
Treen Gloves and Safety Products Ltd. v. Degil Safety Products
Implied: Termination of a long-term contract upon reasonable notice is permissible.
Leaving mode of payment to future agreement does not necessarily invalidate a contract if the price and,
presumably, other crucial terms are settled:
De Laval Co. v. Bloomfield
D delivered machine to B under a contract which left the terms of an instalment payment plan to
be agreed other than one instalment of $200 to be paid on a specified date. D sued for the amount
of the first instalment, and B argued that due to the uncertainty, there was no contract. C.A. found
that leaving the mode of payment to future agreement was not fatally uncertain as the actual price
was settled.
Per Vincent: this case is more the exception than the rule.
Murphy v. McSorley
Opposite to De Laval: court cannot construe intentions regarding terms of payment, so
contract is found to be void.
Scammell v. Ouston
In sale of a van (big-ticket item), price is known but formula for payment is absent: no
time frame, consequences for default, etc. Also, hire-purchase terms are referred to but left
undefined. Court finds that the agreement is void for vagueness and uncertainty.
15

In land transactions where the mode of payment is left to be agreed in the future, the type of mortgage is
important:
Mortgage back: Vendor finances purchaser, so the only limit is the negotiating skills of the parties.
Therefore, if the terms of lending are left to future agreement, the contract is overly vague.
Third-party mortgage: The contract is contingent on a condition precedent to performance; in the
interim there is a contract between the parties. Good faith agreement: purchaser is to make his best
efforts to secure financing and the vendor is to refrain from dealing with other parties.
Land transactions where the date of possession is absent:
Harvey v. Pratt
In a leasing arrangement, if the possession date is left to future agreement, the contract
is void for uncertainty as the right of possession, not an ownership interest, is the actual subject
of the contract. The lease is completely time-bound; if it specifies no possession date, there is
no way for the court to know when the lessee becomes a lessee. Generally, leases must have
start and termination dates (absence of a termination date will tend to imply a month-to-month
arrangement).
Anderson v. Chaba
In a land sale agreement, the lack of possession date is not fatal because the acquisition
is of an ownership interest, which is potentially forever and certainly not as time-bound as a
lease.
(iv) Good Faith Negotiations
In a renewal clause, where mutual agreement on fair market value is contemplated, the implication is
that the parties will negotiate in good faith to reach such an agreement and will not withhold agreement
unreasonably. Legal effect is obviously intended, so the clause ought not to be construed as fatally
uncertain:
Empress Towers Ltd. v. Bank of Nova Scotia
Lease included the right of renewal for two successive five-year terms, at prevailing rental rates
as mutually agreed by the parties, with the provision that the agreement would be terminated if a rate
could not be agreed upon within two months of exercise of the option. E did not respond to Bs offer
until the last minute, and then proposed a substantially altered agreement, much to Bs disadvantage,
due to ulterior motives. Court found that the implied terms, namely the obligation to negotiate in good
faith and not to withhold agreement unreasonably, were violated by E and therefore refused to grant a
writ of possession.
Walford v. Miles
Court is concerned that the determination of when the obligation to negotiate in good
faith has been satisfied is too subjective, as even good faith negotiations dont always end in
agreement and the adversarial nature of contract negotiations requires parties to be able to
threaten to withdraw at any time.

16

Hirex Holdings Ltd. v. Chrysler Canada Ltd.


The obligation not to withhold agreement unreasonably, as in Empress Towers, is
doubted as it might force the lessor to accept a tenancy at a rate it did not accept, as the court
might decide that the withholding of agreement was unreasonable.
Note: The theory in Empress Towers is by no means universally accepted. It involves tremendous
uncertainty, and has been rejected by the House of Lords, although it has not been specifically overruled
in Canada.
(v) Anticipation of Formalization
When a partys conduct appears to indicate waiver of the requirement of formalization, the
documentation of an oral agreement becomes a mere expression of a desired manner of proceeding with
an already-made contract:
Meyer v. Davies
Parties negotiated regarding the sale of Ds law practice, and when M attempted to comply with
Ds request to put the agreement in writing and submit a deposit, D told him dont worry about it...Im
too darn busy. Court finds that this amounts to waiver of the formalization requirement. Even if the
formalization began as an essential term, the waiver caused it to become a mere expression of
desire. Ds conduct was such to indicate that he thought a contract had been made, even if this
wasnt his actual belief.
Von Hatzfeldt-Wildenburg v. Alexander
Two possibilities regarding status of formalization requirement, hinging on intentions of
the parties:
(i) execution of a formal contract is an essential condition or term of the initial contract,
and there is no contract until the further contract is executed (condition precedent to formation);
or
(ii) the formalization requirement is a mere expression of desire as to how the alreadysettled and agreed-upon contract is to proceed, but there is already a binding contract (condition
precedent to performance).
(Cited with approval in Calvan Consolidated v. Manning and Meyer v. Davies)
Lawson v. Utan Enterprises
Memorandum was to be initialled by both parties, but the second party declined to do so,
saying that there was a deal. The court construed the defendants intent as forming a contract.
Texaco Inc. v. Pennzoil Co.
P sued T for tortious interference with Ps agreement to acquire a large interest in Getty
Oil. P had reached an informal but binding agreement with Getty, subject to board approval, and
before approval was gained, Getty agreed to sell to T. Court found that the formalization
requirement was intended as a condition precedent to performance, and awarded huge damages
against T.
Letters of intent, which are used as a means of establishing a pseudo-contractual relationship without
intention to be bound until details are settled, are not usually considered to be binding except in rare
cases.
Speidel v. Paquette
Letter of intent between friends regarding sale of land, which includes the term not
meant to be a legal contract, is held to be binding nonetheless as there was considerable
reliance and the subsequent conduct of the parties suggested the belief that a contract had been
made. S had lived on the land in question for five years, according to the terms of the letter, and
expected to be sold the land as a result.
Hard-line approach to formalization: Subsequent conduct of parties held to be secondary to the wording
of the agreement:
17

Knowlton Realty v. Wyder


K claims commission for having located tenants for Ws building, but W claims that the terms of
their agreement were not fulfilled, as the agreement was to be subject to execution of the lease
documents, which never occurred as a result of difficulties encountered subsequent to Ws
introducing the prospective tenant to K. Court agrees with W, finding that formalization in the form of
completion of lease documents was an essential term which went unfulfilled, and that K is entitled to
no commission notwithstanding that W behaved for several weeks as if bound by the agreement
negotiated by K.
Bowen v. Canadian Tire Corp.
Formulaic approach is adopted. Parties had been negotiating for some time for B to
become CEO of CT, and terms were agreed to subject to board approval, which was eventually
granted, and formal documentation, which never occurred. Court found that although CT had
behaved as if there was a contract, the complexity of the transaction dictated that formalization
was essential, and B, an experienced businessman, should have known this.
Bawitko Investments Ltd. v. Kernels Popcorn Ltd.
Franchise agreement was in the form of a complex, 50-page contract, some terms of
which B wanted changed. K agreed to this orally, but the transaction was never formalized.
Court held that since the original contract was incomplete, it could not constitute an enforceable
contract if the formalization requirement remained. More importantly, the complexity of the
transaction dictated that formalization was required.
Law v. Jones
Called into question the meaning of the phrase subject to contract, commonly used in
British land transactions, which was generally thought to imply a rigid formalization requirement.
Now, parties intentions are considered, but there needs to be significant evidence of intention to
overcome the extremely strong presumption that formalization is required in such circumstances.

18

IV. INTENTION TO CREATE LEGAL RELATIONS


(ii) Family Relations
There is a rebuttable presumption against intention to create legal relations in family situations, and to a
certain extent in social situations. In these cases, the onus of proof is to show that there was, in fact,
such an intention.
The natural love and affection that exists between spouses (and in other familial relationships) does not
qualify as consideration such as to render agreements made in amity, within the course of marital or
family arrangements, contractually binding:
Balfour v. Balfour
Husband and wife were required to live apart because Ws ill health rendered her unable to
travel. H promised W a monthly stipend of 30 per month while they were separated. Subsequently,
they agreed to separate permanently, and she obtained an order of alimony, but H refused to pay the
sum agreed upon earlier. W argued that this was a contractual agreement, in which the consideration
flowing from her was her forebearance to sue for more money. Court held that the arrangement was
one made in amity and in the context of a familial situation, and was thus subject to the rebuttable
presumption against intention to create legal relations. It was argued by the court that to hold
otherwise would be to encourage people to attempt to settle family disputes in court (floodgates
argument).
Merrit v. Merrit
Maintenance agreement made by a couple while legally separated was intended to be
legally binding and was thus held to be such.
The Family Maintenance Act
Provides for mutual support obligations of spouses. Vincent: Legislation fills some gaps
in this area of the common law. Separation agreements, e.g., are enforcedboth by the common
law (Merrit) and by legislation.
Lazarenko v. Borowsky
Parties living together common law, and L promised to leave the house to B when he
diedwas this consideration for Bs agreeing to move in? Agreement not binding; neither party
intended it to be so, and also, it was based on illegal or immoral consideration.
Chrispen v. Topham
Modernized and overuled Lazarenko; now, common law cohabitation is recognized by
law and the benefits of the relationship may be adequate as consideration.
Anderson v. Luoma
Equated a long-term lesbian relationship with an opposite-sex marriage and held,
accordingly, that intra-marital transactions regarding division of assets were not enforceable by
law. There was, however, some provision made for unjust enrichment.
Jones v. Padavatton
Mother wanted daughter to study law and even bought her a house to live in while doing
so. The arrangement soured and the mother unilaterally terminated the agreement. No contract
was found, despite the daughters considerable reliance.

19

Riches v. Hogben
Mother proposes to move entire family to Australia and promises to give the house she
buys there to her son and his family if they move with her, but never does so. Contract is found,
as the son successfully rebuts the presumption against intention by playing up his reliance and
her subsequent behaviour.
Mooney v. Grout
M leaves her family to move in and care for her ailing sister, but doesnt get all that her
sister promises her upon her death. Court holds that there was no contract, that Ms actions were
no more than any caring sister would do and therefore dis not constitute consideration for the
alleged contract. Would have been different if the caregiver had been a stranger.
Corea v. Corea
Daughter goes to care for ailing father, and court finds that she did much more than any
ordinary, loving daughter would do. Also, there was a letter drawn up by the deceaseds lawyer
expressing gratitude and stipulating that the daughter should receive an allowance. While
formalization is rarely present, it is usually helpful.
Osorio v. Cardona
Betting pool wins $700,000 but the actual placer of the bet refuses to share. Court finds
intention; he had always behaved like he intended to honour the unwritten agreement between
the members of the pool.
Zecevic v. Russian Orthodox Christ the Saviour Cathedral
Priest interrupted memorial service and refused to perform funeral for political reasons.
Court finds no contract, as this situation is a spiritual one, and also because there was no
payment discussed (as is the custom, although payment is always expected) and so no
consideration. Adds religious arrangements to the list of situations in which the presumption
against intention applies.
(ii) Commercial Arrangements
Here, there is a strong presumption of intention to create legal relations. The burden of proof is on he
who seeks to prove that there was no such intention, usually the defendant.
In a business transaction, denial of intention to create legal relations must be expressed explicitly and
precisely (in either written or oral form) in order to rebut the presumption:
Rose and Frank Co. v. J.R. Crompton and Bros. Ltd.
Distribution agreement contained clause explicitly denying intention to create legal relations:
agreement not subject to legal jurisdiction. D accordingly refused to fulfil the agreement. Court
found no contract as a result of the clarity of the exemption clause. However, orders made pursuant
to the agreement were binding as separate contracts of sale
Note that at trial, it was held that the exemption clause was repugnant to the rest of the
agreement and against public policy as an ouster of the courts jurisdiction, impeding the publics
access to judicial remedies. This argument was dismissed by Scrutton L.J.; as there was no contract,
the courts jurisdiction was not ousted.
Baker v. Jones
Weight-lifting associations rules stipulate, inter alia, that disputes are to be resolved by
the clubs executive, not by the court. Although there is a valid contractual agreement, this
particular clause is severed as an ouster of the courts jurisdiction and an affront to public policy,
impeding access to justice.
Re Portnoy
Contract stipulated that agent had total jurisdiction to fix business troubles, and that
parties would not go to court. Court found that this was acceptable, as it amounted to a
voluntary alienation of rights (more overt than a buried clause in a membership agreement).
20

When an offer to settle impending litigation is made, it is generally headed Without Prejudice. This
means that the document is not admissible in court as an admission of the offerors guilt and/or liability.
However, if the offer is accepted and the offeror subsequently has a change of heart, the agreement is
still enforceable inasmuch as it constituetes a binding contract; the without prejudice stipulation has no
bearing on the offerors intention to be bound by his offer to settle.
Bettison v. Insurance Corporation of British Columbia
Lawyers meet in elevator and one jokingly offers the other a sizable settlement in a
pending case, but it is construed as a legitimate offer by the offeree. Although this was in bad
taste, says the court, it was clearly not indicative of any real contractual intent.
Moir v. Porter
M retiring; received letter setting out benefits he will receive, but stipulating that this was
at the discretion of the board and not legally binding. Court held that the presumption of
intentionality was rebutted by the expressly-stated provision.
Edwards v. Skyways
Agreement made with union that if there are layoffs for redundancy, ex gratia payments
will be made. Court finds that these payments, notwithstanding that they were depicted as mere
gifts, were in fact legally binding because they were meant as a term of the contract.
Parke v. Daily News
Unlike in Edwards, the redundancy had been declared before the promise of ex gratia
payments was made. Now, the payments were to be pure gifts, and the company was not,
therefore, bound by its promise to pay.
Esso Petroleum v. Comm. of Customs and Excise
Promotion in which Esso gave away dinnerware with gas purchases was a contractual
obligation, not a gift.
Often, parent companies will offer Letters of Comfort so banks will lend money to smaller subsidiaries.
The letters, in effect, offer some degree of assurance that the subsidiary will be able to repay the debt if
only because of its involvement with the parent. Issues of intention arise, but the letters are generally
considered not to be binding.
Kleinwort Benson v. Malaysia Mining
Letter of Comfort is held not to be contractual, as there is no intention to be bound.
Assurance of involvement with the subsidiary is a mere statement of existing fact, not a
contractual promise.
Banque Brussels Lambert SA v. Australian National Industries Ltd.
Opposite of Kleinwort Bensonwhat is the purpose of a Letter of Comfort if not to give
legitimate and actual assurance?

21

V. CONSIDERATION
(i) Introduction
Consideration is the exchange of benefits between parties to a contract. There is no premium placed on
fairnessits just an exchange, no matter how good or how bad. Consideration has become the primary
basis for determining the enforceability of a contract. The theory is that the presence of consideration is
a good clue as to intention to be bound. A criticism of this approach is that there ore other, arguably
better, indicators of intention: written agreements, sealed documents, etc.
(ii) Past Consideration
Past consideration is of no concern to the law in determining the enforceability of a promise. If a
promise is made out of gratitude for benefits conferred in the past, it is unenforceablethe benefits were
voluntarily conferred, and therefore are not good consideration; the promise had no bearing on the
conferring of the benefits:
Eastwood v. Kenyon
E cared for Ks wife from the time of her fathers death when she was an infant, and borrowed
money for her education. When she came of age, she promised to pay back the money he borrowed,
and when she married K, he also promised to pay this amount. The court held that this promise was
unenforceable, as it was made after the benefits were conferred. Therefore, there was no
consideration for the promise; the money had been voluntarily borrowed and were not in any way
motivated by any promise to pay it back.
If a benefit is requested and a subsequent promise is made to pay for it, the promise is enforceable; it is
seen as concurrent with the request:
Lampleigh v. Brathwaite
B requested L, a lawyer, to perform legal services for him. L did so, and B subsequently
promised to pay him 100, but never did. Court held that this promise was enforceable; to hold
otherwise would be to allow B unjust enrichment.
Per Vincent: This result depends largely on the circumstances; i.e., more likely with professional
relationships than with family relationships. There is also a possibility that this is not contractual at all,
but rather quantum meruit.
Burroughs v. Burroughs
Son grants mother a mortgage to secure repayment of money she has lent him over the
past five years (past consideration). Court finds that these repayments are voluntary mother
likely made the initial payments voluntarily and did not expect to be repaid. Even if she did
expect repayment, no such promise was made when she made the payments.
(iii) Nature of Consideration
Consideration must flow from the promisee, not the promisor. Also, there is a distinction between real
consideration and a mere motive. However, in many cases, the courts will do their best to find sufficient
consideration:
Thomas v. Thomas
Shortly before his death, T had made an oral declaration of his wish that his wife should get
certain benefits over and above what his will provided. Although this was a nuncupative will, his
brothers, the executors of his will, entered into a written agreement with his widow to carry out his
wishes. They state that the consideration is their desire to carry out his wishes, but this is found to
be not consideration but a motive. Also , this consideration flows not from the promisee, the widow,
but from the promisors, who appear to receive nothing in return. However, the court does find some
consideration: the widows agreement to pay a nominal rent and to maintain the house and premises
in good repair, which is an obligation not to the landlord but to the executors.
Harding v. Harding
$1 found not to be good consideration for a land transaction (anomalous decision).
22

Mountford v. Scott
1 is good consideration for a land transaction - nominal consideration is good. Per
Vincent: anything of value will be acceptable as consideration, except when the inadequacy of
the consideration is a clue to something else, e.g., duress.
Re Hogg Estate
Land was given in will to nephew; direct heirs of testator wanted compensation, and
argued that the nephew had already gotten the land in a contract made before the testators
death, and that he therefore owed money to the estate. Prior to the testators death, he agreed
to forego each payment as it came due. Court found that this was, in fact, his intention, and that
the agreement represented a gift which looked like a contract. The consideration was a mere
formality, and so the promise to pay was not enforceable.
Irving v. Irving
Wife was leaving her husband but, concerned about his health, promised him three
years of possession of the marital home, to which he was not entitled. Court found no
consideration; the promise was made only out of the wifes desire to escape her guilt about
leaving, which was not consideration but a motive which had no legal weight.
Copy Cats v. Rosney
R offered cheque in payment of a debt owed to C by a company, now defunct, of which
he was a co-owner. He asked C to defer cashing the cheque for a few days, because he was
overdrawn. When C did cash the cheque a few days later, it bounced. R argued that because
the debt was owed by a separate entity, his promise to pay was unenforceable. Court found
consideration in Cs forbearance to cash the cheque and in a somewhat ambiguously-worded
statement in the cover letter accompanying the cheque, promising a future business relationship.
Court went to great lengths to find consideration.
Some special types of consideration...
Not doing something - e.g., smoking cigarettes. Note that quitting marijuana would not be good
consideration, as there is already a pre-existing legal duty not to smoke marijuana.
Sending in warranty cards when requested to do so - although this has no real value, it is good and
valuable consideration in the eyes of the law.
(iv) Forbearance
Forbearance to sue may be valuable consideration, provided that the forbearing party believes
(subjectively) that there exists a bona fide right to do that which is agreed not to be done:
Stott v. Merit Investment Co.
S was a trader wroking for M, and signed an agreement accepting responsibility for a clients
losses. He did so having been assured by his boss that he would never be required to pay, but sums
were subsequently deducted from his commissions. When he resigned, he brought action to recover
the deductions, and M counterclaimed for the balance owing. S argues that the right to sue was not
one that M had, as the responsibility wouldnt have been his had he not assumed it, so the
forbearance was no good as consideration. Court, however, finds that there was good consideration.
The policy reason for this is to encourage out-of-court settlement. M thought it would have a claim
against S if he didnt sign the agreement.
There is also an economic duress argument made, but the majority answers it by saying that S
went along with the duress at all times, thus affirming what might otherwise have been a voidable
contract. As for the lack of evidence of forbearance in the document signed by S, the court simply
implies a request by S that M refrain from suing, and also holds that the actual forbearance is good
enough.
Dissent: M was motivated not by a bona fideief in its right to sue, but by a desire to force S into
accepting responsibilities which were not otherwise his and ought not to have been.
Manitoba Public Insurance Corporation v. Co-operators General Insurance Co.
Although an agreement was made in light of an uncertain understanding of an unsettled
23

point of law, and MPIC didnt really have to pay as much as it did, the agreement to forbear from
suing was upheld.
Royal Bank v. Kiska
Defendant guaranteed his brothers bank loan, and while the bank did not expressly
agree to forbear, it did not actually claim the brothers securities until four months later. Court
found that this was sufficient forbearance.
(v) Pre-existing Legal Duty
(a) Public duty
(b) Contractual duty to a third party
(c) Duty already owed to the promisor
(a) Public Duty
If a person agrees to perform a public duty in exchange for a promise, there is no consideration.
Consideration can only be found if the promisee provided something extra, beyond the requirements of
the public duty:
Glasbrook Brothers Ltd. v. Glamorgan C.C.
P requested protection from D (police services) for strike-related activities, and agreed to pay
extra money for more protection than D was initially willing to provide. Later, P refuses to pay,
arguing that P was doing no more than its public duty. House of Lords held that the police gave more
protection than they normally would have, so this was good consideration.
Per Vincent: there is a public policy problem here, since the Chief of Police was the one who
decided what was the extent of the publice duty, but also stood to gain from the additional payments.
Conflicts of interest are often at issue in public duty/consideration questions.
Ward v. Byham
English law imposed duty on mothers to care for illegitimate children without any
obligation for support by the fathers. Still, an agreement wherein the father offered to pay a
weekly allowance to the mother in return for her ensuring that the child is well looked after and
happy and given the choice of which parent to live with was held to be backed by consideration
because of the requirements over and above basic care.
Denning L.J., in a partial dissent, preferred not to find any additional requirements but
instead to hold that the promise to perform an existing duty is good consideration because of the
benefit it confers upon the promisee.
(b) Duty Owed to a Third Party
Shadwell v. Shadwell
Nephew becomes engaged, which leaves him with a contractual obligation to marry his
fiancee. Uncle promises him 150 per year if he marries, and pays him this sum until he dies,
when his estate refuses to continue paying. Court finds good consideration.
Scotson v. Pegg
Applies Shadwell in a commercial context. S had a contract to sell coal to X and to
deliver it to whomever X said. Before the coal arrived, X sold it to P and instructed S to deliver it
to P. P made a subsequent promise to S, to unload coal at a certain rate in return for delivery,
and although P unloaded it too slowly, S still had to deliver it. Court found that the pre-existing
duty owed by S to X was good consideration.
Fulfilling a pre-existing obligation to a third party is still good consideration, as it gives the promisee a
direct action against the promisor:
Pau On v. Lau Liu Long
D trades shares in a private company to Ps company (FC) in exchange for a building. P agrees
to hold on to the shares for a time in order to avoid great devaluation resulting from a large-scale sale
of shares. A subsequent deal is made in which D agrees to guarantee the value of the shares until
the time when it is agreed that P can sell them. The value drops, and D refuses to fulfil the
24

guarantee, arguing that Ps promise not to sell was made as part of an already-existing contract with
FC, and was therefore not good consideration. Court disagrees, holding that by making the additional
agreement P exposed itself to a direct action, which D would not have had if the second agreement
had not been made. This benefit to D is therefore good consideration.
Ds alternative argument was that the second agreement was made in response to past
consideration (the original agreement of sale), but the court responded that P didnt sell was because
they were asked not to, and shortly after the agreement was made, they were told that they would get
an indemnity in return. This was the real consideration, and was only a quantification of what
everyone knew would be given as consideration when the second contract was made.
(c) Duty Owed to Promisor
An agreement to vary a contract which is already in place is not backed by good consideration and is
therefore unenforceable. When a contract is to be altered, each side must give new consideration:
Gilbert Steel Ltd. v. University Construction Ltd.
G agreed to provide steel bars to U for a project, and did not include an escalator clause in the
agreement. Subsequently, Gs materials costs rose, and the parties entered into a new contract,
rescinding the old one. When costs rose again, the parties agreed to a price increase, but did not
enter into a new written agreement. Court finds that Us agreement to do something it was not obliged
to do is unenforceable, because it is not backed by any new consideration on the part of G. Court
also rejects argument of rescission and substitution, as the new agreement is identical except for the
increased price. Also rejects increased credit argument.
Per Vincent: In this type of case, the issue is often duress; since the building was already
partially built, U would have had problems had it refused Gs request. Still, many argue for the
enforcement of promises, freely made, for the alteration of existing contractsthis is more reflective
of commercial reality.
Stilk v. Myrick
Ship crew is asked to work shorthanded after some sailors jump ship, and a bonus is
promised in return. Court holds that the promise is unenforceable, because all they were doing
is working the ship home, which was the subject of the original contract; nothing else has
changed.
Hartley v. Posonby
Half of ships crew falls ill, and remaining crew is offered a bonus if they work
shorthanded. Unlike in Stilk, the court here holds that the circumstances were beyond the
normal hazards of voyage, and so the promise is enforceable.
Smith v. Dawson
S agrees to build a house for a lump sum. When he is almost finished, it burns down,
and D collects insurance. S demands more money or he will not continue. Forbearance from
breaking an existing contract is not good consideration for another contract.
Metric Excavation v. 619908 Ontario Ltd.
The excavation which M was contractually bound to do was more than was originally
anticipated, so the defendant agreed to pay 6% more for some of the additional work. However,
part of the additional cost was created by the defendants request to delay some of the work,
which moved the project into winter. Therefore, the agreement to pay more was enforceable, as
each side was getting consideration.
Modular Windows of Canada v. Command Construction
M had agreed to supply windows to C, but did not do so in time and later demanded that
C sign a contract obliging it to pay an additional $6000. The new agreement entailed exactly the
same obligations as before for M. Court found this unenforceable, both because there was no
new consideration and because of economic duress.
Maier v. E & B Exploration Ltd.
Stock option plan offered in lieu of bonus scheme, with no change to employees
25

obligations. Court upholds the agreement; employees continuing in the job is sufficient
consideration.
Hidrogas Ltd. v. Great Plains Development Co.
G contracted to supply gas to H at a certain price with an option for termination with 60
days notice. Market was rising, and H feared termination, so voluntarily offered to pay more for
the same service with an understanding that a new contract would be negotiated at a certain
date. Court found that Gs consideration was offering the gas to H at market price before offering
it to others.
North Ocean Shipping v. Hyundai Construction Co.
H agreed to build a ship; N to pay in instalments. After the first instalment, H requested
a 10% increase to accommodate the devalued U.S. dollar. This was economic duress, but N
affirmed the contract by continuing to pay the increased price after escaping the duress (had
acquired a lucrative new account). Consideration was Hs agreement to increase their letter of
credit.
DeLuxe French Fries v. McCardle
P agreed to buy 20,000 bags of potatoes at a given price, but after some were delivered,
D demanded an increased price. P paid it, but later claimed damages for breach of contract
after D refused to deliver any more potatoes without another increase. Court held that there had
been rescission and substitutionthat is, a new contract had replaced the original one, which
had been rescinded. Therefore, the plaintiffs damages were calculated based on the new price.
O.L.R.C. suggests that consideration ought not to be required to alter a contract, provided the agreement
to do so is made in good faith. Also, the doctrine of frustration provides that a material change in
circumstances makes a promise to continue to carry out a contract into a new contract; this is like
rescission and substitution, but by operation of law rather than by mutual agreement.

26

Practical consideration and the bird in the hand argument: Consideration may be found in the practical
benefits derived from continuing in a contractual relationship with the same person rather than having to
find someone else to do the work and/or to sue for breach of contractforbearance from laying down
the shovel and miscellantous other practical benefits inherent in business:
Williams v. Roffey Bros. & Nicholls (Contractors) Ltd.
W is sub-contractor and R is contractor. W working slowly and causing R to fear penalties for
late completion. R offers an incentive bonus for completion of the agreed-upon work, but refused to
pay after a while. Court finds consideration: getting the work done in time to avoid penalty (which
would be more expensive than the bonus), not having to find someone else to do the work,
continuance of relationship. This is not economic duress, as the bonus was offered by R and never
requested by W; this is also further consideration, in that R avoids having to sue W for breach.
Per Vincent: The question of duress must always be addressed in cases of this type, but if the
promise is freely made, consideration will usually be found.
Anangel v. IHI
D supplying ships to P over a period of time and at an agreed price. When the shipping
industry goes sour, D gave P certain benefits voluntarily, in order to keep up good relations.
There was no duress; the promises were enforceable as the consideration was found in the
continuing good relations with the customer. Williams v. Roffey applied
Husky Oil v. Forest Oil
H compromised a right of first refusal in return for Fs provision of certain information
already required under a previous agreement. This was good consideration; the actual
information in hand was worth far more than a mere cause of action for damages.
(i) Accord and Satisfaction
Accord and satisfaction applies to cases involving executed contractsi.e., where one party has
fulfilled his obligations under the contract, and obligations are outstanding on the part of the other party.
Once the contractual duty has been executed, alterations in terms are not generally enforceable without
new consideration. For example, if X lends Y $100 and subsequently agrees to take only $90 in return,
thats probably unenforceablewhat did W get in return for this promise, other than less than she was
already owed?
Accord=Promise

Satisfaction=Consideration

Prima facie exception: Agreements under seal.


Other potential examples: Payment by negotiable paper, early payment, payment in a different
jurisdiction or currency, other different terms of paymentbut only if this is requested or expressly
accepted by the promisor; cant foist these benefits for satifaction.
Generally, payment of a lesser sum than is owed, on or after the day on which it is due, cannot be good
consideration for accepting the lesser sum:
Foakes v. Beer
F was the judgment debtor of B, and B signed an agreement in which she agreed to allow F to
pay in instalments over a period of years after the debt was due in full, without interest, and not to
take any further action on the judgment. Once the entire debt had been satisfied, she claimed
interest, to which she was entitled under the original judgment but which she had appeared to waive
under the subsequent agreement. Despite the accord, the agreement is held to be unenforceable,
because there is no satisfaction. There was already a pre-existing obligation to pay, and B got nothing
new in return for agreeing to accept less than what was owed.
Relies on the doctrine in Pinnels Case (1602): Paying less than is owed, on the day it is owed,
cannot be good consideration for accepting the lesser sum.
Re Selectmove
Facts similar to Foakes v. Beer. Defendant attempted to argue, as in Williams v. Roffey
Bros., the bird in the hand argumenti.e., practical benefits were good consideration for the
agreement to accept less. Case decided on other grounds, but court rejected the argument in
27

obiter.
Robichaud v. Caisse Populaire de Pokemouche
C was Rs judgment creditor and agreed to remove the judgment of $3780 in return for
one payment of $1000. Cs board refused to ratify the agreement, did not cash the cheque, and
sued R fot the whole amount. Court found for R, saying that C got consideration, in the form of
the good ol bird in the hand.
This is only a suspensory agreementi.e., if the lesser amount is not paid, the original
debt again comes into force.
Gencon Construction v. M & Y Construction
Composition with creditorsi.e., when all creditors of X unanimously agree to accept a
lesser sumis treated as good consideration. Its not really about consideration, thoughthe
court just doesnt want to be used as an instrument of fraud, potentially allowing one creditor to
bolt from the agreement and sue for all the money.
Budget Rent-A-Car Ltd. v. Goodman
Where a debt is purported to be satisfied by a lesser amount paid by a third party, this is
treated as good consideration; to hold otherwise would allow the contract between the creditor
and the third party to be broken with impunity.
A promise to satisfy a debt in a different manner than originally contemplated (e.g., cheque rather than
cash) may be good consideration for a promise to accept a lesser sum:
Foot v. Rawlings
F agrees to allow R to pay a lesser sum in satisfaction of a debt, provided that R pays in the form
of a series of post-dated cheques. In the written agreement, F states that he is motivated by a desire
to get what he can out of the deal before he dies. S.C.C. finds that the promise to pay in the specified
mode is good consideration for the promise to accept less. A negotiable instrument may be more or
less valuable; its value is uncertain. The bird in the hand argument is rejected, though; the creditors
motive is irrelevant.
S.C.C. adopts reasoning in Sibree v. Tripp, infra.
Sibree v. Tripp
Debt of 500 satisfied by three promissory notes in the amounts of 125, 125 and 50.
Held that any material variation in the mode of payment may be good consideration for
accepting lesser value in respect of the sum owed. Disdain for the doctrine in Pinnels Case is
clear.
D & C Builders v. Rees
English C.A. distinguishes Sibree v. Tripp, but holds that it is not good consideration to
substitute a cheque for cash, as no discernible difference can be found between the two. (Some
even argue that a cheque is less valuable than cash, as it is not immediately liquid and could
bounce). Also, economic duress is found in the promise to take less than is owed, as P was
having a cash flow problem and D was well aware of that fact when it extracted the promise.

28

Phillip v. Maasey-Ferguson Finance Co.


D financed Ps purchase of a combine. P got into arrears, and eventually remitted a
cheque for more than the arrears but less than the total amount owing, and marked the cheque
Payment in Full. Cheque was cashed and D was silent until a year later, when they demanded
payment of the balance. P argued accord and satisfaction, and court agreed; D was bound by
their conduct because Ps intention was perfectly clear, the cheque was for more than was
immediately owed, and Ds silence was held to symbolize agreement.
Woodlot Services Ltd. v. Flemming
P did work for D and submitted a bill for $8600. D offered $6500 as payment in full. P
refused offer, but D still sent cheque for $6500, marked Payment in full as per telephone
conversation and accompanied by a cover letter saying I hope you find this satisfactory. On
advice of counsel, P cashed the cheque and immediately sued for the balance. Court sees Ds
conduct as indicating that everything was tentativeP never agreed or intended to be bound,
and cashed cheque only on legal advice.
Court also rejected any notion that D might have had a legitimate quarrel with the quality
of the work, such as to justify payment of a lesser sum. There must be an HONEST dispute as
to the value of the good or service.
Remember:
There must be agreement before satisfaction is even considered.
Accord and satisfaction is only suspensory; if the promisee defaults on the new agreement, the old
agreement comes back into force.
(ii) Legislation
Mercantile Law Amendment Act of Manitoba, s. 6 (paraphrased):
6(1) Part performance of an obligation either before or after a breach thereof extinguishes the obligation
(a) when expressly agreed to by a creditor in satisfaction [usually in writing, and after the fact i.e.,
lesser sum is paid and creditor expressly agrees to accept it]; or
(b) when rendered pursuant to a (new) agreement, even without new consideration.
6(2) Part performance under 6(1) will not extinguish the obligation if the court finds that it is
unconscionable to so allow.
6(4) An agreement under 6(1)(b) may be revoked where
(a) performance of the agreement has not been commenced by the debtor; or
(b) the debtor has commenced performance but has failed to continue performance within a specified
time and it would be unreasonable to expect the creditor to give the debtor more time to remedy the
default.
Graham v. Voth Bros. Construction
D, knowing P was facing economic ruin, forced him to agree to take less than he was
owed. Obviously, this was economic duress. B.C. has a law similar to the Mercantile Law
Amendment Act. The statute doesnt apply unless the agreement is voluntarily madeto allow
otherwise would be unconscionable (analogous to s. 6(2) of our Act).
DONT FORGET THE ACT!
Professor Linda Vincent, 23/01/95

29

(vi) Waiver and Promissory Estoppel


Estoppel, generally: If a person states a fact with the intention that people will believe it and act on it,
the court will not subsequently hear him say otherwise. He is to blame for any actions taken in reliance
on that statement. But can this apply to statements of promise as well as to statements of fact?
Traditional formulation for promissory estoppel: When a promise (a) is intended to be binding, (b) is
intended to be acted upon, and (c) is indeed acted upon, it is binding so far as its terms properly apply.
This may be so even if no consideration is found:
Central London Property Trust Ltd. v. High Trees House Ltd.
Due to war conditions prevailing in England at the time, P agreed in writing to reduce Ds ground
rent by half. The vacancy rate dropped after the war, and Ps receiver tried to collect the original rate
of rent, along with arrears. D argues that the wartime rent is still applicable, or, alternatively, that P is
estopped from alleging that the rent is higher. Denning J. finds that the promise did indeed satisfy the
criteria for promissory estoppel:
(a) Promise is intended to be binding;
(b) Promise is intended to be acted upon; and
(c) Promise is indeed acted upon.
Therefore, the promise may be enforced notwithstanding the admitted lack of consideration.
However, Denning points out that the promise is binding only insofar as its terms properly apply.
Therefore, since the rent reduction was initially offered in response to the war, it elapsed when the war
ended. Rent reverted to original rate after the war, so P is only entitled to the difference from 1945
on.
Denning also says this could apply to executed contracts as well as to executory contracts. As a
result, Foakes v. Beer and similar cases might be decided differently if this case is to be applied...
Hughes v. Metropolitan Rwy.
Lease with option to renew if tenant was not in default in any way. Tenant wanted to
make repairs to avoid being in default, but landlord said not to hurry, so they didnt. Then the
landlord accused them of being in default and refused to allow them to renew. At common law,
they would haven out of luck, but equity allows the promise to be enforced.
(a) The Promise
Passive conduct cannot be taken to indicate intention to alter an agreement such as to give rise to
promissory estoppel. There must be unequivocal conduct. Central London Property taken to apply only to
situations in which the parties enter into negotiations which have the effect of leading one party to
believe that the strict rights of the contract will not be enforced:
John Burrows Ltd. v. Subsurface Surveys Ltd.
D to pay for Ps business in instalments; contract included an acceleration clause, which permits
the creditor to claim the entire amount due if the debtor ever defaults on a payment. D consistently
defaulted, but P didnt invoke the clause until 18 months later, after the two became estranged. D
argued that Ps prior conduct indicated an equitable estoppel situation as in Central London Property.
S.C.C. disagreed: There was no active conduct on the part of D, only passive conduct and silence. It
was just a friendly indulgence; D cant be taken to have given up his rights entirely just because he
didnt demand their strict enforcement.
Policy statement: Estoppel cannot be allowed in this type of case, because commercial reality is
that parties often allow each other friendly indulgences, and to allow these to give rise to estoppel
would be to force parties to enforce their contracts absolutely strictly to avoid impliedly waiving their
contractual rights.
Morrison Lamothe Inc. v. Bedok
Tenant withheld rent until heat was fixed. Court said this was permissible, but the tenant
had to resume payment as soon as the heat was restored; at that poin, the friendly indulgences
of the landlord could rightly cease.
Owen Sound Public Library Board v. Mial Developments Ltd.
30

O was to pay M for work on an addition, within a certain time after the granting of an
architects certificate, but didnt do so. M subsequently wanted to get out of the deal, but had
promised to seal the agreement notwithstanding that O hadnt paid in time. Court estopped M
from going back on its word.
Reasonable interpretation will be attempted to interpret what was intended by a partys
activity or inactivity. Here, the promise could logically be interpreted as an agreement to
postpone Os obligation.
Rosenblood Estate v. Law Society of Upper Canada
Client sued lawyers estate, which was assisted by D, the insurer. Later, D realized that it
didnt have to pay for this particular type of claim, but court allows the estoppel argument: by
taking the case, the insurer implicitly promised to pay.
Maracle v. Travellers Indemnity Co.
P was injured in a car accident and D offered to pay, but P didnt file a statement of claim
until the statutory limitation period had emapsed. Court held that the promise to pay did not
amount automatically to a promise not to rely on the statute. The admission of liability was only
meant to facilitate settlement, not to foreclose their rights.
Marchischuk v. Dominion Industrial Supplies
Similar facts to Maracle, except dealing with fire damage.
(b) The Equities
There is no estoppel where there is no true accord, so economic duress in the making of a promise
precludes the promisor from being estopped:
D & C Builders Ltd. v. Rees
Executed contract, with money still owing to P. D is aware of Ps precarious financial situation
and extracts a promise to take less money than is owed by saying that if they dont accept 300 in
satisfaction of the 480 owed, they will get nothing. Lord Denning M.R. finds that the promise was
made under economic duress, so the promise cannot be estopped. A threat to break an enforceable
agreement is not acceptable as a precursor to a promise worthy of estoppel.
(c) The Notice
Even a promise capable of being estopped can be revoked after a certain time, but there must be notice
that the promise will elapse. Whether the notice must be specific as to when the promise will elapse or
merely an intimation that the promise will elapse after a reasonable time is still unclear:
Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co.
S sent a cheque which never arrived. After the grace period had elapsed, M made an offer of
late payment, which S ignored, thinking it had already paid. Subsequent correspondence never really
came to Ss attention until several months later, and it eventually reissued the cheque exactly one
year later, specifically because one of the insured was by now uninsurable due to ill health. Court
found that there was indeed representation by M of a promise to suspend its rights, but that there was
notice that the promise was about to terminate (received three months before payment.
Per Harradence J.A.: All the notice that was required was a plain intimation that the promise will
soon elapse; a specific date is not required. S did not respond to the notice within a reasonable time;
three months is more than enough time to cancel a cheque and issue a new one. (However, appeal
allowed on different grounds).
Per Hetherington J.A.: More specific notice was required; for the promise to be properly revoked,
the notice would have had to state a date on or before which payment was required to be received.
Therefore, the estoppel had not lapsed.
(d) The Reliance
In order for estoppel to be indicated, it must be inequitable for the representor to go back on his
representation. For waiver to be so binding, the other party must act on the belief induced by the
representorbut need not necessarily act to his detriment:
31

W.J. Alan & Co. v. El Nasr Export & Import Co.


D agreed to purchase coffee from P, with payment by a letter of credit. Although no specific
reference was made in the contract to the currency in which the letter was to be opened, it was
opened in sterling and P did not complain because there was parity at the time between sterling and
the Kenyan currency. When sterling was devalued, P continued to operate letter of credit but later
billed D for the disparity between the contract price in Kenyan currency and the amount paid in
sterling. Majority held that the contract was variedconsideration was the payment in a different
currency. Lord Denning, in a minority decision, held that estoppel should apply; the buyers relied on
the sellerseresentation that they wld accept payment in sterling, and although they didnt rely on this
to their detriment, there was nonetheless reasonable reliance.
Although a representee need not act on a representation to his detriment for equitable estoppel to be
applied, not in every case where the representee acts on the representation will it be inequitable for the
representor to enforce his rights. If the representees reliance is insufficient to give rise to the equityif
he was in no way prejudiced by reason of the relianceequitable estoppel will not be the result:
The Post Chaser (Societe Italo-Belge ...v. Palm and Vegetable Oils (Malaysia))
P agreed to sell oil, purchased from a third party, to D and sub-buyers. Contract stipulated that
buyer was to be advised in writing as soon as possible after shippiing. Declaration was not made until
over a month later, but buyers initially promise to buy anyway. Two days later, they refuse to buy, and
P is forced to sell the oil elsewhere at a loss. In the intervening days, P had conducted limited
business based on Ds representation of waiver, but court held that this limited reliance was not
sufficient to give rise to an estoppel. P had not been prejudiced in any material wayno money had
been expended, and too little time had elapsed for any real prejudice to result.
(e) Sword or Shield?
Although bringing action to enforce a promise based on an estoppel has the initial appearance of using
estoppel as a sword when it confers no positive rights, the real issue is where the promise originated. If
the plaintiff could just as easily be the defendant, the action may be allowed:
Petridis v. Shabinsky
P leased space from D with an option to renew, in writing, six months prior to the expiry of the
lease. Around that time, P made an oral representation of his intention to renew, to which D
responded that they would meet a few weeks later to negotiate. Fruitless negotiations took place long
after the renewal deadline, and upon the expiry of the lease, D instructed P to vacate immediately.
Unable to vacate on such short notice, P sued, claiming that D had by his conduct waived his
contractual rights. Court finds that Ds conduct signified the waiver of Ds strict contractual rights and
the continuance of Ps right to renew, and it would therefore be inequitable to allow D to return to his
original rights without reasonable notice to P.
It was not an estoppel situation, as the option had ceased before the negotiations commenced;
for estoppel to apply, the promise must be made at a time when a legal relationship exists. However,
court found that Ds failure to enforce his contractual rights constituted a waiver or suspension of the
rights. Waiver occurs after breach, whereas estoppel anticipates breach.
As for the sword or shield issue, the problem is that P is trying to sue on estoppel, which is noncontractual and therefore confers no positive right to bring action. However, court holds that the
present case is not really using estoppel as a sword, because it could just as easily be used a shield,
had P waited for D to bring suit. What is important is not who is the plaintiff and who is the defendant,
but rather, where the promise originated.
If estoppel could be used as a defence if the plaintiff were to be sued by the defendant instead, it is
inequitable not to apply the principle simply because it is not invoked as a defence. There is nothing
wrong with the plaintiffs pre-emptive strike; all that is important to equity is holding the representor to the
promise which he made and upon which the representee relied:
Robichaud v. Caisse Populaire de Pokemouche Ltee
C was Rs judgment creditor and agreed to remove the judgment of $3780 in return for one
payment of $1000. Cs board refused to ratify the agreement, did not cash the cheque, and sued R
fot the whole amount. Court found for R. Although some case law indicates that estoppel is viable
only as a defence (Shield) and not as a cause of action (sword), other authorities are followed in
holding that which party claims the estoppel is not necessarily relevant to the outcome. The estoppel
32

can be used pre-emptively as a shield against the expected claim of the other side.
Estoppel is to create no new causes of action. It doesnt create a contract; it can only be used within an
existing contract, where legal relations exist and where the promise was intended to alter the relations
and be acted upon, and was in fact acted upon. The contract must have been enforceable in the first
placethat is, supported by consideration. Estoppel is not consideration:
Combe v. Combe
In a divorce settlement, husband had agreed to pay his wife a yearly annuity as permanent
maintenance, notwithstanding that his income was less than hers. He never made any payment, and
after seven years, the wife sued for the arrears. Trial judge held that although there was no
consideration for the husbands promise, it was still enforceable under estoppel, as in Central London
Property v. High Trees House. On appeal, Denning held that the High Trees principle operates not to
create new cause of action, but only to prevent a party from insisting on his strict legal rights when it
would be unjust for him to do so. There must have been an enforceable contract to begin with, and
therefore, there must have been consideration. Thus, since the husbands promise was not backed by
consideration, it is not enforceable. The wifes forbearance to sue was not good consideration, as it
was not by the husbands request.
Essential: ESTOPPEL IS NOT CONSIDERATION! Estoppel enforces non-contractual promises.
Major breakthrough in estoppel in Australian High Court. Promissory estoppel allowed to be used to
create a new right where no contract exists. Notwithstanding the lack of a contract, estoppel may now be
used to hold a representor to a non-contractual promise where the usual requirements for estoppel are
satisfied and where it would be unconscionable to allow the representor to escape his statements. The
remedy will reflect what justice demands:
Waltons Stores v. Maher
Pursuant to an agreement subject to contract, which in Australia means that no contract exists,
D begins to develop property to Ps specifications. D knew this was happening and made
representations of approval (everything O.K. unless you hear otherwise, silence on receipt of
executed documents, etc.) Several weeks later, P tells D that they are no longer interested. Combe
v. Combe would not allow estoppel, as there was no contract, but this court is prepared to change the
law, allowing the use of promissory estoppel to create a right. Court looks to American authority,
which states that a promise which the promisor should reasonably expect to be acted upon and which
is in fact acted upon should be enforced to avoid injustice (even going so far as to suggest that
reliance = consideration, and applying this to charitable pledges). The only limitation in Waltons is
that it must be unconscionable to allow the defendant to escape scot-free; here, the plaintiff would
never have done what he did without the encouragement of the defendant.
TRADITIONAL ESTOPPEL (Central London Property, Combe v. Combe):
(a) Promise freely made and intended to be binding.
(b) Promise intended to be acted upon .
(c) Promise indeed acted upon.
(d) Significant reliance (not necessarily detrimental to representee).
(e) Not revoked with reasonable notice.
(f) Made in the course of existing legal relationsi.e., enforceable contract, backed by consideration
where it would be unjust to allow the representor to return to his strict contractual rights.
NEW ESTOPPEL (Waltons Stores):
(a) Belief induced by the defendant.
(b) Defendant knew plaintiff was acting on belief.
(c) Significant reliance.
(d) Unconscionable not to enforce promise.
(e) Not necessarily made in the course of existing legal relations.
Litwin Construction (1973) Ltd. v. Pan
All parties were under the mistaken assumption that certain legislation didnt apply to the
transaction, and when they later realized that L had to do something, it was too late. Investors
wanted to bail out as a result, saying that as a result of Ls inaction, the contracts were
33

unenforceable. Court enforced the contract, as investors had repeatedly reaffirmed their
contracts with L until all of Ls work was completed: estoppel by convention.

34

VI. PRIVITY OF CONTRACT


(i) Introduction
It has been a settled point of law that when A contracts with B for the benefit of C, C has no right to sue
for that benefit. There is no privity; C is not a party to the contract.
Formerly, it may have been permissible for a third party to sue on a contract of which he was a
beneficiary:
Provender v. Wood
W made a contract with Ps father under which each would pay a sum of money to P upon his
marriage to Ws daughter, but W subsequently refused to pay. P succeeded in his action for breach:
Where the benefit of a promis accrues, one may bring his action.
Overturning Provender; now it is established that third party beneficiaries, prima facie, may not sue for
the promised benefit:
Tweddle v. Atkinson
Ts father made a written contract with G (whose executor is A) under which each would pay a
sum of money to T in light of his recent marriage to Gs daughter (this followed an oral agreement
made prior to the marriage). Both G and then his estate refused to pay. Court held that the promise
is not enforceable by T, as he was not a party to the agreement. To allow this would be to allow T to
sue but not to be sued on the contract. His close familial relationship to one of the parties does not
change the result; such natural love and affection does not operate to alter a contractual relationship.
Bourne v. Mason (1669)
Father/daughter relationship seen as one party in a contract, so consideration from the
father was seen as consideration from the daughter. This type of analysis is very rare today, and
seems to have been overruled in any case by Tweddle.
In order to sue on a contract, a person must be directly party to it or it must have been made on his
behalf by an agent. If agency is proposed as a way around the privity problem, there must be
consideration flowing from the third party, either directly or through his agent:
Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd.
Dunlop sold tires to Dew for resale on the condition that Dew, a wholesaler, would not sell the
tires below the suggested retail price except under certain circumstances. A clause in their
agreement stipulated that such special customers were to observe the list price or pay Dunlop 5 for
every tire sold below list. Selfridge sold the tires below list and refused to pay the tariff. Court
refused to allow Dunlops claim for damages, as it was a third party to the agreement of sale between
Selfridge and Dew and therefore has no right to sue for the benefit. Even if Dew had made the
contract as Dunlops agent, no consideration flowed fron Dunlop to Dew, so any supposed promise
would be unenforceable. As it stands, Dew had legal title and had every right to pass title at whatever
price, albeit at risk of suit for breach of contract with Dunlop.
Building a test...
(1) Is C really a third party?
(2) Is C a party by (a) agency?
(b) trust?
(c) statute?
(d) specific performance (i.e., B [the party] sues for the benefit owing C)?
(3) Does consideration flow from C to A in any way?
(ii) Ways in which the third party may acquire the benefit
(a) Statute
Most common law jurisdictions have statutory exceptions to the doctrine of privity where it relates to life
35

insurance; i.e., beneficiaries are, in essence, third parties, but they are still entitled by statute to sue an
insurance company if it refuses to pay out.
A model of statutory privity: Saskatchewan Consumer Products Warranties Act
1. Vertical Privity: Manufacturers liability for statutory warranties
How can the manufacturer be held to its promises, considering that the contract for the sale of goods
is between the retailer and the customer?
Possible collateral contract with the manufacturer (and see Misrepresentations and Terms, infra,
Section IV).
Some provinces have statutes allowing customers to sue manufacturers directlyfor policy reasons,
since the manufacturer is primarily responsible for the shoddiness of the goods, and it is also circuitous
to sue the retailer, who must then sue the manufacturer.
2. Horizontal Privity: Third party beneficiaries of statutory warranties
This affects the original purchaser of a good as well as its ultimate users and subsequent owners
whoever might reasonably be expected to use the product.
Limitations on actions:
1. Only for personal injury, not pure economic loss.
2. Only applies to defective consumer products and for the reasonable life of the product.
The Manitoba Business Practices Act holds whoever makes statements to consumers liable for the truth
of the statements and leaves them unprotected by the doctrine of privity. This is reliance-based and is
similar to the tort of negligent misrepresentation.
(b) Specific Performance
The estate of a deceased party may sue for the full amount owing on a contract, notwithstanding that the
benefit is for a third party. Damages may be in the form of specific performance or whatever other form
is appropriate on the facts. However, the third party may not sue for the benefit in the name of the
deceased:
Beswick v. Beswick
B had agreed to transfer his business to his nephew on the condition that Bs wife be paid a
weekly annuity commencing upon his death and continuing for the duration of her life. The nephew
paid the first instalment and then refused to pay any more. Mrs. B. sued for specific performance and
arrears both in her personal capacity and as administratrix of her husbands estate. At trial, court
ruled that she could not recover, as she was no party to the contract between her husband and his
nephew. On appeal, the majority ruled that she could recover only as administratrix, but Lord
Denning maintained that she could also enforce the contract in her husbands name, but in her
personal capacity.
House of Lords, on the nephews appeal, agreed with the majority and also found that Mrs. B.
was entitled to specific performance on the facts of the case; damages are to be in whatever form is
appropriate and in the full amount owing (so here, because the issue is an annuity, lump sum
damages would not be appropriate).
Jackson v. Horizon Holidays
Husband contracted with D for a family holiday, which ended up a disaster. As specific
performance was not available, the question was whether the husband could recover full
damages for the other beneficiaries, namely his family. Per Lord Denning: can recover (in trust)
for anything family would have been entitled to had they been able to sue.
Woodar v. Wimpey Construction
Sale of land contract where part of the purchase price was to be paid to a third party.
Party sues both for himself and for the third partys share. Although no breach was found by
H.L., it takes an obiter opportunity to reject Dennings decision in Jackson, so this remains an
open question.
(c) Agency
If a party to a contract enters into it as an agent for a so-called third party (the test being whether the
36

partys conduct bears this out, not whether there is an explicit agency agreement), the third party is
actually a party and the agent is a stranger to the contract. This may be implicit in the wording of the
agreement:
McCannell v. Mabee McLaren Motors Ltd.
Both parties were Studebaker dealers. The contract with Studebaker stipulated, inter alia, that if
a dealer sold a car to a customer living in another dealers territory, he must pay to the other dealer
half of the profits. Court held that this clause constituted a contract between each new dealer and all
Studebaker dealers present and future, made on tthe new dealers behalf by the Studebaker
Company. Dealer A agrees with Dealer B to carry out the terms of the clause; in this sense,
consideration flows form dealer to dealer, not to Studebaker, which is a stranger to this aspect of the
larger contract.
The Satanita
In a yacht race, the contract with the race organizers included a clause stipulating that
yacht owners would be liable for damage to others crafts resulting from breach of the rules.
Court interpreted this as the owners contracting with each other, with the organizers acting as the
agent of each owner in his contracting with all the others.
Four requirements for an agency argument, per Lord Reid in Scruttons v. Midland Silicones:
1. Contract clearly states that third party is to be included.
2. Contract clearly states that party is contracting as agent for the third party.
3. Agent is acting with the third partys authority.
4. Consideration flows from the third party.
When a party to a contract acts simultaneously as an agent for a third party, it may be possible to
incorporate the third party using a unilateral contract analysis: the agreement made with the agent
constitutes an offer by A to C, capable of acceptance by Cs conduct, which is also the consideration. If
this offer is accepted, then C is included under all exculpatory clauses and other provisions just like any
other direct party:
New Zealand Shipping Co. Ltd. v. A.M. Satterthwaite & Co. Ltd.
Shipper agrees with carrier to ship a drill to S; agreement in the form of a bill of lading, which
includes a limitation of actions clause with respect to actions regarding damage to the shipped goods
resulting from the carriers actions. The clause purported to protect the carrier and its servants and
agents. N was the stevedore, hired by the carrier, and caused damage to the drill during unloading.
Court held that the clause did apply to N, using Lord Reids four requirements and satisfying the
consideration requirement using the unilateral contract analysis, wherein the stevedores conduct
represented both the acceptance and the consideration: Shipper offered to extend the exemptions to
the stevedore, and the stevedore accepeted the offer by doing the work. This was done
notwithstanding that the stevedore had a pre-existing legal duty to the carrier to perform the work in
question; held that this could still be good consideration.
Per Vincent: The contract could also
have been bilateral, with the stevedore promising to unload the ship in return for the promise of
exemption. This would prevent the owner from revoking the offer once performance had begun but
before the act of acceptance was complete.
Court adjusts the law to reflect commercial reality, business efficacy: exemption clauses result in
less required insurance, which results in lower freight rates for the shipper (benefit!).
Adler v. Dickson
Himalaya Clause: privity through an agent (applies to all of these cases).
Dyck v. Manitoba Snowmobile Association
S.C.C. came to a conclusion similar to New Zealand Shipping. Dyck had signed a
release exempting the MSA from liability for injuries and damage. He later sustained injuries as
a result of a flag mans negligence in standing on the course. Court found that the employee
was protected by the exemption clause, that the MSA was acting as the employees agent so that
there was privity between Dyck and the employee. The consideration flowing from the employee
was the performance of a function necessary to the operation of the race. The authority for the
agency is unclear, but the Himalaya clause is often used to gloss over this requirement.
(d) Employment
37

Employment is a genuine exception to the doctrine of privity. Even if the agency requirements are not
satisfied, employees are able to take advantage of limitation or exemption clauses protecting their
employers. This involves relaxing the doctrine as a matter of public policy and commercial reality; it is
simply unrealistic to hold employees liable separately from their employers for damage caused during
the course of their employment if the employers intended that immunity clauses should apply to the
employees:
London Drugs Ltd. v. Kuehne & Nagel International Ltd.
Warehousing agreement included a clause limiting liability for damage caused to $40 unless
more insurance is purchased by the owner. LD does not do so, and suffers $34,000 damage to its
transformer when it is handled negligently by workers. When the clause stands up with respect to a
claim against K&N, LD tries to sue the workers directly, saying that the contract is with the company,
not with the employees. Court finds that the commercial reality is that employers intend for these
clauses to apply to their employees.
Court considers Greenwood Shopping Plaza v. Beattie and Pettit, in which the defendants,
employees of Canadian Tire, were welders who burned down the store as a result of their negligence.
Since Canadian Tire was not responsible, GSP sued the welders. It was argued here that the
inclusion of the employees in the contract should be implied, since this was the intention of the
employer. This line would only succeed if necessary for business efficacy...
OFFICIOUS BYSTANDER TEST: The presence of the term goes without saying, so its
not expressly included, but without it, the entire contract would be unworkable.
The test failed in Greenwood, because the employees were welders and were not absolutely
required for the success of the leasing contract. This was the basis for distinguishing Greenwood in
London Drugswithout the warehouse workers, the contract could not have succeeded, because who
else would have performed the duties that were the subject of the contract? This is the commercial
reality; since so much of the subject of commercial contracts is carried out by employees of the
contracting parties, they must be deemed to be included in any liability exemptions extended to their
employers. The Himalaya clause, therefore, need not apply only to independent contractors.
Limits to London Drugs immunity:
1. Damage caused in the course of employment.
2. While doing the thing that is the subject of the contract.
3. Clause must implicitly or explicitly include the employees.

38

VII.

REPRESENTATIONS AND TERMS:


CLASSIFICATIONS AND CONSEQUENCES

(i) Introduction
A contract includes its terms and nothing else; extra-contractual statements may be mere puffs, which
have no legal weight, or representations, which carry limited legal consequences.
(ii) Misrepresentation and Rescission
(a) Introduction
If a misrepresentation made by a party to a contract led the other party to enter into that contract, the
result may be rescissionthe contract may be erased altogether, so that neither party has any
obligations. A rescinded contract is treated as if it never existed. However, rescission is a discretionary
remedy, and may be barred by several potential restrictions. Note also that a material misrepresentation
makes a contract not void but voidableit can be rescinded (avoided) or affirmed at the option of the
misrepresentee.
It is also possible that a misrepresentation may give rise to a torteither deceit or negligent
misrepresentationfrom which a claim for damages may flow. If it was an innocent
misrepresentation, though, there is no tort, and the only potential remedy is rescission. If so, the only
money that will change hands will be in the form of restitution, not damages (no damages because no
contract).
(b) Generally
An individual must not be allowed to benefit from his misrepresentation, regardless of whether or not he
knew it was false. Similarly, a misrepresentee will not be held to a contract made on the basis of a
misrepresentation simply because he was negligent in not discovering the untruth of the statement. A
material misrepresentation will give rise to an assumption that the representees conduct was induced by
it, unless contrary evidence is shown:
Redgrave v. Hurd
D agreed to become a partner in Ps law firm and to buy his house based on Ps claim that the
firm made around 400 per year, when previous financial statements appeared to show annual
earnings of only about 200. P claimed that the shortfall was made up by additiona business, proof of
which was to be found in a stack of papers which D did not examine. As it turned out, the practice
was nearly worthless. Court granted rescission, as Ps statement was material and calculated to
induce D to contract. Ds negligence in not examining the papers was irrelevant; P cannot be allowed
to benefit from his misrepresentation, even if it is innocently made (as it appears to be here, as no
deceit is found).
If one party is in a better position than the other to know the facts of a situation, that partys statements
will be taken as statements of fact even if they were supposedly intended as statements of opinion.
Thus, such a statement of opinion will be considered a misrepresentation of fact if the facts which it
alleges turn out to be false:
Smith v. Land and House Property Corp.
D agreed to buy a hotel from P, having been told that it was currently leased to a most desirable
tenant. This turned out to be false, as the tenant went bankrupt shortly thereafter, and there was
evidence that P knew beforehand that the tenant was having financial problems. Court found that
although an honest statement of opinion cannot be a misrepresentation , when the representor has
better information than the representee, his opinion may in fact be taken as a statement of facthe
impliedly states that he has facts to justify his opinion.
Wauton v. Coppard
Court construes one partys statement about the others legal position not as a statement
of opinion, but as a statement of fact.
39

When parties are moving from an existing contract to a new one, failure to disclose material facts
(whether or not they are requested) can constitute a misrepresentation of fact, because the other party
obviously wants and needs to know his position and whether anything has changed:
Bank of British Columbia v. Wren Developments Ltd.
B loaned money to W, receiving shares as collateral and a personal guarantee from A, a director
of the company. The company defaults and a second deal is struck, and A is again asked to
guarantee the loan. Unbeknownst to A, B had been dealing with the shares on the advice of S, the
companys president. Before making the second guarantee, A aksed about the state of the collateral
and was advised by the credit supervisor that he didnt know particulars but would investigate and
advise him. As it turned out, As own financial situation had been severely jeopardized by the dealings
with the shares. Court finds that had A known what really happened, he would not have made the
guarantee. Thus, the bank, by its failure to disclose material facts, made a misrepresentation of fact
and A is entitled to rescission.
(c) Bars to Rescission
(1)
(2)
(3)
(4)

No possibility of restitutio in integrum


Affirmation (express, implied, or by laches)
Execution
Jus Tertii: Innocent third party purchaser for value

If restitutio in integrum cannot be achievedif either the representee or the representor cannot be
restored to his exact pre-contract positionthen it might be unfair to order rescission. In such a case,
damages may be a more appropriate result, unless the situation has been created by the representors
fraudulent dealings. Similarly, if the representee, since becoming aware of the misrepresentation, has by
his actions affirmed the contract, then rescission will not be ordered:
Kupchak v. Dayson Holdings Ltd.
P purchased a motel from D in exchange for two properties and mortgage back. When it comes
to light that D lied about the past earnings of the motel, P informs D of its intention to sue and stops
making payments. In the meantime, D sells a part interest in one of the properties and makes
substantial improvements to the other part. A year later, P sues. Court finds that rescission is the
appropriate remedy, and orders compensation to P in the value of the properties on the day they were
conveyed, as they cannot be returned in the condition in which they were received. Court has the
power to do what is practically just when perfect equity is not possible, andwill not allow the restitutio
bar to prevent rescission, as the situation was created by Ds fraud and subsequent unjust dealings
with the land. There was no affirmation by P, either, and laches does not applyupon discovering the
fraud, they immediately informed D of their intention to rescind.
Wandinger v. Lake
Fraudulent misrepresentation on sale of motel. P could not make perfect restitution
because they no longer had all the chattels they had received under the contract. Because of
the fraud, the court ordered rescission anywayexercising the power to do what is practically
just, as it would be unjust to let the contract stand.
Whittington v. Seale Hayne
P leased land, having been told incorrectly that it was in good sanitary condition. P had
incurred several expenses, including poultry that died as a result of the conditions. Court set
aside the contract and ordered repayment of the rent and taxes, as well as some compensation
for improvements. Vincent: Court should have charged occupation rent.

40

Execution bar: In the case of an innocent misrepresentation, if the contract has already been executed,
there can be no rescission. Additionally, the jus tertii bar is contemplated; the court will not divest an
innocent third party purchaser for value of his interest:
Redican v. Nesbitt
Leasing agreement in which Rs agent made a misrepresentation to N, who was not in a position
to inspect the property personally, about whether or not the property was electrically lit. At trial, jury
found that this was an innocent misrepresentation. As the contract has been executedcheque was
remitted, even if it wasnt cashed immediatelythe execution bar applies, so no rescission. Judge
orders new trial, though, saying that the jury , if properly directed, might plausibly find fraud in the
agents representation. Jus tertii consideredCity of Toronto consented to the replacement of their
old tenant with this specific tenantbut not applied specifically.
(iii) Representations and Terms
In order to claim damages for breach of contract, a misstatement must be shown to be a term and not a
mere representation. There is no definitive test for this; the court must look to the parties intentions and
look for animus contrahendi. In some cases, a representation may be seen as giving rise to a warranty
by way of collateral contract, but this is rare:
Helibut, Symons & Co. v. Buckleton
D purchased shares in a company, which were underwritten by P, a reputable rubber merchant.
Ds understanding was that the company was a rubber company; this notion stemmed from Ps
reputation and from a vague conversation with an agent of P. The shares fell in value, and it came to
light that the company was not really a rubber company. Trial judge found no fraud in the
representation, so there was no tort claim. As for any breach of contract, it was held on appeal that
the representation was neither a term nor a warranty. D argued that there was a contract collateral to
the main contract of sale, in which P guaranteed that it was a rubber company, but there was no such
evidence found and courts tend to view collateral contracts under these circumstances with suspicion
if this was intended as a term, then why wasnt it included in the original contract?
Potential indicators of intention: animus contrahendi:
Assumption of responsibilityI promise, etc.
Parties knowledge.
Was statement made voluntarily, or was it a response to a question?
Custom, convention.
Past dealings.
Subsequent conduct.
Timingthe closer to the actual contract, the more likely the statement is to be a term.
Formalitywriting is an excellent indicator.
Derry v. Peek
Fraudulent statements or false statements made recklessly will give rise to damages for
misrepresentation.
A representation made in the course of dealings and for the very purpose of inducing the other party to
enter into the contract will be seen prima facie as a term. The onus is then on the representor to rebut
this presumption. If the statement is a term, and turns out to be false, the contract is breached and
damages will flow, even if the representor honestly believed it was true:
Dick Bentley Productions v. Harold Smith (Motors) Ltd.
P agreed to buy a car from D after being told that it had been fitted with a new engine 20,000
miles ago. Although D may have believed this, he was in a position to find out the truth, which was
considerably less attractive. Car turns out to be a major disappointment. D argues that his statement
of the cars history was just a representation, not a term. Court disagreesit was made voluntarily,
around the time of the contract, and with apparent knowledge. It doesnt ultimately matter whether
the representor believed the statement was true; if it is a term and turns out to be false, damages for
breach of contract will flow.
Denning M.R. treated it as a collateral contract. Salmon L.J. says that it could also have been
part of the main contract.
41

Oscar Chess v. Williams


D sold used car to dealer, thinking it was a 1948 model when it was actually a 1939
model. This was held not to be a term because the vendor had not bought the car new and was
not an expert, so was actually in a worse position relative to the facts than was the dealer, who
was an expert and could have verified the statement.
How can a manufacturer be held to its statements about the quality of its product, when the item is
actually purchased from a non-associated dealer? Argue collateral contractas if the manufacturer is
saying, If you buy the product, we will make this additional promise regarding its quality.
If the parties to a contract share a common operative mistake about the subject matter of the contract,
the contract is void, and so bars to rescission dont matter. However, this mistake must be about the
actual identity of the subject matter, not merely about its quality. Also, if the buyer has accepted or is
deemed to have accepted the goods in satisfaction of the contract, no claim for rescission may be
allowed:
Leaf v. International Galleries
P bought a painting from D, and both believed it was a Constable. Five years later, P discovered
that it was not in fact a Constable, and brought action for rescission, but the action was blocked by the
execution bar. He also attempted an argument of common mistake, which would render the contract
void rather than merely voidable (non est factum), but Lord Denning finds that the mistake was not
about the identity of the subject matter of the contract, only about its quality. This is a crucial
distinction: if the mistake is only about quality, then the parties still got what they thought they were
getting.
Still, it was a condition, not a mere representation, and P could have recovered damages for
breach of contract, but didnt seek them. Once the goods are accepted in performance of the
contract, though, the condition becomes a warranty, so only damages can flow.
Denning considers that the execution bar may not apply in some cases, but introduces a new bar
to avoid allowing rescission where a claim to reject for breach of condition is barred (and only
damages can flow): DENNINGS POTENCY TESTOnce the buyer has accepted or is deemed to
have accepted the goods (i.e., after the passage of a reasonable time), the claim to rescission is
barred.
VINCENTS SUREFIRE LITIGATION TIP: Although a statement cannot be both a term and a
representation, its smart to claim both. Let the court decide which, if either, it is.
Ennis v. Klassen
K sold E a BMW 728, but changed the numbers to 733i (more expensive model). For
some crazy reason, court found that this was not fraudulent misrepresentation. E only sought
rescission, not breach of contract. Court refuses to apply the execution bar, distinguishing
Redican v. Nesbitt as a contract for sale of land, not sale of goods. Huband J.A. argues that
rescission should be available in sale of goods contracts despite execution, where (a) the
purchasers conduct was reasonable, and (b) denial of the remedy would be unfair.
Result: In Manitoba, the execution bar may only apply to the sale of land, not to the sale
of goods.

42

(iv) Classification of Terms


A term may be either a condition or a warranty. The remedy will depend on this distinction; breach of a
condition is more serious than breach of a warranty. If a condition is breached, the non-breaching party
may repudiate the contracthe may stop performing his obligations altogether. However, this is not true
of breach of a warranty, and wrongful repudiation suits may result. The remedy for the breach ofa
warranty is an award of damages.
Repudiation differs from rescission in that the contract is not erased altogether. The further obligations
owing are eliminated, but the contract still exists insofar as what has already been done.
The traditional approach is to construe the contract based on a determination of the parties intentions,
to label the terms as either conditions or warranties by examining them from the point of view of the
reasonable person.
The new approach: Unless a term is obviously a warranty or a condition, it is an innominate term. It
will be identified after it is breached, and will be so identified with reference to the gravity of the breach.
The test is whether the breach serves to deprive the non-breaching party of substantially the whole
benefit which the contract intended for him to receive. If so, then the non-breaching party may repudiate
trhe contract; if not, he must be content with damages:
Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd.
K contracted for the use of Hs ship, with the provisions that it be seaworthy and maintained in
that condition by a competent crew. The ship is not seaworthy and the crew is not up to par, and the
ship breaks down and is unavailable for 20 weeks. K repudiates the contract, notwithstanding that the
ship is still available for 17 months and is ultimately made seaworthy (they have ulterior financial
motives for doing so). P argues that the seaworthiness was a condition; D counters that it was only a
warranty, and the damages for its breach were expressly contemplated in the contract. Diplock L.J.
introduces the above analysis and finds that K was not deprived of the whole benefit, so the remedy
will be damages; no repudiation is allowed.
The Hong Kong Fir approach has since been characterized by the House of Lords as an addition to the
existing approach to categorization of terms; it does not replace the old system. The new approach
contemplates three categories of terms:
(1) Conditions
(2) Warranties
(3) Innominate terms, the breach of which may turn out to be equivalent to the breach of either a
condition or a warranty, depending on the effect of the breach on the non-breaching party.
This approach focuses on the eventthe breach is acknowledged, but instead of going back and
examining the parties intentions at the time of the contract, it seeks to remedy the breach with reference
to the gravity of its ill effects on the non-breaching party.
Alberta C.A. treats the Hong Kong Fir approach as only the third step of a three-step analysis. To
determine the character of a term, first look to what the contract says, then look at the surrounding
circumstances, and if the question still isnt answered, then employ the Hong Kong Fir analysis:
First City Trust Co. v. Triple Five Trust Corp. Ltd.
Dober sells land to T under a 10-year instalment plan, retaining full ownership until payments are
made in full. He mortgages the land to F, exceeding the limit of his mortgage capacity under his
agreement with T, and then defaults on the mortgage. F takes this opportunity to attempt to
repudiate, saying Dober has breached their contract. F disagrees, and attempts to use Ts nonpayment to invoke an acceleration clause. Using the above three-step analysis, court stops at the
second stepthe factual matrixbecause the original contract between Dober and T clearly
contemplated a remedy for breach which did not entail repudiation. Had this not been the case, only
then would the Hong Kong Fir analysis have been employed.

43

Field v. Zien
Contract for sale of a business stipulated that on the closing of the transaction, the firms
receivables would exceed its accounts payable by $109,865. It fell short of this figure by
$14,000. S.C.C. employed a method similar to the Hong Kong Fir analysisan examination of
the seriousness of the breachand held that on balance, the detriment suffered by the purchaser
as a result of the breach was not sufficient to justify repudiation of the agreement. Damages
were an adequate remedy.
Wickman Machine Tool Sales Ltd. v. L. Schuler A.G.
This is an example of the traditional approach in action. P was to distribute Ds product
in England, and the contract stipulated that he or a representative was to visit each sales outlet
weekly to sell the product. A few visits are missed, and D attempts to repudiate contract. A
general termination clause requires 12 months notice before cancellation unless there has been
a material breach that has gone unremedied for 60 days, but D argues that the breached term
was a condition, so the contract can rightfully be repudiated. H.L. finds that the breach is not
unremediable, and says that in the larger context of the contract, it is unreasonable to suppose
that this relatively insignificant breach can lead to repudiation of the entire contract. Therefore, it
finds that the term is a warranty, and denies D the right to repudiate.

44

VIII. UNILATERAL WAIVER OF A CONTINGENCY


Contingent contract: There is no doubt that a contract has been formed, but it is subject to a
contingencyin essence, a condition precedent to performance. Examples include a sale of a house
subject to the purchasers being granted a mortgage, or the purchase of land subject to the granting of
zoning approval by a certain date. In these cases, it is understood that if the contingency isnt met, the
deal is off. Usually, the contingency is for the benefit and/or protection of one party or the other.
What if the party whom the contingency is intended to benefit wants to waive the contingency and
proceed with the deal notwithstanding that the condition hasnt been met?
Beauchamp v. Beauchamp
(Ont. C.A.) Agreement to purchase house subject to the purchasers acquisition of two
mortgages, one for $10,000 and the other for $2500. Instead, he gets one mortgage for $12,000.
Court: Since the condition exists only for the benefit of one party, it may be waived unilaterally by
that party.
Turney v. Zhilka
(S.C.C.) Agreement to purchase land, provided that it could be annexed to the
neighbouring village. A true condition precedent is one that depends on the will of a third party,
i.e., that cant be satisfied without the cooperation of a third party. Such a condition cannot be
waived unilaterally.
In Canada, if the right to waive a contingency unilaterally is not explicitly stipulated in the contract, no
right to waiver will be implied, even if the clause is for the sole benefit of the party attempting to waive it.
Canada is unique in this area; all other common law jurisdictions permit unilateral waiver:
Barnett v. Harrison
Contingent agreement for the sale of land (subject to zoning approval). Although the
contingency is not met, the purchaser still wishes to complete the deal, but the value of the land has
risen and the vendor is looking for a way out. He relies on Turney v. Zhilka. The majority upholds
this argument, and reiterates that the defining characteristic of a true condition precedent is the
reliance on a third party. Dickson J., for the majority, outlines several reasons for continuing to rely on
Turney, including some rather unconvincing arguments involving administrative convenience,
predictability, and undue uncertainty for the vendor. The strongest arguments appear to be (a) that
allowing the waiver when the responsible party fails to satisfy the contingency is tantamount to
waiving ones own default, and (b) unwillingness to rewrite the contract by introducing the right of
waiver.
Per Laskin C.J.C. (dissenting): Just because the vendor may have an interest in the contingency
doesnt mean he has a benefitit really doesnt matter to him whether or not the condition is met. A
true condition precedent should be only that which benefits both parties, and which it would
accordingly be unfair to allow one party to waive unilaterally. A clue to who benefits from the
contingency might be found in whose responsibility it is to ensure that the condition is satisfied; if it is
the sole responsibility of one party or the other, its probably for the sole benefit of that party.
F.T. Developments v. Sherman
Party attempts to waive contingency after deadline for acceptance. No dice. Waiver
must be timely and clear.
OReilly v. Marketers Diversified Inc.
Land sale contingent on the purchasers being able to buy an adjacent parcel of land.
Court did not allow this condition to be waived. Laskin disapproved of this decision; if unilateral
waiver isnt allowed here, when can it be allowed? Probably never.

45

IX. EXCLUSION CLAUSES


Often, contracts contain clauses that purport to exempt one party or the other from liability arising from
any number of potential circumstances. These are certainly legal; however, the court is concerned with
such clauses when they arise in standard form agreements. Specifically, the concern is whether or not
the other party knew what the clause contained when entering into the contract.
(i) Unsigned Documents
If the reasonable person would not expect a particular clause to be included in the contract, sufficient
notice must be given to that party before the clause can be relied on:
Parker v. South Eastern Railway Co.
P deposited a bag in the cloakroom of the railway station and received a ticket in return for
payment. On the back of the ticket were printed a number of clauses, including a clause stating that
the company would not be liable for any packages exceeding the value of 10. Court rejects
argument that P's silent acceptance of the ticket constitutes acceptance of D's offer. Instead, a threepart test is set out:
1. Did P see that there was writing on the ticket? (practically assumed)
2. Did he know that the writing contained conditions, even if he didnt read them?
3. Ought he to have kown that there were conditions? i.e., was reasonable notice given?
The upshot of the test is that if the clause is sufficiently brought to the party's attention, then his actual
ignorance of its contents is irrelevanthe is deemed to know.
For an exemption clause to be included in the contract, it must have been brought to the other partys
attention before or at the time of the making of the contract. New terms cannot be introduced unilaterally
after that time:
Thornton v. Shoe Lane Parking Ltd.
P parked his car in D's lot. There was a sign outside reading all cars parked at owners risk and
an automatic ticket machine, which issued a ticket and activated a green traffic light. Small print on
the left hand corner of the ticket purported to incorporate by reference a number of conditions printed
on signs inside the garage and inside the office. Among these was a clause excluding D from liability
for any personal injury caused while the customer's car is parked in the lot. Lord Denning finds that
the presence of the ticket machine is the offer and the activation of it is the acceptance, so the
contract couldn't be varied afterwards. For incorporation by reference to have worked, it must have
been convenient to obtain the terms, but it was not.
Olley v. Marlborough Court Ltd.
P checked into hotel and paid at the front desk. On the back of the door of his room was
posted a list of conditions, including a clause exempting the hotel from liability for items stolen
from rooms. His wifes fur coat was stolen. Court found that the notice had come too late, as the
contract had been completed at the front desk, before P had seen the conditions. There was no
consideration to support an alteration or new agreement.
If a clause in a contract is particularly onerous or unusual, it is the duty of the party seeking to rely upon it
to show that the other party's attention was explicitly drawn to the clause and its contents:
Interfoto Picture Library Ltd. v. Stiletto Visual Programmes Ltd.
D requested photographs from P, who sent them in a package with a delivery note. The note
contained a number of conditions, including one setting out a late return fee of 5 plus tax per picture
per day. D returned them a month late. While the delivery note was contained in the package, and
so D knew or ought to have known that the document was contractually-intended, the late fee clause
was so unusually onerous and unfair that P was required to give special notice of its presence to D. It
could have been agreed to, but only if expressly so. Bingham L.J. thinks fairness, not notice, ought to
be the issue.
So heres where were at: A clause which the reasonable person would not expect to be present must be
brought to the partys attention. This is particularly so if the clause is especially onerous or unusual. Still,
note that it is objective notice that is the issue, not subjective knowledgeso if one has done all that
need reasonably be done and the other party still doesnt get it, he will nonetheless be deemed to know.
46

Its a reasonable standard, not actual knowledge.


A limitation of liability clause is subject to the same notice requirements as an exemption clause.
However, if its limitations only apply to the subject matter of the contract and not to exceptional
circumstances (such as limitation of liability for breach of contract), it is prima facie reasonable and
particular notice need not necessarily be drawn to it. Subsequent conduct of the parties and consistency
of dealings may also be clues as to whether or not a clause is part of the contract:
Spurling (J.) Ltd. v. Bradshaw
D delivered eight barrels of orange juice to P for warehousing. The receipt contained a reference
to clauses printed on the back, one of which was a clause purporting to exempt P from liability for loss
or damage resulting from their own negligence. The receipt also said that the goods would not be
insured unless special arrangements were made; none were made. The barrels were returned in
damaged condition and for the most part empty. P relied on the clause to exempt them from liability.
Lord Denning found that the clause was part of the contract sufficient notice was given and the
parties subsequent conduct (especially the payment of rent) bore this out. The clause itself was
reasonableit purported to release P from liability only for ordinary negligence, not breach of the
contract. Also, the fact that D had received many such receipts with similar clauses in the past was
significantconsistency of dealings.
Unfair Contract Terms Act, 1977 (U.K.)
1. In standard form agreements governing consumer transactions, clauses must be
reasonable to be relied upon.
2. A clause will be void if it purports to release a party from liability for personal injury
caused by that partys negligence or fault.
British Crane Hire Corp. v. Ipswich Plant Hire Ltd.
Extension of consistency of dealings: In commercial transactions, if a clause is mainly
consistent with the industry standard, it will be taken to be part of the contract if the usual
conditions are contemplated (i.e., regardless of sufficiency of specific notice).
(ii) Signed Documents
L'Estrange v. F. Graucob Ltd.
This is the traditional view, the starting point: When a document containing contractual
terms is signed, then, in the absence of fraud, or...misrepresentation, the party signing it is
bound...whether he has read the document or not. Burden of proof therefore on P to show fraud
or misrepresentation.
Curtis v. Chemical Cleaning
P took wedding dress to be cleaned; signed form after being told it exempted D from
liability for damage to sequins and beads. In fact, the clause covered all liability, and the dress
was stained, but the signature was not bindinginnocent misrepresentation.

47

New rule: A mere signature is not enough; evidence of notice must be shown by the party relying on the
clause. The burden of proof seems to have shifted:
Tilden Rent-A-Car Co. v. Clendenning
D signed a rental contract and paid an extra fee for extended coverage which supposedly limited
his liability for damage to nil. However, conditions printed faintly on the back included that the vehicle
would not be driven in violation of any law or by any person who is intoxicated or has consumed any
amount of liquor. He crashed the car and pleaded guilty to a drunk driving charge, so P claimed that
the exemption didnt apply. Court held that he couldnt have been taken to have agreed to the
conditions on the back, as they were technically quite onerous and wholly inconsistent with those
apparent on the front. No notice was given of the inconsistencyin fact, clerks were instructed not to
mention it, and if asked, to make a mild misrepresentation (i.e., dont drive drunk, dont violate the
Criminal Code).
Obiter dictum revisiting concepts of past consideration and sufficiency of notice with respect to liability
limitation clauses:
Delaney v. Cascade River Holidays
Ps husband was killed on a white water rafting trip organized by D. It was alleged that his death
was the result of Ds negligence in not supplying adequate life jackets, but the majority could not find
causation and dismissed the claim. In his dissent, Nemetz C.J.B.C. found that the waiver was signed
after the contract for the trip was completed, so there was no consideration to support the new
agreement (only past consideration). The majority disagreed, saying that the consideration was
allowing him to carry on with the trip, as it was Ds policy not to allow people to travel without having
signed the waiver (but isnt that forbearance from breaching a contract?). As for notice, Nemetz
found that the hurried manner in which the waiver was signed and its overwhelming and misleading
content makes the notice insufficient, even though it was a very simple contract. Again, the majority
disagrees, choosing to apply LEstrange.
Trigg v. MI Movers International Transport Services Ltd.
No evidence that contract was executed in a hurried manner, and it wasnt particularly
onerous, but the Clendenning principle was applied, thus extending the principle to require
sufficient notice in all cases in which standard form agreements are signed.
Crocker v. Sundance Northwest Resorts Ltd.
P went tubing while drunk and was rendered quadriplegic. Organizers encouraged both
his excessive drinking and his tubing while drunk, and were found 75% liable for his injury. He
had signed a liability waiver, but S.C.C. held that he wasnt bound by iteven though it was a
simple contract, there was insufficient notice. Seems to apply Clendenning. Possible mitigating
factors (per Vincent): consumer transaction, personal injury, might have been drunk when signing
waiver.
(iii) Fundamental Breach
An exclusion clause only works when the contract is being carried out in its essential respects. If the
clause purports to cover a breach that goes to the root of the contract, it will not be valid:
Karsales (Harrow) Ltd. v. Wallace
W agreed to purchase car from K after having inspected it and finding it to be in excellent
condition. When it was delivered, though, it was in deplorable condition and would not go. K
attempted to rely on an exemption clause stating that No condition or warranty that the vehicle is
roadworthy or to its age, condition or fitness for any purpose is given by the owner or implied herein.
Denning held that this clause could not apply, as an essential term of the contract, particularly in light
of the initial inspection, was that the car was in good condition. Failure to deliver in that condition
constitutes a fundamental breach which cant be excused by an exemption clause.
Suisse Atlantique... v. N.V. Rotterdamsche...
Instead of Dennings formulation as a rule of law (i.e., if x, then y), the question of
fundamental breach should be one of construction. Parties intentions should be looked at along
with the contract as a whole, and it should not automatically be assumed that the parties did not
48

intend to exclude liability for a horrible breach


Harbutts Plasticine Ltd. v. Wayne Tank & Pump Co.
Back to a rule of law, thanks to Lord Denning. If breach is so horrible that it goes to the
root of the contract, then it is a fundamental breach that cannot be counteracted by the operation
of any exemption clause.
The House of Lords lays the issue to rest: Back to the construction principle. The parties in a contract
may have intended to exclude liability even for a horrible breach, and if this is so, the courts should not
scuttle the parties intentions. All that matters is whether the clause covers the situation at hand:
Photo Production Ltd. v. Securicor Transport Ltd.
D had been hired to provide night security for Ps factory, and one night, an employee of D
deliberately set a fire inside the factory, burning it down. There was an exemption clause purporting
to exempt D from liability for any injurious act...by any employee of the company unless [foreseeable
and avoidable] by the exercise of due diligence on the part of the company. In rejecting fundamental
breach, Lord Wilberforce says that the parties are commercial entities and should be permitted to
include whatever terms they want in their contracts (subject to the usual exceptions, presumably).
Thus, the only question is whether or not the clause in question covers the parties, and for reasons of
construction, the Lord finds that it does. Case closed.
In the U.K., the Unfair Contract Terms Act protects the purchaser from fundamental breaches. Lord
Wilberforce chose not to apply the statute to commercial entities. In any case, there is no such statute in
Canada, which led to the minority decision in the following case...
Hunter Engineering Co. Inc. v. Syncrude Canada Ltd.
S contracted with H and another company, A, for the purchase of a system including many gear
boxes. All the gear boxes failed after more than one year due to a manufacturing defect, and
contractual warranties provided for a one-year repair window only. As exemption clause included
exemption from liability for express and implied obligations, and in fact, the Sale of Goods Act
includes an implied condition of fitness for the purpose for which the good is intended. A argued that
it was excluded from this condition by its exemption clause.
Per Wilson J: Fundamental breach (which she defines as a breach which would deprive the nonbreaching party of substantially the whole benefit for which the contract was intended) is still alive in
Canada, notwithstanding Photo Production, which was adopted by SCC in Beaufort Realties. In that
case, she said, the law was settled as allowing the operation of exclusion clauses in cases of
fundamental breach on a case-by-case basis, depending on construction. Now, she says, the rule
should be to look at the clause after a breach has occurred and determine whether it would be
reasonable to allow it to operate in a situation of fundamental breach. Unreasonable would be if the
party is attempting to bypass all obligations and still receive the benefit of the contract. Still, she finds
no fundamental breach here.
Per Dickson C.J.C.: Why bother with fundamental breachwhy not simply look at
reasonableness? The only reason an exclusion clause should not operate is if it is unconscionable,
and this should be determined with reference to the time of formation, not the time of the breach (e.g.
of unconscionability: unfair clause agreed to because of unequal bargaining power). [Note that
unconscionability makes a contract voidable, not void.]

49

X. MISTAKE
(i) Introduction
Three types of mistake:
Common mistakeParties have reached an agreement but share the same mistaken perception.
Mutual mistakeBoth parties are mistaken, but do not share the same mistake. Is there any
agreement at all?
Unilateral mistakeOnly one party is mistaken, but the other party knows about it
The statement on mistake: The crucial distinction is whether the plaintiff believes that the defendant
shares his mistaken perception, and the defendant is aware of all this, or if the plaintiff has reached his
conclusion without considering the defendants probable state of mind. In the former case, the mistake is
about a term and there is no consensus; in the latter case, the mistake is merely an assumption, and
caveat emptor. Youll see what I mean in a minute:
Smith v. Hughes
H contracted to purchase oats from S, but refused delivery of the new oats S sent, claiming he
had expected old oats. S had given H a sample of the oats, which he inspected and on the basis of
which he ordered. S claims he had no idea that H wanted old oats, and only has new oats. The trial
judge, inter alia, asked the jury whether the plaintiff thought that the defendant thought that he was
contracting for old oats. On the basis of this ambiguous wording, the C.A. ordered a new trial. Why?
Two possible interpretations of the question, each with very different meaning and implications:
(a) Did P think that D thought that D was contracting for old oats?
In this case, as long as P didnt contribute to the mistaken impression, the contract is
good. Here, the mistake would be self-induced on the part of D, and P is under no duty to
correct the mistakecaveat emptor. The mistake is not about a term, because all P has said is
that he is selling oats, not what kind of oats hes selling. Its a unilateral mistake about quality, a
mistaken assumption, and too damn bad for D.
(b) Did P think that D thought that P was contracting for old oats?
That is, did D believe that P warranted the subject matter of the contract to be old oats?
If this is the case, and P knew or ought to have known that D thought this, then the mistake is
about a term, and there can be no contract as there is no consensus ad idem. Note that P must
have known about Ds perception of Ps state of mind. Therefore, P would argue either that he
didnt contribute to Ds mistake, or that he didnt know that D was basing his assumption on a
mistaken perception of Ps state of mind.
Got that? Well, let me try to summarize the principles, if I can:
1. If it was a self-induced assumption, i.e., that D, without any help from P, developed a mistaken idea
of what was involved in the contract, then the contract stands. There is consensus about the terms, just
not about the quality. Further, P has no duty to correct a self-induced mistake on Ds part, even if he
knows about itcaveat emptor.
2. But if the mistake was induced by what D thought P was thinking, and if P knows this, then the
contract cannot stand, as there can be no consensusthe mistake is about terms, not assumptions. P
has a duty to correct the mistake about terms, or there can be no contract, as he knows the other party is
of a different mind.
3. It is no use to come forward after a contract is made and say I didnt understandunless the
other party knew you didnt understand before entering into the contract, in which case the contract is no
good due to lack of consensus.
4. The evidentiary burden is on the offeree to prove that the offeror knew of the offerees mistake as to
the offerors state of mind; that the offeror knew that the offeree thought that the subject of the mistake
was being warranted.
Whew. Lets move on (arent you glad this is open book?)
(ii) Mistaken Assumptions
(a) As to underlying facts
At common law, a mistake either voids the contract or has no effect whatsoever. A common mistake
50

about quality will generally fall into the latter category, as the offeree is still getting what he paid for; there
is no question about the actual subject matter, only about its quality. There was still an operative
consensus ad idem:
Bell v. Lever Brothers Ltd.
L wished to terminate Bs contract and the parties agreed to a compensation scheme, but it later
came to light that due to Bs previous misconduct, the contract could actually have been terminated at
any time, without any compensation at all. Court finds that the mistake does not void the contract, as
L is still getting what they paid for. It doesnt matter that L could have gotten it some other way, or that
they would not have entered into the contract, had they known the true facts. The point is, at the time
the contract was made, both parties thought it was valid, so there was definitely consensus ad idem.
Prof. Vincent says that the only time a mistake about quality will void the contract is when it is so bad
that it goes to the root of the contractbut she doesnt know of any case where this has happened!
Actually, the fact is that mistake seldom operates, because the courts are reluctant to kill contracts,
especially when a third party becomes involved, because he will be left out in the cold title doesnt
pass in a void contract, only in a voidable one.
And speaking of voidable contracts, here comes Lord Denning...
Equity will permit a contract to be voidable, not voidso the new concept of rescission on terms is
introduced, wherein the court imposes certain obligations on the parties, based on the terms of the
contract that bears the error. Thus, the parties have the option to affirm the contract or void it by
breaching the court-imposed terms:
Solle v. Butcher
Both parties thought that the apartment which B rented to S was not covered by a rent-control
statute, when in fact it was. Thus, B charged a rate higher than the statute would allow, and when S
discovered that the statute did apply, he sued for the difference in rates. B counter-claimed for
rescission based on the mistake. Lord Denning looks to equity and comes up with the concept of
equitable mistake:
1. The mistake is common to both parties.
2. It is a fundamental mistake, not a trivial matter.
3. The party seeking to set aside the contract is not himself responsible for the mistake.
In such a case, at the courts discretion, the contract can be set aside. Alternatively, the result can be
rescission on termsinstead of immediately declaring the contract void, the court can make it
voidable and give the parties the option to affirm it notwithstanding the mistake, or follow other, courtimposed terms to keep the contract going. If, however, the terms are breached, then the contract will
be void.
A common mistake of existence will not void a contract. The court will imply existence as a condition
precedent which is a term of the contract, placing the risk on the vendor, who ought to have better
information about the existence of the subject matter. Thus, if the article was not in existence at the time
of formation, a breach of contract occurred:
McRae v. Commonwealth Disposals Commission
D had no reasonable grounds to believe that the subject matter of the contract existed, but
contracted on that basis anyway. This was a common mistake, but it was recklessly induced by D,
who cannot therefore rely on it to avoid the contract. The contract is valid, and the fact that the
subject matter is not and may never have been in existence constitutes a breach of contract the
existence of the subject matter is an implied condition precedent and a term.
Note the following distinction:
Common mistake of quality (Bell v. Lever Bros.)purchasers riskcaveat emptor
Common mistake of existence (McRae)vendors riskbetter information
In both cases, contracts existthey are not void. In the first, the purchaser has no claim for damages,
but in the second, he does.
Note also that the Sale of Goods Act provides that if the goods had perished before the contract was
made, then the contract is void. However, there is a difference, as noted above, if the goods never
existedand thats better for the purchaser, who has a claim for damages (as opposed to nothing if the
contract is void).
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Magee v. Pennine Insurance Co. Ltd.


Insurance policy stated that M was the only driver of the car. His son crashed the car
and the insurance company paid out before finding that it didnt have to do so. Lord Denning
thinks that this fundamental mistake makes the contract voidable, but the other judges think its
void.
But theres a problem: The Magee case is a compromise agreement, which the common law tends to
allow notwithstanding any mistake, because they are good for the system. But in Magee, the court
simply sets aside the agreement.
At some point, a mistake in a compromise agreement may be so serious that the agreement must be set
aside. One such case is when the consensus is reached based upon a contractual assumption which is
later found not to be true, provided that the assumption was fundamental to the validity of the contract:
Toronto-Dominion Bank v. Fortin (No. 2)
Vendor sold property to purchaser, but the deal fell through and the parties agreed to a $10,000
compromise agreement. Later, it came to light that the vendor had no authority to sell the property in
the first place, and when the purchaser discovered this, he demanded his money back, as there was
no need to reach a compromise with respect to a deal that could never have happened in any case.
Court agreed.
Contrast this with Bell v. Lever Bros., in which the compromise agreement was based on an
original contract that was valid; in the present case, the original contract was invalidnemo dat quod
non habet.
(b) As to accuracy of calculationsSnapping up a mistaken offer
Hartog v. Colin and Shields
Offer was 10 1/4 per pound, rather than the discussed 10 3/4 per piece. Therefore, P
must have known there was a mistake in the offer before snapping it upknowledge can be
either real or constructive, and if either is present, the contract is void ab initio.
Imperial Glass v. Consolidated Supplies
I quoted a price based on dimensions miscalculated as 10% of the actual size, and C
accepted before I discovered the error. Court: Mistake was not in the offer, but in the motive for
making the offer, and so the mistake was not in terms but in the assumption that the calculation
was accurate. Decision has been strongly criticized.
McMaster University v. Wilchar Construction
Front page of tender, which included part of the price, was missing, and P tried to snap
up the offer even though it knew of the mistake. In cases of unilateral mistake and snapping
up, a subjective test will be applied: What did you think you were doing? A promisor is not
bound to fulfil a promise which the promisee knew was not intended to be made.
Belle River Community Arena v. W.J.C. Kaufmann
K realized they had made a calculation error after tenders had been opened but before
their tender had been accepted, and pointed it out to B. Cant accept an offer which you know to
be mistaken.
In the new analysis of the tendering process, a calculation error will probably not affect Contract A. If this
is the case, and Contract B is never reached, then mistake will simply not apply:
R. v. Ron Engineering
Recall the collateral contract analysis: Contract A is the submission of the tender in response to
the offer posed by the call for tenders. Contract B is the main contract, wherein the job is awarded
according to stated criteria. In this case, Contract B never came into existence, and the issue was
only whether the tender was revocable and whether the deposit could be retrieved by Ron. The
tender was found to be irrevocable.
Does the calculation error render the offer incapable of acceptance and thus avoid Contract A,
allowing Ron to retrieve its performance bond? Nothe calculation error would only be relevant if
the offer was to be accepted, pursuant to Contract B. At the initial level, mistake would only be
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operative if it was on the face of the tenderi.e., if the tender was obviously defective (e.g., missing
page or egregious pricing error). So in this case, mistake law doesnt apply and the deposit is still
irretrievable. Are we back to Impreial Glass, since Belle River is held not to apply?
Calgary v. Northern Construction Co.
Prior to Cs awarding a contract to N on the basis of its tender, N informed C of a serious
calculation error, but C tried to snap up the offer anyway. When N refused to perform pursuant to
Contract B, C sued for damages in the amount of the difference between Ns bid and the next lowest
bid. Court again finds that Contract B never came into existence, as it was not executed by both
parties, so the mistake is irrelevant as it doesnt affect Contract A.
Judge says, though, that if damages are to be calculated with reference to Contract B, then its
validity should be considered in some manner, but goes on to say that the present case is only a
mistaken assumption, not a mistake of termsthe motive for the offer was based on a mistake, but
there was no mistake in the offer itself (Imperial Glass).
Since the courts in both Ron Engineering and Northern Construction refuse to follow Belle River, it seems
to have been overruled. So, if there is a blunder...
(a) ...on the face of the bidno Contract A
(b) ...mistake as to termsno Contract B
Mistaken assumptions dont generally matter insofar as they dont include mistakes as to terms.
(iii) Mistake as to Terms
In case of a mutual mistake as to terms, the test is one of reasonablenesswhat would the reasonable
person think is happening? If, on the facts, one partys position is more reasonable than the others, then
that will constitute the terms of the contract. If the situation is completely uncleat, then the contract will
be void:
Lindsey v. Heron & Co.
P asked what D would pay shares in Eastern Cafeterias of Canada, and D responded with an
offer to pay a certain price for Eastern Cafeterias, which P accepted. As it turned out, Ds price was
based on Eastern Cafeterias Ltd., a different company, which he now says is what he intended to
buy and wants the contract declared void. Majority: Since the plaintiff clearly spoke of Eastern
Cafeterias of Canada, the terms were set there and were unambiguous; the defendants use of
ambiguous language in response to unambigugous language cannot be taken to have altered the
terms.
Dissent: Would begin analyzing with Ds offer, not with Ps inquiry, but Vincent doesnt like this
the test is one of words, conduct and surrounding circumstances.
Further application of the reasonable man test:
Staiman Steel Ltd. v. Commercial and Home Builders Ltd.
P was led to believe, honestly and innocently, that new steel was to be included in a lot of steel
which he then purchased at auction. In fact, the lot only included used steel, and was only ever
intended to include used steel. P was willing to accept the used steel, but D wouldnt deliver unless P
signed a waiver giving up his claim to the new steel. Court found that this was a breach: The
reasonable third party would determine in such a case that the parties intended a contract, because
the circumstances were not so ambiguous as to suggest a lack of common intention. Attempting to
force P to sign a waiver was attempting unilaterally to introduce a new term.
Raffles v. Wichelhaus
Two ships named Peerless sailed from Bombay, one in October and one in December,
and each party thought it was contracting with reference to a different ship. No contract
reasonable man would have no way to decide which position was more reasonable.
Scriven Brothers & Co. v. Hindley & Co.
Purchaser thought he was bidding on hemp but was actually bidding on tow, which for
some reason is less valuable (I cant imageine why). He had seen the hemp, but at the auction,
the tow was identical and even bore the same shipping mark, so he didnt bother to inspect it
again. As it was not known in the trade that hemp and tow were given the same shipping mark,
the plaintiffs assumption was reasonable and there was no contract.
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There can be no contract when one party knows that the other party is under a unilateral mistake as to
termsthere is no consensus ad idem. This is particularly so when the mistake was induced by that
party:
Glasner v. Royal LePage Real Estate Services Ltd.
Original offer to purchase included the warranty that the house had never been insulated with
UFFI. P knew this wasnt so, but also knew that the house was currently free of UFFI, so he redrafted
the agreement to include that less stringent term and didnt draw it to Ds attention. However, despite
instructions not to do so, Ps agent drew it to Ds attention after the contract had been completed, and
D refused to complete. Court: There was no contract. Obviously, P knew about Ds mistake as to
terms and was under the obligation to correct it (particularly since he had induced it). Since he did
not do so, there was no consensus ad idem, because P knew of the Ds mistake as to Ps intentions
(Smith v. Hughes).
MISTAKE: SUMMARY
1. Mistaken assumption
(a) As to underlying facts
If self-induced, whether the other party knows about the mistake or not, there is still a contract. The
other party is under no duty to correct a self-induced mistake. (Smith v. Hughes)
Common mistake of quality: purchasers risk and still a contract unless fundamental mistake (Bell v.
Lever Bros.)
Common mistake of existence: vendors risk, with condition precedent implied; if no existence, the
contract still exists, but the vendor has breached it (McRae v. Commonwealth Disposals)
Equitable mistake can make the contract voidable, not void; rescission on terms (Solle v. Butcher).
Even in compromise agreements, which for policy reasons are usually valid no matter what, a
mistake may sometimes be so bad as to invalidate the contract; e.g., if a fundamental assumption on
which the contract is based is later found to be false (TD Bank v. Fortin).
(b) As to calculations: Snapping Up
Belle River is overruled by Ron Engineering and Northern Construction; even if the accepting party
knows that the quotation is mistaken, it can still be accepted if the mistake is not apparent on the face
and Contract B has not been reached (i.e., in tender situations).
Northern Construction returns to the Imperial Glass idea of a calculation errors being a mistake as to
motive for offering, not a mistake in the offer itself. Thus, its a mistaken assumption, not a mistake of
terms.
So in tendering, Contract A will only be void if there is a mistake on the face of the tender. Contract
B will be void if the calculation error constitutes a mistake as to terms (but note Northern Construction).
2. Mistake as to Terms
Reasonable Man Test for mutual mistake: Having regard to words, conduct and surrounding
circumstances, would the reasonable man see one partys position as more reasonable than the others?
If so, there is a contract on the more reasonable interpretation of the terms (Lindsey v. Heron). If not,
then there is no contract (Raffle v. Wichelhaus).
If it is a unilateral mistake as to a term and the other party knows about it, then there is no contract,
as there is no meeting of the minds. If there is to be a contract, the non-mistaken party has a duty to
correct even the other partys self-induced mistake as to termsand this is particularly so if the nonmistaken party has somehow induced the mistake (Glasner v. Royal LePage).

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DURESS
Coercion of the will such as to vitiate consent e.g., commercial pressure, implied threats, economic
pressure, etc.
Pau On v. Lau Liu Long
DURESS TEST Requirements:
1. Did protest situation
2. Had no other alternatives available
3. Tried to avoid contract once entered
4. Was not independently advised (but this requirement is relaxed)
REMEDY: Voidable contract
Gordon v. Roebuck
Introduces concept of justifiable economic duressthe plaintiff was not shown not to be entitled to the
money he demanded, so the duress he exerted was justifiable.
UNDUE INFLUENCE
Equity-based remedy which addresses the unconscientious use of power by one party over another in
order to form a contract.
an objective power of persuasion which rises out of the parties private relations
Must prove either:
1. Actual undue influence (i.e., operative effect on the choice made)
2. Special relationship (e.g., advice given by one party to the other on the matter)
Resulting contract must actually be disadvantageous to the complaining party.
Formerly, domination was required (Goldsworhty v. Brickell) but now only a position of influence and
potential trust.
Geffen v. Goodman Estate
Presumption of undue influence should not be applied to every relationship of trust and confidence; must
be manifestly disadvantageous. (Presumption shifts onus of proof to defendant).
UNCONSCIONABILITY
Morrison v. Coast Finance
Original test: A presumption of fraud is created where any inequality arising out of ignorance, need or
distress of the weaker party is present and unfair bargain resulted.
Traditional doctrine: (1) Improvident bargain (2) Inequality in parties positions
Lloyds Bank v. Bundy
DOCTRINE OF INEQUALITY OF BARGAINING POWER: Lord Denning takes on unconscionability,
devises five categories:
1. Duress of goods voidable e.g., forced to overpay to get urgently needed good.
2. Unconscionable void e.g., complainant forced to sell good for less than worth any
unconscientious use of power by a stronger party against a weaker party. (no indept advice)
3. Undue influence fraud perpetrated or relationship abused to gain advantage from weaker.
4. Undue pressure exertor in a position of power where others have no choice but to agree.
5. Salvage situation i.e., rescuer is in an unfairly strong bargaining position.
Criticism: does every contract now have to be closely examined for inequality in bargaining or unfair
results?
Harry v. Kreutziger
General principle applied: There is unconscionability because of the plaintiffs infirmity, lack of
education, resistance overall, he was dominated by the respondent; under his power.
Lamberts new, generalized principle: Is the transaction so divergent from community standards of
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commercial morality that it should be rescinded?


Look at relevant Canadian cases to find out what community standards are (the more recent the
better)
For the Lambert doctrine: Allows for relief where the traditional approach would fail.
But...its very subjective, and its questionable whether there ought in fact to be an explicit general
standard of fairness with which all contracts must comply.

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