Contracts

Class 1 – Intro ................................................................................................................................................................ 9

General Introduction to Contractual Remedies ........................................................................................................ 9
Damages .................................................................................................................................................................... 9
Intro ....................................................................................................................................................................... 9
Hadley v. Baxendale (1854) ................................................................................................................................ 10
Victoria Laundry Ltd v. Newman Industries (1949) ........................................................................................... 10
Specific Performance and Injunction....................................................................................................................... 11
Intro ..................................................................................................................................................................... 11
Warner Bros. Pictures Incorporated v. Nelson (1937) ........................................................................................ 11
Formation of the Contract – 6 Building Blocks....................................................................................................... 13
1. Intention to Create Legal Relationships (Pt. 1 Families/Friends) ................................................................. 13
Intro – Objective Reasonable Test ...................................................................................................................... 13
Balfour v. Balfour [1919] .................................................................................................................................... 13
Merritt v. Merritt [1970] ...................................................................................................................................... 14
Family Law Act [1990] ....................................................................................................................................... 14
Jones v. Padavatton [1969].................................................................................................................................. 14
Simpkins v Pays (1955)....................................................................................................................................... 16
Ermogenous v. Greek Orthodox Community of Southern Australia .................................................................. 16
Canadian Taxpayers Federation v. Minister of Finance (Ont) (2004) ................................................................ 17
1. Intention to Create Legal Relationships (Pt. 2 Commercial Context) .......................................................... 17
Intro ..................................................................................................................................................................... 17
Carlill v. Carbolic Smoke Ball Company [1839] ................................................................................................ 17
Rose and Frank Company v JR Crompton & Brothers, Limited [1923]............................................................. 18
Jones v. Vernon Pools ......................................................................................................................................... 19
Roufus v. Brewster .............................................................................................................................................. 19
Summary of Intention to Create Legal Relationship ........................................................................................... 20
2. Offers - Offer Mechanics.................................................................................................................................. 20
Intro ..................................................................................................................................................................... 20
Pharmaceutical Society v. Boots (1953) ............................................................................................................. 20
Boyer and Co v. D & R Duke [1905].................................................................................................................. 22
Quebec Pharmaceutical Society v. The T Eaton Co ........................................................................................... 22
Summary of Price Lists ....................................................................................................................................... 23
Harvey v. Facey [1893] ....................................................................................................................................... 23
Johnson Brothers v Rogers Brothers [1899] ....................................................................................................... 24

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 Carlill v. Carbolic Smoke Ball Company [1839] ................................................................................................ 25
The Satanita [1895] ............................................................................................................................................. 26
2. Offers – Duration of the Offer .......................................................................................................................... 27
Dickinson v Dodds (1876) .................................................................................................................................. 27
Petterson v Pattberg (1920s)................................................................................................................................ 28
Errington v Errington (1952) ............................................................................................................................... 28
Daulia Ltd v Four Mill (1982) ............................................................................................................................. 29
Shuey v US (1875) .............................................................................................................................................. 30
Livingston v Evans (1925) .................................................................................................................................. 31
Barrick v Clark (1951) ........................................................................................................................................ 31
Manchester Dc v Commercial & General Investments (1969) ........................................................................... 32
Loring v City of Boston (1837) ........................................................................................................................... 33
Summary of Duration of Offer ............................................................................................................................ 33
3. Acceptance – Communication of Acceptance ................................................................................................. 34
Intro ..................................................................................................................................................................... 34
Felthouse v Bindley (1862) ................................................................................................................................. 34
Cole McIntyre-Norfleet Co v Holloway (1919) .................................................................................................. 35
Household Insurance v Grant (1979) .................................................................................................................. 36
Entores v Miles (1955) ........................................................................................................................................ 37
Electronic Commerce Act (2000)........................................................................................................................ 37
Summary of Communication of Acceptance ...................................................................................................... 38
3. Acceptance – Time and Place ........................................................................................................................... 39
Intro ..................................................................................................................................................................... 39
Eliason v Henshaw (1819) .................................................................................................................................. 39
Manchester DC v Commercial General Investments .......................................................................................... 40
Holwell Securities Ltd v Hughes (1974) ............................................................................................................. 40
Henthorn v Fraser (1892) .................................................................................................................................... 40
Summary of Time & Place .................................................................................................................................. 41
3. Acceptance – Acceptance of Unilateral Offers ................................................................................................ 41
Intro ..................................................................................................................................................................... 41
Bishop v Eaton .................................................................................................................................................... 42
Carlil v Carbolic Smoke Ball Co (1839) ............................................................................................................. 42
R v Clark (1927) .................................................................................................................................................. 42
Smirnis v Sun Publishing (1997) ........................................................................................................................ 43
Summary Acceptance of Unilateral Offers ......................................................................................................... 43
4. Consideration – General ................................................................................................................................... 44
Intro ..................................................................................................................................................................... 44

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 Tobias v Dick & T Eaton Co (1937) ................................................................................................................... 44
Summary General Consideration ........................................................................................................................ 45
4. Consideration – Sufficiency of Consideration ................................................................................................. 45
Intro ..................................................................................................................................................................... 45
E. Thomas v. B. Thomas [1842] ......................................................................................................................... 45
Harrison v. Cage .................................................................................................................................................. 46
Easton v. Kenwood.............................................................................................................................................. 46
Stilk v. Myrick [1809] ......................................................................................................................................... 46
White (Executor) v. William Bluett [1853]......................................................................................................... 47
Hamer v Sidway (1891) ...................................................................................................................................... 47
Dalhousie College v. Boutilier Estate [1934] ...................................................................................................... 48
The Seal ............................................................................................................................................................... 49
Linton v. Royal Bank of Canada [1967] ............................................................................................................. 49
Summary of Sufficiency of Consideration .......................................................................................................... 49
4. Consideration – Past Consideration................................................................................................................. 50
Intro ..................................................................................................................................................................... 50
Roscorola v Thomas (1842) ................................................................................................................................ 50
Lampleigh v Brathwait (1616) ............................................................................................................................ 50
Summary: Past Consideration ............................................................................................................................. 51
4. Consideration – Performance of Existing Duty .............................................................................................. 51
Intro ..................................................................................................................................................................... 51
Stilk v Myrick (1809) .......................................................................................................................................... 51
Hartley v Ponsonby (1857).................................................................................................................................. 51
New Zealand Shipping Co Ltd v Satterthwaite (1975) ....................................................................................... 52
Williams v Roffey Bros Ltd (1991) .................................................................................................................... 52
Greater Fredericton Airport Authority v NAV Canada (2008) ........................................................................... 53
River Wind Ventures Ltd v British Columbia (2009) ......................................................................................... 53
Jonathan Aluminum v Retail Alloy Metal (Ontario 2015).................................................................................. 53
Summary of Performance of Existing Duty – Greater Amount .......................................................................... 54
Pinnel’s Case (1602) Sir Edward Coke ............................................................................................................... 54
Foakes v Beer (1884) UK.................................................................................................................................... 54
Syberee v Trip UK COA ..................................................................................................................................... 55
Mercantile Law Amendment Act (1990) ONTARIO ......................................................................................... 55
4. Consideration – Promissory Estoppel .............................................................................................................. 56
Intro ..................................................................................................................................................................... 56
Jordan v Money (1854) ....................................................................................................................................... 57
Central London Property Trust v High Tree House Ltd (1947) (High Tree Decision)....................................... 57

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 Ajayi v RT Briscoe Ltd ....................................................................................................................................... 57
D & C Builders v. Rees (1965) UK..................................................................................................................... 58
John Burrows Limited v. Subsurface Limited et al. (1968) SCC........................................................................ 58
Coombe v. Coombe (1951) UK .......................................................................................................................... 58
Crabb v. Arun District Council (1976) UK ......................................................................................................... 59
Walton Stores Ltd. v. Maher (1988) Australia .................................................................................................... 59
Summary Promissory Estoppel ........................................................................................................................... 60
5. Capacity to Contract ......................................................................................................................................... 61
Intro ..................................................................................................................................................................... 61
Section 3 of Sales of Goods Act (1990) RSO ..................................................................................................... 62
Nash v Inman (1908) KB .................................................................................................................................... 62
Toronto Marlborough’s Hockey Club v. Tonelli [1977] COA ........................................................................... 62
6. Certainty or Ascertainability of Terms ........................................................................................................... 62
Intro ..................................................................................................................................................................... 62
Scammell & Nephew v Ouston (1941) HL ......................................................................................................... 63
Hillas v Arcos (1932) HL .................................................................................................................................... 64
Walford v Miles (1992) HL................................................................................................................................. 64
Empress Towers v Bank of Nova Scotia (1990) CA........................................................................................... 64
Edper Brascan Corporation v 117373 Canada Inc (2000) Superior Court.......................................................... 65
Calvin Consolidated v Manning .......................................................................................................................... 65
British American Timber Co v Elk River Timber Co ......................................................................................... 66
Bawitko Investments v. Kernels Popcorn ........................................................................................................... 66
Green v Ainsmore Consolidated ......................................................................................................................... 67
Summary of Certainty or Ascertainability of Terms ........................................................................................... 67
Terms of Contract ...................................................................................................................................................... 67
Interpreting Written Contracts ............................................................................................................................ 67
Intro ..................................................................................................................................................................... 67
Pym v Campbell (1856) ...................................................................................................................................... 68
Morgan v Griffith (1871) .................................................................................................................................... 69
Hawish v Bank of Montreal (1969) SCC ............................................................................................................ 69
Southern Resources Ltd v Technomin Australia (1990) ..................................................................................... 70
Sattva Capital Corp v Creston Moly Corp (2014) SCC ...................................................................................... 70
Ledcor Construction v Northbridge Insurance (SCC) ......................................................................................... 71
Summary: Interpreting Written Contracts ........................................................................................................... 72
Duty to Perform in Good Faith ............................................................................................................................ 73
Bhasin v Hrynew and Heritage Educational Funds (2014) SCC ........................................................................ 73
Greater Vancouver Sewage v Wastech Services ................................................................................................. 75

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 Styles v AIMCO .................................................................................................................................................. 75
Summary of Duty to Perform in Good Faith ....................................................................................................... 76
Implied Terms of Contract ................................................................................................................................... 76
Intro ..................................................................................................................................................................... 76
Codelfa Construction v State Rail Authority (1982) Australia High Court ........................................................ 77
Liverpool City Council v Irwin (1976) HL ......................................................................................................... 78
Sale of Goods Act................................................................................................................................................ 78
Consumer Protection Act .................................................................................................................................... 79
Summary Implied Terms of Contract .................................................................................................................. 79
Exclusion Clauses................................................................................................................................................... 79
Intro ..................................................................................................................................................................... 79
(1) Is exclusion clause part of contract .................................................................................................................... 80
McCutcheon v MacBrayne Ltd (1964) HL ......................................................................................................... 80
Parker v South Eastern R.Y (1877) UK .............................................................................................................. 81
Union Steamships v Barnes SCC ....................................................................................................................... 81
Thornton v Shoe Lane Parking ............................................................................................................................ 82
Olley v Marborough Court Hotel ........................................................................................................................ 82
Dillon v Baltic Shipping ...................................................................................................................................... 82
George Mitchell v Finney Lock Seeds Lts (1983) QB ........................................................................................ 83
(2) If it is part of contract, how does law deal with exclusion contracts? ............................................................... 83
Karsales Harrow v Wallis (1956) UK ................................................................................................................. 83
Photo Production v Securicor .............................................................................................................................. 84
George Mitchell v Finney Lock Seeds Ltd (1983) QB ....................................................................................... 84
Hunter Petroleum v Syncrude Canada Ltd (1989 SCC)...................................................................................... 84
Tercon Contractors v British Columbia (2010) SCC .......................................................................................... 85
Defects in Contractual Contracts ............................................................................................................................. 88
1. Misrepresentation – Intro ................................................................................................................................ 88
1. Misrepresentation – Varieties of Misrepresentation ..................................................................................... 89
Redgrave v Hurd (1881) ...................................................................................................................................... 90
Esso Petroleum Co v Mardon (1976) UK ........................................................................................................... 90
1. Misrepresentation – Remedies (i) Rescission .................................................................................................. 91
O’Flaherty v McKinley (1953)............................................................................................................................ 92
Redican v Nesbitt (1924)..................................................................................................................................... 92
Leaf v International Galleries (1950) .................................................................................................................. 92
1. Misrepresentation Remedies (ii) Damages ...................................................................................................... 93
Heilbut Symons & Co v Buckleton (1913) ......................................................................................................... 94
Shanklin Pier Ltd v Detel Products Ltd............................................................................................................... 94

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 Esso Petroleum Co v Mardon.............................................................................................................................. 94
Summary: Misrepresentation .............................................................................................................................. 95
2. Mistake – Intro ................................................................................................................................................... 96
2. Mistake – Common Mistake ............................................................................................................................. 96
Bell v Lever Bros Ltd (1932) HL ........................................................................................................................ 97
Solle v Butcher (1950) KB .................................................................................................................................. 98
Great Peace Shipping v Tsavliris Salavage(2002) UK ....................................................................................... 98
Miller Paving Ltd v Gottardo Construction (2007) On CA ................................................................................ 99
2. Mistake – Mutual Mistake .............................................................................................................................. 100
Raffles v Wichelhaus (1864) ............................................................................................................................. 100
Smith v Hughes (1871) QB ............................................................................................................................... 100
2. Mistake – Unilateral Mistake ......................................................................................................................... 101
Type 1 Unilateral ............................................................................................................................................... 101
Hartog v Colins & Shields................................................................................................................................. 101
Ron Engineering v R ......................................................................................................................................... 102
Type 2 unilateral – mistaken identity ................................................................................................................ 102
Cundy v Lindsay ............................................................................................................................................... 102
Type 3 unilateral – face to face ......................................................................................................................... 103
Ingram v Little ................................................................................................................................................... 103
Lewis v Averay ................................................................................................................................................. 103
2. Mistake – as to Documents.............................................................................................................................. 104
Thoroughgood’s Case........................................................................................................................................ 104
Saunders v Anglia Building Society (Gallie v Lee) 1971 HL ........................................................................... 104
Prudential Insurance v Cugnet .......................................................................................................................... 105
Marvco Colour Research v Harris SCC ............................................................................................................ 105
Summary ........................................................................................................................................................... 105
Fact Situations ................................................................................................................................................... 106
Illegality – Intro ..................................................................................................................................................... 109
Illegality – 1. Common Law Illegality .................................................................................................................. 109
Public Policy Introduction ................................................................................................................................. 110
Oldfield v Transamerica Life Insurance Co of Canada (2002) SCC ................................................................ 110
In the Matter of Baby “M” (1988) NJSC .......................................................................................................... 111
Illegality – 1.(A). Restraint of Trade ..................................................................................................................... 111
Shafron v KRG Insurance Brokers (2009) SCC ............................................................................................... 112
Gordon v Ferguson ............................................................................................................................................ 112
Illegality – 2. Statutory Illegality ........................................................................................................................... 112
Yango Pastoral Co v First Chicago Australia Ltd ............................................................................................. 113

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 St. John Shipping Corp v Joseph Rank Ltd (1957) QB..................................................................................... 113
Ashmore, Benson, Pease & Co Ltd v AV Dawson Ltd (1973) CA .................................................................. 113
SUMMARY STATUTORY ILLEGALITY ..................................................................................................... 113
Unconscionability & Undue Influence .................................................................................................................. 114
Marshall v Canada Permanent Trust Co (1968) ATLA SC .............................................................................. 115
Mundinger v Mundinger ................................................................................................................................... 115
Pridmore v Colbert ............................................................................................................................................ 115
Macaulay v Schroeder Music (1974) HL .......................................................................................................... 115
Lloyds Bank v Bundy (1975) QB...................................................................................................................... 115
Royal Bank of Scotland v Etridge (2002) HL ................................................................................................... 116
BMO v Bartolo .................................................................................................................................................. 117
Tercon................................................................................................................................................................ 117
CIBC Mortgage v Rowett- ON COA ................................................................................................................ 117
Summary Undue Influence or Unconscionability ............................................................................................. 117
Enforcement, Breach & Remedy ............................................................................................................................ 118
Privity of Contract ................................................................................................................................................. 118
Tweedle v Atkinson........................................................................................................................................... 119
New Zealand Shipping Co v Satterthwaite & Co. 1974.................................................................................... 120
London Drugs (SCC)......................................................................................................................................... 121
Summary Privity of Contract ............................................................................................................................ 122
Frustration .............................................................................................................................................................. 122
Taylor v Caldwell (1863) ................................................................................................................................. 122
Knell v Henry .................................................................................................................................................... 123
Davis Contractors v Fareham U.D.C (1956) ..................................................................................................... 123
Frustrated Contracts Act (1990) ........................................................................................................................ 124
Frustration Summary ......................................................................................................................................... 125
Remedy 1 - Damages – Intro ................................................................................................................................. 125
Remedy 1 - Damages – Interests Protected ........................................................................................................... 125
Remedy 1 - Damages – Measurement ................................................................................................................... 126
Sale of Goods Act.............................................................................................................................................. 126
Thompson Ltd v Robinson Ltd ......................................................................................................................... 126
Ruxley Electronics Ltd v Robinson Ltd (1994) ................................................................................................ 126
Groves v John Wunder Co (1939)..................................................................................................................... 127
Sumary to Now .................................................................................................................................................. 127
Howe v Teefy (1927) ........................................................................................................................................ 128
Remedy 1 - Damages – Intangible Injuries / Punitive Damages ........................................................................... 128
Fidler v Sun Life................................................................................................................................................ 128

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 Jackson v Horizon Holidays .............................................................................................................................. 129
Whiten v Pilot Insurance ................................................................................................................................... 129
SUMARRY ........................................................................................................................................................... 130
Remedy 1 - Damages – Mitigation ........................................................................................................................ 130
Payzu v Saunders............................................................................................................................................... 130
White & Carter v McGregor ............................................................................................................................. 131
Remedy 1 - Damages – Remoteness ..................................................................................................................... 131
Hadley v Baxendale........................................................................................................................................... 131
Victoria Laundry v Newman ............................................................................................................................. 131
Remedy 2 – Specific Performance ........................................................................................................................ 131
Falke v Gray ...................................................................................................................................................... 132
Co-Operative Insurance Society v Argyll Stores .............................................................................................. 132

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Class 1 – Intro
2.5 hour exams
• Q1: fact pattern to show how course fits together
• Q2: fact pattern to show that understand in depth 1-3 areas of the course
• Q3: essay question (15-20%). Quote and says discuss this quote OR will say heres a quote discuss in context of
case X

Midterm (20%) – 1 question fact pattern

• Contract vs tort (both are common law remedies)
• Contract = bargain, each party has consented to the agreement, imposes duties on both parties in agreementf
• Tort = no bargain the interaction is an intrusion, imposes duties on community to act properly
• the line is blurry. Sometimes a remedy in contract is better than tort and vice versa HOWEVER this course deals
with bargain
General Introduction to Contractual Remedies
Damages
Intro
• Most common remedy for breach of contract = damages
• Damages are most often substitutionary remedy – not what person contracted to have but sum of money court
awards instead (the money is a sub for what wanted)
• General theory to award damages = gives such sum of money that will put plaintiff in same position as if
contract had been performed
• Where does right to damages come from?
o Do have to put it in contract? NO
o Its an implied term of any contract
• Can you put a damages clause in the contract?
o Liquidated damages clauses are allowed (ie this is what you pay if breach of contract)
o If court decides it is a genuine attempt at valuating the damages liquidated damages clause and is
enforceable
o If court concludes put amount in that is in excess of actual damages and not genuine penalty clause
and not enforceable
• Punitive damages for breach of contract – rare
o Whitten v Pilot Insurance W fam lives in a cottage in winter. Use space heaters, one night it burns
down. Evidence that comes in is space heater caused fire. Cottage insurance says this looks like arson and
so they don’t want to pay. Lawyer takes the case on court says PI knew W couldn’t afford to litigate so
they could squeeze the fam from money. Court says PI needs to pay insurance and punitive damages bc PI
acted so egregiously
o Therefore, punitive damages when : extraordinary breach, intentional, egregious acts
• If law is that supposed to give same amount of money so as they get what they needed. Then what happens in
Hadley v Baxendale?
o Remoteness: breach of contract, lost money bc of this but have remoteness – this is bc of bargain theory
in contract and have to protect defendant as well. In this case D wouldn’t have known that damages
occurred
• Two prong objective damages test to know if reward damages
o 1)Normal: Foreseeable
o 2)Special Damages: Special Knowledge: In contemplation at time of contract – defendant made aware of
special damages
o In H v B loss of profits under circumstances weren’t reasonably foreseeable

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Hadley v. Baxendale (1854)
When are damages too remote to be recovered? Establishes rule/test for remoteness

• Facts: H sent mill shaft to B to be fixed. B returned it late. H needs mill and gets B to agree to get another one
made. B returned late. Breach of contract.
o H wants damages bc mill was shut down entire time crank shaft was gone and lost profits. Proved to the
court how much lost.
o B Claim they didn’t know the mill would have to be shut down if returned part late so why should be
responsible for that
o H sues B for for profits lost due to the mill being idle and were awarded money
o B is appealing for a new trial
• Issue: Does B owe H for loss of money when the mill was shut down?
• Decision: Appeal granted for B. Loss of profits are too remote. Damages are not recoverable
• Reason: General rule for damages – there are 2 types of damages (top of pg. 51)
o 1) Normal Damages: Fairly and reasonably arise naturally from a breach (damages that any fool would
see)
o 2) Special Damages: (A) Damages reasonably in the contemplation at the time they made the contract (B)
information about special circumstances had to have been made available to both parties (as a probably
result of breach)
o If fails tests damages are too remote
o This is an objective test
o Need to apply the test to this case: (1) B cannot assume that there would be lost damages bc H didn’t say
anything, reasonable for B to assume no losses (2) the info was not made avail to B
o THEREFORE: fails test bc wasn’t reasonably foreseeable (1) and special damages not communicated (2)
Damages are too remove
• Ratio: If lost damages are not reasonably foreseeable/ no special information given, then damages are too remote

Victoria Laundry Ltd v. Newman Industries (1949)

Issue of remoteness – applies rule from Hadley v Baxendale

• Facts: P is in laundry biz, bought used hot water boiler from D. D are engineers (didn’t build boiler) and are
supposed to dismantle and deliver the boiler when dismantled they dropped it and damaged it delayed by 5
months. P says this caused them to lose profits and sued for breach of contract for two types of losses
o 1) profits lost from usual laundry business
o 2) lost a lucrative government contract for dying (military uniforms)
• Issue: was the loss of profits due to the delay too remote to recover damages?
• Decision: damages granted for loss of biz BUT not for gov’t contract
o Court didn’t want to get involved in how much money was owed sent to referee to determine exact
amount of damages
• Reason: used rule from Haxley v Baxendale BUT arrives at different results
o Rule application
o 1) were damages reasonable and foreseeable? Yes. D knew all the facts about the business and should have
known urgency of getting boiler delivered. Was obvious that needed to use the boiler in the biz
damages for profit loss from usual laundry business
o 2) were damages known at time of contract and was info about special circumstances known? Gov’t
contract was not foreseeable, was a special circumstance. D didn’t know about the contract so wouldn’t
have thought about this. If P wanted damages, needed to have communicated this in the beginning No
damages for loss of govt contract bc were too remote
• Note: Its not a matter of if D knew at time of damage occurring BUT at time of contract
D has right to know extent of damage when make a contract. They take on this risk as part of bargain.
This defends D.
To avoid this liquidated damages clause (for laundry and govt contract) to ensure they get
appropriate damages

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 The facts have to be established when the contract is made. If needed boiler for govt contract, D
needed to be aware before delivery time
• Ratio: damages should be granted for reasonably foreseeable loss of profits, but not for special circumstances if
no information is given to D
o Everything needs to be established when contract is made if P wants to recover everything
• Note: Duty of Mitigation
o Plaintiff has duty to mitigate damages under circumstances
o in Victoria Laundry – there is a duty to take reasonable precautions to mitigate damages and to extent fail
to do so, damages are reduced
o if can get a boiler somewhere else that could minimize damages they should
o get remedy but need to do what reasonable person would do to reduce damages
o principle: obligation to limit damages

Specific Performance and Injunction

Intro
• when damages cannot work equitable remedies are used to remedy breaches. 2 types:
• 1) Specific Performance
o these are Non-substitutionary – the court says perform your contract, or don’t breach it
o Idea is to perform positive covenants: e.g. I will make movies for WB
• 2) Injunction-
o Idea is to not breach negative covenant: e.g. I will not make movies for anyone else
o Cant have an injunction that will make you do specific performance

Warner Bros. Pictures Incorporated v. Nelson (1937)

Can you force someone to work? When do you get specific performance? Injunction? Equitable remedies

Facts
• Bette Davis (then Nelson) sign a one-year contract with WB. options to extend the contract yearly and salary
will increase. Also says that Davis will perform, make motion pictures etc. exclusively for WB (positive
covenant) but won’t appear in any production or take on any other employment without the consent of WB
(negative covenant). Davis goes to England and performs on the stage in UK.
o WB sued for damages, but they abandoned that action not appropriate bc impossible to calculate
amount
o Instead, WB wants court to issue an order of specific performance. She went to UK cause she didn’t
like that she had no say in her work and WB just ordered her around.
• Contract said: make movie for WB (POS), and don’t work as an actress for anyone else (NEG)
Issue: Can the court force her to fulfil her contract? (specific performance)
Decision No. Instead court grants limited term injunction (she can’t breach her contract from 3 years)
Reason:
• Rule:
o Public policy- aka slavery to force someone to work
o Might be difficult to enforce making people do work,
o So, injunction- court ordered her not to work for anyone else for 3 years but she could work in other
jobs that weren’t acting, after that she can work for WB again, but court wouldn’t force her to
• Application
• Step 1: why doesn’t court order specific performance?
o 1) Public Policy: This is a contract for personal services so enforcing it is too much like ‘indentured
servitude’
o 2) Effectiveness: what if she goes back and fills her contract, doesn’t do a good job as an actress.
Sometimes when make orders need them to be effective. Not easy to figure out if she is doing her
best. Going to be hard for court to enforce.
• Step 2: A second Policy consideration that enables injunctions –people should perform contract

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 o Wont make you perform contract if means absolutely have to do personal services (‘indentured)’ but
strongly encourage by performing breach of negative stipulation
• Therefore: Yes they will grant injunction provided that in doing so, granting it doesn’t compel the
performance of the contract (cause that is bad public policy)—we don’t want to make people unemployable-
we want them to perform their contract
o Court did not enforce the initial clause that she can’t work elsewhere by injunction- instead they
made the negative covenant just about the movie industry. Therefore they weren’t forcing specifi
performance
• Similar Case: Lumley v. Wagner—same idea, opera performer left and performed elsewhere
o Cannot force specific performance BUT going to try to make perform contract. May have public
policy issue but also have public policy issue of ppl walking away from contract. So we will issue an
injunction
Ratio:
• Injunction is allowed to prohibit the negative stipulations in a contract, provided that ordering the injunction
does not enforce the specific performance part of the contract
o A court won’t enforce a positive – specific performance
o Need to draft both positive and negative stipulations in a contract
Notes:
Why does the court make it three years when the initial contract was yearly?
• 3 years is likely enough for this bc that’s what is fair under circumstances
• Equitable remedies are discretionary, must work fairly
o “Dirty hands doctrine” can’t come to a court of equity with dirty hands

Damages are not a good remedy if:

• 1) They are difficult to determine
o WB says it is difficult to quantiy- that is why we need an equitable remedy instead of damages, Betty
Davis people said just award damages
• 2) if performance is unique
o Court cites this—in the contract it says her skills are unique and impossible to quantify- Bette
arranged to this in the contract and that an injunction is the only appropriate remedy (these clauses
are very helpful in contracts)

Why did WB sue in England, and not California?

• Bette Davis is in England- so a court in cali couldn’t enforce an injunction
• Courts won’t order a judgment that’s not enforceable b/c the person is outside of the jurisdiction
• Equitable remedies = “inpersonam” remedies
o Enforceable against the PERSON, WHERE THE PERSON IS- must go to the jurisdiction where the
person resides to get this remedy
o If suing for equitable remedies, must bring the action forward wherever the person is
• Damages remedies = “In rem” remedies
o Can be brought anywhere that you can properly commence the action
o You want to bring this forward wherever the person has assets
o If suing exclusively for damages, could have brought this forward in California
• WB HAD NO CHOICE- THEY HAD TO SUE IN ENGLAND
o b/c they weren’t looking for damages, they were looking for a remedy and the remedy has to be
against the person where they are

Dublinski v. Detroit Lions (1950s)

• Quarterback decides he wants to play in Toronto instead- Detroit says he is contractually obliged not to play
football for anyone else. His lawyer says he doesn’t have any other skills but to play football, and the lions
didn’t argue that- so they couldn’t enforce it
• Note the importance of contract being written both positively and negatively—Have to draft a contract for
both ways in order to build a stronger case for getting a better result

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Limitations of Specific Performance / Injunction
• 1) wont issue SP for contracts of personal performance (like in Bette Dave)
• 2) wont issue injunction if purpose is to compel contract of personal performances (public policy)
• 3) ‘dirty hands’: court isn’t going to stop her from being an actress at all. After a certain amount of time it is
not fair. Order is for 3 years: equitable remedies have to be available to create fairness. Don’t come ask for
equitable remedy if have ‘dirty hands’

When is SP used
• SP will be granted for unique performance or product (English law says every piece of land is unique—so
with the sale of the land, there is SP)
• Not a contract of personal service—public policy consideration- you can’t make people work against their will
(no SP) no way to make sure they’ll do it right (that is why in this case there is no SP)
• Damages won’t be awarded if they are really hard to calculate/impossible to calculate (e.g. WB v Nelson)

Formation of the Contract – 6 Building Blocks

1. Intention to Create Legal Relationships (Pt. 1 Families/Friends)
Intro – Objective Reasonable Test
• Test to determine if a contract exists between friends and family
• 1. No presumption to contract
o Law presumes that between family members and friends there is no intention to create legally
binding relationships (contracts)
• 2. Onus
o That presumption may be stronger or weaker depending on the relationship of the people
o Onus on person trying to rebut to bring evidence to show there was a contract
Rebuttable presumption = assumption taken to be true by court.
Court takes the rebuttable presumption that family cases are not contractual unless proven
otherwise
o Must have evidence that proves a contract was intended
Formalities( writing/signed document) (Merritt v Merritt)
Detrimental Reliance (Jones v Padavatton)
Not living in amity (contrast between Balfour v Balfour and Merritt v Merritt)
Performed the contract (Jones v. Padavatton)
Involvement of a lawyer (Jones v. Padavatton)
Binding in honour clauses (Rose and Frank)
Certainty of terms (Jones v. Padavatton)
Performance of an agreement that looks commercial (Rofus v. Brewster) (Ermogenous v.
Greek Orthodox)
Informal syndicate for profit
• 3. Test
o to see if a contract exists between friends / family = objective reasonable person test
o would a reasonable person (in spite of the presumption) conclude that there is an intention to form a
contract
• 4. Application
o Apply facts of case

Balfour v. Balfour [1919]

• Facts: P (wife) sued D (husband) for money she claimed (as allowance) of 30 pounds/month. Agreement was
made under these circumstances: Husband travelled, they were separate at times, made monetary agreement in
goodwill. Only agreed to live apart later on when differences arose. (they separated)
• Issue: Does this agreement intend a contract? Was there an intention to contract?

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 • Decision: No contract- agreement wasn’t entitled to have legal consequences (just a promise) agreements like
these between wives/husbands are not intended to have legal consequences
• Rule: In domestic relationships- presumption that the parties do NOT intend their agreements to have legal
consequences. Generally, agreements between spouses are made in goodwill (amity) and not legally
enforceable). This does not pass part 1 of the objective / reasonable person test
• This is REBUTTABLE by evidence that shows opposite intention:
• 4 step test: this is an OBJECTIVE/REASONABLE PERSON test (would a reasonable person think there
should be legal consequences) Lord Salmon in Jones does the best job explaining
o 1- presumption that family members don’t intend legal consequences
o 2- rebuttable presumption (Onus is on the party trying to prove the contract (plaintiff))
o 3- Reasonable person/objective
o 4- Rebut using evidence that is consistent with an intention that the bargain was to be legally
enforceable eg:
In writing/signed documents (Merritt)
Not living in amity (i.e. fighting)
Performance of an agreement that looks commercial
Reliance/dislocation based promises
o This test is objective—would a reasonable person conclude there was an intention?

Merritt v. Merritt [1970]

• Facts: Husband and wife divorcing, husband agrees to give wife some money to pay for mortgage and she
provides the rest until house is paid off and he will sign the house over to her (wife had husband write this
down and sign and date). But- once it is paid off, he refuses to transfer it over to the wife. She sues.
• Issue: Did the husbands promise constitute an intention to create a contract?
• Decision: Yes it did- she is allowed to recover house
• Rule: If agreement is made when husband and wife are not living in amity, and there is evidence to rebut
presumption of no intention, can safely be presumed that there was intention to create contract. Presumption
of no intention is rebuttable- the signed paper is evidence to rebut the lack of intention
• LORD DENNING-
• Argument against is seen in Balfour and Jones where families promises don’t intend to be promises.
• But Denning says these cases don’t apply here
o Because the parties in these cases were living in amity- i.e. their bargains were not to create legal
relationships
o It is different when parties are not living in amity are separated/separating
o In this case, it can we safely presumed they intended to create a legal relationship
• Evidence against the presumption- not living in amity, written document, she acted as if they had a contract by
paying all the mortgage payments
• OBJECTIVE TEST OF WHETHER THERE WAS AN INTETION TO CREATE LEGAL
RELTAIONS Court tries to look at situation rather than intention of the parties, and asks – would
reasonable people regard the agreement as intended to be binding?
• Ratio: We know from Merritt, that the presumption that family members don’t intend to contract is
rebuttable

Family Law Act [1990]

• S.55(1): A domestic contract (such as a marriage contract) and an agreement to amend or rescind a
domestic contract are unenforceable unless made in writing, signed by the parties, and witnessed

Jones v. Padavatton [1969]

Daughter relying on promise from mother

• Facts: Mom convinces adult daughter to leave job and go to law school in England. Mom would give
daughter $ monthly. They changed deal and instead mother would buy house and allow daughter to live

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 there and allow the daughter to rent out rooms to boarders for $ for law school. 6 years later, daughter
hasn’t yet qualified for bar so mom shows up and daughter wont let her in the house. P is mom who wants
daughter (d) evicted.
o Daughters case: We have contract for me to live here while in school- so I can’t be evicted- wants
to rebut the presumption of family contracts, show intention and show terms that are certain and
show lack of performance (haven’t completed the bar yet)
o Moms case: No contract, b/c no intention to create a legal relationship- and even if there is a
contract, the terms are uncertain and expired (i.e. if there was a contract, I already performed it)
and therefore can’t be enforced- and even if enforceable, the terms have already been performed.
• Issue: Did this promise constitute an intention to form a legal contract?
• Decision: Contractual relationship WAS intended- but time has elapsed, so not any more?
• Rule: The ONUS to rebut the presumption on the party against whom the presumption is taken (in this case
the daughter) Requisite intention will be there if an ORDINARY/REASONABLE person would have
found it
o Rebuttable: Whether the terms of the agreement are clear/certain, and there is reliance on the
agreement
o Mainly through severe detrimental reliance
• Reasons: Presumption applies to family members outside of the husband/wife but this presumption is
rebuttable
• Presumption is that family relationships aren’t meant to have legal consequences- stronger the connection
the stronger the presumption (ie. Husband/wife stronger than father-in-law/son-in-law)
• There is detrimental reliance- the daughter is reliant on the mother
• DANKWERTS L.J.
o No intention form a contract
o Balfour v. Balfour- principles can be applied
o The arrangements of a house was not a new arrangement but an adaptation of mothers financial
assistance to daughter
o Result: Daughter cannot resist mother’s right as the owner of the house (mother is entitled)
• SALMON L.J. – best framework for looking at these types of problems
• Intention to form a contract
• Does a good job of walking us through how to approach these “intention to create legal relations” in a
family context problems
o 1) There is a REBUTTABLE (rebuttable = assumption taken to be true) presumption of law that
family members (or close friends), don’t intend their bargains to have legal consequences
Stronger presumption, the closer the relationship
Severe detrimental reliance
o 2) Onus is on the person trying to rebut the presumption to bring evidence forward that shows a
contract was intended—
Must lead evidence that is inconsistent with the presumption
o What helps rebut the presumption?
Written document?- Had a lawyer
Not living in amity.
Detrimental reliance (Jones)
Certainty/lack of certainty of the bargain
Performed the bargain.- moved to England and enrolled in schools (contract has already
been performed)
o The more uncertain the nature of the bargain (lack of precision in the terms), the more it supports
the presumption of no intention create legal relationship
• 3) The test = Objective test so show intention to create legal relations.
o Would the reasonable person think there is evidence to rebut the presumption?
• Application to this case:
• Had fairly close relationship
o Daughter has the onus of rebutting the presumption
o Salmon said there was a contract – but it’s been completed

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 o Thought presumption was rebutted – mainly because of severe detrimental reliance – she
was relying on this contract
Yes there was detrimental reliance, but you cant assume she would perform terms forever
– taking daughter too long to qualify
o Agrees with conclusion of Danckwerts, L.J. (above) but reached decision by a different route
o Judge does NOT think that either of them thought that if she stopped paying, there would be no
legal redress
o So in these special circumstances, he thinks the true inference that neither could have intended that
the daughter should have no legal right to receive and mother should have no legal obligation to
pay
o agreement was enforceable despite its uncertainties, the court could imply reasonable terms where
the parties had left the details unsettled
o However he agree in result reached by Danckwerts L.J. on the ground that in the circumstances a
reasonable time for the duration of her studies had elapsed and hence her right to say in the
house had expired
• FORBES LOVES THIS JUDGMENT. READ IT AGAIN TO UNDERSTAND THE STEPS.
• LORD ATKINSON:
o No intention to create legal relationship.
o Not binding because of uncertainty. Lack of certainty and precision. This bothered him
more of a family relationship transaction b/c of uncertainty
Lack of certainty/precision supports the presumption (lack of intention)
o What were the terms of the deal? How many yrs? Hard to tell
o So thinks daughter didn’t fully rebut bc couldn’t show certainty
o Forbes said that because daughter throws a fit when she is sued shows there wasn’t an
intention to have a legal relationship (but this doesn’t matter, it is irrelevant b/c it is an
objective test)
Note: Daughter didn’t fully rebut because terms were uncertain and she didn’t show certainty. More precise terms
give you more ammunition for rebutting presumption,

Using the reasonable person test – you can still come to different conclusions! 2/3 judges said there was no intention

Important takeaways

• Severe detrimental reliance

• Uncertainty
• Had a lawyer
o Involvement of a lawyer can show that family members want them to have legal consequences
• These relationships can extend beyond husbands/wife
What types of parties should this apply to? Bf/gf? Close relationship stronger presumption

Simpkins v Pays (1955)

Facts: grandma (D), granddaughter, and boarder (P) all lived together. Informal agreement that if won newspaper
contest they would share. Went in in D’s name. Granddaughter won 1 week and D claimed entire amount. P sued to
recover her 1/3rd of the shares.

Issue: was there intention to create contract?

Ruling: presumption rebutted – wasn’t a completely friendly relationship. There was informal syndicate for profit
so there should have been a contract. They should all get benefit of success

Ermogenous v. Greek Orthodox Community of Southern Australia

Presumption of no intention to create contract OUTSIDE friends and family context

Facts: P was bishop- the church releases him from that position. He said he is owed leave benefits b/c he has an
employment contract. Church says the relationship between a minister in a church is spiritual not contractual, thus,
there was no intention to contract. Went to the supreme court of Australia.

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Issue

• Was P entitlement to pay upon termination?

• Is he an employee under an employment contract?

Ruling: no presumption of no intention to create contract entitled to money

Ratio
• Supreme court said that if the concerns involved where proprietary/ economic entitlements it should be a
contract
• Maybe some of these contracts between person and church may be spiritual, but if it concerns
proprietary/economic entitlements doesn’t buy it.

Canadian Taxpayers Federation v. Minister of Finance (Ont) (2004)

Is a promise made in a political campaign legally enforceable?

Facts: Taxpayers sued politician for not following through on promise to lower taxes. Court say no contract

Decision: A reasonable person would not see this is as a reasonable promise. It doesn’t have contractual
significance

Ratio: some promises are not meant to be legally binding contracts

1. Intention to Create Legal Relationships (Pt. 2 Commercial Context)

Intro
• Now look at commercial side of intention to create legal relationships
• If acting in commercial context – is there a way to say this is promise made in commercial context but this
doesn’t have legal consequences what tests do we apply to help us figure out when occurs and doesn’t
occur?
• Test
o 1. Presumption of intention to be binding
in commercial context start of with presumption that they did intent the bargain to have
legal consequences
o 2. Rebuttable / onus
Onus on party alleging it didn’t intend to have legal consequences (no contract)
o 3. Test: objective reasonable person test
Would an objective reasonable person know
o

If these are contracts and there is an offer how do I accept this contract

Carlill v. Carbolic Smoke Ball Company [1839]

In advertising case was there an intention to contract? (also look at in acceptance, offers)
Facts

• Defendants are the proprietors/ vendors of the “Carbolic Smoke Ball Company” the balls are supposed to
prevent influenza. They put out an advertisement that says they will give a 100 pound reward to anyone who
gets sick after using the ball 3x a day for 2 weeks— to demonsrate sincerity they put 1000 pounds in the bank
to show their sincerity. Mrs. Carlill saw the ad, bought the ball used it as instructed and got the flu—she wants
to collect her money.
Issue

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 • Does an advertisement offering a reward to the general public constitute a binding contract? Was there a
contract?
o Defendant (company) says it was a “mere puff” (an ad) not intended to be binding or have factual
consequences. They argue that a REASONABLE PERSON never would have thought there was a
contract
o Plaintiff (Carlill) says there are things in their ad that DIRECTLY SUPPORT PRESUMPTION TO
CONTRACT (terms, monetary deposit, clear intention)
Decision

• Advertisement was a unilateral contract and P accepted by PERFORMING bc D said in ad that they
deposited money in bank it did not pass the rebuttable presumption part of test (#2)
Rule

• An ad can be considered an offer, and performance shows acceptance.

• In commercial context, the PRESUMPTION is that there IS A CONTRACT
• Factors in favour of the presumption: certain terms, sincerity, monetary deposit)
Application of Test
• Defendant argued: This was a joke, a mere puff! No certainty
o Was not a mere puff- the bank deposit shows their sincerity (this was meant as a serious offer)
o Express promise to pay 100 pounds in certain events
This supports presumption of legal relationship
o Promise is distinct and unmistakable
• Defendant argued: this is uncertain
o Says offer was too vague/ not specific to a person/made to general public
o This is not true because this was a contract with anyone who PERFOMED the conditions necessary
in the ad—anyone who performs accepts the offer
o A unilateral offer can be made to the world at large
• Ads need to be careful—they can start to look like contracts
Ratio:
• GENERAL RULE: In commercial agreements there is a presumption that the parties intended to
create legal relations

Rose and Frank Company v JR Crompton & Brothers, Limited [1923]

Clause that indicates this doc doesn’t intent contract until formal agreement

Facts

• Two commercial parties entered into an agreement (Rose in US and Crompton in England) the document they
signed said “this isn’t intended to have legal consequences” (shall not be subject to legal jurisdiction)
Issue
• Does the document have legal consequences? Does this clause preclude them from legal intention?
• The court says generally these clauses (statements written in bargains that this document is not intended to
have legal consequences) should be respected
o “Rose and Frank” clause can rebut the presumption of intention to contract in commercial
relationships
o In Obiter- it says sometimes it would work for specific arrangements that are intended to be
binding—i.e. if you seal something that is a strong indication of intent to be bound- CONTRACT
UNDER SEAL—the effect is to show that the contract is binding
It is the very nature of the legal seal is that it doesn’t make sense for it NOT to be
enforceable
• In commercial arrangements there is a presumption that the parties intended to create a legal
relationship but this case shows an EXCEPTION to that bc it has a ‘Rose and Frank’ clause
Purchase and submission does not create legal obligation
Rule

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 • In a commercial context, presumption is in favour of intention to create legal relationships.
HOWEVER, evidence of intention can be REBUTTED by a clause stating it was not intended to create
a legal relationship (can also say binding in honour only)
o Can cite Rose and Frank clause now to rebut assumption that parties intended legal relationship
• Forbes says it is important: it is important to write down what you agree to on a letter of intent- this is likely a
contract, BUT without board authority you can get in trouble SO you uses a Rose and Frank Clause to get
around that until you get board authority
• Obiter says- sometimes you can’t use this cause it doesn’t make sense (eg Jones and Vernon Pools examples)-
it is either a very limiting factor or a policy judgement (Forbes thinks a limiting factor)

Jones v. Vernon Pools

Facts
• Old English case- purpose just to show fact pattern
• Football pool organization- you get money for points you earn. The card you get when you sign up says it is
binding in honour only
• P sent in coupon to D and he got every game right- D said we didn’t get the coupon! In addition D says
coupon says it is “binding in honour only”
o This is a Rose and Frank clause: Purchase and submission of coupon does not create legal obligation
• P says only bought coupon bc wanted to win lottery and expected to make $$
• Why would D include this clause on a ticket: for ppl who lie about winnings and stop fraud

Issue: Is nature of contract so repugnant (inappropriate to include this clause) to the thought that D isn’t liable?

Decision: D can rely on the Rose and Frank clause. P is out of luck

Reason:
• Why did they include clause in ticket? Bc this is how prevent fraud. Only exercise when don’t believe ppl
like in this case
o Nature of the contract = repugnant to the clause itself seems to fit the exception to when the rose
and frank clause can apply
o If D just decided not to pay the outcome may have been different. But bc they brought the clause up
the outcome was that D was fine
• Test
o 1) presumption = business context THEREFORE presumption that contract is binding
o 2) Onus on D to rebut presumption
o 3) Objective reasonable test – clause that says ‘binding and honour only’ not intended to be a clause
o THEREFORE: D can rely on rose and frank clause (purchase of coupon doesn’t mean contract BC
they have the binding thing on the coupon)
Notes
• Forbes thinks this is problematic- they don’t want to directly call Jones a liar, so they’re saying this instead
policy considerations why they say the clause can be relied upon
• Problem is that many other ppl could come forward claiming that they sent in their forms also
• Very nature of the document implies it’s legally binding- otherwise they can just choose not to pay anyone!!
• Forbes says this is liking used as a limiting factor (but could be a policy decision)

Roufus v. Brewster
What do when family members enter commercial contract? Have family/friends and commercial endeavour? Does it
matter?
Facts
• Brewster owned a motel, Roufus owned a store in the same town. Rofus was going to take B’s truck to a
larger town to get repaired and R could take a case a liquor back in the truck to sell in his store. Gets into an

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 accident- insurance company says this isn’t right b/c he shouldn’t have been driving the truck. So they sue
Brewster, who says there was no contract?
• They are family members- so there is a presumption. Brewsters insurance company has to show thereis a
contract. They say this had more family to it than business.
• Have to rebut presumption- not just assume that when relationships look commercial they are

Summary of Intention to Create Legal Relationship

SUMMARY:Finished looking at intention to form contractual rltps

How this plays out in commercial context

Presumption gets flipped – parties intend bargain to have legal consequences. Onus on you to rebut this presumption
if arguing against

Still a reasonable person test

Carliill case – trying to rebut presumption by showing that despite commercial context a reasonable person would
not see this bargain as having legal consequences bc it was an advertising ploy

Rose and frank – statement in agreement to effect that parties don’t intend to have legal consequence is determinant
that there isn’t legal cons even though its commercial.

Jones v Vernon pool – not supposed to be contract but jones says then why did I even buy ticket. Does it make
sense? Court says VP can rely. Maybe clouded by peculiar facts of case bc didn’t actually believe jones.

Roufos v Brewster – what do in circumstance where fam members operate in commercial context? What is
presumption. It was a commercial agreement so therefore intent to form legally binding. He thinks this is lazy and
should look at family presumption.

2. Offers - Offer Mechanics

Intro
• First thing need to create contract – something the law can identify as an offer of contract
• How do we determine where offer exists – general thought: ask question – has negotiations reached the point
where a reasonable person would say something has happened so other party can accept. Are all of the terms
of the bargain settled enough.
• Again: objective reasonable person test
• Offer Mechanics = situations where have to find offer to which other party applies a proper legal acceptance
• 1) where does offer come from
• 2) how long does the offer last
o Offer has to be good when other party purports to accept

Pharmaceutical Society v. Boots (1953)

Criminal prosecution case – when did sale take place. Introduces collateral contract concept

Facts
• Criminal case- Boots is being prosecuted, but became a contracts case based on Boots defense
• Boots displays drugs in self-service area, including drugs that are restricted under Part I of the Poisons List.
Chemicals need to be sold under the supervision of a registered pharmacist. The Pharmaceutical Society is
arguing that Boots is violating this rule because it is self service as the sale takes place when a customer helps
himself to the shelf—and therefore there is no supervision of pharmacist
• Boots says the display is an invitation to treat

Issue

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 • When did the sale take place?
• Whether the sale/acceptance took place when a customer took something off the shelf (as society the
Pharmaceutical Society contended- in which case Boots is guilty) OR if it took place when the cashier decided
he would accept payment (as Boots claimed) DOES PUTTING SOMETHING ON A DISPLAY SHELF
COUNT AS AN OFFER?
• So the question is, was there supervision of a pharmacist at the time the sale occurred? When did the sale
occur?
o The plaintiff (Pharm Society) argues: Contract for the sale of the poison occurs w/out supervision
of the pharmacist. The display in the store = the offer, and picking up the item and putting it into
cart =acceptance contract is completed and therefore when customer comes to pay desk,
pharmacist has NO power to say drug cannot be sold to customer – and sale occurs w/out supervision
o Defendant (Boots) argues: The display is just an invitation to treat (like a pre-offer
communication) has no legal significance (not an offer)- the offer occurs when you take it up to
the counter to pay, and the acceptance occurs when item is run up, performance occurs when
payment is accepted/received by cashier. the pharmacist sits in a stand overlooking everybody.
Thus, Boots Chemical argues that there is no violation, because a sale has not taken place until the
cash is exchanged, and this happens under supervision of the pharmacist.
Decision
• Appeal dismissed in favour of Boots
Reason
• There is a problem with the plaintiff’s argument- every time you put something in your cart and change your
mind and put it back you are violating a contract—if the contract is made when you put it in your cart then
then they store owner can’t refuse to sell it to you- this is also a problem
o Why wouldn’t just say have contract subject to idea that I can change my mind. In the US this is
case? See Notes
• Problem with defendant’s argument- dangerous product, if you take something off the shelf and get injured,
you are out of luck (some jurisdictions in the US follow the other approach to save themselves from things
like this)
• SOMERVELL L.J. A sale does not take place when an item is selected by a shopper. This is NOT AN
OFFER it is merely an invitation to treat. INVITATION to the customer to make an OFFER TO THE
STORE.
o Rather, the offer is made when you go to the cash to pay and acceptance is when the cashier rings it
up and tells you how much it is.
Ratio

• Offer is made when you go to purchase something, not when you put it in your cart. Acceptance is when the
cashier rings up the item, performance is when you pay the price.
Notes

• Note- this still doesn’t solve the problem of “you break it, you buy it” b/c under the Boots rule, there is no
contract yet. Tort law deals with that
o To resolve this problem, we can conceive of 2 potential separate contracts:
Contract A: The Contract of Sale: (Boots Model)
• sale occurs at the cash register
• Take product (offer) , rings in (acceptance)
Contract B: Collateral Contract(Unilateral Contract – one-sided contract)
• Collateral to the intended main contract bc I am allowing you to inspect my goods,
you are agreeing that if you drop/break it, you will have to buy it
• the offer= in the sign expressing if you break it you buy it
• the acceptance= when I perform the conditions of the offer- ie; I pick it up, and drop
it)
• if you drop it, then its sold! Pay sticker price
• Like in Carlill, acceptance is in the PERFORMANCE of the terms of contract
unilateral contract

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 So the idea of these 2 separate contracts is a way to address the problem created by the law in
Boots
• The question being debated here was whether Boots had to put the stuff behind the counter or whether they
can make it self-service Self-service was new and the Pharma Society was questioning whether they could
put things on display.
• A lot of US cases like idea that it is formed when put in the cart because it makes it easier to assess liability if
something happens between shelf and end of the store (problem of breaking goods)
• But now with Canadian law, there is tort for dangerous products, so if something explodes before you pay for
it, etc. you can use tort law
• Law is settled that BOOTS IS THE CORRECT ANALYSIS
• Would a reasonable person see it this way? Courts struggled initially but this is the only way they could see it
working so they figured a reasonable person would see it
• Subway sandwich example- it is service, if they make you the wrong sandwich or you aren’t satisfied, they
breach contract
• What about if you break it you buy it? Contract law says you have to pay it, tort law might have damages too?
• Main contract- what business is about (contract of sale- Boots)
• Collateral contract- in consideration of the store owner allowing you to pick up goods, you agree that if you
break it you will pay the purchase price, tort would be replacement price, contract would be retail price?

Boyer and Co v. D & R Duke [1905]

Price lists are NOT offers- they are invitations to treat (invitations to make an offer)

Facts

• Defendants send out a catalogue with items for sale and their prices. When the plaintiff orders one of the
items, it is sold out. The plaintiff is suing for breach of contract- says that offer was made and then revoked
Issue

• Are price lists offers?

Decision

• They are NOT

Ratio

• Price lists are invitations to treat (invitations to make an offer) price list is NOT a contract
• So when is offer made?
o Offer is made when you send money in, and acceptance is when the sellers agrees to send you the
item and has it in stock
• How did make decision that price lists are not offers?
o Policy- this is protecting seller in the event they are sold out of stuff, i.e. what happens if it is unique
or they run out? Seller needs protection from lawsuits for when sell out of items
• Reasonable person test
Notes

• Does it ever shift from a price list to an offer? What about catalogues? Are they offers?
o 1) What would reasonable person see here? Price list / catalogue is not an offer to sell
o 2) Start with presumption they are NOT offers- but they can be dressed up as offers:
i.e. Ikea catalogue- has terms like subject to restocking, price might change without
notice etc.
These terms are there to say- if anyone construes this catalogue as being an offer, here are
the terms

Quebec Pharmaceutical Society v. The T Eaton Co

Can a price list turn into a contract?

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Facts
• This case is like Boots. Eaton’s produced catalogue with products that were not supposed to be sold in QC
without a pharmacist. QC says Eaton’s breached the laws of QC.
• Eeaton’s says haven’t breached contract bc catalogue is just invitation to offer
Decision
• Eaton’s is not guilty
• SCC: A catalogue is an invitation to treat
• PRESUMPTION that price list isn’t an offer, but that is not always the case
Reasons
• Eaton’s argument: person who got catalogue in QC made offer to buy. But Eatons accepted that offer in
Toronto. THEREFORE didn’t sell that product in QC, sold it in Ontario.
• In Obiter- could be turned into an offer depending on what it says in the catalogue, if there are no
disclaimers
o start with idea price list / catalogue / quote is not an offer
o But if dress up in way that has all terms present, doesn’t contain disclaimers with conditions that
no contract THEN COULD ARGUE THAT CATALOGUE CAN BE OFFER. JUDGE SAYS
THIS IS OBITER BC THIS ISN’T WHAT HAPPENED HERE.
• Reasonable person test
• Applies to online shopping test
• Offer occurs when you put in the order, and acceptance is when the seller agrees to send it to you
• BUT- if you are the seller you could get committed to selling them the product if you provide full
descriptions, order forms, no disclaimer, etc.

Summary of Price Lists

• A display is not an offer
• As a general rule a price list is not an offer, BUT could potentially be turned into an offer by
o completing the terms,
o describing the items properly,
o making it look like you’re committing yourself to sell a reasonable amount of the product, making
it look like you were intending that people could say “I accept”

Harvey v. Facey [1893]

At what time in correspondence does an offer take place?
Statement of price does NOT constitute an offer (using Boyer v. Duke)
Facts
• Plaintiff (Harvey) on a train sends defendant (Facey) a telegram saying ‘will you sell me Bumper Hall Pen
(piece of real estate)? Telegraph me back the lowest price’ Defendant responds back that day saying
“lowest price for Bumper Hall Pen is 900 pounds’ plaintiff says ‘I accept’
• Plaintiffs perception: I have a contract, I asked what price, you told me the price (OFFER), and I accepted
it (ACCEPTANCE)
• Defendants perception- there was no offer, there were two questions: WILL you sell and WHAT is price. I
only answered the section question and told you price—I never offered to sell.
• According to Boyer v. Duke that price quote is not an offer- there is no contract
• Plaintiff Response: by giving me price you were implicitly offering it to me, you knew I wanted to
purchase it. Doesn’t make sense for you to give me a price for no reason a reasonable person would think
its an offer, and that you said yes
• What would a reasonable person see?
o Everyone knows a statement of price does not constitute a promise to pay at that price. Is this what
happened here? Asked two questions, only one was answered.
o Look at correspondence- it is a little weird, just stating the price is not sufficient
Issues

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 • Was there a contract to sell Bumper Hall Pen?
• Was this simply a statement of price?
Decision
• Court says there is no contract—they find in favour of Facey (defendant)
Reasons
• Defendant’s response was simply a price quote and not an offer- he only answered the second question
• he never said he was going to sell it at that price. Maybe D had made an offer to someone else already and
the plaintiff was aware of that
• reasonable person test – would reasonable person given all circumstances to person who is purporting to
accept, would that person think this is an offer?
o this is objective test: would this person see an offer?
Ratio
• A statement of price does NOT constitute an offer to sell at that price. Statement of the lowest price at
which you will sell contains NO implied contract to sell at that price to person inquiring—principle from
Boyer v. Duke
Notes
• Analysis
o 1) where is the offer
o 2) how long did the offer lst
o 3) did the person accept an offer at the time the offer was still around
• Looking at this from the POV of person accepting—was it reasonable form them to accept? Fair to assume
there was offer?
• CONTROVERSIAL CASE
o But would a reasonable person have thought the sale of expensive land would take place across a
brief correspondence?
o The more complex and significant the contract, the more you expect to see it in clearly written
terms so maybe could argue that a contract would not be made in 2 sentences of a telegram
o Under these facts, it may well be that if you just reply with a price quote, that is not an offer—the
test depends on all of the facts of the exchange (if H knew of F’s offer to the city, it would have
been more likely that he would not think it was an offer)
o Since we can’t really conclude that Harvey knew about the outstanding offer (which would
support the decision more because then he shouldn’t have thought Facey was offering), we can’t
really do anything but aggregate the facts given and apply the reasonable person test—so
because the first question was not clearly answered (yes, he would sell), reasonable person
would say there was no contract
o AGAIN, a price quote is not an offer but an invitation to enter negotiations
• There was an offer outstanding and the plaintiff knew about it- he took advantage by arguing that he made
an offer- FORBES doesn’t like that
• What does a reasonable person see under the circumstances?
• How do offers die? Counter-offer.

Johnson Brothers v Rogers Brothers [1899]

At what time in correspondence does it become an offer?
Facts
• Johnson Bros are bakers- they want to recover damages from Rogers Bros for breach of contract for sale
and delivery of quantity of flour. D sent P a letter on Ap. 26 ‘We wish to secure your patronage…we want
to save you money…so we are quoting these prices for you. We would suggest using wire, as prices are so
rapidly advancing that they might be beyond reach before a letter would reach us’ and said the prices were
going to go up. P’s received it on Ap. 27 and telegraphed back saying – “we will take two car loads of
Hungarian at your offer yesterday (5.40)”. On same day, telegraphed back to P, “flour advanced 60 cents.
Will take 30 over (Ie, $5.70) on yesterday’s quote.”
• Then order came from Ps’ solicitors telling D to fulfill the order “according to the offer contained in letter
of 26th and duly accepted by them by wire on the 27th; upon your refusal, damages will be demanded”.

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 o P: correspondence #1 - quote was an offer- therefore you breached contract and their response was
an acceptance
o D: quote was NOT an offer, just an invitation to treat- just saying I’ll take 2 car loads was the offer
1:26:26
Issue
• Was this an offer? Was there a contract?
Decision
• In favour of Rogers (D) there was NO contract- first correspondence was merely a price quote and not an
offer (it was an invitation to treat)
• Court says that Harvey v. Facey are powerful precedent here against plaintiffs case- price quotes aren’t
offers.
Reasons
• Falconbridge said:
• When they say prices are advancing this shows fluctuations in volatile market- court says a reasonable
person would not think the letter was an offer, just a quote
• There is more formality here than in Harvey v. Facey
• In American/English Encyclopedia of law—it says price quotes are not offers to sell- there is no obligation
unless offer and acceptance have been established
• Harty v. Gooderham- primarily relied on by P’s. This is where person names price and says they’d be
happy to have an order AT THIS PRICE. But this case is different. There was an offer to sell there, but not
here. IN THIS CASE, placing in order DID constitute acceptance.
• Harvey v. Facey- authority for D against P- person setting price has to accept the offer that comes from the
person wanting to buy
• APPLY REASONABLE PERSON TEST- they wouldn’t have looked at this as an offer
• Not an offer because prices change so much as per initial letter
Ratio
• Price quote is NOT an offer- it is an invitation to treat- Objective reasonable person test, have the
negotiations matured to a point where reasonable person could accept and how would they see it?

test for ofer = objective reasonable person test.

Test to apply for reasonable person – can we say the negotiations/correspondence has reached the point where a
reasonable person would say that is an offer
Boots – in self-serfvice store, display is invitation to treat. Offer = when pay acceptance = when person at front of
store charges
Identified in other jurisdictions law is different and how its made to work
Price lists = does not constitute an offer to sell at that price
When ppl respond to price list they are seen as making offer, acceptance is point in time that seller confirms that is
offer that would be accepted
A price list can be turned into an offer if it was definite enough 1) identified terms of delivery 2) no disclaimers
saying this is not an offer 3) no conditions to the offer

Exchange of correspondence cases: at what point does offer arise and what does a reasonable person see

Carlill v. Carbolic Smoke Ball Company [1839]

Unilateral contract

Facts
• Defendants are the proprietors/ vendors of the “Carbolic Smoke Ball Company” the balls are supposed to
prevent influenza. They put out an advertisement that says they will give a 100 pound reward to anyone
who gets sick after using the ball 3x a day for 2 weeks—the ad also says they put 1000 pounds in the bank
to show their sincerity. Mrs. Carlill saw the ad, bought the ball used it as instructed and got the flu—she
wants to collect her money.
• Now we look at it again. What is the offer here and how is it accepted?

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 o Offer: buy ball, use as directed, and if catch flu get 100 pounds?
o Accept: perform the conditions of the offer
Issue
• Does an advertisement offering a reward to the general public constitute a binding contract

Decision
• This is an offer of unilateral contract (only 1 party is required to perform contract)
o If P did everything and accept offer then have contract
o Note difference between unilateral and bilateral: if say I will pay you 100 to look for my dog
(bilateral – you must look for dog and if find I will pay) vs ill pay you 100 if you bring home
(unilateral)
• Differences btwn unilateral and bilateral
o Is it fair to revoke before acceptance if put time into the contract
E.g. I’ll give 1K to someone who swims across pond. You swim across and just before get
to end I say end of contract
o A contract can be revoked right before acceptance in bilateral but not fair in unilateral contract
Test
• How do identify offer of unilateral contract
o Are both parties bound to perform?
Only 1 party – offer of unilateral contract is in statement of do following things and ill
give you reward
Acceptance = offer has been performed and all conditions have been satisfied
o Only 1 party is required to perform and only one party can be sued on the contract
Application
• Ms. Carlil says that- she performed by buying, using, getting sick—the contract only comes to life when all of
the conditions have been met- they can’t say they wont pay her for non-performance, its too late- in a
unilateral contract only one side has to perform
• A bilateral contract- is two ways, you bring me the car, I pay you for it (both parties have to perform)

The Satanita [1895]

Facts
• Race is about to start – satanita hits Valkyrie and causes significant damages. V was fast and expensive boat
going to be expensive to repair
• Owner of V – how do get paid here
• Sue Yacht club? Already have contract with them saying to participate you must agree to terms of the race
which includes that if you foul someone else’s boat you are responsible for damages don’t go after yacht
club
• Tort law? Not going to get appropriate amount of tort damages
•
Issue: can make argument that contract exists between owner of V and S?

Decision: yes bc a collateral contract between both boats exists

Reasons: contract exists what is the offer?

• Offer / acceptance = time at signing of contract at yacht club this is the main contract
• But when accept this also make a collateral contract saying owners agree that if enter the race and I foul
you I will pay you damages
o The owner of S and V all makes this type of offer at time enter agreement with yacht club
o It is accepted by performance (sailing in the race)
o Therefore there are contracts between all boat owners
Notes

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 • Objective reasonable person test how get there for collateral contract
o Don’t really see in this case how far can take a case like this if cant figure out how to get
offer/acceptance to the point where I get answer I want
• Make it work by seeing common contracts for common benefit
o 2 people have contract with 3rd party. They both have same contract and terms are not for benefit
of other contracting party but for 2 people that make same sort of contract
o Application: accepted offer when the race began. At that point in time the collateral contract takes
place bc it is for their common benefit

Tomorrow deal w/ mjb contractors – we aer getting complicated with collateral contract analysis. SCC telling us we
thought there was 1 contract but mb there were more than 1. Bc have RFPs. RFP = invitation tot reat offer = when
submits rfp acceptance = owner of project selects project. PROBLEM: put lots of time into RFP and then find out
that person who requested the RFPs selected sister in laws firm. MJB says there is a collateral contract here…

How long do offers last? I made an offer to you, someone else comes along who will pay more can revoke
original offer? Yes. Will see how works. Suppose offer says it is irrevocable until 5 pm tomorrow. Can pull offer
earlier than that? Maybeyes.

Revocation is main topic in duration of offer

MJB

2. Offers – Duration of the Offer

• Duration of offer – now assume offer has told us there is an offer

• New question – is offer alive when purports to accept offer
• Four ways to terminate: revoked, rejected by offerer, counteroffer (implied rejection), lapse
• Started looking at revocation – Dickinson and dodd – can be revoked up to the time its accepted. Only
excpeiton if offeree says had contract that stopped from revoking. I gave you something in exchange for
promise not to revoke offer (option). Or under seal (formal consideration). A statement that offer can be
revoked isn’t binding. Also see that revocation has to be communicated to be effective (can’t just say didn’t
want to be bound by offer anymore). Btu we see that communication doesn’t have to be offeror saying I
will no longer be bound by offer (ie can come from third party). Has to be reasonably reliable. Subject to
reasonable person test

Dickinson v Dodds (1876)

Revocation

Facts

• Dodds made Dickinson an offer for a house and said would only be valid for a certain period of time
• Dickinson wants the house but doesn’t communicate an offer. Dickinson hears from someone else that
Dodds has made an offer to someone else. Dickinson sees Dodds and even goes to his mother in law to
accept the offer then follows him to the train station to tell dodds he accepts. Dodds says it is too late
• Dickinson sues – he tried to accept before the offer was revoked

Issue: was there an offer capable of being accepted? Or has it been revoked?

Decision: NO. offer has been revoked

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Reason:

• Offer can be revoked any time before it is accepted UNLESS there was some consideration (something
exchanged to keep the offer open)
• Dodd’s offer was revoked before Dickinson accepted it. The revocation occurred when Dickinson heard
from a third party that it was sold

Ratio

• Offer can be revoked at any time before it is accepted

• Knowledge that would be sufficient to show revocation is enough to invalidate acceptance
• Revocations have to be communicated BUT the communication does not have to come from the offeror
o Can come from another source indicating offer no longer exists – this info has to be reasonably
reliable
• TEST: is the quality of information given to the offeree sufficient to convince a reasonable offeree
that this offer is no longer capable of acceptance? information has to be enough that a reasonable
person would assume there is a change in mind about the offer

Petterson v Pattberg (1920s)

Facts
• Patt (D) says will discount mortgage if paid 5 years early
• Petter (P) comes to pay off and D says sold it
• What is effect of saying that he sold it
o Like Dickinson and dodd: he revoked offer.
• why isn’t D bound to accept the offer from P?
o this is a unilateral contract – can be revoked up until time it is accepted.
o Only accepted when all conditions have been fulfilled
o Offer – if pay off mortgage I will give a discount. He hadn’t paid off mortgage!
Issue: was he contractually allowed to revoke?
Decision
• No contract and D was contractually allowed to revoke
Dissent (Lehman)
• Shouldn’t be allowed to make performance impossible which is what D does here
• The issue here is that P relied on offer and is disadvantaged here

Ratio: offer of unilateral contract can be revoked up until the acceptance. Acceptance only occurs when all of
the conditions of the offer are met (even if performance has begun). The offeror can revoke at any time before
performance completed or can even make performance impossible. Offer of unilateral contract is no different
than any other offer.

Discussion
• Problem: this isn’t right. D said if brought money and paid mortgage would get discount and didn’t fulfill
promise. Its not fair that revoked the offer. Should receive damages How do fix this? There is a collateral
contract concept that is introduced in next case

Errington v Errington (1952)

Lord Denning case on rule if implied term of contract
Facts
• 1936 father buys house for son and daughter in law. Pays down payment and if they pay off mortgage he
will sell to them

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 • dad dies 9 years later. Son and daughter in law break up. She continues to pay.
• Mother (P) wants to kick out daughter in law (D)
• Daughter thinks she should stay

Issue: can mother revoke contract that has already started?

Decision (Lord Denning)
• P cannot stop contract
• RULE: There is an implied term of contract here
o Main Contract – unilateral contract
o Collateral Contract – as long as you begin to perform, I will allow you to complete and not revoke.
• Application
o Main Contract – if you do all payments, I will transfer the house to you
o Collateral Contract – there
Note
• In case of Petterson would this test help?
o Petterson had money to Pattburg. He commenced performance. But pattburg make performance
impossible. Can be argued that revocation but forbes thinks its making performance impossible
• This case should be argued like MJB but main contract is that perform all conditions of offer and reward is
available to you. Collateral contract is in consideration fo you beginning performance. I agree not to make
your performance impossible provided that you can complete the offer in a reasonable period of time

Discussion: maybe implied condition of some contract – can revoke unilateral contract until time accepted like any
other offer, but collateral says in consideration of me commencing peformacne you agree not to make my
performance impossible provided I can prove I can perform before the offer lapses (a reasonable period of time) - so
there are some laws that would be helpful in issue with PvP
Collateral is not the law – but getting closer

Daulia Ltd v Four Mill (1982)

Facts
• D was told first person to show up with bank draft and signed contract in form requested will get the
property
• P shows up with bank draft for purchase price D already sold property to someone else
• P sues

Decision:
• P fails bc contract for sale of land has to be in writing
• The contract P sued on wasn’t in writing. There was nothing that said if first person who shows up with
bank draft gets the land

Obiter
• Part 1: Offer was fully performed when P showed up with draft and signed document. Didn’t require D to
accept or receive the performance.
• Part 2: have to perform full conditions of offer. This must be subject to fact that there must be implied
obligation which arises as soon as offeree starts performance. At this point it is too late for offeror to
revoke offer

Application to our case:

• Part 1: maybe have to look at offer to see if fully fills conditions
• Part 2: implied obligation not to revoke

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Forbes issue: SAME ISSUE HERE AS ERRINGTON. implied obligation to what? Theres no contract until
performance is complete. Mb we are better off to say maybe this is implied obligation under collateral contract.
He likes collateral contract. Doesn’t like solution of Errington bc contract is only confirmed when perf is complete
so what contract are talking about in first place?

Offer of unilateral – all conditions performed.

In each case they do everything and start to perform then revoked offer or made impossible to perform.
But maybe in breach of this collateral contract so have to pay damages.

Collateral will work – if can show that performed in reasonable period of time.

PvP: may not like result. But the law is right. the law is #1: saying that sold mortgage as revocation and is consistent
with Dickson and dodd that offeree just needs to have found out things that are inconsistent with continuation of the
offer. #2: offer of unilateral contract can be revoked up to the time of the performance bc that’s what accepts the
offer.

Shuey v US (1875)
Exception to Revocation Rule

Facts

• April 1865 US government issues a reward for the arrest of Surratt (accomplice for Lincoln’s assassination)
November 1865- it is revoked in the same newspaper which they made the the initial offer.
• April 1866- St. Marie finds Surratt in Rome and informs authorities- he escapes to Egypt and is captured
there. St Marie says he has no knowledge of revocation- he acted on the offer- got no notice of revocation.
Government pays him $10,000 of $25,000 award. Shuey is executor of St. Marie’s estate and wants the
other $15,000
o We know that revocation must be communicated

Decision: Shuey cannot recover

Reason
• Offer and revocation were in the same paper
• This is an offer made to world at large and I can revoke by publishing it in the same way published the
offer
• Doesn’t matter if offeree got notice

Ratio: offers to general public are revoked if they are revoked in the same way the offer was made/
communicated. This is an exception to rule of revocation

Discussion
• Carlil and Carbolic – should’ve posted ad saying revoked after the case if they wanted to avoid further
liability

• What if St Marie was a bounty hunter. From day of announcement of award he starts to track Surratt.
Closes in on him. US govt revokes offer in same paper as made offer. Is he any better off?
o In this case there is a collateral contract in consideration of me commencing performance – you
agreed wouldn’t make my performance impossible provided that I have to be able to show that I
can perform in reasonable period of time.

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Livingston v Evans (1925)
Failure of Rejection of Offer Argument
Facts
• D wrote to P that would sell land for $1800 and close by certain date
• P said send lowest price. I will give $1600
• D cannot reduce price
• P says accept original $1800 price
• D sold to someone else!

Issue: offer counter offer rejection of offer OR reinstatement of original price

• Was this a contract?

Decision
• Saying cannot reduce price – rejection of counter offer but also reinstatement of original offer BC it counter
offered the counter offer
• In this case: offer counter offer reinstatement of original offer accept original offer

Ratio: counter offer terminates offer. Rejection terminates offer. BUT possible counter offer reinstates
original offer and nullifies rejection.
• All has to abide by reasonable person test

Notes
• Harvey v Facey – difference
o Here: we think that saying cannot reduce price meant reinstating the original offer to sell at 1800
• What if the D never said cannot reduce price then the plaintif cannot go on to say buy at 1800 bc p first
offer was a counter offer that cancels first
• When is a rejection or counter offer effective? when received by the offeror

Barrick v Clark (1951)

Facts
• September 8 – Clark asks if for sale
• October 8 – Barrick will sell. What price? Make me an offer (invitation to make offer)
• October 30 – Will pay $14500. Let me know if you will take it (C offers)
• Nov 15 – Barrick will take $15000. Can get closed by Jan 1. Let me know ASAP if have a deal (B counter
offers – this means C offer is dead. This is new offer)
• Clark goes on hunting trip
• Nov 20 – Mrs Clark receives letter. Tells Barrick husband is away. Asks if can hold offer until Dec. 1
• Barrick doesn’t reply
• Clark returns from hunting trip later than expected and only replies on Dec. 10
• Dec 10 – C Accepts offer (new offer accepted)
• Dec 11 – C hears rumour B sold land (revocation)

Issue
• Assuming that Clark’s Dec 10 letter was an acceptance – did they have a contract?

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Decision: NO

Reason
• Offer lapsed after a reasonable period time
• TEST: What is relevant to determining lapsed date with no stipulation?
o Nature of contract
o Circumstances of the offer
o Conduct of the parties during negotiation
• APPLICATION
o Nature of contract: land, doesn’t spoil longer lapse period
o Circumstances of the offer:
winter in Saskatchewan so cannot be used until spring, distance between parties, tenant
until March 1 longer lapse time
competitive bidding shorter lapse time
o Conduct of the parties during negotiation:
Sense of urgency (B wanted it done by Jan 1) shorter lapse time
• Conduct of parties was focus of court’s argument
o B wanted it closed by Jan 1 and wants to know if deal asap
o C wanted it done quickly as well
o If offer said we can close Jan 1 it would be impossible if accepted as late as Dec. 10
Notes
• Acceptances are good when communicated to offeror
• If Barrick had agreed to the extended 10 days?
o Then would’ve had specified lapse date but still would’ve died bc Clark didn’t respond in time but
would’ve made specified lapse date so would’ve been easier to determine the case
• Why didn’t court pay attention to the fact that mrs clark asked for more time?
o If think of theory of lapse – if don’t have specified lapse date then it lapses after reasonable period
of time. If that’s theory going to pretend that offeror would’ve said the offer lapses after
reasonable period of time. What would give thought as to what reasonable period of time is? Facts
and circumstances at time of offer.
o So what fact existed at date of offer? She knew her husband wanted it
• Exception: postal exception rule: in the case of a letter when drop at post office, if that letter is an
acceptance it is good from date drop in post box not date it arrives at offeror

Manchester Dc v Commercial & General Investments (1969)

• Buckley: maybe been looking at this wrong way
• Offers 2 theories for time lapse
• Traditionally- belief that lapse= implied term of offer- so what happens after the offer is irrelevant
o But this case says maybe what happens after offer IS relevant
• Justice Buckley: terms of offer can state lapse on specified date, or there is implied term of reasonable
time for lapse must be within reasonable time (to accept/ reject- onus on offeree)
• 2 views on approach to this problem:
o 1. IF an offer is NOT accepted within a reasonable time, it must be treated as withdrawn/revoked
(traditional)
look only at time of offer
o 2. If offeree does not accept the offer within a reasonable time, must be treated as having refused
it
involves objective assessment of facts to determine fairness to both parties be regarded as
having refused offer
• Buckley likes this
• Instead of saying lapse is implicit

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 • Look at the offeree having reasonable time to accept offer or will have been deemed to have rejected it. If
that is theory of offer

Loring v City of Boston (1837)

Facts

• Lots of fires. Newspaper ad says rewrad for info about arsons. In jan of 1841 Loring captures an arson and
sues for reward
• Loring has been operating under this reward for years trying to find arsonist (like an bounty hunter)
Decision

• Four years is too long

• City never revoked offer (should’ve in Shuey way)
• An offer made to the world at large may be terminated by lapse. Court says its been too long
• TEST: REASONABLE TIME TEST
o Has the same person been out setting fires or did catch a few years ago these are all facts that
arose after making the offer
o we need buckley – these are facts existing after the offer

Notes

• What if Loring had been looking for arsonist for 3 years?

o Look to Shuey: Have collateral contract of performing within reasonable period of time before the
offer lapses.
o If tell loring offer lapses (and that is main contract), then can also say collateral doesn’t work bc
couldn’t complete before time period lapsed anyway

Summary of Duration of Offer

Duration of Offer – Revocation
• revocation of unilateral – same as any other contract
• pattburg – unilateral same as any other contract. Offeror can revoke at any time before performed. Bc of
that mr pattburg entitlted to say haven’t paid off mortgage bc I wont take money and therefore haven’t
performed all conditions of offer. Therefore haven’t accepted and I can revoke my offer. If that’s the case
doesn’t seem right that pattburg can get Peterson to do all planning and then when standning in door with
money in hand can revoke offer. The holding is legit BUT isn’t there something more fair?
• Then looked at Errington and daulia which looked to solve issue. See possible pathway to make pattburg
more fair. BUT Still have issue
o Conclusion of these 2 cases: Maybe there is implied term of contract or offer that says once
commence performance you wont make my performance impossible aka revoke
o Problem: But if its implied term of offer don’t also revoke implied term. And if contract isn’t
formed until completion of all stipulated conditions what is the contract with that implied term?
UNCLEAR WHAT IMPLIED TERMS ARE
• Forbes thoughts on what is a better way to solve
o thinks lets use collateral contract (like in MJB) and say offer of unilateral contract and collateral.
And that collateral says in consideration of you commencing performance under my offer of
unilateral contract I agree not to make your performance impossible by revoking the offer or by
acting like pattburg providing that you can prove you can complete within reasonable period of
time.
• CONCLUSION

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 o Pattburg – ruling is fine just not what we want to hear
o Errington – maybe not, maybe have obligation of some implied contract.
o Forbes: issue with this is that theres no purity of thought bc there is no contract
o The issue with this case is that lord denning leaves too much ambiguity in the answer of this case.
• So then: take MJB and say there is a collateral has to be in consideration of commencing performance

Rejection and Counter Offer

• Rejection terminates an offer
• Counter offer terminates an offer – by counter offering the offeree is telling the offeror no longer interested
in offer
• Have to look carefully at how offeror responds to counter offer bc could result in revival (Livingstone)
o TEST: ITS LIKE ANY OFFER – would a reasonable person view the way the offeror has
responded to the counter offer …

Lapses
• Stipulated lapse date – Dickinson v Dodds – didn’t mean couldn’t revoke but legal effect is a stipulated
lapse date in offer. If have a stipulated lapse date lapses on that date
• No stipulated lapse date in offer – what do we do in this scenario

If stipulated lapse date lapses that date

If not Clark v Barrick. Offer lapses after reasonable time.

• Reasonable time – look at 3 components

If lapse is implied term of offer factors that may be relevant to determine reasonable time are factors that exist
prior to or at date of offer. But if look at Buckley from Manchester then reasonable time is when offeree would’ve
rejected. Then may still be engaged in offer

Loring v Boston – offers of unilateral contract can also lapse

• Test is same that see in Clark v Barrick

3. Acceptance – Communication of Acceptance

Intro
• Assume
o have an offer
o No problem with duration of
• Looking at:
• When did acceptance occur?
• Does an acceptance have to be communicated?
• Is there a duty to respond?

Felthouse v Bindley (1862)

General rule for acceptance

Facts

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 • Nephew is selling horse and wants 30 guineas. Uncle offers € 30 difference is 30 shillings in price
• Uncle writes nephew: I’ve never offered more than 30 pounds. Lets split the difference. If you don’t
respond I’ll consider horse mine at €30 15 shillings
• Nephew didn’t reply
• Nephew is at auction and auctioneer accidentally sells horse
• Uncle (P) is suing auctioneer (D)
• Sues for tort of conversion: D sold his horse without him knowing BUT for uncle to do this needs to prove
he had a contract to buy the horse

Issue: did P own the horse?

Decision: No contract. Judgement for Bindley (Defendant) There was no acceptance.

• Offers have to accepted, and acceptances have to be communicated.

Reason

• What is Uncle’s letter? A counter offer

• What is the problem with the counter offer?
o Uncle is placing on nephew that doesn’t have to respond but will assume accepted. Will take
silence as acceptance
• Auctioneer argument: nephew didn’t communicate acceptance of the uncle’s offer

Ratio

• GENERAL RULE
o 1) acceptances have to be communicated (Dickinson v Dodd)
o 2) offeror cannot place on an offeree a duty to respond or be bound

Notes

• MAYBE an offeror by terms of offer can be bound by a lack of response

• J. Keating said said this case would have been harder if it was the nephew suing for the horse (b/c could
argue that he said he no communication is an assumed acceptance)
o Almost seems like uncle/nephew are seeing what they can get from auction and trying to keep
horse
Like they are trying to get more $ from auctioneer (twice the purchase price of
auctioneer)
o If nephew was suing for horse, outcome might be different
If the nephew sold the horse he should have given the money to the uncle and sued the
auctioneer, but this didn’t happen, so court thinks its sketchy
o FORBES: Thinks the court probably realized they were conspiring and trying to keep the horse
while getting money for it-
o

Cole McIntyre-Norfleet Co v Holloway (1919)

Exception to general rule

Facts

• March 26, salesman from Cole visited Holloway’s store and solicited an order for flour. Order form said
any order is not binding and is not accepted until head office accepts it. Cole provided that Holloway
had until July 31 to request delivery of flour and would be charged for storage of barrels not requested by
that time. Cole’s salesman visited Holloway’s store once a week every week following order but never

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 mentioned the order during these visits. On May 26, Holloway requested delivery of barrels from Cole.
Cole informed Holloway that it had never accepted his order and therefore there was no contract Between
March 26 when the order was placed and May 26 when Holloway requested delivery, the prices for meal
significantly increased b/c WW1. Holloway brought suit to recover the excess in price in Tennessee state
court.
o Note: this was during WW1
o They said head office never accepted your offer
• Def argues: never accepted offer, silence is not acceptance
• Plainiff argues: you never revoked the offer, had many opportunities to do so. At some point, I had to
believe there was a contract—by your conduct you accepted
• Short: Order by D to P (travelling salesman) months later P says there was no acceptance. But P did not
communicate to D that the order was rejected

Decision: there was a contract.. by course of conduct P accepted the offer

Rule:
• 1) Course of conduct that reasonably indicates acceptance
o look at conduct of offeree and maybe by course of conduct accepted offer as much as said if had
said ‘I accept’

• 2) Past Previous Dealings Between Parties

o E.g. if in the past you didn’t require notice it wouldn’t make sense if you did now

• 3) Custom in the industry known to both parties

o If the custom that acceptances don’t need to be communicated then its fine to not communicate

• 4) Necessity of industry custom

• 5) Nature of the Offer

o offeror indicated no need to communicate acceptance

• 6) Postal Acceptance Rule

Application:
• Rule #1 Applies: he was in store many times, constantly communicating, pricing advancing and didn’t say
anything – reasonable to think this was accepted
• Rule #2 Applies: often work together and this hasn’t come up in other instances
• Rule # 3 Applies: it was custom of industry

Household Insurance v Grant (1979)

Application of postal acceptance rule for exception to acceptance needing to be communicated

Facts

• D made an offer to purchase shares. P sent reply to noted address of D. It was never received by D. Jury
finds this is true it never arrived but was sent

Decision: there was a contract – postal rule applies

• Postal Acceptance Rule:

o Acceptance is good from time of posting
o must have proof mailed it
o when does this apply?

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 Means of communication is non-instantaneous with third party involved (e.g. post office,
courier)
in modern world: fedex, bike courier
• I know postal acceptance rule. Someone lit mailbox on fire and put it in. Do I have acceptance?
• EXCEPTION TO RULE: FAULT ANAYLSIS
o Postal acceptance rule is an artificial loss-allocation rule that will not apply if there is FAULT-
i.e. the rule works unless there is fault
If you put your letter in a mailbox that is on fire
If the offeree makes a mistake- the rule doesn’t work
If you can show the offeree made a mistake like misaddressing- rule doesn’t work
If they can prove the offeror is at fault for failure of communication, rule will not apply

Entores v Miles (1955)

What happens if use means of communication that is instantaneous
Lord Denning
• Base rule for instantaneous is different than when a third party is present
• Acceptance = good when received NOT sent in instantaneous
• BUT fault analysis
o If fault of non-receipt of communication is on offeror, and offeree doesn’t know communication
didn’t go through acceptance may be good when sent
o E.g: purport to accept by sending fax and offeror fax machine is out of paper so fax doesn’t go
through. Or accept by sending email, something wrong with offeror computer and don’t get
bounceback that email didn’t go through.
o In these cases it is fault of offeror that acceptance didn’t go through and offeree wouldn’t be aware
that acceptance didn’t go through
Ratio: instantaneous communication is good when received subject to fault analysis

Electronic Commerce Act (2000)

Now have baseline rules for postal acceptance and instantaneous – how does ECA change things?
• Point 1: He has tried to find cases where rules applied but cant find any rules under this statute. So what is
first impression of how this works?
• Point 2: Statute was supposed to help by establishing rules that apply to more modern forms of
communication. In some ways it adds more questions than solves for us
Statute
• 1) Can accept by electronic means of communication - fine
• 2) PDF of signature is as good as a signature – fine
• 3) Can accept offer by doing things like ‘clicking or touching a screen’ - fine
• 4) Problem – S.22(3) E doc is presumed received WHEN SENT if addressee designates the use of the
system
o Different than Entores v Miles: this says in instantaneous acceptance is good when sent. EvM
says when received.
o “If the addressee designates the use of a system” – how would I designate it?
Can say in offer reply to offer as email, text etc…
can you impliedly designate the use of a system? If offeror sent offer by email they have
prob designated use of the same system for reply
o So if addressee designates the use of the system and the message is good when sent – this is opp of
Entores v Miles which says good when received
o Similar to Entores v Miles: Statute continues: “good when received if the addressee didn’t
designate the use of the system or use it in receiving documents of this type”

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 If didn’t make offer in particular way and if didn’t say use this as way to accept then it is
good when received not sent.
This part is consistent with Entores v Miles
• Forbes problem with statute: should say deemed, rather than presumed
o Presumption is rebuttable (the opposite can be proved)
o If do prove opposite of presumption then what does that do to application of statute? (rhetorical)
o If can rebut presumption and say didn’t receive until later, may have been presumed to receive but
didn’t does statute not apply? then need to look to common law and are just back at Entores
v Miles
Forbes: when look at acceptance cases have to look for:
1) What was means of acceptance (electronic/instantaneous or is there third party)
2) If third party – look at postal acceptance rule and apply fault analysis
3) If not – look at Electronic Commerce Act
a. are facts consistent with presumption?
i. Yes – statute says designate use of system – good when sent. If didn’t designate use of
system – good when received by offeror
b. If can rebut the presumption – can flip back to Entores v Miles and apply Lord Denning’s rule –
apply fault analysis to determine at what point in time acceptance was good
4) *have to do this in shifting period of time with lapses
5) *application/non-application of rules makes difference when look at timing

Summary of Communication of Acceptance

Acceptance

Felthouse: several propositions

• Offeror cannot place on offerree through offer duty to deem acceptance
• General rule = acceptances are only good when communicated to offeror

Cole Mcintyre: exceptions to the rule that acceptances are only good when communicated
• Offeror acts in way that indicates that there has been acceptance (ie not having guy who goes to store say
that haven’t accepted offer)
• If general custom is known to both parties (general custom is that don’t need to communicate)
• If past dealings have been on basis that acceptance was not communicated but contract was regarded as
having been formed
• When postal acceptance rule applies

Household
• Postal – if have means of communicating acceptance that requires intermediation of third party and the
means isn’t instantaneous then the rule applies and generally acceptance is good when put out of control of
offerree
• There might be a fault analysis applied –(e.g. misaddress of acceptance by offeree) postal acceptance
doesn’t apply in these cases and acceptance is only good when received by offeror

Look at what happens with acceptance through instantaneous means (ie not posts, telegrams, couriers but things like
phones, emails, texts etc)

Entores v Miles – Denning says base rule is different. Acceptances are only good when communicated to offeror and
not when put out of control of offeree. SUBJECT TO FAULT ANALYSIS. If offeree thought communicated
acceptance but for fault of own communication didn’t get through then acceptance is only good when received.

Commerce Act – changes rules. Says if offeror has authorized means of communication then when offeree uses that
means the document is deemed to be redeemed when sent not received (diff result that EvM). BUT statute says

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presumed, not deemed. What is a presumption it is rebuttable. If rebut?: then use entores v miles and fault
analysis

3. Acceptance – Time and Place

Intro
• What were looking at was when does acceptance take place
• Now: when does acceptance take place from diff q – what happens if get acceptance that doesn’t come in
the way that I as offeror expected OR indicated in offer?
• Offer says to accept one way and then gets accepted some other way is the acceptance good? When is It
good?
• didn’t specify means of acceptance but you accepted in diff way than I expected does that affect validity
of acceptance?

Eliason v Henshaw (1819)

US Supreme Court
Facts
• The offeree (Eliason) sends his acceptance for buying flour (by sending the wagon) to the offeror’s head
office in Georgetown.
• Offeror (Henshaw) asked for it to be sent to Harper’s Ferry in the offer
• Henshaw says no contract. Eliason says accepted in lots of time.

Issue: is the acceptance good if it arrives when the offer is still live?

Decision: no contract. Acceptance didn’t occur

Reason
• Offeror specified the means of acceptance – terms of contract weren’t complied with (bc P sent the
wagon to the wrong place)
• Similar to Buckley Lapse case in Manchester
o Look at nature of offer: did offeror clearly specify that this is means of acceptance and I will
receive no other means of acceptance? OR did offeror stipulate means of acceptance for
convenience?
o If the answer is the second part: then acceptance may be good if communicated in any way that’s
not less advantageous to offeror
o EG: if send horserider instead of wagon to harpers ferry (the right destination) and it got there
early – Buckley would say: 1) is this specified means of acceptance so that no other means of
acceptance is going to work and was it clearly communicated. OR is it stipulated means of
acceptance for convenience in which case the offeree can accept in manner that’s no less
advantageous to offeror
This would be no less convenient for offeror then probable acceptance would’ve counted

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Manchester DC v Commercial General Investments

Holwell Securities Ltd v Hughes (1974)

Facts
• Plaintiff offered option to buy certain land. Offer said – it may be exercised by notice in writing by a
certain date
• Plaintiff says posted acceptance and can prove it – therefore postal acceptance rule applies and acceptance
is good from time it was mailed
• Defendant says – notice way I stipulated means of acceptance – you may accept by giving me “notice” in
writing by certain date and the letter didn’t arrive before the specified date. My offer didn’t specify it had to
be a letter, just a written notice by a certain date

Decision: no contract. Postal acceptance rule doesn’t apply here

Reason: This is a stipulated means of acceptance.

• Defendant / offeror: didn’t sya you may accept before a certain date, I said you may respond by giving me
notice in writing by certain date. This didn’t happen therefore – no contract
• New exception to postal acceptance rule:
o Doesn’t apply when offer stipulates that acceptance should occur by ‘notice in writing’ bc
that is a specified means of acceptance
Forbes: important for drafting offers generally
• Have specified lapse date
• Here – learn that if drafting an offer specify the means of acceptance as well!
• Most precise specified means of acceptance = notice in writing before specified lapse date
• This way know that don’t have contract until receive notice in writing and can know at what point
can revoke offer or when can speak to others.
Henthorn v Fraser (1892)
We might have to think about application of postal acceptance rule where there is no stipulated means of
acceptance

Facts:
• D personally gives P offer for land. Then d gets better offer and doesn’t want contract with P. In meantime
P posts a letter of acceptance.
• Revocation: posted at noon. Received at 5 PM
• Acceptance: posted at 4 PM. Received at 8 PM
• Revocations are good at point of communication. in this case at 5 PM
• An acceptance is good by post as soon as it is sent. So good at time of posting. In this case 4 PM
• If simply apply postal acceptance here, we would say there is a contract bc acceptance sent before
revocation received
• D: no contract here
o 1) Revocation is good when posted at noon
o 2) postal acceptance rule doesn’t apply – D wasn’t aware this was how acceptance would occur.
This was not an implied means of acceptance. you got offer by hand why didn’t you give me
acceptance

Decision: postal analysis applies here. There is a contract

Reason:

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 • OVERALL POSTAL SUMMARY
• When postal acceptance is not acceptable
o 1) Fault analysis (Household Insurance)
o 2) Stipulate different means of acceptance ie ‘notice (Holwell)
o 3) If post isn’t implied means of acceptance (HERE)
• Exceptions to 3: when can use postal acceptance rule as implied means of acceptance? (aka this is when
postal does apply generally)
o Reasonable i.e. ordinary usage
o If offer is communicated that way (if receive by post can respond by post)
o Previous dealings between the parties were done by post
• So….. these are instances where postal rule applies. These implied means of acceptance. but not acceptable
when fault analysis, or different means of acceptance or if doesn’t pass impied means of acceptance
• If postal acceptance rule doesn’t apply – acceptance is good when received
o Question is going to be has the offeror revoked or lapsed in meantime -

Application: in this case postal acceptance rule applies

• Why? Reasonable (ordinary usage) and it was what offeror would have presumedly be expecting
• If I hand deliver you an offer and accept by posting a letter – would this be a contract?
• If got hand delivered offer but they live in different towns. Reasonable if no stipulation in offer to use the
post to accept

Ratio: did acceptance come in expected way? If no – postal acceptance probably doesn’t apply then acceptance is
good from time communication is received. Acceptance still good but it’s the time of acceptance that changes.

Summary of Time & Place

Then – does offeror have right to stipulate means of acceptance and be bound by no other means of acceptance?

Elias v Henshaw: yes probably have right

Manchester – refine by looking at Buckley who says an offeror might clearly state the only way you can accept my
offer is in this fashion. If contract says that then any other means of acceptance is ineffective. But if can say means
of acceptance is only prescribed for convenience than can accept in any other way that is not less inconvenient to
oferror

Howell Securities – if offer states offer can only be accepted by notice in writing this overrides postal acceptance
rule. So best way to draft offer – only way can be accepted is if it\s by certain date, in certain way, in such and such
a manner.

Henthorn – maybe postal acceptance only applies if express means of acceptance or implied means. What is implied
means? If offeror had said can use post, if offeror had used post to send offer, if past dealings between parties had
involved use of post, or if it was reasonable under all circumstances to use post. Result – acceptance is only good
when communicated not when posted when implied means….

3. Acceptance – Acceptance of Unilateral Offers

Intro
• In bilateral – offer is made, acceptance communicated to offeror contract made both parties must now
perform
o Once contract is formed

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 • In unilateral - Offer is made, offeree is never bound to perform terms of the offer. When terms of offer are
performed, offeree has accepted the offer but has nothing left to perform. No obligation on offeree before
or after offer to perform
• this creates problems with rules from Felthouse v Bindley – an acceptance must be communicated
o 1) in unilateral – does offeree have to communicate intention to perform and accept? (Carbolic)
o 2) offeree performs in circumstances where offeror wont find out about performance. Does offeree
have to give notice that has already performed? (Bishop v Eaton)

Bishop v Eaton
Facts

• Writes to friend saying son is in area and if he asks me for money give it to him and ill pay you back
• Friend says I already did send you a letter saying I gave him money
• Father says didn’t get letter and by time I found out my offer had lapsed

Issue: did the friend (offeree) have to give offeror notice that the performance had already been completed?

Decision: if not getting notice of the fact that offer of unilateral contract has been accepted through performance,
have to give offeror notice of performance within a reasonable period of time

• What is the reasonable period of time?

• If don’t get notice of performance of offer of unilateral contract before offer lapses offer isn’t properly
accepted
• Offeror made offer of unilateral contrat, got no notification that anyone performed, my offer has lapsed
• Application
o Friend sent dad the letter does postal acceptance rule apply to notice of acceptance? court says
yes.
Postal applies bc this was how dad communicated so it is implied

Ratio: You have to notify of your acceptance, even if the acceptance occurs through performance

Carlil v Carbolic Smoke Ball Co (1839)

If notice is required, offeror will get notice of acceptance contemporaneously with notice of performance

R v Clark (1927)
Facts

• Clark was part of ring of people who were stealing gold. Company sends police into camp. People clark
was working with murdered police offers
• Crown offers reward for anybody who gives info that results in arrest and conviction of murderers
• Clark is under interrogation as murdered. To save himself from arrest for murder he gives up ppl who did
murder. Clark Isnt arrested for murder. He sues for rewrad
• Crown’s case: Clark may have known about offer, but when he gave info he wasn’t motivated by offer. His
sole motivation was to save himself from being arrested for murder.

Decision: no contract. Motive is relevant factor

Forbes

• Case tells us motivation is important but also don’t want clark to get money bc he is bad guy. So motivation
• He shouldn’t get the reward b/c when he performed the conditions he wasn’t motivated by it
• This case stands for the proposition that motive is important—if you are performing conditions but aren’t
motivated by offer, maybe you shouldn’t get it

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 • This case says to look at PRIMARY motivation of person who accepted- must be just to get award
o Knowing about it is not sufficient
• Williams V Carwadine: This case seems to say you can have two motives
o P knows who murderer is and murderer knows that she knows. Murderer beats her up and she is
sure she is going to die. Tells police nefore she dies the preson who beat her up is also the
murderer. She recovers
o She had 2 motives: clear her conscience, but if she recovered she also prob wanted the reward.
• Fitch v Snedaker: you have to at least know about the offer when you perform
o Police officer arrests ccriminal. When arrive at station fellow officer says its your lucky day theres
a rewrd for the arrest of that guy. At time of performance police is not aware of reward
o Court decides can’t recover
o But forbes: isn’t this the police’s duty and cant he say performed duty and should get reward as
well
• Williams tell us you can have 2 motives. 1) perform civic duty 2) get money as well. Maybe that’s good
enough.
• Do we say bad people don’t get rewards?

Smirnis v Sun Publishing (1997)

Facts

• Bernardo kills 2 girls in St Catherines. Sun publishing offers reward for up to 100k for info.
• Smirnis gets info and tells them its Bernardo. Friends and him always thought was scarborough rapist and
is now in st cath.
• Police say had already brought in Bernardo but at this stage don’t have enough info to search his house
• They go back to smirnis who gives more info under oath and they get more hard evidence
• But if know the case – bernardo is convicted based on testimony of wife who gets plea deal
• Sun Publishing says not giving money to Smirnis. He didn’t perform conditions of offer. Smirnis sues

Decision: award 10K

• character of claimant isn’t factor. In order to claim award like this don’t have to be acting in moral
upstanding way at all. Greed is reasonable.
• Info person has to provide :
o Has to be relevant
o Helpful
o Effective
o Doesn’t have to be real proximate cause of arrest and conviction
• He met these terms
• Court thinks Smirnis should get 10% of reward (10K) bc reward was only up to 100k. it wasn’t only piece
of info that convicted him

Ratio: what is offer here: if do certain things get some sort of money up to a certain amount

Discussion

• MJB Contractors: contract A and B.

• can make argument here that Smirnis would have been better off to use MJB. In consideration fo SMirnis
entering unilateral contract (ie giving info that is relevant, helpful & effective) Sun agreed to treat fairly
and reasonable in terms of exercising your discretion.
• Smirnis surely helped. Forbes thinks should’ve gotten more money.

Summary Acceptance of Unilateral Offers

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Finished Acceptance and special instances of accepting offers of unilateral contract

No duty on someone accept unilateral to notify of intention to accept

But if offeror doesn’t get notice of acceptance contemporaneously with performance offeree needs to notify
offeror that performance is complete within reasonable period of time. Reasonable period of time = obligation to
notify acceptance/performance before offer lapses

What do we need to know about offer when purport to accept?

Finch – person who purports to accept at least has to know about offer
Clark – there may be some need to be motivated by the offer. But when compared to Cowardeen – maybe can have
2 motives and as long as aware of offer can say motivated by 2 things: 1 – clearing conscience 2 – accepting offer

Smirnis – not relevant to being able to accept author that a person is good or self-motivated. Simply a question of
whether or not the person intended to perform and therefore be eligible for the offer

What if the offer is discretionary (at my discretion I can determine to what extent and how much you get)? Perhaps
can use collateral contract: in consideration of me commencing performance on unilateral contract, effectively
offeror is required to act fairly and reasonably in exercising the discretion to determine the amount of reward.

4. Consideration – General
Tomorrow move onto consideration – in order to have contract each person in bargain has to have something in
exchange for the bargain. Read Tobias v Dick. Shows consideration actually works. Something that is written
agreement may fail for lack of consideration. Next 4 cases are short. Though – what constitutes consideration? Court
says consideration has to be real and not illusory. As long as consideration is real doesn’t have to be sufficient.
Thought is a bargain can be formed by giving nominal consideration as long as its real.

Intro
• Consideration – contracts are bargains. In order to be enforceable both sides must get something in
exchange for consideration
• Law = A promise is not a contract unless the promiser obtains some benefit from the promisee or the
promiser incurs some detriment at the request of the promisor
o either get some benefit back or a detriment to me that I agree to
• Exception to consideration = Document under seal formal consideration

Tobias v Dick & T Eaton Co (1937)

Gets into extra thought in terms of offer and acceptance. shows how consideration can negatively impact formation
of contract

Facts:
• D invented grain grinder. Enters into formal written agreement to sell grinder to P for P to sell. P doesn’t do
a good job selling so D sells them to Eaton who will sell in catalogue
• P says D is in breach of contract. Also sues Eaton for tort of inducing a breach of contract

Decision: No contract. No Consideration

Part 1: P isn’t bound to buy grain grinders – just an offer and no consideration here. Held for D.
• A formal written agreement can still fail bc there is no consideration

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 • WHY?
o D says will sell P grain grinders exclusively but P isn’t required to buy any grain grinders
o Court says this is a standing offer, not a contract. contract will only come about when Tobias buys
an order
o There is no consideration
o Contract will only be formed when P puts in an order. That will constitute acceptance in this case
o IN SUM: D required to sell grinders to P, P isnt required to buy any grinders from D. there is no
consideration. This is standing offer by dick to sell to tobias. Contract will be formed when P puts
in order.
• IF this is standing offer can it be revoked by D? YES as long as P hadn’t already ordered a grain grinder

Part 2: there is no consideration

• The promise of D to sell to P is not supported by any consideration
• D wasn’t getting anything back

Ratio: how a lack of consideration can mess up a seeming contract. Need proper consideration flowing from
both parties to contract

Notes:
• P thought had contract – so what does he have to do to get a contract here?
o He either has to have agreed to buy grain grinders or has to agree to do something up against the
offer by dick to sell grain grinders (e.g. organize salesforce). Then would say have supply contract

Summary General Consideration

Consideration – in order for bargain to be enforeceable, both parties have to get what the law considers proper legal
consideration OR the person who makes the contract can have request of detriment (if didn’t get anything but
requested that you create detriment to yourself – refrain from doing something have legal right to do)

Tobias v Dick – something that looks like contract can fail for lack of consideration. Tobias never got anything in
exchange for his agreement. As a result it isn’t a contract. Just a standing offer. That could’ve become contract when
order was made but person who made standing offer could always revoke

4. Consideration – Sufficiency of Consideration

Intro
• What is consideration (Wikipedia): promise of something of value given by a promisor in exchange for
something of value given by the promise
• What does the law consider sufficient consideration
• Lots of centuries old rules that say this is what law regards as proper consideration or not proper
• What is sufficient consideration?
o Consideration has to be real – not illusory (misleading)
o But doesn’t have to be adequate (Thomas v Thomas)
o Promise for a promise is ok, as long as promise contains enough to be enforced (Dalhousie)
o Not a moral obligation (Kenyon v Eastwood)
o Promise not to do what have no legal right to do is not consideration (if you pay me I wont beat
you up)

E. Thomas v. B. Thomas [1842]

Facts

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 • Mrs. Thomas’s husband died and she was given the right to live in his property for the rest of her life as
tenant- document said “in consideration of a pious respect for the wishes of the testator” the document
confers upon her a right to live in the house for the rest of her life and pay a nominal rent of 1 pound/year to
maintain property. Later- the executors kick her out and she sues
o Defendants (executor of state) – no consideration, it is illusory bc consideration doesn’t come from
wife. no real value that the wife gave
o Plaintiff – document says “in consideration”

Issue: was there consideration?

Decision: yes

Reason:

• As long as consideration has value and is not illusory it is good. Adequacy of consideration is completely
irrelevant
• Court says “in consideration of a pious respect for the wishes of the testator” is NOT consideration it is
illusory. It didn’t come from Mrs Thomas it came from executor. Going to give mrs Thomas benefit.
• Counter point: but Mrs T pays rent so then consideration must be real…but its

Rules

• 1) Consideration must be real not illusory. Doesn’t have to be adequate

Harrison v. Cage
Not in syllabus

• 2) Promise in exchange for a promise is OK as long as promise contains enough to be enforced

• If can figure out your promise, then it is good consideration. If I cant figure it out, not good enough. It’s a
promise but not one that can enforce bc lacks certainty.

Easton v. Kenwood
Not in syllabus

Facts

• P executor of friends will. When Man dies, his friend (the executor) raises his daughter. When she is
married she tells the P that they want to compensate him for what he did
• Don’t repay and P sues on promise
• Court: Moral obligation to pay is binding in conscience but not law
• Promise made on strength of moral obligation is no consideration

Stilk v. Myrick [1809]

An agreemenent / promise to do what you are already bound to do in a contract is not good consideration

Fact: partway through a voyage 2 seaman jump off and desert the ship. Captain says to the rest of the seaman- if
you work the ship back to London, ill increase your pay. He didn’t and they sued from increased salaries

Issue: was there consideration? Does he have to increase salaries?

Decision: no increase. They get what they originally signed for. amending agreement isn’t new. Fails bc of lack of
consideration

Reasons: captain says there was no consideration bc men were already under obligation to perform duties.

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Ratio: an agreement to do what you are already bound to in contract is not good consideration

Rule: an agreement to do what always bound in contract to do doesn’t count in consideration bc no new obligation
created. There already was contract to perform

This causes problems in law of contract

White (Executor) v. William Bluett [1853]

Facts

• D’s father, now dead, had lent him money, and agreed to waive his debt to him if he stopped complaining
that he had given more estate money to other sons, acknowledged in a promissory note – the father’s
executor sued the son for the money – the D claims that his dad had promised to forgive his debt to him if
he stopped whining – the P claims that even if true, it is not consideration 


Issue: is this a binding promise?

Decision: no – illusory consideration bc doesn’t move from the son. In cosnideation of my natural love and affection
of my son, I agree to discharge the note

• Recited consideration of natural love and affection is not real and is illusory
• Agreement to do what don’t have right to do is not consideration
o Son has no legal right to not behave how he did

Notes: Forbes – no legal right to commit tort or crime. But Is child committing tort when is whining? If thought is a
promise to do what have no legal right to do has no consideration, does that extend to something like this – theres no
legal right to do what agreeing not to do here. This is a bit of a stretch. No intention to create contract to begin with
probably

Hamer v Sidway (1891)

Facts

• Uncle says to nephew if you don’t smoke/drink/swear/play cards until you are 21 I will give you $5000,
nephew fulfills promise, uncle dies before paying
• Uncles estate is being sued- they argue no consideration- b/c the things he had to do were beneficial to
him. Not detrimental to nephew.
• Nephew says there is consideration-you requested determent oh behalf of nephew- performance of
unilateral contract

Issue: is this promise binding? Was there consideration?

Decision: Promise is binding

Reason:

• ask – did person who made promise ask person not to do something that had legal right to do.
• Nephew was asked by uncle to refrain from activities and nephew effectively forewent doing things he had
legal right to do.
• Don’t ask if there was real detriment to him
• There is no detriment

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Ratio: a promise that is otherwise unsupported by benefit moving to the promisor is still enforceable if the promisor
has requited detriment of another party. Need to receive something if the promisor has requested detriment from the
other party detriment requetsted by promisor is good consideration – refrain from something legally
entitlted to do

Dalhousie College v. Boutilier Estate [1934]

Facts

• Boutilier makes pledge of $5K. probably gets clobbered in stock market crash
• He dies – executor of estate says we cannot pay
• Dalhousie says we spent lots of $ how going to pay
• Bringing as test case to see if pledges are enforceable
o Pledge says: Pledge form says “for the purposes of maintaining improved efficiency of others and
in the consideration of subscription of others Mr B pledges to pay 5K”
• University is going to show consideration – enforceable bc
o Spent money relying on promise
o Contract bound

Issue: does the estate have to pay Dalhousie?

Decision: no consideration. Mr Boutilier didn’t request the detriment, so not legal detriment

Reason

• Illusory consideration not real bc doesn’t move from university. In cosndieration of other ppl agreeing to
pledge money to university, mr b pledges to pay 5K.
• University comes back and argues promise for promise is good consideration/that need it to improve and
maintain teaching efficiency
o Trying to make it real consideration. They are saying it is a promise for a promise. If you give us 5k
we will use money to ensure teaching maintained. A promise for a promise is good consideration
• Court response: promise for promise is good consideration, as long as it is certain enough for court to
figure out if its been breached
o It is too vague. Too uncertain\
• University response: we incurred detriment We relied on this promise. Started building buildings etc…
• Court Response: this probably should be enforceable but there is detrimental reliance.
o university is saying we incurred detriment, but SCC says no
o building wasn’t requested by D. in order to be consideration has to be detriment he requested. whose
money used for it, didn’t name it after him
• SUMMARY
o Illusory
o Tried promise for promise doesn’t work bc this promise was too vague
o Tried requested detriment scc says d didn’t request the detriment
o NTherefore no consideration for contract

Notes

• We have charity and going to use pledges to build new library for school. How can we make pledge forms
enforceable? We have to create consideration here. University can say this is what we want to do with the
money…but what if uni changes mind? They can say “if you give us x we will put your name on wall” – then
can change mind. Bc consideration doesn’t need to be adequate. Just real.

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 • Charity: want to know if pledges could be enforceable? Not good optics for us to sue donors for pledges btu
would like to be in position to know we have legally enforceable right fi decide to enforce. How do we know
if have enforceable right? make it real, not adequate. Have to say we gave something the law would consider
real consideration. Doesn’t mean need to be equal value

The Seal
Formal Consideration – abheration to consideration

• If I have formal consideration, don’t have to show a benefit

• Formal consideration = instrument
• People of particular means had family rings (stamps)
• Courts tried to figure out what sorts of promises should enforce? When get something in exchange for promise
• If ask for detriment in exchange for promise – it should be enforceable
• Over course of time, these became what law regards as proper consideration
• Thought is just if sincere enough in promise to seal doc that contains promise with family ring that is the
sort of promise that can be enforced
• how does this rule down to us?
• Idea that if want to sign document, has signature and below says signed, sealed, delivered. Every lawyer
has sticker seal
• We’ve reached point where courts say if don’t have seal but x through there bc x shows intention to seal
instrument
• How does this help as lawyers? Any time a bit concerned about whether have proper consideration,
easiest thing to do is put the doc under seal

Linton v. Royal Bank of Canada [1967]

Summary of Sufficiency of Consideration

Formal rules for what law regards as consideration
Consideration has to be real – not illusory.

Thomas v Thomas – doc that conveyed interest with recited consideration was illusory. Didn’t move from mrs
Thomas.

Eastwood v Kenyon – recited consideration of natural love and affection is likewise illusory. Came from same
person who did cancelling of note. Not real consideration – didn’t move from son to father

if consideration is real – doesn’t have to be adequate

Thomas v Thomas - ….
Later on in course will find that if consideration is inadequate – why did one of parties enter into that type of a
bargain? Under law of consideration simply saw was consideration real. If its real don’t test adequacy

Moral obligation isn’t good consideration

Eastwood v Kenyon: moral obligation isn’t binding in law. Promise made based on moral obligation doesn’t pass
consideration

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Promise for promise is good consideration Harrison v pagePromise has to be certain enough that it will be
enforceable. Nature of promise so big that wouldn’t know what it meant – then promise doesn’t constitute
good consideration. It’s the legally enforceable promise in exchange for same that is good consideration. If
promise lacks certainty it may not be good

Promise to do what have no legal right to do (ie commit tort or crme) isn’t good consideration

A promise to do what already bound to do in contract – is not good consideration.

A and b have contract for building bridge. C says b, if you perform contract with a by agreed date in that
contract, ill pay you some money for performance too. Does stilk and myrick apply here? B is already bound
to A to perform. If b agrees with c – has b given any new consideration – Scottson v Peg. So now if b doesn’t
perform contract gets seud by a and c. agreement to do what already do isn’t good consideration in amending
consideration but maybe for 3rd party contract bc have separate enforcement rights.

Consideration – can be promisor requesting detriment of promise

Hamer v sidway: detriment doesn’t necessarily mean bad on promise, just request person not do something had legal
right to do.

Dalhousie: problems with charitable pledges. SCC says statement and pledgeform that says in consideration of
others is illusory bc didn’t come from person making pledge. Statement of motive, but not consideration bc didn’t
come from person making pledge. Scc says statement of in consideration of maitnenacne of eachign efficiency may
be promise in exchange for promise but promise was too vague to be enforceable. Court says idea that uni would say
we made expenditures and reliance on this – court says this sounds like detriment. But this isn’t detriment that is
personal to promisor nor was it requested by promisor.

4. Consideration – Past Consideration

Intro
Consideration has to be contemporaneous with contract

• If have contract and give promise after agreed – that’s not good consideration

Roscorola v Thomas (1842)

Consideration cannot happen after the fact

Facts: P bought horse from Defendant. D made no promise about horses’ qualities at the time. After sale he said
the horse was good. It was not. Plaintiff sues. d says the second promise had no consideration b/c consideration
had passed on original promise (sale of horse) Promise made after is not contemporaneous

Decision: no consideration. P loses.

Reasons: statement was post contract. Consideration that would support that statement/promise is past.

Ratio

Consideration has to be contemporaneous with promise.

Lampleigh v Brathwait (1616)

Exception to Roscorola

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Facts: D killed someone and asked P to try and get him a pardon from king in exchange for $. P does this. D refuses
to pay. P sues!

Decision: there was consideration

Reason: if performance was requested by a person under circumstances where you would assume it would be paid
for, then a subsequent promise to pay “revives the past consideration” contract is enforceable

Summary: Past Consideration

Past consideration is no consideration. consideration has to be at same time as contract. However if a performance is
requetsted in circumstances where would be expected to be paid for, even though perf may be past, subsequently
saying will pay sum of money for that – revives past consideration and results in contract.

PROBLEM IN CONSIDERATION – IF YOU SEE IT FIX IT. ISSUE IS IF YOU DON’T PUT IT UNDER SEAL,
OR GIVE CONSIDERATION. THEN NEED TO FIGURE OUT HOW TO DIG OUT BC IT IS A REAL TRAP

4. Consideration – Performance of Existing Duty

Intro
• Party under obligation to perform agreement to do same performance doesn’t count as new consideration
• This relates to amending agreements – if agree to amend need to look and see if have consideration for
amendment or is it one sided where 1 side gets something more for amended and other doesn’t

WHEN GET AMMENDING AGREEMENT LOOK AT 1) IF BOTH SIDES ARE GETTING SOMETHING NEW
COULD PROBABLY SAY THAT IS NOT SAME AS STILK V MYRICK.BUT IF SAY HAVE TO PAY
MORE FOR SAME PERFORMANCE THEN HAVE STILK V MYRICK. HAVE TO ARGUE ROFFEY BROS
BUT LAW OF ONT HASN’T GOTTEN THERE YET AND HAVE GILBERT V STEEL FROM ONT COURT
OF APPEALS.

Stilk v Myrick (1809)

Fact: partway through a voyage 2 seaman jump off and desert the ship. Captain says to the rest of the seaman- if
you work the ship back to London, ill increase your pay. He didn’t and they sued from increased salaries

Issue:

Decision: amending agreement isn’t new. Fails bc of lack of consideration

Rule: an agreement to do what always bound in contract to do doesn’t count in consideration bc no new obligation
created. There already was contract to perform

This causes problems in law of contract

Hartley v Ponsonby (1857)

Exception to Stilk v Myrick

Fact: H worked on P’s ship. Docked and half the crew abanonded. Only 6 competent ppl left. It was unsafe to
continue voyage but agreed to sail for money. When docked D refused to pay

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Decision: There was consideration to pay additional sum to get boat home

• Different than Stilk – bc so many seamen deserted it changed their duties to the point it was effectively a new
contract with valid consideration
•

Ratio: a way around stilk v myrick have to examine what was the nature of the original agreement and what was
the nature of the amending agreement. If can say under amending something different was given then there is
consideration for new contract. Consideration has to be real n ot adequate. Just have to find something the law finds
as proper consideration.

New Zealand Shipping Co Ltd v Satterthwaite (1975)

Limiting Factor to Stilk v Myrick

Facts: bridge contract

• C says to B if build contract obligated to A to build, I will give you money as well (supplemental agreement)
o This type of agreement is good consideration bc C has direct right of enforcement

Ratio: Agreement with third party to do what already bound in contract CAN BE consideration bc gives 3rd party
right of enforcement that previously hadn’t been given

Williams v Roffey Bros Ltd (1991)

Breaks ranks with Stilk v Myrick

Facts

• Have P in contract to renovate flats for 20K. P has underpriced contract and is losing money bc a) underpriced
b) not supervising workmen sufficiently. P gets behind on contract and D is concerned. D says if doesn’t
perform contract, he is subcontractor and I have main contract with penalty clause. If P doesn’t perform D will
lose money. D goes to P and says get to work, do obligations and perform on time, I will give 7K pounds
extra to each completed flat
• P finishes 8 flats and walks away from contract when D doesn’t pay greater amount. P sues
• D argument: this is Stilk v Myrick. P had obligation to perform for 20K. An amending agreement where said
would give more money but get nothing in return is enforceable no new consideration
• P argument: D got a practical benefit in return = avoidance of penalty clause. Therefore there was
consideration
• D response: there is a practical benefit but wouldn’t be recognized in law
o Why? It was an illusory consideration: it doesn’t travel from P to D. just arises on its own. P didn’t
give D something he didn’t have before

Issue: was there consideration

Decision: practical benefit = consideration. Held for P

Reason / Ratio:

• If get a practical benefit / obviation of disbenefit (i.e avoid penalty clause) might be good consideration for
new contract provided new agreement wasn’t extorted by duress
• Another way of saying: Anytime have amending agreement and get practical benefit that is good
consideration, unless other party extorted new agreement under duress

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 • Another way: Maybe something that wouldn’t have recongized as real consideration bc its illusory might be
good consideration if get practical benefit and other party doesn’t extort new agreement by duress
• Court says this is just modification of Stilk
o FORBES: thinks more than just refinement

Notes

• Why would court come to this conclusion? Stilk v Myrick doesn’t align well with reality of commerce

Greater Fredericton Airport Authority v NAV Canada (2008)

Willaims v Roffey in Canada

Facts:

• P enters into contract with D to extend runway of airport in Fredericton. D starts to perform and determine
that to make the runway work properly, they need new guidance system. Tell P need to pay for new system
and if they dotn agree D won’t complete the project. P thinks that D agreed to build runway and if there’s a
new guidance system required you have to pay. D says need to enter into amending agreement or walk away.
P sends letter of protest saying we don’t think we need to pay but will sign amending agreement to pay more.
Runway is done then it goes to court
• Lower Court – agrees with airport authority. right to make decision to guidance system is one D has under
contract but if decide need new one, the obligation was there
o P says if this is case amending agreement isn’t enforceable. An agreement to do same thing for
higher price isn’t binding
o D says Look at Williams v Rofey

Decision: COA NB held for P

Decision: from Williams v Roffrey Bros - modification agreement is enforceable as long as not extorted by duress.
This isn’t enforceable in this case, bc contract obtained under duress (bc of the letter of protest)Therefore
modification is not enforceable

Ratio: Williams v Roffrey comes to Canada. Maybe don’t need consideration

Notes

• Problem with applying this in Ontario: 1976 Case Gilbert Steel v University Contractors
o In strong decision COA of Ontario says amending agreement is not enforceable if effect is to simply
increase price of steel with nothing being given in return
• Quote: courts do not like Stilk

River Wind Ventures Ltd v British Columbia (2009)

• Amending agreement should be enforced but need to have either a) Benefit (but if we show benefit, don’t
need Williams v Roffrey Brothers) or b) Detrimental Reliance (which means probably in promissory estoppel)
• Not strong case

Jonathan Aluminum v Retail Alloy Metal (Ontario 2015)

Facts

• Have contract. Buyer says don’t like deal unless seller agrees to non-competition. Enter into non-compete.
Subsequently say this is Stilk – have agremeent, forced into amending and shouldn’t be enforceable. Seller
says Roffey bros, greater frederiction – amending agreement should be enforceable

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Decision: Agree with principle of Roffrey bros. but don’t have to apply here. Not an amending agreement – this was
simply a separate non-compete agreement without consideration. Seller got nothing in exchange therefore no
consideration. Not enforceable

FORBES: WHERE ARE WE NOW? HARD TO SAY. THINKS LAWS IN ONTARIO WILL CHANGE.
SEE OTHER JURISDICTIONS MOVING AWAY FROM STILK. V MYRICK. MAYBE CAN SAY
AMMENDING AGREEMENT IS ENFORCEABLE AS LONG AS NOT EXTORTED BY DURESS. IF
NEED EXTRA THOUGHT OF PRACTICAL BENEFIT (WHICH HE THINKS WILL ALWAYS BE
FOUND – BC WHY WOULD ANYONE PAY MORE IF NOT BC GET PRACTICAL BENEFIT). IN ONT
STILL HAVE GILBERT STEELE. LOWER COURTS IN ONT WOULD BE BOUND BY THIS. MEANS
WE HAVE TO GO BACK TO COURT OF APPEAL IN ONT OR SCC TO GET LAW CHANGED TO
ROFFEY BROS.

Summary of Performance of Existing Duty – Greater Amount

How to solve Stilk v Myrick? Hartley – why don’t we argue new consideration under 2nd. Had no obligation to work
that hard tso when agreed to maybe get new consideration

3rd party Agreement to do what already bound in contract to do = good consideration. Separate consideration for perf
for third party. New zeland, scottson peg (separate

Williams v Roffey – something that used to say was illusory may be sufficient to support new contract and
amending agreement provided that new agreement didn’t result from duress. If get practical benefit that may be
okay *what is duress – I do something bc I recognize you have difficulty (builder who says I know have financial
difficulty, will give you x or you get nothing. Builder knows other person has to take the deal)

isnt there always a practical benefit? Why would enter amendment and agree to pay more if not getting practical
bebefit?

How applies to Canada: Fredericton Airport – NB COA applies Williams v Roffey. And don’t need practical benefit
at all. Amending agreement enforceable provided didnt arise from duress.this case result was duress tho

Ontario: jonathan aluminum kind of says this might be acceptable in Ontario but don’t need to apply it on facts of
case so just obiter. Biggest issue – COA decision from 76 law of Ontario is amending agreement must have real
consideration. To get Williams v Roffey needs to get up to at least COA in Ont so can adopt.

Pinnel’s Case (1602) Sir Edward Coke

• Person owes some of money, 8 pounds 10 shillings
• Plaintiff accepted 5 pounds 2 shillings (lesser sum of money) prior to due date of debt. He takes it and sues for
the balance owing
• Coke Judgment: creditor entitled to collect remaining balance unless there had been an accord and
satisfaction – can always collect greater sum of money UNLESS there has been something different
given (i.e not money)
• In this case: there is accord and satisfaction (i.e the debtor has been given consideration) bc got early payment
of debt. The early payment = consideration. Obligation was to pay debt on due date, agreement was to pay
debt earlier. We have an accord, and we have satisfaction (which is be immaterial). He got paid early so got
consideration bc its immaterial. We do not test adequacy when we look at consideration.
• Without that something different, an agreement to accept lesser sum wouldn’t be binding
• Consistent with stilk: obligation to greater amount, accept lesser

Foakes v Beer (1884) UK

Application of Pinnel

Facts

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 • Mrs Beer was granted monetary damages from Dr Foakes (D) to pay her 2900 pounds. D says can’t pay but
can give 500 Pounds now and 150 P every 6 months. P agrees that wont take proceedings on the judgment
(aka sue). D pays, debt is extinguished. P says you owe me interest on the judgment and I am allowed to
charge that under civil procedure. D says paid debt

Issue: Is P entitled to charge interest?

Decision: yes. But even if concluded that she had just agreed to accept 500 pounds down and later installments, that
wouldn’t be enforceable. Why? Bc legally she was entitlted to interest. Her agreement to accept lesser sum woldnt
be binding bc D gave nothing in exchange for this (i.e. Pinnel’s Case)

L Blackburn: maybe Mrs Beer did get something in exchange for agreement to take payment over course of time.
What did she get? she didn’t have to sue over judgment.

• Is that considered good consideration? it is illusory consideration to say she got a benefit bc it doesn’t flow
directly from D to P
• BUT we can also say it was a practical benefit (Williams v Roffey)
o Can we argue this practical benefit here? As long as can say D didn’t extort P you can.

Syberee v Trip UK COA

Gets worse…. can always collect greater sum of money even if agreed to lesser sum. i.e. agreement to a lesser
amount of money is not enforceable (Similar issue to Stilk)

• Court: agree with Pinnel – agreement to accept lesser sum in satisfaction of greater isnt binding. But instead of
accepting cash get a cheque for lower this should be consideration
• Court says yes
• Denning in Coombe v. Coombe says this is crazy- obviously I’d rather have the money over the note, so he
overrules this
o He says in no way is this good consideration
Mercantile Law Amendment Act (1990) ONTARIO
Tries to fix problems caused by Pinnel in same situation

• Figure out what to do if agreement to accept lesser amount in satisfaction of greater

• Says part performance when expressly accepted or rendered in pursuance of an agreement for that
purpose, extinguishes an obligation/debt
o MEANING: part performance – I performed agreement. If have agreement to accept lesser sum, and
it has been fulfilled by delivery of lesser sum or accepted or rendered in pursuance of agreement
Extinguishes obligation. This only applies if have already paid (ie performed) lesser amount.
o What if agreed to pay lesser but haven’t performed?
• EG: client says work with someone who owes me money. Been trying to get it for months and they wont pay.
So person sends client letter with cheque for portion of what owe. Letter says ‘here is money I owe you, here
is all im prepared to pay, if you cash this cheque ill consider debt fully paid.’ Client wants to cash the cheque
but wants the rest too WHAT SHOULD CLIENT DO?
o GENERAL RULE (Common Law): agreement to accept lesser isn’t binding.
o BUT: Mercantile Law Statute says otherwise - if cash cheque there is a risk that other person can say
expressly accepted or has been rendered in pursuance of an agreement.
o BEST ADVICE: cash cheque, send back letter saying thanks for partial payment and look forward to
receiving rest of money owed in due course. Then can say haven’t expressly accepted or been
rendered in pursuance of agreement.

• Summary of agreement to accept lesser sum in satisfaction of greater sum

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 • Agreement to accept lesser sum in satisfaction of greater sum isnt binding UNLESS a) there is an agreement
to pay early b) in some other place c) agreement to get something different as well (e.g not money) these 3 are
all consideration. OR UNLESS we can argue Williams v Roffey brotehrs – creditor got practical benefit.
FORBES: but maybe don’t even need practical benefit bc only going to amend agreement if think getting
practical benefit.

4. Consideration – Promissory Estoppel

Intro
• Promissory estoppel – idea that equity steps in to help honour amending agreement
• This is a more traditional fix to the same problem
o When argue ‘PE’ always in situation with legal obligation, agreement to amend legal obligation
(higher or lower), only 1 of parties gets what law considers to be ‘consideration’
• Don’t say amending agreement is enforceable. Estoppel doesn’t create a contract
• What does Estoppel do? Give rise to an equity. Denning –EQUITY steps in here and estopps a party from
insisting on strict legal rights under original and ignoring amending agreement
• It is a shield, not a sword – equity doesn’t allow for cause for action. Lord denning is not saying amending
agreement is enforceable. It is inequitable for a person to fool into thinking amending is good and then going
back and insisting on original agreement

Class Notes 10/15: We have estoppel in common law, and estoppel in equity

• Historically: 2 separate areas of law. Common law – enforced through courts. Equity – courts of equity had
different jurisdiction. They applied common law, but also have ability on top of common law to apply
equitable principles. This meant that the court could create different remedies and rights in order to do justice
in an individual case.
• Common law could issue damages, courts of equity – different equitably remedies that saw at beginning of
course (e.g injuction). Also could go further and give remedy they thought was more fair/equitable than what
happened in common law
• 1870: courts merged. After this, each court had jurisdiction of both courts. Fused court less inclined to issue
equitably orders
• This is where Lord Enning comes from: still right in equity to issue orders that are fairer under circumstances.
So from this he says maybe equity steps in and it would be unfair to let person who enters into amending
agreement that turns out to be uneforeable to go back and instist on original reasonable rights from original
contract. EQUITY STOPS THIS.
o Ppl thought such an equity didn’t exist anymore. But this is what Denning thinks is solution
• Always have common law jurisdiction that says if act in way that other party thinks have contract, then
effectively have a contract. By actions, act in way that convinced other party of contract.
• Jordan v Money: this principle doesn’t apply to amending agreements amemding agreement is
unenforceable, alll it can be is a representation of future intention which does not give rise to a contract
• Lord Denning – High Trees: but equity steps in. If situation is one where
• Step 1) existing contract and unenforceable amending agreement (bc lacks consideration)
• Step 2) intended to be acted upon
• Step 3) actually acted upon
o Then equity steps in and says cannot go back and insist on strict legal rights under original contract
o Source of equity is in old courts of equity (not common law)
o So this helps explain what equity is. It would be unfair to say amending doesn’t apply. Creates equity
stepping in to prevent person from going back and insisting. There is no contract, just an equitable
principle

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 o Denning says this was always the law, but didn’t step in LOOK AT THIS AS DENNING
CREATION. DIDN’T LIKE STILK V MYRICK. SO FOUND THIS AS A SOLUTION

Then have refinements on PE

• Ajayi: Step 4: acted upon to detriment

• D+C Builders: Step 5: must have acted equitably
• Burrows: Step 6: must be negotiated amendment – friendly forbearance does not equal estoppel
• Coombe v Coombe: chaaracteristic: equitable estoppel does not equal cause of action. Only a shield
• *Crabbe v Arun: exception:

Jordan v Money (1854)

Denning cites this in concept of PE

• Always was concept that if a person acted in a certain way that can represent you were bound by contract –
despite intention (i.e. Cole McIntyre)
o This is known as common law estoppel
o BUT it doesn’t apply to a representation of FUTURE intention
• Anytime I say I will be bound by an amending agreement – it is future intention, therefore not binding
• PE says it is not fair for you to insist on your strict legal rights – so equity will stop you from doing this

Central London Property Trust v High Tree House Ltd (1947) (High Tree Decision)
Case Denning introduced PE
Fact
• P leased block of flats to D. WWII breaks out D only leases 1/3 of flats. P says to D – I realize what is
going on here, I’ll take half rent during the war. They enter into an agreement. P goes insolvent. 6 years later
the trustee in bankruptcy of P realizes still only getting half rent.
• P sues for remainder of rent
Denning
• Original formulation for PE
o 1 amending agreement unsupported by consideration (“representation as to rights under existing
agreement”)
o 2) intended to be acted upon
o 3) Acted upon

Application
• 1) offered less rent 2) intended to act upon 3) acted on and paid half rent
• Lord Denning says all 3 are represented here

Ratio
• If have all 3 can say promissory estoppel

Discussion
• This can be broad and takes decades to get refinements on something like this as will see in future cases

Ajayi v RT Briscoe Ltd

First Refinement to PE

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 • Privy Council: adds 4th requirement: in order to have real promissory estoppel there has to be detrimental
reliance
o Have to prove you changed your position as a result of the amending agreement bc you assumed its
valid
o If there is no detrimental reliance person who purported to be bound my amending agreement can
go back to original position after giving reasonable notice

Notes: significant change. With this in High Trees, tenant could probably show detrimental alliance

D & C Builders v. Rees (1965) UK

Further Refinement

Facts: D+C are builders working on a house for Rees. P is low on money, desperate for the money owed by Rees.
Reese says I have a cheque here for less- if you do not agree to take less money then you get nothing and we know
that you need the money or you will go bankrupt. They need the money- so they take the cheque, and mark the
account paid in full. Then they want the rest of the money. Rees and lawyers say promissory estoppel.
• They ‘agreed’ to an amending agreement to take a lesser sum (similar to Foakes)

Issue: Can it be PE in this agreement?

Decision: appeal dismissed

Reason (Denning):
• Nothing that is given that is different bc take a cheque instead of cash. Overrules case where this had applied
• Promissory Estoppel:
o Have steps 1-4
• ADDS NEW STEP: PERSON PLEADING ESTOPPEL MUST HAVE ACTED EQUITABLY
• Equity requires fairness, remedy is created to create fairness, cant come to court of equity and ask for
equitable remedy if acted inequitably. Promissory estoppel is only avail to be who act consistently with equity

Application: didn’t act equitably D was extorting P.

John Burrows Limited v. Subsurface Limited et al. (1968) SCC

Further refinement on PE

Facts: P&D are friends. D owes P money. D is strapped for cash, P knows cannot pay at time so says have time to
pay later don’t worry about it. They have falling out, now P says need to pay money. Amending agreement was not
binding and there is no PE.

Issue: Is there PE here?

Decision: NO PE. Held for P.

Reason: ADDS ANOTHER STEP: in order to end up with amending agreement that abides by PE, has to result
from a negotiated amendment there must be a negotiated amendment (friendly forbearance doesn’t prevent
estoppel)

Application: in this case, there was a friendly forebearance. This was a friendly agreement, not an amending
agreement that was negotiated.

Ratio: adds step, also confirms that PE is part of law of Canada

Coombe v. Coombe (1951) UK

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Facts: a wife divorced from husband claims maintenance from him at King’s Bench (not divorce). They had agreed
to maintenance (allowance) in a series of letters. He never pays. She argued that the promise was enforceable bc of
PE outlined in High Trees case

Decision: in favour of D

Reasons

PE cannot CREATE a cause of action, contract, or substitute for consideration. (it is a shield not a sword)

PE is a shield not a sword

PE has to come from an existing contract

They exist to defend you from someone insisting on their strict contractual rights

Ratio

• PE is not a contract; it is a finding of equity- you can’t create a cause of action from it
• They are defenses (from enforcement of original agreements), not actions

Crabb v. Arun District Council (1976) UK

Proprietary Estoppel- Exception to shield not a sword

Proprietary Estoppel (land interest) is exception to the rule that estoppel is defense and not cause of action; This
allows legal right/cause of action

Estoppels do not create cause of action UNLESS proprietary estoppel (related to interest in land)

If sale of land is concerned- no consideration is needed- can create a cause of action

Explanation

• L. Denning
• Proprietary Estoppel is different than promissory estoppels
• This relates to an agreement in land- creation of interest in land—there is detrimental reliance
• Give rights to compel person to grant interest they agreed to even if no contract
• A casue of action can come out of a promise w/out consideration if:
o There is detrimental reliance
o Significant interest in land
o Negotiated
• Because it is land interest there is an exception to Coombe that estoppels do not create a cause of action—and
there the estoppel DOES create a legal right
• If representation relates to creation by public authority in an interest in land, then that representation
may be binding. Not a contract, equity simply says convey the interest

Walton Stores Ltd. v. Maher (1988) Australia

Not law in Canada

Facts: P wants to rent property from D but P wants a new building. D lawyers send in new draft taking this into
account. P lawyers say – this contract should be okay. Based on that, D knocks down existing building and start
building what P asked for. P never signs lease and goes back to D saying no longer going to sign lease. D sued.

Issue: D say – this is common law estoppel. Did P, by conduct, communicate to M there was no contract (Cole v
McIntyre) was this common law estoppel?

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Decision: 3-2. Held for D. majority say no common law estoppel.

Reason: all judges agree, D has cause of action: an equitable jurisdiction steps in and is limited to circumstances
when have encouragement of assumption of intention to create contract in this case equity steps in and
there is a contract

Ratio

• Diff than Coombe v Coombe

• Everytime this argument has been made in Canadian courts it has been rejected so this doesn’t apply in
Canada
Summary Promissory Estoppel
Overall Problem Comes from Stilk v Myrick: agreement to do what already bound in contract to do doesn’t
constitute good consideration for amending agreement

For amending agreement to be binding: was there new consideration, (Pi …..

Williams v Roffey: if have practical benefit and amendment agreement not extorted by duress, is that sufficient to
form new contract? This fixes issue – amending agreement is enforceable. (do we really even need practical benefit,
isnt it always there)

Is this the law of Ontario yet? NO Gilbert v Steele – Stilk v Myrick is still law. Agreement to amend without
benefit on both sides is not binding in Ontario. Still have uphill battle to say Williams v Roffey is law in Ontario.
Has to get to court of appeal to become law. Or one of cases in other jurisdiction has to go to SCC.

So since cannot use Williams, say agreement to accept less in satisfaction of a debt (Mercantile Amendments): BUT
doesn’t apply to agreement to accept less, applies to actual acceptance of less bc says part performance.

If this doesn’t apply, argue Estoppel:

NOW: if get SCC or Ont CA saying Williams v Roffey Bros is Law: won’t need estoppel. Bc don’t need to go this
far down ‘waterfall.’ Bc amending agreement, supported by practical benefit, creates contract on terms of
amendment. Don’t need to go further.

SUMMARY OF CONSIDERATION FOR AMENDING AGREEMENTS: 10/11 LISTEN AROUND 1:24

STILK: agreement to do what already bound in contract to do isnt good consideration amending agreement
generally not enforceable

WATERFALL IF WANT TO SHOW AMENDING IS ENFORCEABLE?

Can argue that amending agreement provides some consideration on both sides? Is nature of agreement identical to
nature of second agreement vis a vis person who is willing to pay greater amount/receive lesser amount

If Not…. Can argue scottson v peg? ONLY IF THERE IS THIRD PARTY INVOLVED

If not…. Payment issue? Mercantile act

If no 3rd party…. Williams v roffey – can I argue practical benefit if no duress?

IN ONTARIO THOUGH THIS WOULDN’T APPLY

If in Ontario….then use promissory estoppel

Stilk – agreement to do what already bound in contract to do isnt good consideration. Therefore general rule =
amending agreement isnt enforceable

Denning – this is so, but equity has a jurisdiction. If have an amending agreement that is unenforceable AND was
intended to be acted upon AND intented to be negotiated AND was actually acted upon to detriment of other party
AND its fair to have an equitable remedy THEN amending agreement cannot be ignored bc of equity.

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Coomb and Coomb – estoppel doesn’t make a contract. Not a sword. They just give rise to equitable
defence/remedy.

Estoppels only make contract if common law estoppel, representation that there is a contract, if have a proprietary
estoppel (Crabb)

or maybe do Austarlia (if have encouragement of assumption there will be a contract that gives rise to equitable
rights of enforcement). This is a change in the law. Canadian law doesn’t do this.

5. Capacity to Contract
Intro
• In order to have a contract, both parties must have “legal capacity to enter into a contract” i.e. capacity to
contract
• Two ways to NOT have capacity to contract
o 1. Contracts with minors (under 18) Nash v Iman, Tonelli
They do NOT have contractual capacity
It is voidable but only by minor
o 2. Contracts with persons lacking capacity to contract
Can be permanent or temporary that lacks ability to understand bargain
DO NOT have contractual capacity and can go to court and rescind contract without
consueqences
This is argued less frequently b/c of law of unconscionability
• Gross inequity of bargaining powers, party takes unfair advantage
• General Rules for Contracts with Minor
o Not binding. Minor can walk away from contract
o Did affirm or confirm after reaching 18? Yes maybe binding. No not binding
o Contract with minor for provision of services is not binding on minor Tonelli
Minor can rescind, including after reaching 18
Cannot rescind if: affirms contract either directly by saying binding on me, or by acting
consistent with contract after reaching age of majority OR after reasonable period of time
passes
o Contract with minor can exist if there is necessity: minor still has to pay but only fair value for
delivery of good or service, not contract value
• General Rule of Lacking Capacity
o Person lacking capacity can set the contract aside
o If temporary: have to ask whether person has affirmed/confirmed contract after acquired capacity
again
o If necessity: has to pay fair value, not contract price (same as with minor)
• Don’t make contracts with minors
• EXCEPTION: Contract of necessity
o Nash v Inman:
o necessity in contract of services = beneficial to the person who lacks capacity through whole term of
contract
• when person who lacks capacity acquires capacity (ie minor hits age of majority, or go from temporary to
reacquiring capacity) the contract can be binding if person affirms contract specifically or by acting under the
contract or if fails to assert the rights that it isnt enforceable within a reasonable period of time

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Section 3 of Sales of Goods Act (1990) RSO
Nash v Inman (1908) KB
Toronto Marlborough’s Hockey Club v. Tonelli [1977] COA

6. Certainty or Ascertainability of Terms

Intro
• bargain is only contract if has sufficient certainty and ascertainability of terms that the court can understand
what parties agreed to and enforce what parties agreed to
• 1) terms have to be certain or ascertainable pursuant to a mechanism that works or doesn’t fail
• 2) terms have to be complete or completable pursuant to a mechanism that works
o EG: Agreement to agree at a later date =doesn’t work Scammell
Unenforeceable bc mechanism to complete terms faills
o EG Agreement to negotiate in good faith and are unable to agree = mechanism doesn’t work Watford
v Miles
Unenforceable bc if we are in front of court obviously didn’t agree to terms, but do have
obligation to negotiate even though didn’t agree to the terms
o mechanism for completing terms, does it work? If not, no contract
o Courts aren’t here to make contracts, just enforce
• If don’t satisfy either stage the contract fails. If courts cannot figure out what parties agree to, there
is no contract
• If we agree to agree and we do not agree later on then the mechanism did not work
• if we cant agree later on an arbitrator will set the terms; as long as arbitrator decides the mechanism works
• these are cases where the contracts seem complete but the language use has some interpretational
difficulties and the parties can ask the courts to enforce the bargain.

3 groups of cases

• 1) Complete terms that are imprecise Scammel, Hillas

• 2) Incomplete terms and a mechanism that doesn’t work - if the mechanism doesn’t work the terms are not
complete and the contract fails Scammel, Walford, Empress, Calvin
o We know terms are not complete, but will provide mechanism for completing.
o If mechanism works – we know terms
o If mechanism fails – contract fails
o If mechanism is agree to terms later on and parties don’t agree mechanism fails Scammell
o If mechanism is agree in good faith and parties cant to do so mechanism fails Watford v Miles
o How to make mechanism work? Arbitration Calvin v Manning
• 3) embryonic agreements (e.g memo) - contemplating formal agreement: is the informal agreement a contract
on its own even though it might contemplate a formal agreement? Or is it an agreement of some of the terms
or an agreement to agree on remainder of terms?
o British Timber: this is a contract
o Kernel: this isnt
o How to reconcile: the more complex / unique the transaction, the less likely court would say initial
agreement is a contract
o why even do a memo?

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 Before bring in lawyers and start paying fees, want a preliminary set of terms that can
show board to see if its something they think we should do
or want to ensure can come up with essential financial terms that make sense before bring
in lawyers
or sometimes have seller when dealing with competitor that wants to buy business. They
are offering right amount of money but in order to finalize deal they need to look at
confidential info.
o What if we don’t want it to be binding?
If not say so in the agreement with a Rose and Frank clause – this doc is not meant to
have contractual effect
Another way is Green: no contract subject to formal agreement
o What if we want it to be binding?
Put in reverse rose and frank that says this doc has contractual effect. Still intend to have
formal contract that when is done will replace this doc
British : if want to be binding, ensure document contains all the essential terms bc then
will be binding
o What if want it to be partially binding?
(e.g no shop clause) Seller says going to have contract and you are competitor and want to
see confidential info. What if we never get to formal contract and you walk away with all
my confidential info. Then my memo needs a clause that says confidential info must be
kept confidential and it wont be used for any purpose other than to help us complete the
closing of our transaction (confidentiality clause)
So can have clause that says don’t want binding but in interim there are a few clauses
that are binding and enforceable
o One thing to watch out for: make sure memo of understanding has clauses going both
directions that are binding (i.e consideration) or if you are worried put it under seal!
o What do as lawyer when clients do this alone?
Teach clients tricks on their own
Bring in lawyer at early stage

Scammell & Nephew v Ouston (1941) HL

First group of cases , second group ‘agreement to agree’

Facts
• P wants to trade in old van for new one plus extra money. Agreement is done on “higher purchase terms” (rent
to own idea) subject to mutual acceptance of the agreement
• D changes mind so P sues
• Contract says we will “mutually agree to the terms” – which brings up idea of incomplete contract / uncertain
terms and agreements to negotiate
Issue

• Is the term ‘higher purchase terms’ precise enough? NO

• If yes: is the contract complete – does the mechanism work? Agreement to a gree is a fragile mechanism bc
the contract fails if parties cannot agree later
Decision: no contract
Reason
• “Higher Purchase Terms” we know what intended, but very imprecise. What does this mean?
Ratio
• 1. If terms are too uncertain no contract
o If ambiguity in contract court will try hard to figure out what the contract meant

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 o If come to conclusion that can FIO what parties meant contract is enforceable
o If cannot figure out what parties meant contract fails
• 2. This is just an agreement to agree mechanism doesn’t work
o Mechanism for completing terms failed. Mechaniosm is we would mutually agree but we didn’t
o Only binding if parties accept to agree unless set up a mechanism for filling in the blanks later

Hillas v Arcos (1932) HL

First group of cases
Facts
• Sale of timber and they had dealt with each other in the past. Said for next year will have terms similar to last
year

Issue: when intention is clear, but terms are imprecise is there a contract?

Walford v Miles (1992) HL

Second group of cases. Agreement to negotiate in good faith

Facts
• D wants to sell business. P and D enter into letter of intent that says: parties will negotiate in good faith for
sale of business and not to negotiate with anyone else. Someone else comes along and D sells business to him.
• P says there is a breach of contract
o 1) you agreed to not negotiate with anyone else
o 2) you agreed to negotiate with me in good faith and you breached it . we didn’t even negotiate!
• D: agreement to negotiate is no different than agreement to agree. If we didn’t come to agreement mechanism
failed and no contract
Issue: was the letter of intent sufficient that stated “negotiate in good faith” enough to be a contract?
Decision: No contract. Mechanism fails.
Reason:
• what is agreement to negotiate in good faith? How does court know if this is even happening between the two
parties
• what are damages if person is breaching negotiation in good faith?
• D: could’ve sat for 10 months and were nowhere near close to closing the deal
• P: but you didn’t negotiate in good faith
• JUDGE: agreement to negotiate in good faith is same as agreement to agree. If nothing comes out of
agreement then mechanism parties used failed.
• JUDGE: how can a court police a negotiation in good faith?

Ratio: an agreement to negotiate in good faith is no diff than agreement to agree when you don’t come up
with an agreement. Bc all you have are incomplete terms and a mechanism that fails.

Notes: what if it had a ‘no shop’ clause.

Empress Towers v Bank of Nova Scotia (1990) CA

Second group of cases

Facts

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 • In 1972 D leased property from P. once expired, entered into new lease wit h clause saying D could renew for
two successive periods of five years each. Provided D give three months written notice to release at market
rates to be negotiated at time
• After first new term expired, D exercised option to renew at a higher rent of 5K (substantial increase of rent).
D never hears back. On last day of lease P spoke up and said D could stay if made payment of 15K by Sept 15
(very soon) at a rent of the same amount D put forward.
• NOTE: employee of D was robbed in the bank branch. D lost 30K, only 15K was covered by insurance. So
basically saying wants the other 15K from P.
• D doesn’t want to pay 15K. so P sues to evict D.

Issue: was negotiation done in good faith and mindful of mutually agreed upon?

Decision: for D.

First Judge

• Agreement to agree but landlord had obligation to negotiate rent in good faith and that was implied term of
contract
• Bc landlord didn’t do so no eviction

Court of Appeal

• No contract BUT landlord had implied contract to negotiate in good faith and set reasonable rent
• Scared lawyers at the time: did this case mean there was an obligation to negotiate in good faith?

Edper Brascan Corporation v 117373 Canada Inc (2000) Superior Court

• Is there obligation to negotiate contract in good faith?
• Empress is cited to the court
• Court says: empress towers should be confined to its own narrow facts (EVICTION CASES) and the landlord
wasn’t operating in good faith clearly.

Ratio: Empress has to be confined to its own case, no obligation to negotiate in good faith in Ontario.
Probably means that law is as stated in Walford v Miles

In order for contract to be enforceable need to be certain or ascertainable pursuant to mechanism that work

Calvin Consolidated v Manning

Refer to settlement of incomplete terms to outside person

Factsd

• Imformal agreement contemplating formal agreement and if not agreed to be settled by arbitration this is
the mechanism
• Agreement says – might contemplate property may be developed as oil and gas property in future. If that
happens, the whole agreement will be submitted to arbitration if cannot agree
• D walks away and says this is agreement to agree

Decision: courts say d is wrong. You have a contract with a mechanism where supposed to submit to arbitration.

• Mechanism = arbitrator
• Have a present contract that provides a mechanism for finalizing terms which is the arbitrator. This works
unless the arbitrator is unsuccessful but at current time contract exists

Ratio: as long as mechanism works, there is a formal contract.

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Notes

• In this case if goes to arbitrator and that doesn’t work at that point can say the mechanism fails. But
what if choose x as arbitrator and x dies? Contract fails. HOW DO WE AVOID FOR MECHANISM
TO FAIL WITH ARBITRATOR?
• If want mechanism to work in this case then what do we do? Say we will agree, if cant submit to
arbitrator. Arbitrator will be x. if x is unable or unwilling to do so 7 is arbitrator. If y is unable or
unwilling to do it then we will have someone else be arbitrator this will safeguard so terms will
always be complete
• What if the terms are imprecise? Can also add arbitration clause. The way we will ascertain terms is by
submitting to arbitration and adding the waterfall for who will arbitrate so don’t end up with uncertain
terms.

British American Timber Co v Elk River Timber Co

Group 3 of cases

Facts: informal agreement for D to buy timber rights off P. doc states a survey of land will be done and then after
will enter contract containing such as provisions of this agreement should be applicable

• What is this trying to say? Going to have a formal contract. But do we have one now?
• D walks away from the deal and doesn’t want to purchase timber rights anymore. We don’t have a contract
o He is saying informal agreement is not binding bc agreed will have formal agreement. This means we
need to agree to remainder of terms. Since we aren’t going to agree we have no contract
• P: we have contract

Held for P

Reason

• All of essential terms are set out in informal

• Only reason to have formal is to formalize the terms that we already agreed upon
• Court says we have all essential terms, all the informal agreement is is that we are going to formalize the
agreement

Notes

• Forbes: how far do we go with this? Is any memo a contract even though contemplation that would
have formal agreement later on? Solves with Ontario case that goes the other way

Bawitko Investments v. Kernels Popcorn

Fixes issue from British American Timber

Facts: P &D negotiate terms of franchise in memo. Agree how long franchisee is to have right to franchise. Agree to
renewal fee. Transfer fee if franchisee wants to sell to another person. Agree franchisee will be a company and
owners of company wont have to guarantee obligations of company to franchisor. They settle these essential terms

• D gives P a formal form of franchise agreement and the original memo and we need to finalize / negotiate
terms
• P is slow to finish contract. After 5 months D gets frustrated and says deal is off, returns deposit and we have
no contract

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 • P sues: doesn’t this look like British American? We have all essential terms from memo, you had my form of
franchise agreement and we have complete contract.
• D response: we still have negotiating to do and this isnt complete

Issue: was the contract already formed by the memo?

Holding: no contract, only agreement to agree

Decision

• Bc agree on certain terms doesn’t mean that terms are settled no complete terms and no mechanism for
completing terms other than mutual agreement

Reconcile this with British American

• Forbes: difficult
• The more complex the transaction or the more unique the transaction is, less likely a memo is a contract on its
own rather than agreement
• If simple form of contract and easy to figure out what parties intended and all essential terms in first contract -
go with British
• The more complex the transaction less likely court says memo is an actual contract go with Bawitko v
Kernels

Green v Ainsmore Consolidated

• If put in clause that says this doc is not formal contract and is subject to a formal contract
• If don’t want a contract put a clause like this in (similar to Rose and Frank clause)

Summary of Certainty or Ascertainability of Terms

Issue: when does a memorandum of understanding or heads of agreement become a contract on its own or when
does only become contract when the parties formalize memo/heads of agreement in contract so when look at memo
its not contract at that point in time or if it is its subject to mutual agreement of formalizing regular contract..

British America Timber compared to Kernels: concluded informally – memos are more likely to be formal contract
if it is simpler form of contract, not complex, and more or less standard in nature. More complex = more difficult

How to get intention want out of it? Do want memo to be formal? If yes – state so in the document. If no – rose and
frank clause that states parties don’t intend formal contract. There will be no formal contract until theres a formal
negotiated contract. Or clause from green – put in something that says this doc is subject to there being a formal
agreement and isnt binding until there is a formal agreement (10/22 Recording)

Terms of Contract
• Have all building blocks in place
• All building blocks exist how do courts look at contract and operate with respect to contracts?

Interpreting Written Contracts

Intro
• We’ve seen that an oral contract can be a contract. Mostly a time it is a matter of proof – how do prove if not
in writing? Judge has to assess credibility of witnesses
• HERE: we reduce contract to writing how do we interpret contract once reduced to writing?
o E.g What to do if someone says yes I signed but we also agreed that words had special meeting
• To interpret start with:

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 • Parole Evidence Rule – document that’s been agreed to will be given special protection. We start with
the document / writing. And the interpretation of the terms of the contract are to be found in the
writing. Everything else is
o If have written doc and parties agreed that doc contains bargain when trying to determine what did
the parties agree or what do these words mean we apply what the courts call the four corners rule
(we look at doc and determine what parties agreed by the terms of the document)
o General: if say I agreed that we entered into contract but when did so there is more than what
is document. The response is parole evidence contract – cannot prove that. We look at the
document itself

Exceptions to Parole Evidence Rule

• 1) Prove the writing isnt agreed bargain (isnt a memorialization of our bargain)
o If sign doc memorialization
o But if simply write terms and you don’t agree then we have fight I cannot hold up that doc and say
this is deal and don’t listen to anything else. That doc is simply evidence to what we a greed
o What if have contract then a meeting, agree, send you email on what agreed and say this is what I
think we agreed to and if you don’t respond will assume its right. then we have fight then does that
doc become subject to PER?
New Zealand Case: Thorne & Company v Thomas Borthwick: this might not be
acceptance but failure to respond means you must have assented to the doc and if you
assent, the PER applies in this type of case, say doc can take PER
• 2) Pym v Campbell: Condition Precedent: if a condition precedent is set, must be meant for agreement to be
binding
• 3) Raffles v Wichelhaus: Mistake / Misrepresentation: someone buying cotton shipped out of Bombay on a
ship called Pearless- turns out there were two boats like this- purchaser said I needed the Sept. boat not the
Nov. boat- does purchaser have to buy the Nov cotton? What do you do with the PER? The contract is for
cotton from Bomaby on Pearless boat- that is was the delieverer did. Court lets them show there are special
facts that make it voidable- there is mistake and misinterpretation)
NOT offensive to PER that there was a condition precedent, mistaken or something that
would make contract voidable
• 4) Can prove a collateral contract, subject to certain objections – PER says what if you have a written
contract?

o Can always prove contract provided doesn’t conflict with main contract and that conflict is more than
an entire agreement clause
o Morgan v Griffith:
o Hawish v Bank of Montreal
• 5) Ambiguity

Pym v Campbell (1856)

Exception to PER: conditions precedent

Facts:

• P (inventor) and D (investor) enter into contract they both signed. Contract says D will buy and P will sell. D
should create interest into the invention the plaintiff made – nothing more in the contract
• D says at time signed contract agreed to inspection by A. and D will only buy invention if A approved
invention (not written in contract). Invention didn’t receive requisite approval from A so D refused to pay
purchase price
• P sues for breach of contract and says parole evidence rule applies. No mention of A in contract, and D won’t
close the deal. D claims agreement was conditional upon the approval of the invention

Holding: no contract, in favour of D. there was a condition precedent

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Decision: PER doesn’t stop from thinking doc was never meant to be a contract. There was a condition precedent to
it being a contract and wasn’t met here

Morgan v Griffith (1871)

Exception to PER: collateral contracts

Facts:

• Negotiating a lease extension. Lease is about to be renewed and the tenant says the property is overrun with
rabbits. Tenant (P) won’t renew the lease unless landlord (D) gets rid of the rabbits. Landlord agrees to get
rid of the rabbits, and signs the lease (not in the lease). Landlord doesn’t get rid of rabbits, tenant walks
away from lease, and the landlord sues. Landlord says tenant said would pay rent and left. Tenant argues
that there was a collateral contract (lease to pay rent, get rid of rabbits). Landlord says contract doesn’t say
anything

Decision: in favour of P (tenant). There was a collateral contract

Reason: PER allows you to prove there was a doc that was a contract AND another agreement which was a
collateral contract PROVIDED THAT the proof of the collateral contract doesn’t conflict with the main contract.
• Collateral contract in this case? In consideration of signing the lease, the landlord agrees to get rid of rbbits
• Judge: verbal agreement didn’t have any terms that conflicted
Ratio: In spite of PER can prove collateral contract, provided it doesn’t conflict with the written document d

Hawish v Bank of Montreal (1969) SCC

Exception to PER: collateral contracts (affirms Morgan v Griffith by SCC)

Facts
• Hawish is a lawyer and signs a guarantee (promise to repay credit issued to a business) for the bank for all
existing and continuing debt of the company which will effectively continue until the debt is fully paid (i.e.
company pays off the loan)
• Hawish says when he signed the guarantee and didn’t read it but at the time he signed the bank manager told
him it was only for the present debt of the company (i.e. we hae collateral contract)
• The bank would not release him from his contract
• He says there is a collateral contract – in consideration of me signing, this is only for the present debt of
company and I get a release

Decision: no collateral contract

Reason:

• In proving collateral contract, you are proving contract that conflicts head on with terms of main contract
o Guarantee = present and continuing debt
o Hawish = bank manager said it was only for present debt
• “entire agreement clause” (from Gallen v All State Grain)
o There are no other terms or agreements collateral or otherwise in relation to the subject matter of this
contract except the terms and agreements that are contained in this document
o if put this in contract does that mean not allowed any collateral contract? Yes!
• HOWEVER: if there’s clear proof of a collateral contract (and particularly if main contract is standard form
contract) then will be allowed to prove collateral contract
• SCC: this is in conflict. Cant prove collateral contract that conflicts head on with written contract. PER says
so.

Ratio

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 • The court wont allow you to prove the second oral contract if the terms youre alleging from oral contract
conflict

Notes: refinement on collateral. Cannot prove collateral contract that conflicts head on with written contract.

Southern Resources Ltd v Technomin Australia (1990)

If dispute about meaning of contract – look at plain meaning of contract.

Facts

• Contract: plaintiff is supposed to get 3% net smelter interest on minerals produced from or on the property-
in exchange for that, he must pay a sum of money.
• Defendant: when agreed to 3% meant to agree for one process and not all smelting processes. AND when
we said minerals, we meant to exclude gold.

Decision: cannot lead evidence like this. Parole evidence rule applies

Reason

• When look at contract and trying to understand what words meant Start with PER: Interpret bargain with
words parties use
• Then can try argue ambiguity
o Patent ambiguity: obvious ambiguity on the face of the document. The language that the parties use
has to be certain enough for the court to figure out what they meant. E.g. what does ‘higher purchase’
mean if prove this then look at extrinsic evidence terms have to be certain (Hillas) – if not
certain court will try to figure out what parties meant. If cannot figure it out contract fails
o Latent ambiguity: language of contract is clear, but meant something else (not obvious language).
The only time this can be proved successfully is to identify the subject matter of the contract.
e.g transaction is to sell farm and I have 3 farms. My farm is clear – not patent. But there is
latent ambiguity. Terms are clear, all im trying to do is identify subject matter of contract.
What I cannot say is we intended a different meaning than what the contract says

Entire Analysis of Interpreting Contracts & Certainty of Terms – Waterfalls

1. Here is contract
2. Parole Evidence Rule Applies: look at words in contract (meaning of contract is to be found in doc)
3. Look at language used.
a. If certain then can determine intention from the words
b. If language is patently ambiguous then Hillas : can show extrinsic evidence (the drafts, industry
standards, past dealings etc…)
i. If can figure out contract succeeds
ii. If cannot contract fails, no certainty of terms Scammell
c. If trying to show latent ambiguity (intended special meaning) can only happen when
identifying subject matter of contract

Application

1. PER: court looks at words in the contract

2. Language is clear clear that meant smelter interest in this case and minerals.

Sattva Capital Corp v Creston Moly Corp (2014) SCC

Refinement to Southern Resources

Facts

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 • Only if error of law can arbitration decision be appealed to the court
• P & D enter agreement that requires D to pay P a finder’s fee in relation to the acquisition of their mining
property. Finders fee was US $1.5M and could be paid in shares
• Disagreed on which date should be used to price the shares and therefore the number of share to which P was
entitled (date of transaction vs date of election to take shares)
o Contract said: terms with be ascertained by reference to an arbitrator
• Entered into arbitration and arbitrator found in favour of P (at time of election) the difference is 1.5M to
7M bc share values jumped
o Arbitrator came to decision by looking at contract and all surrounding circumstances and came to
conclusion that proper interpretation of contract is that shares were to be valued at election
• If language of contract is clear PER should apply arbitrator made error in law by looking at extrinsic
evidence
• Arbitrator didn’t say contract was ambiguous. Said would interpret by looking at all extrinsic evidence
• Is that decision appealable?
• D sought leave to appeal the decision but leave was denied on basis that question on appeal was not a question
of law
• BC Court of Appeal reversed the decision and granted Ds application for leave to appeal finding arbitrator
failed to address the meaning of the agreement’s maximum amount proviso raised a question of law
• Superior Court: dismissed D’s appeal – arbitrator interpreted correct
• Court of Appeal: allowed D’s appeal – arbitrator reached an absurd result
• P appeals decision

Issue: Did arbitrator make error in law by looking at extrinsic evidence without making a finding of ambiguity?

Decision (Rothstein): historical approach should be abandoned

• If arbitrator had said words are ambiguous and bc of that have access to extrinsic then we wouldn’t be in this
issue
• But arbitrator didn’t say that. Just said going to bring in extrinsic
• Did he make an error of law?
• SCC seems to say no. what supposed to do is look at words of written contract considered in the light of
the factual matrix. And factual matrix should never be allowed to overwhelm words of agreement but
can be considered

Ratio: Now we have to look at surrounding circumstances within PER. Look at words of contract within
light of factual matrix. Can look at surrounding circumstances in determining what the parties intended.

Notes

• FORBES: case is important takes completely diff view of how look at interpretation of contract
• This case says: with PER can look at extrinsic evidence this is contrary to how he thinks PER is supposed
to work
• Law is changed in distinct way. PER lost feet in this decision.

Ledcor Construction v Northbridge Insurance (SCC)

Case like this Sattva: limits what said

Facts:

o Building office tower in Edmonton and insurance policy. Builder takes out policy to protect builder
against bad things happening during course of construction. Clause in policy – insurance RELISTEN
o Contractor builds, finishes, hires cleaning companies to clean window before delivering to owner.
Cleaning company uses abrasive cleaning technique and scratches all the windows
o OWNER: fix windows builder is out 1.2M to replace windows

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 o Builder goes to insurance and asks to cover this
o Judge: agrees with owner, this should be covered by insurance

Issue:

o Question on appeal: what is level of decision on appeal? On questions of fact give deference to what
trial judge says. Has interpretation of contract gone from being question of law or question of fact?
Can appeal judge finding if interpretation is mix of fact/law bc Rothstein told us we are supposed to
interpret the law in the factual matrix

Decision:

o SCC: where question of interpretation is of a standard form contract there is no factual matrix.
And if that’s the case it is simply a question of law
In other words, decision of Sattva applies only to negotiated contracts and not
standard form contracts bc that is only time going to be a real factual matrix

Ratio: only can apply Sattva to negotiations. If standard form contract, this case says still look at as question of law
and PER applies

Summary: Interpreting Written Contracts

Parole Evidence Rule: once parties reduce bargain into writing, then PER applies and says that extrinsic evidence
about extra terms to contract outside writing or about what parties meant in certain words are excluded if parties
have reduced agreement to writing and agreed to writing, then the document is the contract! Generally, don’t go
behind contract and bring in extrinsic evidence

Exceptions to PER:

First: rule only applies to a document when both parties agree. Can always prove document is only one party’s view
of the agreement. If sign document – it is absolutely clear that agree doc is contract. What happens if one party
writes up doc and sends to other party saying I think this is what agreed and if think otherwise let me know? New
Zealand – this is still PER

Second: doesn’t stop from saying doc that looks like contract, isnt a contract bc there are conditions precedent.

Third: mistake cases – PER doesn’t stop from saying ok agree we have contract for me to buy cotton on ship but I
thought we were talking about the ship in December not setepmber. And it is material to me that I get cotton on
early ship. Therefore never had bargain. can say mistake rendered the contract void or there was
misrepresentation.

2/3: can argue conditions precedent, mistakes/misrepresentation that renders contract void.

Fourth: can say have written contract and collateral. (Morgan). HOWEVER: Hawish: if collateral conflicts with
terms of written document that is offensive to PER. Cannot prove collateral contract that conflicts with main
contract. In doing so, colliding with agreed terms to main contract. Is proof of collateral in conflict with main
contract?

How does this apply to interpreting words of the contract rather than alleging there are more agreements
than contained in writing? Southern case: PER says that you interpret a contract by looking at words of contract.
Cant look at extrinsic unless can show there is patent ambiguity in contract. (WATERFALL ABOVE FROM
Southern case. If no ambiguity No extrinsic evidence about what parties intended except will allow to show latent
ambiguity and identify subject matter of the contract (e.g. contract says sale of my farm, no patent but there is latent
bc I have more than 1 farm and will show wha contract subject matter was meant to be)

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Sattva: SCC says we can look at ‘factual matrix’ when interpreting a contract provided that the factual matrix wont
be allowed to overwhelm the words of a contract.

Ledcor: this only applies to negotiated contracts and not standard form contracts bc in effect standard form
contracts have no factual matrix! You are just signing a standard contract.

Where are we left? Maybe all sattva says is when interpreting contract we can look at extrinsic evidence without
having to identify that there is ambiguity. We can say when parties use unambiguous word factual matrix tells us
they meant something other than what those words might purely mean. When interpreting contract can always
look at factual matrix but it cannot overwhelm the words of the contract. Maybe we can look at extrinsic
evidence without tolling the bell of ambiguity. (beans example of contract says horse beans but we thought were
something else and can now discuss. It may be found to overwhelm but can look at outside evidence, assess. Before
couldn’t)

Duty to Perform in Good Faith

• Have articulated since 2014 an obligation to perform contract in good faith
• A failure to do so is a breach of contract that entitles other party to damages for breach
• When discussed certainty of terms of contracts: discussed what if said will negotiate in good faith and don’t
do so? Then that is a mechanism for fixing and when breaks down no contract. This is different. Not fixing
terms by negotiating on good faith but perform in good faith
• We have contract have we breached obligation to perform in good faith?

Bhasin v Hrynew and Heritage Educational Funds (2014) SCC

• B is an agent under agency agreement with Heritage. Has right to set up his own agency, hire employees and
is selling educational savings plans on behalf of H
• H also has company with Heritage and is beholden to H.
• H said lets do merger but you come work for me – B not interested
• H goes to Heritage and says can FIO way to force B to merge business with H? Heritage agrees
• Heritage says to B: Alberta securities commission wants to do an audit. The only person they will accept to do
audit is H. H is subject to confidentiality agreement so cant use B’s info for personal reasons
• The court says the fact that insisted on alberta was false and subject to confidentiality was false just wanted
to get H access to who the good sales people were and so H can take over business
• B says no. then asks if refuse to renew agency when it expires? Heritage doesn’t really answer but seems to
indicate it wont be a problem
• When B continued to refuse to allow H to audit him, C threatened to terminate the 3 year contract and gave
notice of non-renewal under the agreement. When expired B couldn’t move sales ppl to new plan fast enough
so all his sales people went to H and he loses his business
• B sued Heritage & H
• TJ: Heritage was in breach of implied term of good faith, H intentionally induced breach of contract C & H
liable for civil conspiracy
• Heritage appeals to CA: (cant imply term if term is contrary to express term of contract) allowed appeal,
cannot imply term in contract that had to be good faith in renewal in the face of express term of contract. Cant
imply term of contract in face of entire agreement clause which says there are no other contracts including
ollateral. judge made error of law in implying term of contract in the light of an express term of contract
that allowed termination and in light of entire agreement clause
• B appeals to SCC

Issue: is there a contractual duty to perform in good faith?

Reason (Cromwell)

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 • There is a general organizational principle of law of contracts that parties must perform contracts in good faith
• This means: honestly, reasonably, not capriciously, not arbitrarily
• A party must have appropriate regard for legitimate contractual interest of other party. This requires a party
not seek to undermine other party’s interests in bad faith
• A party must not lie or knowingly mislead about matters relating to contractual performance
• Application: obviously heritage lied to B (Alberta Securities Commission, H having confidentiality) and
misled B (about intention to terminate agency) THEREFORE: BREACH OF CONTRACT
• But: H didn’t make them do that H isnt liable in tort (different than implied term)

What isn’t the duty to breach?

• Not an implied term of contract it is a general organizational principle of law of contract

• Isn’t excluded by express term of contract and probably means that cant exclude it by agreement
• Cannot be written out of the contract can alleviate to certain extent by precise language
• Doesn’t require positive disclosure I can know things about contract that you don’t know and I don’t have
to tell you. Simply an obligation not to lie or mislead yb things say or do
• Not a fiduciary duty (if im a trustee of a trust or director of company, a fiduciary duty says that when I end up
acting I have to put my personal interest 2nd to person I owe fiduciary duty) don’t have to put other party’s
interest first
• Doesn’t prevent party from pursuit of self interest or require foregoing of advantage flowing from the
contract can pursue self interest even if it causes (intentional) loss to the other party

So what is the breach?

• Can’t lie or knowingly mislead

• There always were instances in the law where a party had an obligation to perform in good faith that are
largely in situations with an imbalance of power
o Franchise contracts: couldn’t terminate franchise agreement without good cause
o employment law: had implied term that if there is no cause, an emoployee is entitled to notice of
termination or payment in lieu of termination
o insurance contracts: always required insurer to act in good faith. If insurance company insuring
house and no fact to support fact that I torched house and insurer says you did to get you to agree to
lower rate, insurer was acting in bad faith
o having a discretion under a contract = means discretion has to happen in good faith
if act on discretion in contract in arbitrary way performed in bad faith
o condition to a contract: then have to attempt to remove the condition
e.g. have real estate for sale you agree to buy it. Condition to closing I get planning
consent for severance of party. Someone else comes along and wants to pay more. I don’t
remove the condition. Courts say that is performance of contract in bad faith. If theres a
condition of a contract I have to take reasonable attempt to meet condition. Failure to do so
is performance in bad faith
• NOW: general obligation to perform in good faith (not just these listed areas)
• What does that general obligation amount to:
o Cant lie
o Cant intentionally mislead
o Don’t have to disclose
o Don’t have to put other partys interests first
o Don’t have to forego benefit under contract
o Can extract advantage it permits even if it causes loss or intentional loss to other party

Notes

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 • Forbes: since this case came out he hasn’t seen a single litigation case where parties have alleged other
performed in bad faith. Always put in contract. Don’t know how far it goes other than cannot lie or cannot
mislead
• Early returns in cases that applied the case have been restrictive in way applied

Greater Vancouver Sewage v Wastech Services

Newer case as result of Bhasin

Facts

• Contract provides for P to dispose of sewage and waste water for the city
• Contract says if certain volumes are disposed of during course of contract, P gets bonus
• City has similar contracts with other services providers. P knows this
• P says city allocated volume to various contract ppl including me in a way that ensured I didn’t get my bonus
and that wasn’t consistent with ym reasonable expectations under my contract. City has performed contract in
bad faith

Decision

• SCC: duty of good faith doesn’t apply to a party’s legitimate interests but legitimated contractual interests
• Nothing in contract that didn’t stop city from allocating in way that didn’t apply bonus
• Simply acting under the contract in a way that “pursues self interest and takes advantage flowing from
contract is not a breach of duty in good faith”

Ratio

• How court applies: there is an obligation to perform in good faith, but that obligation comes about through the
contract. Doesn’t arrive in a vacuum. It is informed by contractual rltp and interest of parties as stated in the
contract
• This case reads down concerns about how far take Bhasin. Clearly that case says cannot lie. Cannot
knowingly mislead. And there is overarching organizational principle of good faith. But there are areas
that existed before, and a general obligation that at least says cannot lie or knowingly mislead. That’s it

Styles v AIMCO
Facts

• P dismissed from employment. His contract said at end of year he was entitled to long-term incentive plan
benefit.
• His employment contract said that if left/terminated during course of year, D had discretion as to whether or
not to pay his incentive plan bonus. D says not going to pay bonus. P sues

Decision

• B v H says there is an obligation to perform in good faith

• If D was exercising discretion to not pay bonus bc were mad at styles, that was performing in bad faith

Notes

• Probably before BvH would have come to the same conclusion. But B v H changes law
• Why is this case different than greater Vancouver? Bc discretion is built into the contract.

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Summary of Duty to Perform in Good Faith
SCC: organizational principle of law of contracts that party must perform contract in good faith

• What isnt it:

o It isnt an implied term of contract
o It isnt a Fiduciary duty doesn’t require party to put other party’s interest first
o Doesn’t prevent extracting benefit even if causes loss to other party
o It doesn’t require positive disclosure
• So how does it actually work
o Things that always triggered obligation to perform in good faith generally imbalance of power
situations (Franchises, Employment Contracts, Insurance, Exercise of discretion under good faith,
satisfaction of condition on closing
(Styles v Aimco) – wrong of Aimco to refuse to pay Styles simply bc contract allows them
to exercise discretion not to pay)
o In addition to existing categories – this applies generally.
• In Case: applies when knowingly mislead or misrepresent had to be in good faith

How much broader is rule from Bhasin? Vancouver case restricts

• Court says: doesn’t permit rewriting of contract based on what party thinks is now a fair outcome. What were
the rights permitted under that contract?
• Not proper use of performing in good faith if don’t like result of what getting
• SO: cannot lie or mislead, language SCC uses is broader than that, but hard at this point to figure out exactly
how this provision is going to be read in long term. In recent cases see court read down on Bhasim

• The problem is when law is in the middle of change hard to predict where it is going to take. Sometimes
difficult to figure out how far this will go
• SCC is saying we have general overarching principle to perform in good faith. Have instances where law has
developed specifically. From BvH have overarching obligation to not lie or knowingly mislead. At this point
in time we don’t know if its any broader than that

Tough Issue

• I know not going to renew, other party to contract would kill for that information can I not give them the
info?
o Previously: would say had no obligation just give notice as deemed in contract
o Now: is there a greater obligation? If they ask if you are out, do you have obligation to tell the truth
knowing that it is going to be to my disadvtange to do that?
• When does there being no obligation to disclose turn into an obligation not to mislead

Implied Terms of Contract

Intro
• General Rule of PER: if doc has been reduced to writing and agreed between parties we exclude
allegations that there are other terms of the contract that don’t exist in the writing
• Certainty and Ascertainability of Rules: Courts interpret contracts, don’t make
• THEN: HOW DO WE IMPLY TERMS INTO A CONTRACT?
• When courts ask to imply term of contract, what really doing is saying in spite of existing contract, there are
terms that should be in this contract and would be if parties properly discussed. OR. Here is a contract that
doesn’t work unless we imply this term to the contract this is part of interpretation

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 • There are 3 different types of implied terms:
• 1) Terms Implied in Fact: terms that should be in contract bc are so essential to contract that if parties had
thought about it, would have included it in contract. Contract doesn’t work without this term and they missed
it but would have been so obvious. Cadelfa
• 2) Terms Implied in Law: a contract of this type, as a matter of law, has to have this term in it in order for the
contract to make sense. It may be parties didn’t intend these terms but nature of contract is such that term has
to be in contract for it to make sense Liverpool
o Putting term in contract as a matter of law – should be in a contract of that type
• 3) Terms Implied by Statute:
o Sale of Goods Act – contains what statute calls implied warranties related to sale of goods that
effectively say these warranties are implied to every contract
o Consumer Protection Act –any attempt to limit or negative implied warranties from sale of goods
act is void

Codelfa Construction v State Rail Authority (1982) Australia High Court

Test for 1) Terms Implied in Fact

Facts:
• Rail authority is looking for contract to extend subway. They go out with RFP and select Cadelfa
• Cadelfa agreed to excavate tunnels for a subway line under a fixed price date certain contract: have to
complete at certain price by certain date within 130 weeks
• P & D both though P could work 3 shifts a week 7 days a week and would be protected by any injunction
• Work was noisy injunctions by local residents and Council only allowed to work 6 days a week instead
of 7 and only 2 shifts a day instead of 3
• P: if all construction material is stuck doing subway for extra month bc of injunction, then going to lose
money bc cannot take on other contracts. And if cannot work on night or weekend, not going to be able to
make fixed price date certain contract.
• P goes to court and thinks court should imply a term in the contract:
o Bc cannot work the extra day and shift need to extend contract date and wont have breach
o They want more money: if cant work on weekends and night, need more money and need to extend
contract date

Issue: can imply term in contract?

Holding: P loses – fails to meet requirements for implying a term as a matter of fact

Reason:
• TEST: when do you imply a term into a contract as a matter of fact
• 1) Reasonable or Equitable: The term you are implying into the contract must be reasonable and equitable
• 2) Business Efficacy: it must be necessary to give business efficacy to the contract
o What does this mean? Only apply term if contract wont work without the term
• 3) Obvious: it must be so obvious as to go without saying
o Then why isnt it in the contract? Bc we don’t need to say bc its so obvious
• 4) Capable of Clear Expression: it must be capable of clear expression
• 5) Cannot Conflict w/ Express Term: it must not contradict/conflict with any expressed terms of the contract
• HAS TO MEET ALL 5 TESTS TO IMPLY TERM: THIS IS AN UPHILL BATTLE

Application
• 1) Cadalfa got fooled a bit. Would it be reasonably/equitable to help out? MAYBE

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 • 2) court doesn’t think it is either obvious or necessary to imply this term. When look at it, Cadalfa bid on
standard form tender contract. This was a risk Cadalfa took on when bid on contract. FAILS #2
• 3) its not obvious terms that they would have come to if they had turned their minds to it. The necessary
implication is that ppl were agreeing to bid a price to assume the risks inherent in that contract – it was not
negotiated. State used their standard form contract – suggesting that it only contains terms to which it is
prepared to contract. If they intended otherwise they would not have told ppl to make their bid and assume the
risks. FAILS #3
• 4) PASSES
• 5) it’s a fixed price date certain contract. Getting more time and money conflicts. FAILS #5

Ratio:
Notes: case mentioned in class 10/24

Liverpool City Council v Irwin (1976) HL

Test for 2) Terms Implied in Law

Facts:
• City council is a landlord in a council flat developed in Liverpool. D (tenant) refuses to pay rent bc elevators
don’t work and it’s a 15 story bldg, garbage doesn’t get collected regularly, no lighting on stairs
• P seeks to evict D D countersues and says there is an implied term in the lease to impose an obligation on
the P to repair the property
• There is no fully signed fully documented contract, but there is a partially documented contract with some
obligations for the tenant, with some oral terms

Issue: what were the implied terms of law here?

Decision: P wins – there is an implied obligation on the landlords, but they did not breach it. There is no implied
term of “perfect maintenance” – there is an implied term to “keep the property in reasonable repair”

Reason

• TEST: can imply a term as a matter of law when: Necessary to give business efficacy to transaction: in
spite of lack of presumed intention of parties, this type of term is absolutely necessary to make this type of
contract work (same as 2 as a term implied in fact)
• It is implied by law bc the contract only works with the term implied

Application

• 1) not an absolute obligation of repair. Implied term should be that landlord will take reasonable care to keep
premises in reasonably repair.

Sale of Goods Act

E.g of 3) Terms implied by statute

• What does this apply to: contract for sale of goods! Not services
• 1) Warranty of Title: Statute says there is implied warranty that vendor has right to sell the product
o If I buy a car, and someone has a security interest in car or it was stolen
• 2) Warranty of Merchantable Quality: the good has to work.
o If I buy washing machine, it works!
• 3) Warranty of Fitness for Purpose: if I say here is what I want good for, they say here is what you should
buy implied warranty that merchant warrants the product is fit for the purpose of which it was asked
o Someone sells you the wrong thing for the purpose for which you bought it for

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Consumer Protection Act
E.g. of 3) Terms implied by statute

• If the seller attempts to exclude application of the implied warranty of the sales of goods act or limit them
is void
• A consumer agreement is an agreement between a supplier and a consumer
o Consumer: person acting for personal, family or household purposes, not business purposes
o Supplier: a person who is in business of selling or trading goods
• So… cannot exclude application of implied warranties from sale of goods act in a transaction where I
buy for myself, family or household from person in biz of selling goods or services.
• All trying to do is saying seller has to sell goods to consumer and include warranties in contract and any
attempt to contract out is void

Summary Implied Terms of Contract

10/31 Three types of implied terms of contract

1 terms implied in fact – supposed to represent presumed itnentions even though unstated

• Cadalfa test
• Hard in written contract to imply terms

2 terms implied in law

• Courts say terms that are nec to give biz efficacy to contracts of that type in that a contract doesn’t work
without those terms
• Tenancy contract
• Leasing contract
• Employment contract

Terms implied by statute

• Sale of goods: applies to contract for sale of goods. Not services

o Implied term that goods will be of merchantable quality
o Implied term that goods will be fit for request: i
o Implied warranty of title
• CPA: protects sale of goods. In contract between consumer and viz any attempt to exclude implied warranties
is void so effectively cannot contract out of those implied terms if contract is between consudmer and business

Exclusion Clauses
Intro
10/31

• An exclusion clause is any term of a contract that excludes or limits remedies for breach of the contract
• Exclusion liability clause McCutcheon
o Not liable for any damages for breach of contract incl. my negligence and performance of contract or
any related damages
• limit liability
o amount – seller wont be responsible for damages of more thn certain mount or certain types of
damages
• right to pursue a remedy

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 o no right to bring acton for equitable remedies (injunction, specific performance)
• no warranties on sale of goods act
o only in commercial contract
• why do we treat exclusion clauses differently? Can have material effect on required performance under a
contract
o one of parties can say I have a contract with you but im not reliable for breach of contract
o the special attention necessary in way statutes and contracts come across
• exclusion clauses can be bad or good
o 2 ppl of equal bargaining power normal allocation of risk and economically sensible
o Inequality of bargaining power one party has all bargaining power and standard form contract
in those circumstances they don’t aid at all in what were trying to accomplish
Have to find way to protect exclusion clause in areas where make sense and going to give
special consideration and amy not be able to apply in situations where they operate
unfairly
• Old approach: tough contract law too bad. Contract is a contract.
• Now: enforce contracts with a fairness gloss. If this is part of a contract then need to apply rules.
• Two ways of looking
o 1) is exclusion clause part of contract (Mccutcheon, Parker)
Need to look at older cases and say how to deal with clauses. Are they part of contract?
o 2) if it is, how do we make it operate fairly in the country

(1) Is exclusion clause part of contract

McCutcheon v MacBrayne Ltd (1964) HL

Answer to Question First Way of Looking at this

Facts: due to negligence of shipping company and ferry operators, the boat sank and P’s car was lost. An exclusion
clause existed, but on this particular occasion, after many past dealings, the P did not sign the contract. D tried to
have the exclusion clause enforced in light of previous dealings

• P’s car was on ferry of D. signed many previous contracts w/ exclusion clauses but this time P hadn’t signed
the contract
• This was a full exclusion clause
• They say the contract was pages long, had no idea there was a clause, no one read the contract

Issue: was the exclusion clause part of the contract on this particular day when there was no signed contract

Decision: not enforced bc it was not signed on this day and the appellant failed to prove knowledge of the terms (inn
all other times he went to the post office, he just signed and never read)

Reason: past dealings are relevant, but only if they prove knowledge of the exclusion clause. if past dealing doesn’t
prove knowledge of clause, then its not helpful.

• Rule 1: wherever there is writing that reduces the terms of the agreement, the terms are to be regulated by that
writing, even if one of the parties had not read the term
o THIS IS APP OF PAROLE EVIDENCE RULE: if memorialize contract and sign, then whats in it is
fine. A signature on a contract is conclusive
o two parties enter contract, put in writing and gets signed. 1 party says didn’t read doc and didn’t
know there was exclusion clause is it part of contract? Law is clear – a signature on a contract is
conclusive (L’Etrange v Graucob).
• Rule 2: if unsigned, there can be no honest belief that the person made himself acquainted with those terms.
Previous dealings are relevant only if they can prove knowledge of the terms

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 Ratio: past dealings are relevant but only if they prove knowledge of exclusion clause. If past dealings don’t
prove knowledge of clause then they are not relevant.

Parker v South Eastern R.Y (1877) UK

Ticket – exclusion liability clause

Facts: took bag to rail station, there was liability clause on back of ticket. He wasnt

Decision: layered analysis

• 1) Is it reasonable for person to say wasn’t aware conditions were on the ticket? Determined by nature of
ticket and who I am is it reasonable for me to say I was unaware the ticket contained conditions that included
exclusion clause? can I argue that bc of nature of the ticket and the nature of who I am that I was
unaware that the document contained conditions including an exclusion clause. If answer is yes go to
number 2. If not end here.
• 2) If it is reasonable depends on whether person relying on exclusion clause has done whats
reasonable in the circumstance to bring conditions to your attention? E.g. big writing on ticket etc..
o If answer yes then its okay, and exclusion clause is good even if reasonable for party to not know

What if there is no signature on contract, but one of the parties in effect approved the contract without signing.
Again say wasn’t aware there was exclusion clause. Is it part of the contract?

Must be evidence of agreement itself to prove D assented to it. If proved D assented to writing constituting
agreement, it is immaterial the D didn’t read the contract.

• Again application of PER: there is evidence I agreed to this bc I signed contract. Then that doc is legit bc it
contains the exclusion clause.

Go online and there is a consent and agreement button on website. There is an exclusion clause on website. I click
agree and don’t read the terms. Am I bound by it? YES! Same idea as the written contract.

TICKET: I get a ticket at hockey game that says not responsible for your harm. E.g. get hit by puck. Get injured. Is
my exclusion clause part of my contract?

Union Steamships v Barnes SCC

Facts: Barnes lives on west coast of BC. The only way in and out of port is that if the steamship arrives at dock, puts
down net and anyone who wants to leave town goes in net and put you on the deck. He has been on ship many times

• Gets on boat, someone left a hatch open, he fell through and broke both legs.
• Barnes gets on deck with ticket which contains conditions with bold lettering but Barnes says ti was dark (4
am) and couldn’t read ticket

Decision: is it possible he didn’t know?

• Mccutcheon: prior transactions aren’t relevant unless knowledge proven

• But in any event union steamship did all could to bring fact that ticket contains conditions to barnes attention.
Exclusion clause applies

Forbes: this is a hard case.

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Thornton v Shoe Lane Parking
Lord Denning Decision : exclusion clause is only part of contract if was presented to you when you made the
contract. Cant add exclusion clause later

Go to hockey game, go into parking lot, get ticket, drive to back of lot with sign that says ‘not resp for any damage
to vehicle while youre in lot’ . leave game. Car is gone.

• Is the exclusion clause part of contract? NO

Olley v Marborough Court Hotel

Lord Denning

• P arrives at hotel, goes to room, gest there and finds a sign that says the hotel is not responsible for any loss of
property while guest stays at hotel
• Her fur coat gets stolen

Decision: same as thortnton. Notice of exclusion laiblity has to be given to you before you sign the contract. Not
good enough for it to be added after the contract is formed.

That’s why the front desk of hotel says not responsible or the lot has a big sign. They are making sure these
conditions are part of the contract!

Dillon v Baltic Shipping

Facts

• P lost her husband. Family convinces her to go on a cruise in Southeast Asia through Baltic Shipping. Agrees
to her terms, departure date, payment
• Two weeks later she gets her package and it includes official ticket with exclusion of liability clause.
• Her ship runs aground and she says how are youg onig to compensate me? D says read your exclusion clause
will just give you value of ticket
• P lawyer argues: exclusion clause wasn’t part of the contract at the time the contract was made. If only get
notice of exclusion clause when my ticket package arrives, it arrives too late and exclusion clause not part of
contract

Held for P

At time contract formed, no knowledge of exclusion clause. Not part of the contract.

So what should Baltic shipping do? Have that exclusion clause as part of pre-contract package. OR have to
say contract is only formed a few days after paper arrives provided don’t cancel or give notice.

COURTS APPLYING THESE RULES TO EXCLUSION CLAUSES. AND LIMIITNG LIABILITY BY

SAYING THEY ARENT PART OF CONTRACT. SO DON’T EVEN GET TO PT OF HOW TO DEAL
WITH THEM IF THEY ARE PART OF THE CONTRACT

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Airline tickets all have hauge protocol and So why do airlines give more than $200 when lose luggage? Reputation.
Only liable for warsaw convention

1) specific rules about is exclusion clause part of contract?

If sign – done

If ascent – done

If exclusion in prior, relevant if proves knowledge but not constructive knowledge

If look at ticket cases – 1) did know ticket contained conditions? If yes – you own it . if no 2) how likely is it that
you can make argument given who you are and nature of ticket. If can make that arg go to 3) is person relying on it
doing whats reasonable to bring to

ALWAYS ASK: was exckusion clause part of contract when formed. If found out about exclusion after contract was
made, it doesn’t count.

These cases are also when have the bid corporation and an individual.

If it is part of the contract, how are we going to deal with exclusion clause?

George Mitchell v Finney Lock Seeds Lts (1983) QB

Facts: D sold P 30 pounds of cabbage seeds. Upon delivery an invoice was sent with two limits (1) liability limited
to any defective seeds sold (2) liability excluded for loss / damage / consequential loss / damage from use of seed.
63 acres of crop failed and P sued for loss of production

Issue: was limit fair/reasonable under Unfair Contract Terms Act

HL v Denning

This is where SCC got idea of are exclusion clauses unconscionable or not

• If exclusion clause is part of contract is it meant to apply ? do words cover situation that has occurred?
• OLD LAW – if words are clearly drafted, then old cases say exclusion clause applies. No exceptions.
• 1956: this changed with Karsales case
• Construe contracts contra proferention”

(2) If it is part of contract, how does law deal with exclusion contracts?

*karsales through hunter are all background to Tercon*

Karsales Harrow v Wallis (1956) UK

• Denning put forward proposition known fundamental breach analysis or rule of law analysis: an
exclusion clause only avails a party if that party is performing its contract in its most fundamental respects

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 o Analysis: If there is a fundamental breach to contract, then it’s a rule of law, a party in fundamental
breach cannot rely on an exclusion clause
• HOUSE OF LORDS: DIDN’T AGREE!
• THIS IS NO LONGER PART OF LAW OF CANADA

Photo Production v Securicor

House of Lords at same time had developed their rule of construction approach: best example is Photo
Production v Securicor

• With exclusion clause have to construe in the light of the contract as a whole to figure out if exclusion clause
should occur

Facts: ran a photo processing company. Securicor provided security service to P. service was cheap, someone would
drive by P’s office a few times a night and look around. One of D employees went in one night and started a fire. P’s
place burns down and sues D.

• D response: look at exclusion clause – indicates not liable for damages in production of service no matter how
caused unless we were grossly negligent in selection of person who did the work

Decision: exclusion clause is strict but have to construe exclusion clause in light of contract as a whole

• Ask: what was the risk and the reward? For a very small reward cant expect huge risk
• Were parties of equal bargaining power?
• Was it a standard form contract?
• Was there an intentional breach?
• HL: look at all these to decide if exclusion clause was meant to apply in light of contract as a whole
o THIS IS WHAT MAKES DENNING ANGRY: supposed to have sanctity of contract. He says HL
isn’t doing this bc not construing exclusion clause in light of contract as a whole.

George Mitchell v Finney Lock Seeds Ltd (1983) QB

THIS IS CASE WHERE HL AND DENNING COME TO A HEAD

Intro: So Denning says in George Mitchell that case s like Photo Production is just saying HL enforces clause if
fair and reasonable and don’t if its not fair and reasonable. That is not construction! They ‘stab’ sanctity of contract
in the back.

He says HL says that we enforce exclusion clauses as long as its fair and reasonable, based on variety of factors

• Is Denning right? not a constructional contract of sort seen before

Rules for fundamental breach

• If a fundamental breach unconscionable

Hunter Petroleum v Syncrude Canada Ltd (1989 SCC)

What is happening in Canada at this time?

Canadian courts adopted Denning’s fundamental breach analysis: if fundamental breach of contract, then contract is
brought to an end and party relying on exclusion clause is not entitled to do so

• What is a fundamental breach? This was difficult for Canadian courts to figure out

Decision

• 1) Doctrine of fundamental breach is no longer law of Canada

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 • 2) New law: if there is a fundamental breach, then its not a rule of law that exclusion never applies. If there is
a fundamental breach, have to ask the question whether it would be unconscionable to rely on the exclusion
clause?
o Unconscionable: analysis from George Mitchell
If not unconsciounable exclusion claus eapplies
If unconscionable doesn’t apply
o To determine unconscionable Consider: what was the risk and the reward? For a very small reward
cant expect huge risk , Were parties of equal bargaining power?, Was it a standard form contract? ,
Was there an intentional breach?

Tercon Contractors v British Columbia (2010) SCC

Different Analysis

Facts

• BC sends out RFP, Tercon says I was low bidder and they selected an ineligible bidder under their own
bidding criteria
• Tercon says Gov’t of BC is in breach of contract A (in consideration of you being in RFP Process, we agree to
comply with terms of our own contract and to make selection fairly and reasonably)
• Gov’t says: look at exclusion clause in RFP that says “no proponent (bidder) shall have any claim for
compensation whatsoever as a reslt of participating in the RFP”
o Under Hunter not unconscionable. Tercon is big company so equality of bargaining power, nothing
that should stop excl clause from being enforceable

Decision / Rules FOR EXCLUSION CLAUSES IN CANADA

• 1) as always, have to construe excl clause strictly against party relying on it (contra prferentum)
o Court splits 5-4 on this point
o Majority: this excl clause wasn’t precise enough to shield BC gov’t from Tercon’s claim.
Why? Not clear enough that BC meant to exclude liability privy to selection of improper
bidder
o Minority: we don’t know what else clause meant if it didn’t mean to exclude liability. It is clear
enough
• 2) fundamental breach analysis (Denning) is not part of law of Canada
o We don’t say fundamental breach / rule of law. not part of exclusion clause analysis
• 3)Instead, test for relying on exclusion clause (if it was clear unlike in this case)) (FROM OBITER –
DISSENT)
o Majority says if we hadn’t decided it wasn’t specific enough, would’ve adopted this dissenting test
from Binnie:
If its part of contract, clear and precise enough exclusion clause applies unless
unconscionable
Test : not same as George Mitchell !
Unconscionable means what it means in general law: AT TIME OF FORMATION
WAS THERE (Test from Binnie Dissent)
• 1) gross inequality of bargaining power that is unimpacted by access to independent
legal advice (ind. Legal advice may balance scales again)
• 2) grossly unfair result/contract fir person with weaker bargaining power
• If find not unfair is there a public policy consideration involved 3) would it be
contrary to public policy to allow exclusion clause to be enforced
o Binnie uses very obvious example. So is this the only way to show public
policy?
• SUMMARY OF STEPS:
• 1) construe against party relying on it

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 • 2) if rules are clear enforceable
• SUBJECT TO TEST: UNCONSCIONABLE AT TIME OF FORMATION OF CONTRACT

Note: if SCC didn’t find that words weren’t precise and that it was enforceable, how would this test apply
here?

• Wouldn’t be grossly unfair here

• Wouldn’t be inequality bc Tercon is big (no inequality)
• Is there public policy argument? If can argue that then…
• AKA: prob going to enforce exclusion cause unless circumstances are pretty unique

Note: want to go ziplining, get shown contract that includes excl. clause. Told if don’t sign, you don’t zipline.
Sign contract zipline get hurt. Can company rely on exclusion clause?

• Inequality of bargaining power? YES

• Is there grossly unfair contract? NO. easy for person to say they don’t have to zipline. Its not unfair to say if
want to zipline have to sign exclusion clause.

Note – Public Policy: courts now apply the Binnie test from dissent. Only issue is Binnie would have said
exclusion clause is properly drawn and not ambiguous. They were minority.

• Majority is very strict interpretation of exclusion clause.

• Forbes: going to get cases where pass 1 + 2 but still unfair. Are going to line of cases then that are contrary to
public policy? That is prob only way going to show law isnt going to enforce an exclusion clause
• Public policy is reflection of public values: going to get cases that says a judge can tell me I cant rely on
clause or does it have to be obvious like what binnie is suggesting

Note: Forbes: is this right analysis?

• He thinks it is a conservative analysis

Summary Exclusion Clauses

Exclusion clause is any clause in contract which restricts or limits availability of remedy for breach of
contract

2 ways courts look at exclusion clauses:

(1) Is exclusion clause part of contract?

If sign doc and has EC and say didn’t read the document and didn’t see clause exclusion clause is part of contract
(from French case in Mccutcheon)

No signed doc, but assent to terms of contract exclusion clause is part of contract. parole evidence applies
(Parker). Mb didn’t sign but cant argue exclusion not part of contract even though say didn’t read.

• How would this apply to going on website and clicking ‘I accept” same thing. By doing act, effectively
identifying that agreeing to those terms of contact

What if exclusion clause in previous contract but this time there is no written document would previous clause
apply?

• McCutcheon: prior dealing Is relevant only to extent it proves express knowledge of exclusion clause. has to
be actual knowledge, not constructive. UNLESS PRIO DEALINGS PROVE KNOWLEDGE DON’T SAY
EXCLUSION CLAUSE PART OF CONTRACT

Ticket cases: what if exclusion in ticket cases?

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 • If ticket contains conditions and don’t read conditions exclusion clause is still part of document and applies
• Parker: What if you argue you didn’t know the document contained conditions
o Question: that representation by you that didn’t know it was reasonable given nature of person and
doc
If it was reasonable that you didn’t know did the other party do what is reasonably to
bring the clause to your attention

Cases: exclusion clause becomes known only after formed contract

• EXCLUSION CLAUSE HAS TO BE BROUGHT TO ATTENTION OF THE OTHER PARTY PRIOR TO

THE FORMATION OF THE CONTRACT. HAS TO BE PART OF CONTRACT
CONTEMPORANEOUSLY WITH THE FORMATION OF THE CONTRACT. COURTS ARE CAUTIOUS
IN SAYING THE EXCLUSION CLAUSE HAS TO BE IN DEAL AT TIME MAKE CONTRACT
• E.g. drive into parking lot, take ticket, big sign only after enter exclusion not part
• If go to hotel, pay room and contract forms, get to room and excl clause is there not part of contract
• Dylan (cruise): when ticket delivered is when get exclusion clause not part of contract

(2) If it is part of contract, how does law deal with exclusion contracts?

Tercon TEST:

interpret strictly (contraproparendum) against reliance on exclusion clause. Going to say – did it mean to apply in
exactly the situations that would have occurred

If pass that test is the exclusion clause unconscionable?

• Was there gross inequality of bargaining power

• Result in unfair agreement
• Both at time of formation of contract

If answer no exclusion clause still okay

Was there a public policy issue here?

Tercon:

• no longer say fundamental breach

• no longer say rule of law.
• no longer adopt George Mitchell – is it unfair or unreasonable for exclusion clause to apply, given the sorts of
factors see in Geor

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Defects in Contractual Contracts
Completed building blocks, interpreting written contracts (implying terms, exclusion clauses)

Now: assume have six building blocks and no interpretational issues how might we lose our contract bc of
something that has happened where law says this contract is either void OR voidable

• If contract is void contract never did exist no property passes under that contract
• If contract is voidable some things could happen and contract is good but the party to whom the bad
happened has the right to elect to ‘rescind’ the contract (i.e bring to an end) property passes under
contract
o Contract exists there is problem Once prove problem to court innocent can elect to rescind
the contract and bring it to an end
o If rescind contract give back property / give back what paid for property / don’t have to pay
o Part has right to take action to elect to terminate contract. Contract is good until make that election

This becomes important where bad things happen and property that was subject matter of contract gets sold onto a
third party good contract, passed the property, then purchases can pass title and person to whom something bad
happens loses right to rescission

Bars to rescission = lose right of rescission

1. Misrepresentation – Intro
If prove actionable misrepresentation that makes contract voidable on election of person to who
misrepresentation was made. That person can elect to rescind and bring contract to an end

Background
• Type 1: In course of making contract, one party makes representation to the other e.g. buy this boat – its great.
You buy the boat and it ends up to suck. That representation can become a term to contract
o If turns out not to be true breach of contract
• Type 1: This is: person makes representation, fundamental to formation of contract, but representation
DOESN’T get included in term of contract
• First type: rep is folded in contract and becomes term of contract
• Second type: rep is crucial or material to formation of contract, but isn’t in contract itself
o This is a misrepresentation, not term of contract, what do with misrepresentation?

In misrepresentation, the representation is NOT a term of the contract. So what is a misrepresentation? What is
the remedy for misrepresentation? What are bars to rescission?

Elements of Misrepresentation

• In order to have an actionable misrepresentation need following elements:

• 1)misrepresentation has to be a representation: a positive statement
o General rule: no obligation to disclose/speak but if you do it better be right!
E.g. buy boat it with withstand worst of storms – that is a representation
When turns out not to be true – misrepresentation
On other hand – if I just say buy this boat. I may know there are issues, but didn’t say
anything so not a positive statements and not a misrepresentation
o Exceptions:there is a duty to disclose
Fiduciary/director/trustee: if person making contract is fiduciary (director) of other party
has positive duty of disclosure, and failure to disclose amounts to misrepresentations
Utmost good faith contracts:
• insurance contract – have positive duty to tell insurer things that are material to
policy. If fail to, misrepresentation

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 • sale of securities / share by company: – common law says company in selling shares
has duty of disclosure and obligation to give info relevant to making investment
decision. Failure to do so = misrepresentation. Allows purchaser to rescind.
• 2)misrepresentation has to be false when acted upon
o Representation is false when made, and ends up being true when contract closes
o Representation is true when made, and ends up being false when contract closes + representor
knows rep is false representor has duty to step up and disclose to you
failure to do so can = misrepresentation
• 3) misrepresentation has to be a representation of fact. Not opinion or law
o if representation was made by a person of special knowledge or in possession of all of the facts
statement of fact
o Contrast fact with opinion and law. Has to be a fact not an opinion or law
o Opinion
Bessett v Wilkinson: two farmers discuss selling farm. One says ‘reckon land would be
good to run 15 sheep per acre’ contract made purchaser cant get near that. this is
misrepresentation and wants to rescind. CANNOT RESCIND. Both people have same
knowledge of base, and gave an opinion not a fact
o Law
Statement of law made by non lawyer not statement of fact. It is a statemen of opinion
if a lawyer and make statement about the law fact
• 4) misrepresentation has to be material Redgrave
o For representation to be material it has to be one of factors that induced the formation of the contract
The p has to say: but for representation, I would never have entered this contract
o Redgrave: not necessary for P to absolutely prove that representation induced the formation of the
contract. Rather we ask – would this representation have induced a reasonable person to enter into a
contract of this sort
if yes assume it induced the plaintiff material
• UNLESS d can show
o p knew representation wasn’t correct OR
o p clearly didn’t rely on it

1. Misrepresentation – Varieties of Misrepresentation

Types of Misrepresentation

• Depending on type of misrepresentation, there are different remedies:

• 1) fraudulent misrepresentation Redgrave
o Definition: person knew statement was false OR person made statement recklessly without regard
to its truth
o Remedy Damages: tort of deceit – it is a tort to lie to somebody and cause damages when know
person will rely on information
o Remedy Right to Rescission: Defendant can claim rescission and set contract aside and doesn’t
have to pay purchase price
• 2) Negligent misrepresentation Esso
o Definition (Denning 1964) (1) person who represents that they have special knowledge (2)
makes representation in area of expertise (3) to a particular person or a group of people who its
reasonable to assume will rely on the representation, (4) you must exercise reasonable care to
ensure info is correct
o Remedy Damages: tort
o Remedy Right to Rescission:
• 3) Innocent Misrepresentation
o Definition: Any actionable representation that isn’t fraudulent or negligent
o Remedy Damages: NOT TORT!

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 How can get damages? Convert innocent misrepresentation into a collateral contract and
sue for breach of collateral contract
o Remedy Right to Rescission:

Redgrave v Hurd (1881)

Fraudulent Misrepresentation Case

Facts:

• Lawyer wants to sell property and law practice in that property. He says practice makes x amount of money
and shows paper that says this. D doesn’t look at papers, but buys practice and property.
• Practice has almost no value refuses to pay seller sues
• purchaser says this is misrepresentation
• Seller argues PER: nothing was said about how much it was in the contract
• BUT: can prove the contract is defective bc of misrepresentation to get out of PER

Decision: there was fraudulent misrepresentation. P didn’t plead knowledge but have right to set contract aside

Reasons

• P knew the representation was wrong fraudulent misrepresentation

• Court defines fraudulent misrepresentation: knowingly false statement OR reckless statement without
knowledge of its truth
• What is material representation: representation appears to be material bc would’ve induced a reasonable
person to enter into contract, and D hasn’t proved P knew representation was wrong
• Not a defence to say that buyer could have found out and didn’t bc he didn’t look at papers
• There may have been a right to damages:
o Tort of deceit
o Rescission
• In this case no tort damages were rewarded
o Barrister didn’t plead knowing falsehood: didn’t plead that he knew or acted recklessly so no
tort damages.
• However, then he gets rescission! Defendant can elect to set contract aside, and doesn’t have to pay purchase
price.

Esso Petroleum Co v Mardon (1976) UK

Negligent Misrepresentation Case

Facts:

• Esso bought property to build service station. Get experts do ‘throughput survey’ that determines station
should pump 200K gallons a year.
• They go to the city and Esso assumes going to have entrances and exits off major road. City says no – if want
service station people need to enter from side streets
• Esso says fine and buy the land
• Esso gets Mr Mardon to lease land and it will pump 200K gallons of gas per year. Mardon enters into the
lease
• Nothing in lease about 200K gallons / year
• Mardon starts leasing building but cannot get it to make money. tries everything to get money but doesn’t
work
• Stops pauing his bills and Esso shuts him down.
• Ends up in front of Lord Denning

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 • Mardon: Rescission will only work if setting aside contract recovers you to where you were before. Here it
isn’t useful to rescind and set aside lease. He needs to recover his damages!
•

Decision:

• Negligent Misrepresentation: Esso (1) represented had special knowledge and (2) in area of expertise (3) D
entered into contract based on expertise (4) did Esso take reasonable care?
o This was representation of fact
o Esso should have known that traffic survey didn’t work well: when city would let put entrances
and exits on busy road, shouldn’t have done survey again
• In fraudulent misrepresentation Remedy: tort of deceit

1. Misrepresentation – Remedies (i) Rescission

• Main remedy for all types of misrepresentation: Rescission: If can show actionable misrepresentation: (1)
representation (2) ne of fact (3) false when acted upon (4) material number one remedy under law of
contracts is rescission.
• Right to Rescission: innocent party is entitled to say I am not bound by this contract
• Voidable contract, not void
• Continues to operate until person elects rescission
• Only available if no bar to rescission : lose right to set contract aside for misrepresentation
o also applies to: unconscionability, duress, Lord Denning’s mistake cases

Bars to Rescission (lose right to rescission)

• 1) inability to make restitution O’Flaherty v McKinley

o Equitable remedy: equity says if want to set contract aside, have to put other party back in same
position
o If cannot make restitution, then it is a bar to rescission
o E.g. buy this boat it is the best, turns out it is back. Sinks to bottom of lake. Can make restitution?
NO
o So need damages remedy in tort or contract bc lost ability to make restitution and bc lost ability
have a bar to rescission. Rescission doesn’t work.
• 2) Intervening third party rights
o Third party purchaser bar to rescission. A third party now has interest in subject matter of
contract
o Inability to make restitution bc don’t own car anymore
o This becomes important:
if can argue mistake that means void contract so no property passes. If find
property in hands of third party purchaser, its as if was stolen and can make property
claim against third party
If arguing misrepresentation voidable contract property passed, lost right to
rescission bc there are intervening third party rights
• 3) Fully-executed contract for the sale or lease of land Redican v Nesbitt
o PRIOR TO CLOSE: If have contract for sale of land find out misrepresentation can exercise
rescission rights
o ONCE CLOSE: cannot exercise rescission rights bc there needs to be certainty and finality in
contract for sale of land
Supposed to investigate before close, but when close land deal – cannot rescind
England common law – treat land as special. Representation of land transactions “merge
in the deed” (fiction – bar to rescission for contract for sale of land when land transaction
closes)

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 o So: executed contract for conveyance of interest in land acts as a bar to rescission
o Exception: Redgrave: if misrepresentation that gave rise to rescission was fraudulent ,then can
exercise rights of rescission in land transaction
Why? Two competing interests
• 1) finality in land transaction
• 2) fraudster shouldn’t be able to take advantage of fraud
• 4) Passage of a reasonable period of time Lord Denning in Leaf v International Galleries
o if have sale of goods, expiry of reasonable time for inspection bar to rescission
o why? If lost right to repudiate then also lose right to rescission for negligent misrepresentation
(Denning in Leaf)
• 5) Affirm / Act Consistently w/ Continuation of Contract or Delay Right Leaf v International Galleries
o Find out about misrepresentation and say it doesn’t bother me, going to keep painting anyway
bar to rescission, cannot change mind later
o OR: find out about misrepresentation and delay an exercise of rescission right bar to rescission;
don’t have unlimited time

O’Flaherty v McKinley (1953)

Bar to rescission 1: Inability to Make Restitution

Facts

• D sells defective car to P under misrepresentation. P argues rescission, innocent misrepresentation

• P is told that the car is a 1950 car, but it is 1949. Court says this is material nobody would have paid this much
for 1949 court would grant rescission
• D argues that P drove car for 5 months and drove for 7k miles. P lost right to rescission bc car isnt what it
used to be

Decision: Car isn’t materially different than it was at time of contract. Therefore going to grant rescission

Reason:

• If want rescission as remedy: have to put other side back in same position as if contract hadn’t occurred
• Though here: “close enough is close enough” (car isnt substantially devalued)

Redican v Nesbitt (1924)

Fully-executed contract for the sale or lease of land

Facts:

• False representations made as to the quality of real estate but P didn’t find out until after the deal closed
• Bar to rescission in land transaction: if the transaction is closed, you bought the land any misrepresentation is
not actionable once close land deal, no right to rescission

Leaf v International Galleries (1950)

Bar to rescission 4-5

Facts:

• Purchaser bought painting. At time purchaser buys painting, seller says this is a painting by Constable (artist).
Purchaser buys painting and takes it home for 4 years takes it into art expert who says it is fake
• Purchaser: wants to rescind contract and get money back

Issue: should the purchaser have a right to rescission? No bars to rescission here

Decision: too much time has passed, there is a bar to rescission

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Reason (Denning)

• If the fact that it was a constable was a term of the contract then Sale of Goods Act would not have allowed
purchaser to repudiate contract
o Why? Sale of goods act says contract for sale of good cannot be repudiated after a reasonable
period of time
o Reasonable period of time = reasonable time to examine goods and make proper assessment of
quality
• So if couldn’t repudiate contract for breach of condition of contract, then shouldn’t be able to rescind for
misrepresentation
o Breach of contract should be more serious than a misrepresentation about subject matter if
would’ve lost right to repudiate then should also lose right to rescind contract for
misrepresentation

Ratio

• Bar to rescission: if have sale of goods, expiry of reasonable time for inspection

Note: if buy painting, get it inspected right away!

Note: if lost right of rescission are you out of luck here? NO

• Collateral contract
• Or negligent misrepresentation tort claim

Note: assume person still wants to keep painting even though its not a Constable. Worth less than thought but want
to keep

• what would argue: no rescission, but want damages for breach of contract

Note: not a constable and I don’t want it

• what do argue? Right to rescission. Depends on facts if can argue that

1. Misrepresentation Remedies (ii) Damages

• 1) determine actionable misrepresentation
• 2) all three types give rise to rescission
• 3) fraudulent and negligent rise to tort damages
• 4) innocent misrepresentation no tort damages
o Can get damages?
o First look at rescission: can use rescission?
bars to rescission
Not what want!
o Then how can get damages? COLLATERAL CONTRACT

How to prove collateral contract?

• Must be able to show a real intention to create two contracts (Heilbut v Symons)
o Need to prove important representation
• Must not conflict with main contract in writing (Hawish v Bank of Montreal)
• Must not conflict with an entire agreement clause (Gallen v All State)
o Can still prove collateral contract, as long as its just presumption
o If clear evidence indicates collateral representation then can still prove that in collateral contract

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Heilbut Symons & Co v Buckleton (1913)
Facts

• P bought shares in company, D represented that it was a rubber company through course of negotiatons. It was
not a rubber company
• P says wouldn’t have entered into contract but for fact that D represented that it was a rubber company

Decision

• First hurdle: have to convince court that inherently likely parties entered into 2 contracts not 1 and not all
important terms are in paper
o Why? Bc if enter into contract and there is an important term, why wouldn’t it be in the contract!?
Why would you have misrepresentation that you are saying is so important and not in contract
• How to get over: need strong proof that there really was a 2nd material representation (i.e prove collateral
representation)

Shanklin Pier Ltd v Detel Products Ltd

Facts:

• Shanklin is P and municipality. Have company DMU that makes paint. Also have contractor
• P says to contractor they are going to paint the pier and are going to buy the paint
• P goes to DMU and asks what type of paint should use? DMU says have perfect paint. Put it on pier, wont
peel off for 7-10 years
• P says to contractor: here is what we think yu should do: when buy paint, you should buy DMU
• Contractor buys paint, paints pier, and paint comes off after end of 2nd year
• What does P do
o Is there a contract with DMU? No
o Can allege contract with DMU?
• To allege contract with P & DMU collateral contract
o What is collateral: in consideration of me instructing my contractor to buy DMU from you, DMU
represented to me that the product I needed and that it would last 7-10 years
• Why is this easier than typical collateral contract cases to prove?
o No main contract between the parties
o No Harwish where main contract conflicts. There are different contracting parties
o And don’t have issue from Heilbut Symons bc parties only have 1 collateral contract.

Esso Petroleum Co v Mardon

• Mardon has ability to make tort claim (negligent misrepresentation)
o Esso was special rltp person
o Made rep in area of expertise to
o Mr mardon who they should’ve known would rely on it and
o Esso didn’t exercise due care
• Mardon also has ability to make collateral contract breach claim
o Representation made to him
o Under Heilbut Test: strong representation. Mardon wouldn’t have entered into contract but for
them telling him this was volume of gas
o Representation is a term of collateral contract doesn’t conflict with main contract he has a
contract claim
• Which does he get?
o He lost profit – does he have broader damages? Spent life savings

Denning: damages may be higher on tort claim if say damages relate to fact that representation was untrue. Would
have higher damages in tort than in contract

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 • Foreseeability test from Hadley v Baxendale is very narrow: damages that flow from breach as being
reasonable or special damages
• Foreseeability test from Torts is broader

Ratio: in situation where have both fraud or negligent misrepresentation (tort) and also have collateral
contract it is probable that when look at damages we would elect tort damages rather than tort.

Summary: Misrepresentation
Misrepresentation – rep that is untrue, made in course of negotiating contract. Rep doesn’t get folded into contract as
term of contract. Contract is made, rep remains outside contract.

To have actionable misrep, rep must have:

• been a material inducement to formation of contract. Question: would it have induced a reasonable person. If
yes, assume It induces P. D must be able to prove rep was false
• Has to be a positive mis rep that is untrue
• Has to be a fact
• Not a law unless made by a lawyer. Rep of the law, made by non-lawyer is a rep of opinion not fact

Result: contract may be voidable. Good until contract is brought to an end by someone excerising rescission rights

Remedy: rescission of contract.

Only permitted if no bar to rescission.

Bar to rescission:

• Inability to make restitution: if cant put party back in same position as before contract, cant exercise right of
recission
o Intervening 3rd party rights of property: cant make restitution bc property ahs been sold to 3rd party
• Executed contract for lease of land: Redican– unless there is fraudulent misrepresentation
• If a reasonable period of time has passed after closing of contract for sale of goods
• Affirmation of contract: if find out about misrep and continue to operate under contract or if reasonable period
of time expires after finding out haven’t positively acted on contract but allowed reasonable period of time to
run

What is remedy if there is a bar to rescission or rescission is not ideal solution (Mardon):

• If representation is fraudulent tort for deceit

• Negligent misrepresentation tort

BUT: innocent misrepresentation isnt a tort. So what do we do?

• ESSO: attempt to convert representation into the form of a collateral contract: in consideration of me netering
into lease, you represent to me that service station will pump x gallons of gas
• Symons: in order to prove collateral contract based on misrep – need to show likely that party entered into 2
contracts.
• Then look at PER: rep cannot conflict with main contract. Whats a conflict?

IMPORTANT: rsecission – applies to other defects, not just misrep

• Rescission = good contract until it is terminated. This is why have those third party rights

WATERFALL

1. Do have actionable misrepresentation?

2. YES: what is remedy?

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 3. First thought: Rescission
a. is there a bar to rescission no rescission, move to damages
i. Inability to make restitution
ii. Intervening third party rights
iii. Fully executed contract for sale or lease of land
iv. Passage of reasonable period of time
b. If rescission is not good remedy and doesn’t give what want (Mardon) move to damages
4. A or B:Applies and no rescission: move on to damages
a. sue in tort need:
i. Fraudulent misrepresentation
ii. Negligent misrepresentation
b. If no tort claim collateral contract breach
c. Sometimes can sue for either (Mardon): probably better to pick tort claim – its broader

2. Mistake – Intro
Mistake renders a contract void (not voidable like misrepresentation)

Mistake: assumption gets put in contract and that assumption is wrong

• Question: how does law deal with this?
o Under bargain theory: might say no bargain bc parties never did make a contract that both parties
thought was made

Step 1: Identify types of mistake

• 1) Common Mistake (shared mistake)

o Both parties share mistake – they are both mistaken to the same thing
o Test: common mistake must be of subject matter not quality (Bell v Lever Bros)
• 2) mutual mistake
o Each party thinks contracted on different set of terms, difference is material, both views on world are
reasonable
o Raffles v Wichelhaus
• 3) unilateral mistake
o Only 1 party is mistaken and other party either knows there is mistake or should reasonably have
known there is a mistake
o Tender cases – R v Ron Engineering
o Fraud case - Someone fools someone else
• 4) mistake as to documents
o “non est factum” – mistaken to nature of the doc that signed
o to what extent can someone say I was fundamentally mistaken about nature of doc I signed, and I
should be relieved from that mistake going to be very difficult to prove but there are some
circumstances where this can work:
• 5) mistaken frustration
o something happened after the contract was formed that so radically changes the obligations of the
contract that performance should be excused
o Mistake is not at time of contract like 1-4, it is something in the future
o In this case, we excuse performance

2. Mistake – Common Mistake

Common Mistake: Both parties share the same mistake – both believe a set of events and those events are not true

• Two types of common mistakes:

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 • 1) Common law, common mistake = void contract
o Never was a bargain bc were fundamentally mistaken about underlying assumptions
o Test
Bell: substance/quality
Great Shipping: broader, still figuring out how all fits together
• 2) equitable common mistake = voidable contract (Denning)
o Parties can set contract aside unless there is a bar to rescission
o Easy to prove: was mistake fundamental? Would parties enter contract but for mistake. If parties sya
no, voidable. Meaning voided subject to bar to rescission

Law in Ontario: still have equitable common mistake in law

Bell v Lever Bros Ltd (1932) HL

Lord Atkin – Common Law / Common Mistake

Facts

• D has subsidiary company, P is charmain of board of subsidiary D decides don’t need subsidiary enter
into contract with P to pay him out and terminate his contract as chairman.
• D subsequently finds out P had been self-dealing and competing with the company of which he was chairman
of board
• D says if knew this could’ve terminated P contract for cause. therefore the contract where agreed to pay to
terminate P is void.
• There is common mistake – both thought 5 year contract, but contract is terminable on notice

Decision: contract not void

Reason (Atkin):

• Mistake that will make contract void for common mistake is where there is a mistake to subject matter
of the contract which makes it fundamentally different than what it was believed to be
• Has to be mistake as to subject matter of contract – not quality of subject matter of contract
• Here: contract to terminate contract.
o What is mistake here? Mistake as to a quality of the contract (just diff between 5 years vs terminable
upon notice) – not a mistake to substance of contract
• Diff between quality and substance: What is difference between contract for sound or sick horse? Both
thought was sound, ends up being sick that is only mistake as to quality. It was still a horse. No mistake as
to subject matter

Ratio: common mistake at common law– have to distinguish between mistake as to subject matter (substance)
NOT quality. Only mistake as to subject matter that makes contract void

Examples of a mistake as to subject matter that would make common mistake void
• Couturier v Hastie
o Two parties enter into contract for boatload of corn being shipped. At time make contract – turns out
the corn has gone bad and has been unloaded from ship and discarded
o Courts: that is mistake as to subject matter of contract. At time of making contract there was mistake
as to substance bc they didn’t know at the time it had been thrown out
• Cooper v Phibbs
o Purchaser of fishing shack owns land and wants to buy fishing shack on diff land
o Subsequently discover the fishing shack is already on his land
o Court: that is a mistake as to substance of contract, not quality
• FORBES: When look at these 2 examples: very narrow. Atkin gives examples of horse – in effect what
saying is this is strong test. These cases show almost an entire failure of consideration.

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US law developed differently: Sherwood v Walker

• D goes to Michigan from Canada, meets P and looks at P’s cattle P says here is prize winning perfect cow
• Problem: cow is barren – what is the cow’s value? Not much
• D says will buy and take a chance that maybe has cow, P names price D buys and brings home to Canada
• Next spring she has a calf P goes to court in Michigan where contract occurred and going to ask court to
set contract aside. He wouldn’t have sold at that price if knew was breeding cow
• US Court: that is fundamental mistake. Big difference between what was reality and what was thought,, set
contract aside, D must return cow
o Forbes thinks this is unfair to D. he took a calculated risk and thought there was chance
• What would Atkin have said? Still a cow no mistake as to subject matter of contract. Cannot set contract
aside. Just a difference in quality of contract.

Forbes: why did law move in this direction? What do think about Bell approach vs US approach?

• Why did law develop like this in UK? Remedy

• If remedy is void contract then would say property never passed under that contract so property still would
have been original owners
• In cow case, if treat as void: then if Walker has cow, can sell to third party, and Sherwood says contract is
void, then Sherwood could go to third party and try to get cow back. Why would it be okay for Sherwood
have that kind of impact on innocent third party. So this is prob why law developed this way

Solle v Butcher (1950) KB

Lord Denning – Equitable for Common Mistake

Facts:

• P owns flats, D has rented these flats to others and keeps one for himself. P and D fallout, assumption has
always been that these flats are not subject to rent control. After falling out, D makes application to rent
control board, and it was actually subject to rent control, so lower rent. P (landlord) says if that’s the case
then we were mistaken and lease should be void on basis of common mistake, we both thought it wasn’t
subject to rent control but it was.
• What would Atkin say from Bell v Lever Bros: this is mistake as to quality of contract, not substance

Decision: there is an equitable jurisdiction – equitable common mistake – different than legal common mistake

Reason (Denning)

• Equitable common mistake - test: just need to show fundamental difference between what parties thought
and what turned out to be true
• Remedy: not void contract (like in common law from Bell v Leber Bros) , but a voidable contract
o Voidable contract: Party wants to set contract aside is entitled to do so as long as there is no bar to
rescission

Great Peace Shipping v Tsavliris Salavage(2002) UK

Facts:

• D ships is disabled in mid-ocean so they need someone to come save them, so owner looks around to get
someone to perform a salvage contract. (salvage ship and tow back to port)
• Owner (D) concludes that P has a ship that is 35 miles away, P also thinks this. Contract of salvage is entered
into (pay you, if you go salvage the ship).

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 • Later on, after contract is formed, they discover that the ship is 400 miles away and it will take significantly
longer for the P to get there to do the salvage. Owner finds somebody else and enters into a contract with
someone else and electing that no longer have contract
• P sues: we had a contract, I was ready to perform.
• D argument: either mistake at common law which renders contract void OR equitable common mistake
which renders contract voidable. In either event I should be able to walk away from the contract

Decision

Reason

• There is no equitable common mistake doctrine – denning was wrong in Sollie

• So what is test for common law – common mistake?
o 1) mistake must go to existence of a “vital attribute of the subject matter of the contract”
Slightly different than Atkin quality/substance test this is more broad than Atkin
In Sherwood walker, would probably say that barren aspect of cow was vital attribute,
whereas wouldn’t say it was substantive
o 2) it must be a mistake that “renders performance impossible” (if service contract – for sure)
This makes sense In context of this case: probably doesnt make sense in Sherwood – how
would render perf. Impossible? Non-delivery of cow?
Makes sense in context of services contract, harder in contract for sale of something like a
cow
o 3) the mistake must not be the fault of the party pleading it
McCrae v Commonwealth Disposal (Aus): end of WWII and D says in north of
Australia there is a reef with an oil tanker that was bombed by japaense during war.
Looking for ppl interested in salvaging tanker. P is interested gets to reef and there is no
tanker
• P thinks entitled to compensation from D.
• D says: this is common mistake – we were mistaken as to existence of tanker on reef.
Its like Coutourier
• Court: cannot cause mistake and then say P has no remedy bc the mistake did exist.
This Is what court getting at in 3: D cannot say contract is void bc they caused the mistake
o 4) on the construction of the contract, neither party can be seen to have accepted the risk of the
mistake
If one of the parties has accepted the mistake, then of course they could not claim mistake
to void

Ratio:

• new test for common law – common mistake. Overall broader

• There is no equitable jurisdiction – Solle was wrongly decided

Miller Paving Ltd v Gottardo Construction (2007) On CA

Ontario Court of Appeal

Equitable common mistake is still law in Ontario

What is issue with equitable mistake?

• As long as there is fundamental mistake shared by parties + remedy is voidable contract + bars to rescission
apply why shouldn’t have equitable common mistake bc parties are fundamentally mistaken as to terms of
contract

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 • As long as not impacting third party rights what is wrong with equitable common mistake? The test is
lower than bell and Shipping
• Not really an issue – this is why court of appeals doesn’t want to say equitable common mistake isnt dead
• This is why forbes said denning has more of an impact on Canadian law than UK law. here still have equitable
common mistake but they don’t in UK

2. Mistake – Mutual Mistake

Mutual mistake: Parties have diff views of contract terms, and both views are reasonable

Test:

• if both parties have fundamentally different views about terms of contract, and both views are reasonably held
contract subject to mutual mistake void Raffles v Wichelhaus
• If both parties have different views about terms of contract and one party’s views aren’t reasonable bc by
actions indicate agreeing to other party’s terms mutual mistake is not actionable Smith v Hughes

Raffles v Wichelhaus (1864)

Facts

• D wants to buy cotton from P

• D says contract says buying ship of cotton from India on ship called peerless. D thought ship was arriving on
October. Important that has cotton by Oct
• P: Agree that shipped cotton – but arriving in December
• D: not paying for cotton, wanted it in Oct not Dec
• P: PER applies – have contract for cotton on peerless and that is what happened.
• D has to say – I need to get behind PER. How do this?
o Pym v Campbell: latent ambiguity – ambiguity as to subject matter of contract

Decision: contract void. Mutual mistake

Reason

• This is case of mutual mistake

• Parties never had a bargain: two different people, with 2 diff views of terms of contract and both views
are reasonably held
• PER:
o Each had a different view, each did not know of the other’s position, each view was reasonable, so
contract void. The question about what they meant by the Peerless would only arise if the contract
was for the sale of a ship called the Peerless, but it was for the sale of cotton. To award damages to
P is imposing on D a contract different from that which he entered into. D does not impute
misrepresentation/fraud, but only says that he intended for another ship at the time of the
contract.
o Nothing on the contract to show that any particular ship called the Peerless was meant, but from
the moment when two Peerless ships were sailing from Bombay, there is latent ambiguity. This
parole evidence may be given showing that D meant one Peerless and P meant another.

Smith v Hughes (1871) QB

Facts

• Persons selling oats knows they are new, person buying them thinks they are old. Old oats are better. Person
buying them said he believed they were old oats (old oats better for horse)
• One party says: I knew oats were new oats
• Other party says: I thought oats were old oats

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 • P: well I showed you the oats, assumed you knew they were new.
• Did p misrepresent?
o NO. misrepresentation requires positive statement, no statement here
• P: term of contract was they were new oats
o COURT: No it wasn’t. it was for oats being shown by sample
• D lawyers: this is mistake. Thought they were old oats but they were new

Reason (Blackburn)

• If one party intends to make contract on one set of terms and other party intends to make contract on another
set of terms, there is no contract unless the circumstances are such as to preclude one of the parties’ from
denying that he has agreed to the terms of the other
o if both have separate views of facts mutual mistake no contract
o BUT: if my view of facts isnt reasonable in that by my action I indicate that we are agreeing to your
set of terms there is a contract

Application

• Show basket of oats and say would like to buy them. Other person looks at and says will buy. If assume old
oats but new oats not actionable common mistake
• Why? Not reasonable. Looked at oats in basket, came to own conclusion. Had a different view on contract
terms but view isnt reasonable. Bc by action indicated agreeing to the other’s terms

2. Mistake – Unilateral Mistake

• One party is mistaken, other party knows about mistake. Most likely, other party knew about the mistake
• Fraudulent, rescission, court damages for receipt
• Easier to probe than unliateral so why proving unilateral mistake? Result of finding unilateral mistake:
contract void, property didn’t pass
• Try to prove unilateral so can say contract is void no property past still mine
• Only trying to prove this bc other remedies for fraudulent misrepresentation aren’t going to work
• Type of unilateral mistake – a knew b was mistaken by misrepresentation

Type 1 Unilateral
One of parties knows was mistaken and accepted. Result = unilateral mistake, contract void

Hartog v Colins & Shields

Type 1

Facts

• D in error states price per pound and P accepts

Issue: Did D in fact know about P’s mistake? Is one party mistaken and other party knows about it

Decision: must have known. All negotiations were price per piece not pound. Cant snap off mistaken offer.
Acceptance of mistaken offer forms contract which is void through unilateral mistake. D had to have known based
on the facts unilateral mistake contract is void

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Ron Engineering v R
Type 1

Facts: gov’t calls for tenders for construction project. P comes and says here is our tender in response to RFP.
Process closes, gov’t hasn’t decided who going with yet. P discovers made big mistake in bid. Tell gov’t. gov’t
opens tenders and says P is lowest bidder and they are selected. P says wont sign definitive agreement as already
told were mistaken.

Decision: if there was a material error, clear on face of tender, or known to other party to contract then contract was
entered into under mistake and if govt tried to force P to perform contract the answer would have been no, the
contract is tainted by the mistake.

BUT – collateral contract that arose upon delivery of tender said that if bidder failed, they forfeited the deposit.
Simply bc main contract was mistake this doesn’t taint the collateral contract. If you put in your tender and are
accepted and don’t perform you forfeit your deposit

Like MJB – person asking for tenders effectively says in consideration of you tendering, I agree to make my
selection in conformity of my tender and to select fairly and reasonably. HERE – collateral contract that works other
way too. Collateral says if im selected and don’t perform for any reason, I lose my deposit.

CONSISTENT WITH HARTOG: person accepts offer knowing offeror is mistaken. Cannot snap up mistaken offer
and hold other party to contract.

Type 2 unilateral – mistaken identity

I was mistaken about who I was contracting with and the mistake is so fundamental that I should be able to set the
contract aside

Cundy v Lindsay
Type 2

Facts

• D signs contract with respectable wholesaler of linen. Office is on same street where crook rented
Lindsay makes up order and sends to crook. Gets them and sends to P.
P sells handkerchiefs from store. Crook doesn’t pay. P says someone has defrauded me what can I do about it

• There is fraudulent misrepresentation. P wants to know if can rescind contract? NO. there is a third party SO
bar to rescission
• What does D do? Where is property – already sold handkerchiefs
• D : tort – conversion of property – are you a tortious converter of my property. Yes if there is actionable
mistake
• Lindsay has to say my property got away from me under actionable, unilateral mistake. Bc of that no property
ever passed thus Cundy had property that belonged to me. Bc he sold my property he is tortious converter
of my property
• Cundy says: there is no unilateral mistake here. Mr Lindsdays property got away from him bc of fraudulent
misrep. Could set transaction aside, but not after I bought handkerchiefs as innocent purchaser.

Issue: was there a fundamental unilateral mistake that will set the contract aside?

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Decision: yes – there was a unimateral mistake

Reason: Cundy is converter of Lindsay’s property

• Unilateral mistake: one party is mistaken, and mistake is FUNDAMENTAL to formation of contract
• What was Lindsay’s mistake? Thought he was dealing with the reputable firm but was dealing with the crook
who sent the letter can argue contract was void, and Cundy ahs property as a result.
o Can make that arg bc person that thought was dealing with wasn’t who was dealing with.

Notes:

• Who are sympathetic to? person who got duped by crook (Lindsay) or 3rd party (Cundy)?
o Cundy – but that’s not how law goes in this case
o Question have to ask is was party mistaken, did intend to make contract with someone else? If yes –
void. Then seller gets property back again. Innocent third party purchaser pays twice bc bought
property and has to pay for it again.
o UNLESS: listen to Lord Denning!

Type 3 unilateral – face to face

• If had crook in front of me and crook lies to my face (in this case it is by letter)- can same arg be made?

Ingram v Little
Type 3 face to face

Facts: Ps sold car to Hutchinson and accepted his cheque

Decision: Ingrams were fundamentally mistaken. They meant to sell car to Hutch, did a bit of investigation to make
sure it was him and they were mistaken (ended up with crook).

Lewis v Averay
Type 3

Facts: P has car to sell. Person pulls out cheque to pay but P says will only take cheque if car clears. He says he is
famous actor and says sure ill sell the car. This case goes to lord denning

Decision: P mistake was fundamental. However do not accept mistake to identity renders a contract void.
Instead it is a bar to rescission with third party rights.

Other two judges: no fundamental mistake. Wanted to contract with person in front of him.

Did lord denning get shot down entirely? Not law in Ontario, but when look at it – whos side do we go with?

DIFFERENCE with Ingram:

• Ingrams attempted to due more investigation, does this make mistake more fundamental

WHAT IS THE LAW IN ONTARIO:

• Ingram:
• start with presumption that face to face dealing, intend to deal with person standing in front of you
• can rebut by leaving evidence that intended to contract with someone else

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 • did make some attempt at diligence to satisfy that the person was who thought? can help if show that
attempted to make independent investigation as to who that person was
• IF YES – unilateral mistake contract void
• NOTE: no protection of third party

Lets assume Little says now out of money for the car. Mr little now can say how about warranty under sale of godos
act? Don’t have claim? YES. Against fraudster.

2. Mistake – as to Documents

• Argue that I signed document but nature of doc was so radically different that I shouldn’t be bound by the doc
• When looked at exclusion docs and saw in Mccutcheon – by signing doc a person represents that they read the
doc and understand the doc so cant say I signed contract, there was exclusion clause, didn’t know it was there
and therefore shouldn’t be bound by it
• Going to be hard to….
• This area gets started with Sir Edward Cook:

Thoroughgood’s Case
• P can neither read nor write. He is induced to put an x on document believing it to be release of rent so can get
land back from tenant (Chicken) who has defaulted under the lease. Chicken gets deed and sells.
Thoroughgood goes to court and says this isnt what thought he signed.
• Decision: thoroughgood not signed by doc, but if hadn’t required deed to be read to him, he would’ve been
bound by deed though would be penned against meaning not bound, but if he had been careless in signing
doc he would’ve been bound by it

FORBES: this is area where takes centuries for law to go back to Cook here

Mistake as to class of doc you signed and not the content

Only disentitled to non est factum if you’ve been negligent in the tort sense

• Do you owe DOC to person harmed. Only if signed negotiable instrument.

Saunders v Anglia Building Society (Gallie v Lee) 1971 HL

Pearson: agrees with Denning.

• Don’t say class in content. Ask if doc was radically different than what was intended.
• Negligence doesn’t mean tort negligence but simple carelnessnes

Pearson: doesn’t agree with Denning:

• If can make arg that doc is fundamentally different and weren’t negligent (careless) result = void contract

At end of day: Mrs Gallie wasn’t fundamentally mistaken. She intended to enter into deed of her land in favour or
Wallie and that’s exactly what she did. No fundamentally different result from contract than what she intended.

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 - Broad principle: Denning: Class/content thing is silly. Instead, ask, was the document signed
fundamentally different than what was intended?
- If one does not take the trouble to read a document, but signs it as is, relying on the word of another as
to its character or contents or effect, he cannot be heard to say that it is not his document. No man may
take advantage of his own wrongdoing.

Prudential Insurance v Cugnet

Marvco Colour Research v Harris SCC

Harris’ are husband and wife with 1 daughter. Daughter has fiancé. Fiancé wants to buy business and cannot afford
so Harris fam mortgages house to give fiancé money to buy business. They enter into mortgage contract, fiancé
discovers that the amount of money the harris’ were going to mortgage house isnt enough for business purchase bc
they took out loan and in order for bank to give money for biz have to pay out loan. So fiancé needs more money.
He goes back to Harris and says we need to re-execute bc there was a typo. Amt of mortgage went way up.

Issue: should overrule prudential insurance ?

Deciison: yes – carelessness should disentitle from pleading non es factu

Summary
• MISTAKE
1) Common Mistake (shared mistake)
o Both parties share mistake – they are both mistaken to the same thing
o Common mistake at common law: denning also says common mistake at equity
• 2) mutual mistake
o Parties have diff view of terms of contract and both views are reasonable.
o Mutual mistake also renders contract void. Mistakes generally void contract

3 unilateral

• Only 1 party is mistaken and other party knows about mistake

• Fraud cases.
• Also a misrepresentation – why pleading mistake? Fraudulent misrep means voidable contract, bar to recision
bc property ahs been sold to third party

4 mistake as to documents

• Mistaken to nature of doc that signed

5 mistaken frustration

• Contract is good when made but something happens after made that nature of perf under contract has
fundamentally changed
• In this case, we excuse performance

SUMMARY 11/13

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MISREPRESENTATION

• Positive statement that ends up being false

o Has to be representation in order to be misrep
o Exceptions: utmost good faith
• Has to be material to formation of contract
• One of fact as opposed to opinion or law
o Unless rep is made by lawyer

If have actionable misrep result = contract voidable, subject to rescisioon, subject to bars to rescission

If have misrep possible it results in tort damages

If misrep is fraudulent (person making it knew it was wrong or made it wrecklessly) tort damages for deceit

If misrep is from someone with special knowledge or status in circumstances where it should be relied upon duty
to make sure rep is correct

• Here: negligent misrep is only a subset of what have in torts. Why? Only neg misrep that result in formation
of contract relevant here. In torts there is variety of situations where rep is made about auditing, investing
advice etc.. to ppl representor has no contract with

Innocent (not fraudulent or special knowledge) misrepresentation doesn’t result in tort

• BUT: May be able to convert into term of collateral contract

• In consideration of me entering into contract with you,you represented to me something that turned out not to
be true
• Need to do test: is collateral contract inherently provable? Does it conflict with ther of main contract? Does it
run into an entire agreement clause?

MISTAKE

Mistake makes a contract void, not voidable. Property never passed.

UNLESS: buy intoDenning equitable common mistake. Simply have to say was mistake fundamental to formation
of contract. i.e would contract have been formed but for mistake. Then it would render it voidable

Great Peace Shipping: denning prob wrong

On CA: not convinced that should give up on equitable common mistake

Common mistake: parties share mistake

Mutual mistake: parties have diff views of terms of contract, difference is material, both views are reasonable in that
neither party can be seen to have convinced the other party that they were agreeing to the same terms

Unilateral mistake: one party mistaken, other paty knows the party is mistaken.

Fact Situations
Farmer selling oats, purchaser looks at bin of oats and wants to buy.

Fact 1: Farmer shows oats and says would you like to buy old oats? Purchaser says fine. Discovers they are new oats
not old. Doesn’t want to pay for them anymore.

• This is case of: misrepresentation

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 • So if don’t want to pay: says have right to rescission
• Is there bar to rescission? No. hasn’t taken delivery of the oats

Fact 2: same facts, but purchaser takes delivery of oats, feeds to horse and makes horse sick.

• Problem: he encounters bar to rescission (horse ate the oats)

• Cannot make restitution
• Remedy: have sick horse so tort claim for damages
• Did farmer know
o Yes: tort damages for deceit fraudulent
o No: ya but you deal in grain, regular seller of grain negligent misrepresentation

Fact 3: same facts but seller was average joe

• Innocent misrepresentation
• Collateral contract test
• Damages:

SO..If rescission right is good enough mistake. If bars have to see if there is a tort

Fact 4: farmer knows they are new oats, purchaser believes they are old oats. Didn’t say

• Argument 1: misrepresentation
o But there’s no misrepresentation: there’s no duty to speak up
• Argument 2:The price was higher than the price for new oats, but there was shortage of oats and price wasn’t
unreasonable
o Did the seller know the buyer was mistaken?
• Argument 3: So argument was unilateral mistake: price was high, not unreasonably high, and there was a
shortage of oats
o Don’t buy that seller knew buyer was mistake
• So Argument 4: was there a mutual mistake
o NO! if look at bin of oats and want to buy those oats, my view of the terms is not reasonable.
o Argument doesn’t win
• THIS WAS ACTUAL CASE SMITH v HUGHES

Fact 5: farmer shows oats. Purchaser says old oats ill pay 10 dollars a bushel. Farmer says sold

• Is there a good contract? No

• Unilateral mistake: one party is mistaken and other party knows about it (farmer says nothing)

Fact 6: farmer shows oats. Purchaser says will pay x. that price is twice the price of new oats. Farmer says sold.

• Should purchaser have known that the higher price ? (like case about animal hair)
• Court concludes: no contract
• Farmer Had to have known that the other party was mistaken, and don’t allow ppl to snap up mistaken offers
• If facts are such that should’ve known parties were mistaken, then the contract cannot stand

Fact 7: still have farmer selling oats. This time says going to ask provender’s to purchase entire granary of oats.
Under terms of tender – each bidder must pay deposit which is forfeited if that person is selected and doesn’t
perform.

Hughes (our purchaser): $500,000

A: 425,000

B: 400,000

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 C: 385,000

Farmer opens tenders and says I choose Hughes. Hughes says I was mistaken, really meant to bid $400K. do we
have a contract?

• Ron Engineering: in that case, before gov’t opened tenders they said they made mistake
• Here: tenders were open, farmer chose Hughes. Do we have a contract
• Question is going to be: is price so high that farmer had to have known that Hughes was mistaken
o If answer is yes contract is void for mutual mistake.
• Does Hughes get deposit back? NO. part of collateral contract.
o This is Ron Engineering: gov’t couldn’t enforce the contract and claim damages against Ron
Engineering bc there was unilateral mistake.
o HOWEVER: Ron couldn’t get deposit back bc there was collateral contract (contract a)
• SUMMARY
• Question 1: was there a contract
• Question 2: was there a mistake? Did farmer know Hughes was mistaken?
o If yes huge disparity in price that farmer should have know unilateral mistake
Hughes doesn’t have to buy oats but wont get depisot back (Ron Engineering) bc contract
a is still valid. Contract b was set aside for mistake.
o If no not a huge disparity in price mutual mistake
Hughes effectively represented that were acting on the same terms. Not an actionable
mutual mistake. Contract stands. Hughes has to pay damages for not buying oats

Fact 8: same facts, farmer opens up tenders and selects A @ $425,000

• Does Hughes have a remedy?

• Step 1: who gets oats? A gets oats.
o MJB: RFP invitation to treat. Offers made when ppl submit tenders. Contract is formed when person
who asks for tenders selects 1 bidder.
• What would Hughes say? Look at terms of tender
o Was there privilege clause where farmer could select someone other than highest bidder
If no farmer breaches contract a (in consideration of my submitting a tender, you
promise to comply with terms of tender process, and act fairly and reasonably) MJB
Contractors
If yes Depends on reasons for not selecting highest bidder.
• if selected the other bidder for a bad reason (like brother in law in MJB) No
contract

Fact 9: same facts, farmer selects A. there is a privilege clause. Says selected A bc he was a good friend. IN RFP
says seller not liable…

• farmer is probably in breach of contract A

• There is an exclusion clause THIS is the Tercon decision
o Was it part of contract at time of formation of contract? YES. Assented to it
o Is it clear, not unsconscionable, then move to public policy
o Probably no public policy arg here.

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Illegality – Intro
What happens if a contract is tainted by illegality?

Result if contract found to be illegal: the contract is unenforceable

• Some of cases say contract is void, but as know from mistake, misrepresentation, saying contract is void has
property implications bc property cant pass under void contract
• Illegality is different: if engage in illegality and gave away property, cannot recover property. Thought is
contract is unenforceable, courts don’t allow to recover property
• Exception: If not equally blameworthy, and statute is meant to protect you, then we will let you get property
back

Two types of illegality

• 1) Contracts Illegal At Common Law: contracts that are contrary to public policy
o 1(a): Contracts in restraint of trade:
non-competition agreement: restricts ability to compete
• for employees
• for sellers: I will buy your business for x but you cannot set up competing business
Tied selling agreements: restricts ability to trade
• I am going to come in and redo your bar (I am brewery) and once I redo it you can
only sell my product until you pay off your loan
• 2) Contracts Illegal Under Statute contracts that are contrary to statute
o 2(a): Entering into contract is illegal
E.g. statute says you cannot sell hot dogs in park unless have contract
o 2(b): Illegalities in performance of contract
St John Shipping Case: E.g person enters into contract to sell goods on boat. Person that
owns boat performs illegality in contract bc overloads and goes below safety lines. Statute
says if overload ship that is an illegality. The illegality is not in formation of contract but
performance of contract

Illegality – 1. Common Law Illegality

Contracts Illegal at Common Law on Grounds of Public Policy

1. Contracts to commit a crime or a tort (Oldfield)

2. Contract to defraud the revenue authorities (Alexander v Rayson)
a. Alexander v Rayson: landlord wants 1200 rent per month. Why don’t we have contract for 450 for
rent and 750 for upkeep. Bc only 450 / month, I can get rebate for rent authority. tenant walks
away, landlord sues. Tenant says this is a fraudulent contract. Court agrees. Contract was set up in
way to defraud revenue authority. contract is illegal and unenforceable
b. Note: this is dangerous bc it happens all the time when people pay “cash price” – those contracts
are illegal bc they avoid taxes. If something were to happen in that contract, it may be
unenforceable. Know from Rayson If prove contract was set up in way that defrauds revenue
authority, then may not be enforceable.
3. Agreements that promote corruption in public office
a. Parkinson v College of Ambulance: P says D said if makes donation, they will have ability to get
him a knighthood. They didn’t do what they agreed to do, P wants money back. Clearly a case of
contract that promotes corruption in public office. It was an indirect bribe.
4. Contracts for an immoral purpose

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 a. Andrews v Parker: something like this is a shifting thing, if in 1875 this was contrary to public
policy as a contract for immoral purpose may be different now. Court was looking at contract for
man and woman living out of wedlock – question was that a contract for immoral purpose. Things
change over time. Look at situations at any point in time and see if was contrary to public
policy at that point in time
5. Other agreements contrary to Public Policy?
a. How do we know if public policy shifts?

Public Policy Introduction

Denning in Enderby Town Football Club v. Football Association cites the statement from Richardson v. Mellish
about policy being an unruly horse – saying that public policy is closed categories, it does not change.
In response to “Public policy is a very unruly horse, and when once you get astride it you never know where it will
carry you”, Denning said “I disagree. With a good man in the saddle, the unruly horse can be kept in control. It can
jump over obstacles…and come down on the side of justice” Denning is saying that public policy should not be
looked at as being closed. Public policy isn’t static and changes over time

How to know if public policy shifted: Wilkinson v Osborne: community as a whole as adopted either formally by
law or tacitly by general course of law. social conception of right, not judge’s conception of right.

What is concept apply as a community standard? Supposed to be societal standard – would a contract between man
and woman be contrary to public policy?! Of course not. Societal standards change

Things thought were immoral at one point in time change. But issues (see Baby M case)

Oldfield v Transamerica Life Insurance Co of Canada (2002) SCC

Contracts to commit a crime or tort

Facts

• Mr. O has life insurance policy. Splits with wife and as separation agreement agrees to buy policy insunrace in
her name to provide for her and kids
• Mr. O dies bc a condom full of cocaine explodes in his stomach and insurance company doesn’t want to pay
out bc contract is illegal – he died in commission of a crime. This is a contract that is a common law illegality

Decision: contract valid

• If beneficiary of contract was Mr. O or his estate – that would be illegal

• BUT: the beneficiary is his wife and child who had nothing to do with the commission of the illegality it is not
a contract that is illegal at law to commit a tort or a crime

• Illegality did not affect the contract: this was crime but she is simply the beneficiary of a policy and is
untainted by the illegality. If his estate was the beneficiary then would have allowed to collect

Ratio: Contracts to commit crime or tort are illegal at common law on grounds of public policy- contract to
commit a crime or tort is illegal/unenforceable

o Unless you had nothing to do with commission, and just a beneficiary

Note

* this is why insurance companies say if you commit suicide

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In the Matter of Baby “M” (1988) NJSC
Facts

• Couple couldn’t have baby so signed contract with surrogate and agreed to pay her in return for her giving up
the child. Child was born and she refused to give up the baby
• Couple wanted specific performance injunction, she went to media and made a big public issue
o At trial: Not contrary it public policy
o contract is enforceable
o Granted specific performance bc it was in the best interest of the child to go with the couple (and
must consider best interests bc this is an equitable remedy)
• At COA: contract illegal because it was contrary to public policy.
o This is an unenforceable contract but still grants adoption without regard to suitability and deprives
baby of natural mother. Ignores impact of contract of natural and adoptive parents
o This is unenforceable
• So: two judges, same jurisdiction, at same point in time. Applying same test – is it contrary to public
policy? One judge sees as contrary to public policy, one doesn’t (brings up issues from Wilkinson v
Osborne)

Decision: Contract is void bc it violated public policy but custody to Sterns bc best interest of child

Reasons: surrogacy contracts create principles that are directly contrary to objectives of our law. harmful
consequences are too palpable

Ratio

• Contracts can be void bc of public policy: the public policy which a court is entitled to apply as a test of
validity to a contract is in relation to some definite and governing principle which the community as a whole
has already adopted either by law or tacitly by its general course of corporate life

Note

• What about a contract for kidney transplant? Can get specific performance if change mind?
• What if kidney is defective and say want damages bc got bad kidney? Is this a contract should enforce?
• This is where science comes up against law: as scientific developments occur, is contract law under
obligations for these kind of things?
• Shows issue with the Wilkinson v Osborne test – there is a test but everyone is going to treat public
policy different. Does society have issue enforcing contract.

Illegality – 1.(A). Restraint of Trade

Public interest: should impose contract the restrain persons ability to carry on profession. They are somewhat
offensive in the first place, should we enforce?
Ferguson; yes but there are hurdles

Shafron: we don’t like these clauses, so construe them strictly

Test: to determine if non-compete is enforceable

Part 1: Construe strictly (Shafron case)

was non-compete meant to apply?

• It may be harder to enforce an employment non-compete than a sale of business Why?

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 o Sale of business: someone is getting value
o Employer:

Part 2: Is this reasonable as between the parties? (Gordon)

• If talking about sale of business more reasonable than employment: buyer of business has paid for the right
but how is it reasonableness between the parties?
• if person who leaving would take clients or ‘secret’ sauce may be reasonableness between parties
• i.e the person who signs non-compete can do significant damage if they leave
• See Gordon case
• Shafron:May be more reasonableness between the parties if have non-compete on sale of biz than
employment agreement. WHY? Bc person has paid for that clause and may be more reasonable to say have
interest in enforcing
•

Part 3: Must be no broader drawn than necessary to protect the valid business interest of the party relying on it (in
terms of time and geography) (Gordon)

• Not more broadly drawn than necessary includes:

• Time: giving an amount of time (i.e. you cannot work for 2 years)
• Geography: you cannot practice in this area (i.e. Toronto)
• If court finds that asks for too much are going to say the clause is improper
• If meet test of not more broadly drawn than necessary then the clause should work
• If draw too broadly issue

Part 4: enforcement of clause must not be contrary to public interest (Gordon)

• Examples
o stop doctor from practicing but aren’t enough doctors in area
o enforcing creates a monopoly

Result: non-competition clause fails if doesn’t pass test

Shafron v KRG Insurance Brokers (2009) SCC

Gordon v Ferguson
Doctor hires Ferguson in medical practice as physician and surgeon. If leaves clients are going to follow.

Illegality – 2. Statutory Illegality

Entry Illegal

• statutes explicitly prohibits contracts: example Planning Act: I own land and seeing to you, Planning Act
says cannot do that. if sell land need to go to planning commission first. Any attempt to sell interest in land
where vendor holds a budding interest in transaction is void
• statute implicitly prohibits contract: entering into the contract is an offence. Doesn’t explicitly say void, but
entering into contract create an illegality
o entry is an offence obvious (don’t sell hot dogs in the park without a license)
o more difficult is Yango case
purpose
meant to protect
is there a penalty for contract

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Performance Illegality

• if contract performed illegally, the other party can enforce the contract still (St Johns Shipping)
o if I perform illegally I can still enforce contract unless can prove at time of formation of contract
intended an illegal performance
• if at time of formation of contract both parties knew the contract had to be performed illegally then
neither one of them could enforce the contract. They agreed to illegal performance

Yango Pastoral Co v First Chicago Australia Ltd

Facts

• Statute: no one shall carry on business of banking in Australia unless have a banking license.
• D says on date entered into loan and gave security, the bank had not yet received its license
• It is therefore implicitly illegal to enter into this guarantee contract. Lending money is biz of banking so
statute is implicitly making the contract illegal

Decision: not implicitly prohibited

• Test for times when it seems like statute implicitly prohibits illegality but its not when an entry is an
offence…tis something else!
o 1. What is the purpose/intention of the statute?
o 2. Who is the statute supposed to protect
o 3. Is there a penalty for the contract
• Application
o 1. Meant to stop banks from going insolvent. If struck down contract would do opposite of that bc
would say court couldn’t realize on security therefore bank loses money and bank could be rendered
insolvent
o 2. Person meant to be protected is creditors and depositors of bank
o 3. Yes there is a penalty, but doesn’t apply to making of contract, rather says you get penalized for
every day carry on biz of baning without license.

St. John Shipping Corp v Joseph Rank Ltd (1957) QB

Ashmore, Benson, Pease & Co Ltd v AV Dawson Ltd (1973) CA
Facts: The company that was going to ship the tube bank doesn’t have the right license to ship it. A very heavy tube
tank was being carried on an articulated lorry to Hull where it was to be shipped to Poland. Halfway to Hull it tipped
over, and damage was done to the load costing 2225 pounds to repair. The manufacturers claim damage from the
haulers. The haulers respond that the load was too heavy for the vehicle, and that the contract or the performance
was illegal. Relevant regulations are the Motor Vehicles (Construction and Use) Regulations 1966, which were
made by the Road Traffic Act 1960.

Decision:Judgment for D. P knew/had to have known it was to be performed illegally (objective test).

Reasons Denning: This person was very knowledgeable about shipping contracts, and so this person may say they
didn’t know that the contract had to be performed illegally, but they must have known. If you know or if you should
reasonably know that the contract is going to be performed illegally, then you can’t enforce the contract. They knew
performance was illegal and were probably saving money.

SUMMARY STATUTORY ILLEGALITY

• Illegality in formation
o What does statute say?
o Expressly prohibit contract
o Implicitly prohibit contract

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 “entry is an offence”
Yango: Does making of contract cause breach of statute look at whether statute
implicitly means to
• Purpose
• Meant to protect
• Is there a pelanty for a contract or for something else
• Illegality in performance
o Either party can enforce
o Doesn’t make contract unenforceable – may not have many enforceable contracts if were case
o Innocent party can always enforce
o Party that creates illegality can enforce as long as that person didn’t intend an illegal performance at
commencement of contract
o Neither can enforce if agreed to illegal performance

Unconscionability & Undue Influence

Result if contract found unconscionable and under influence: Voidable contract. property can still pass under it

Historically

• Traditionally: people are free to make bad contracts – as long as parties have capacity of making bargain,
don’t enforce fairness of bargain
• Need to have capacity: if person lacks capacity no contract. But there are very few instances. Areas where
lack capacity:
o Duress to the person contract is voidable
o Problem: duress historically meant duress to the person or to a member of the person’s family.
Economic duress was not a problem.
• The law saw undue influence
o Had to say if contract between person in rltp where we think there is a stronger and a weaker
position, then law of undue influence applies
o Types of relationships: spouses, parents and children, fiances, clergies
• If have undue influence bargain between those categories of people start with presumption that the contract is
unfair and voidable
o Stronger party can rebut: had to show other person was capable of negotiating for themselves OR that
contract is fair
• So duress and undue influence renders contract voidable subject to rescission unless there is bar to
rescission
• This was law until unconscionability
• NOTE: duress in willaims v Roffey bros is economic duress. In this part of course, duress is to a person that is
not economic.

Now: law of unconscionability come into play?

• This is in our cases

• Assume: economic duress or unfairness in transaction and one of parties isnt a special relationship person so
there is no undue influence

Test for Unconscionability:

• Gross inequality of bargaining power (Marshall v Canada)

• That is overreaching
• An unfair result/ bargaining

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 If contract is unconscionable

• It is voidable can be rescinded subject to bars of rescission

Marshall v Canada Permanent Trust Co (1968) ATLA SC

Facts

• Elderly man in retirement home sells land to M at too low of a purchase price, bank won’t transfer it bc they
say the man isnt capable
• Doctor testifies man is NOT of sound mind

Issue: was this an imprudent transaction?

Decision: action dismissed

Ratio: gross inequality of bargaining power, leading to unfair result render contract voidable

Mundinger v Mundinger
Facts: husband gets wife to sign an unfair property agreement, she is on tranquilizers and brandy and upset about
separation when she signs. It is very unfair.

• Gross inequality of bargaining power, overreaching,

• Doc unconscionable subject to rescission, she can set agreement aside

Pridmore v Colbert
Facts: unsophisticated women hurt in accident, she is on pain killers, insurance people come to her house and say
sign this release and we will get you $2000 but it will be a full settlement. turns out she was badly injured and
missed lots of work, she wants more than $2000. She got tricked.

• Gross inequality…overreaching….unfair transaction

Macaulay v Schroeder Music (1974) HL

Facts:

• 21 year old had songwriting contract with music producers. Company says have to sign this contract. It is very
one sided
• Contract has several clauses that gave rights to producers. They didn’t have rights to the songwriting
• P sues: contract is contrary to public policy and should be void
• He had no power to negotiate -gross inequality
• COA agrees with songwriter

Issue: was the bargain fair?

Decision: contract is unenforceable

Reason

• this is another case of gross inequality bargaining power of overreaching

Note

• this is like Bette Davis: contract was very one-sided. Now could prob say this is case of unconscionability

Lloyds Bank v Bundy (1975) QB

Lord Denning

Facts:

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 • D is elderly man, dealt with same bank for most of life. Son also with bank. They know sons biz is bad. P says
D should enter into guarantee to mortgages farm to bank (P) to support son’s business. Bank knows business
is going to fail but does not tell Bundy

Decision: appeal allowed

Reason:

• Bank knew was going to fail and were just trying to save money
• This is unconscionable D can set aside
• Perhaps: the availability of independent legal advice could have balanced the scales

NOTE:: now if go near bank and they need a guarantee for a loan, and/or secure obligation with their assets, banks
say can only do this if get independent legal advice.

• WHY? Helps tip the scales away from unconscionability

RATIO: this transaction is inherently unconscionable. UNLESS: can show independent legal advice

Royal Bank of Scotland v Etridge (2002) HL

Focuses on inherently unconscionable thought but this is undue influence case

Facts:

• 8 cases where a wife charged her interest in her home in favour of a bank as security for her husbands debt, or
debt of his business
• Spouse wouldn’t have entered into relationship but for relationship
• this is undue influence not unconscionability
o why? They take the benefit of the presumption, don’t need to prove uncoscnionability
Wife states she signed document under undue influence from husband (argued special relationship)
• All women did not get independent legal advice
• This is subject of court discussion

Issue: is independent legal advice necessary?

Decision: may be possible to have undue influence where we don’t have one of identified categories. If have rltp
where one person is seen to have places trust/confidence in the other undue influence can arise.

• When look at these cases, prob only going to be saved by undue influence or unconscionability if I can show
there was independent legal advice
• Two types of undue influence
o Real undue influence and bank is aware of it independent legal advice wont cleanse
o If there isnt real undue influence can fix by showing there was legal independent legal advice
• ILA
o Lawyer giving advice has to inform themselves of the situation
o Lawyer giving advice has to explain docs to person giving advice to
o Lawyer must explain the risk of default
o Lawyer must give advice in absence of other party (spouse cannot be present)
o Lawyer has to say that you do have a choice here
• ILA can be given by:
o Spouse’s lawyer

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 o Bank’s lawyer
o As long as it isn’t the same lawyer advising the other party. It can be that person’s partner
o THIS ISNT LAW IN ONT

BMO v Bartolo
Independent legal advice means advice must be given by somebody independent of lawyer representing other person
in transaction

No allegation that advice wasn’t right, advice given by partner of lawyer was good advice. But wasn’t independent.
Bc wasn’t independent didn’t count as independent legal advice

Ratio: ILA cannot be given by lawyer who is associated with transaction in Ontario

Tercon
• One way to get rid of exclusion clause is unconscionability
• Exclusion clause: is it unconscionable to enforce
• What is unsconsciability
o What discussing today
o Subject to same defence: person with weakening bargaining power had independent legal advice,
then there is no gross inequality and it balances the scale
o Exception: someone involved here knew there was real undue influence and not just perceived undue
influence
What is real undue influence:

CIBC Mortgage v Rowett- ON COA

Facts

• Husband takes loan for an investment

• CIBC: ok but we want a guarantee from your wife and you both to mortgage your halves of the matrimonial
home – she gets no ind. Legal advice
• Wife: this was undue influence
• Wife is real estate agent and mortgate broker with knowledge about mortgages

Decision: she is more than capable despite undue influence. She doesn’t need independent legal advice. Contract is
enforceable. Bc other side can prove she can look after herself despite presumption of undue influence. No gross
inequality of bargaining power

Summary Undue Influence or Unconscionability

If have Undue influence or unconscionability

Presumption: transaction is bad

Rebuttable: party can show person was able to look after themselves or the deal was fair

Duress: makes contract voidable, not void.

Duress is duress to the person or member of person family

Economic duress is not appropriate duress to make contract voidable:

Undue influence

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Presumes certain type of rltp between parties where nature of relationship proposes trust in confidence by one
person in other

Scotland case: undue influence w/o special rltp when clear 1 person has trust in another even w/o special rltp

Once show special rltp – presumption that contract is voidable bc undue influence is actual. Stronger party has to
show weaker party could look after themselves or that transaction was not an unfair transaction

Unconscionability

Real unfairness but no duress or undue influence

Simpe concept: was there gross inequality of barg power at time contrat entered into and was there an overreaching

Looked at variety of fact patterns

Lloyds Bank (denning)

Unconscionable unless bundy given ILA. If had would say wasn’t subject to unconscionability bc ILA balanced
inequality of bargaining power

Guarantee cases

Banks don’t accept guarantee anymore

Scotland: undue influence rather than unconscionability bc start with presumption – all have to do is point to
relationship and say it is one of those relationships that is presumed to result in undue influence. If uncoscnionability
have to say person who gave guarantee was in much weaker bargaining position.

• See in this case unconscionability may be cured with ILA: if there was real undue influence and bank knew,
ILA wont fix that. but short of that ILA is okay and balances inequality.
• If uncoscnionability and ILA: then ILA may mean there wasn’t a gross inequality

Knowledge

if can say there was no ILA but this is person that can look after them fixes undue influences or
uncoscnionablility

Enforcement, Breach & Remedy

Privity of Contract
Question: who can enforce a contract

Law of privity: only party than can enforce is party to the contract. Someone who has given consideration to the
contract. only party to contract can enforce contract to take a benefit or ues an exclusion clause

Note: Not part of law of consideration. Contract already passed building blocks but who is entitlted to enforce?

General Rule: only people who have given consideration to the contract can enforce it

How do we fix it?

1) Other party to the contract can sue

Beswick v Beswick: Uncle brings nephew into coal selling business- they enter into an agreement saying I will give
you a cheap price from my business, but when I died, you have to give aunt a certain amount of money the rest of
her life, he dies, nephew doesn’t pay- aunt is exuctor of uncles estate so she commences an action agasint the

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nephew in the shoes of the estate, I am the other party in the contract and I want you to enforce the contract to pay
the aunt (me) aunt is wearing two hats

Denning: uncle could always enforce contract therefore estate should be able to. Aunt is really uncle bc she is
executor. So: the other party to the contract can always enforce so in effect, the third party (aunt) is enforcing the
contract.

Nephew’s lawyer: what are damages to uncle?

Denning: law of equity says specific performance is avail where damages is inappropriate remedy

Assumes: other party is willing and able to enforce

2) Law of Agency (New Zealand)

3) Law of Trust

- There is a trustee (A) and Settler (B)

- Property is settled in trust win the trustee to provide benefits to the beneficiaries (C)
- Trustee must provide benefits to the beneficiaries of the trust
- The beneficiaries can always sue the trustee for the benefits of the trust (if settler is dead) and there’s never
been a problem with this in trust law- bc otherwise how can we make people perform their trust
- Applying Tweddle v Atkinson- father gets FIL to agree to benefit son- this benefit is held in trust to the FIL
that he can enforce the trust?
- So we apply these principles in contract law:
o make a provision in the contract that the benefit of the contract is held in trust by the other party
with the intention that the beneficiary has the right to enforce this needs to be in the contract
o all this is doing is creating the “thought of trust”- just creates a structure in the contract that
enables third parties to benefit
o parties Have agreed in the contract that the benefit of that contract is being held in trust
o this is taking advantage of the law of trust to fix a privity problem
o usually this is under seal
o this is a classic way of dealing with third party benefits
o this is another way to get around issue of the law of privity
o courts are find with this- they are looking for ways to deal with the law of privity
- need contract to acknowledge that trust is beign created
4) Principled Exceptions – only applies to employers and employees for now.

WATERFALL
When existitng relationship and exclusion of liability 2
If don’t have existing relationship between carrier and third party ratify from NZ can be messed up
If have benefit use trust. This gets around ratify problem.

Tweedle v Atkinson
Facts

- Father, Father-in-Law
- They agree to confer a benefit on the son/son-in-law (i.e. give him money after marrying his daughter)
- Contract says the son-in-law can enforce it, father dies, FIL wont pay, son sues
Reasons

- Court says it would be monstrous if someone who wasn’t a party to the contract had direct rights to
encofmcent under the contract- this is the baseline rule (even if contract is made to their benefit)
o Only people who have given consideration under the contract can sue under the contract, even if
the contract speaks of third party benefits

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 - The rest of the case is how do we get out of this problem- almost always if you see a privity problem you
can fix it
Policy

- Seems out of step with commercial reality- people enter into contracts offering benefits to the third parties
all the time
- Policy point about how the law tries to deal with the realities of what people are doing
o Note: good exam question- estoppel and amending agreements
- Cases like this where confer a direct benefit and then cases where a and b agree to contract with
exclusion clause and agree limitation of liability applies to people like directors, officers employees. Is
that how people think in business. If enter into contract and exclude or limit liability and say
New Zealand Shipping Co v Satterthwaite & Co. 1974
Facts:

- Carrier and shipper enter into contract- you will carry my drill press and deliver it to me
- Contract says my liability is limited to a certain sum- exclusion clause-
o Contract says exclusion clause applies to anyone else who may be performing the contract under
me- I am acting as their agent
- Carrier had subsidiary
- When unloading, drill press is dropped and damaged by subsidiary
- BUT- privity problem here- the subsidiary did not give any consideration
o Carrier says- I have an exclusion clause
o Subsidiary agues that the exclusion clause should apply to them
- Owner says you are not a party to the contract, so you can’t benefit from it
- Contract says owner is acting in 2 capacity, themselves, and agents for sub-contracts that may perform the
contract- in effect making a contract bw the owner and subsidiary for limitation of liability
- Court says it is possible that the owner acted as an agent make subsidiary part of benefit
- AZ NOTES
o Sues owner for negligently unloading drill press and damaging it
o Carrier stated were going to act as agent in having contract directly with owner
Decision: HL says maybe third party can enforce the contract
This works subject to 4 conditions:
- 1. Main contract makes it clear that third party is to be protected
- 2. Contract makes it clear that the carrier is acting in 2 capacities: principle for itself, agent for independent
contractors
- 3. Independent contractor has to be aware of the agency or has to ratify
o Not a problem here – of course aware
o Issues with how does ratification work? If pre-existing rltp that works all the time fine. If not
ratify can be a problem
- 4. Third party must give consideration for the contract make (with owner)
o Issues with how does ratification work? If pre-existing rltp that works all the time fine. If not
ratify can be a problem
o Agreement to do what already bound in contract to do is no new consideration. But agreement to
do what bound to third party…. Same as before. Have to give consideration to owner but
consideration is unloading the owner’s good.

Application
- In consideration of you unloading my goods, owner agrees to make the exclusion clause available to the
s….. it is a unilateral, collateral contract.

Ratio
Draft head contract in way that says there are two contracts and in second contract you unload goods and I
will give benefit of an exclusion clause. This works if meet four tests

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London Drugs (SCC)
Facts

• Owner of transformer who enters into contract with storage company to warehouse the transformer
• Contract says liability of storage company limited to x dollars. Limitation applies to owner of storage
company and warehouse nothing about agency or trurst. Looks like Twiddle
• People who work at plant decide to move transformer with two forklifts lift transformer it falls and gets
damaged
• Owner of transformer: cannot sue warehouse people bc of exclusion clause (limitation). So sues people
driving forklifts for negligence and aren’t entitled to benefit of exclusion clause
• Plant unionized and says damage amount would bankrupt these guys so goes all the way to SCC

Issue: Employees don’t owe DOC to clients of employer Yes they do. So do employees take benefit of exclusion
clause?

Decision: Employees should take benefit of exclusion clause law of privity wouldn’t say exclusion is liable.
However employees were impliedly intended third party beneficiaries (i.e exclusion applies to them) so there is no
valid reason to deny them benefit of limitation. This changes law of privity

Iacobucci: Principled Exception: When does it apply?

1. Expressly or impliedly extend to employees

a. Applies here: contract says something about the benefit of the exclusion applying to employees or
warehousemen- either expressly or impliedly
2. Employees have to be performing exact contract that includes the exclusion clause at time damage occurs
a. In this case they were doing this: were moving goods held in storage across the plant

Policy

• Major reforms should come from legislature and not from court incursion into common law. however court
has aability to make incremental principled exceptions to law in interest and fairness of justice but court
shouldn’t be in position to make major reforms to law of contract and privity. That’s left to legislature. Not
saying law of privity is bad that has to come from legislature
• NB CA in Williams v Roffey Bros stle case had quoted this
• FORBES: need to think carefully before make big reforms. He wrote paper on this called “practical
approaches to privity of contract problems”
o https://heinonline.org/HOL/Page?handle=hein.journals/canadbus37&div=25&g_sent=1&casa_token
=&collection=journals
o Privity is a big trap for ppl who don’t think about third party beneficiary rights or biz ppl who say
why cant I just provide exclusion of liability. It doesn’t compute in commercial context and it is a
trap for lawyers
o If see something like “and x will do following for third party” need to consider how going to deal
with this

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Summary Privity of Contract

Privity says: only person that can enforce contract is person who is given consideration to contract

Asa result: contract made for benefit of third party not enforceable by third party

How do we get around that issue? Not consistent with commercial reality (ppl assume can make contracts to
benefits of third party)

Denning: other party can always enforce contract. Why don’t we say enforceable by specific performance

Use a trust: so contract says benefit for third party, parties agree that that benefit is held in trust by counterparty for
benefit of third party beneficiary with intention they can sue by naming counterparty trustee as second defendant in
case

• Work in twedle and Atkinson

Agent: Contract builds in thought third party is agent now we have no privity problem bc have separate contract
b etween two parties. To work contract has to contemplate benefit of third party, has to contemplate acting in two
capactiesi (principal and agent), has to consent to agency rltp or ratify after fact, third party has to give separate
consideration for second contract. Consideration for second contract is giving same promise to both third party
beneficiary and carrier

• New Zealand Shipping CO

Principled Exception – SCC: new law . employees of employer are entitled to benefit of exclusion of liability claes
the employer has bargained even though they may not be parties to contract. If original contract contemplates them
beign subject……….

Frustration
• When looked at mistake saw four types of mistake: there is a 5th type of mistake here but there is a KEY
DIFFERENCE
• The other 4: there was mistake at time of formation of contract so asked is contract void or voidable
(Denning)
• Frustration is 5th: no mistake at time of formation of contract something occurs after formation of contract
• So frustration is different: doesn’t make contract void or voidable, but subject to doctrine of frustration.
o Doctrine: one of parties is subject to something different than bargained for so excuse performance.
Obligation is materially substantially different than intended

Two Problems

• 1) When is a contract frustrated according to law

• 2) What do we do if contract is frustrated and excuse performance?

Taylor v Caldwell (1863)

Old Law: Implied Term

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Facts

• P rented D’s concert hall for 4 night concert signed lease before date of show concert hall burns down
• D: you can still come and use the property, the land is still here just no music hall
• P says shouldn’t have to perform
• Is there implied term of contract that says if something happens no longer enforceable?

Ratio: there is implied term of contract that says under these circumstances the contract doesn’t have to be
performed contract should only have to be performed where performance isnt impossible

Knell v Henry
Old Law

Facts

• King Edward is to become king – coronation parade

• Knell rents balcony from Henry to watch parade, king gets sick, parade cancelled
• H says have to use balcony

Ratio: there is implied term of contract. If event happens like parade is cancelled, the party shouldn’t have to
perform

Davis Contractors v Fareham U.D.C (1956)

Current Test

Facts

• P is supposed to build 78 houses in 8 months

• Contract provides a penalty for late performance
• P couldn’t do it in 8 months took 22 bc was short skilled labour P was subject to the penalty
• P says contract has been frustrated and shouldn’t be penalized and shouldn’t have to pay penalty couldn’t
have known that wouldn’t be able to get skilled labour
• He should get paid fair value for benefit (not contract price – penalty)

Decision:

• This isnt a matter of implied term of contract

o How can ask what parties must have intended, when frustration assumes it was outside of intention of
contract
o Frustration is something that happens outside of contemplation of the contract

New Test

• Look at contract and surrounding circumstances at time contract was negotiated

• Have to ask: construing contract in this light (look at circumstances and what contract says), looking at
circumstances at time contract was negotiated and forming conclusion of whether one of parties accepted the
risk

Application When look at contract and surrounding circumstances, lost money bc skilled labour was scarce.
Everyone knew this at time of contract. So if entered into contract knowing skilled labour was scarce, must have
assumed the risk.

TEST: construing contract in surrounding circumstances, coming to conclusion did one of the parties know
or should have known circumstances so should’ve known this risk would arise. if that is case assume
they took on that riks. So when risk occurs not a fundamental mistake so as to frustrate the contract

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Note: Codelfa

• In that case: codelfa and state railroad authority assumed Codelfa could work 7 days / week and were immune
from injunction. But then residents got injunction which prohibited construction. Codelfa said lost money bc
of penalty and couldn’t do other work. Codelfa says we need implied term in contract
• Court says no implied term. Effectively wasn’t necessary to give business efficacy to the transaction.
• But if look at it as frustration: is this a place where would say contract was frustrated?
o Applies Davis test and says yes this contract was frustrated
o Event occurred and when look at contract and surrounding circumstances, would we have though
Codelfa accepted the risk of injunction. NO. that wasn’t a risk Codelfa took.
• As a result: Codelfa doesn’t get contract price - penalty. He gets fair value of performance.
• SAME ANALYSIS but opposite result

Frustrated Contracts Act (1990)

NOTE: Doesn’t tell you when contract is frustrated, that comes from common law Davis above

If contract is frustrated…

• If a sum has been paid return expenditures incurred before frustration event
• If any party has received a benefit give party fair value of benefit received
o Not contract price but fair value (same as Codelfa and what were trying to get in Davis)
• If contract is divisible/severable and part is complete get contract price for delivered portion. for rest apply
rules above
o E.g. contract to build and deliver 3 machines into warzone. Machine 1 is built and delivered before
war makes contract impossible to perform. Contract severable, apply contract price for portion of
performed contract and apply other rules to portions that haven’t been performed.
• These rules only apply if there aren’t express rules in contract can contract out of statute
o HOW: Force Majeure clause: clause that says if following events occur, the contract will be brought
to an end and this is what will happen…..
o The clause contracts you out of frustrated contracts act, and what would happen in frustration event
(so wouldn’t pass Davis test)

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Frustration Summary
Different than other types of mistakes – no problem at time of formation of contract, problem that arose after
contract that fundamentally changes nature of performance. QUESTION: do we excuse performance?

Davis: don’t look at them as implied terms of contract. When allege there is frustration have to look at contract,
consider it as a whole in circumstances that existed at time of formation of contract. Then have to ask did 1 of
parties accept risk of what was happening. Or did neither party accept risk so that its only fair to excuse performance
of contract…..

Difficult test to apply – should we under all circumstances at time contract is formed say that something so radically
different occurred

Frustrated Contracts Act: if event that determine is frustration, how do we deal with the fact that we are going to
excuse performance?

If deposits paid

If benefits conferred, treat under fair value analysis.

If contract is divisible chunks that have been performed are performed under contract, for chunks that aren’t fully
performed determine benefit and give fair value

Remedy 1 - Damages – Intro

Damages: receive sum of money to put in same position as if contract had been performed

How do we measure damages?

Remedy 1 - Damages – Interests Protected

Fuller v Perdue: 3 types of damages

1. Restitution Interest

• First thing should get back in breach of contract is restitution (i.e deposit)
• Not really damages, it just makes sense that if other party doesn’t perform I get restitution

2. Reliance Interest

• Did I spend money in reliance of performance?

• Assume contract is going to be performed so I expend money in reliance of the performance
• Spend money in reliance someone is going to perform contract and they don’t
• Should be able to get back in damages any money that paid away in reliance of the performance on the
assumption of what spent isnt going to be usable when get someone else to come in and perform contract

3. Expectation Interest

• What did I expect to get as benefit out of contract? Lost profit or value of lost benefit expected to be conferred
upon me if contract had been performed

How does work with Hadley and Baxendale? What is remoteness and what could reasonably foreseen?

• 2-3 of Purdue are subject to remoteness test

• Reliance Interest -
• Expectation – would we foresee profit (expectation interest)

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Remedy 1 - Damages – Measurement
How do we measure damages?

Buyer: Market Value – Contract Price

Seller: Contract Price – Market Value

REFINEMENTS

• S.48: Thompson Robinson – no defence to say can sell it again and get same amount

Sale of Goods Act

- Damages for non-acceptance of buyer: s 48
o Estimated loss directly and naturally resulting in the ordinary course of events from the buyer’s
breach of contract
o Where there is an available market for the goods in question the damages is the difference
between the contract price and the market price at the time when the goods ought to have been
accepted, or at the time of the refusal to accept.
- Damages for non-delivery of seller: s 49
o Estimated loss directly and naturally resulting in the ordinary course of events from the seller’s
breach of contract
- Where there is an available market for the goods in question, the measure is the difference between the
contract price and the market price at the time when they ought to have been delivered, or at the time of
refusal of delivery

Thompson Ltd v Robinson Ltd

What if buyer walks away from contract and seller loses profit? Buyer argument – you can buy same product in
market and make same profit over again.

What are damages? Active market for cars, seller says pay damages. Buyer says no damages bc can sell car

s.48 of sale of goods act: seller is entitled to loss profit even though can sell car over again and make the profit the
second time

should be entitled to profit margin

SUMMARY

Fuller: 3 heads of damages rewarded: restitution, reliance, expectation

Both reliance and expectation are subject to remoteness of damages (Hadley v Baxendale Test)

Measuring damages:

• Usually if buying service: contract price – market price

• Thompson: different rule if seller has profit margin: should be entitled to profit margin!

Ruxley Electronics Ltd v Robinson Ltd (1994)

How to quantify when damages are person

Facts

• P hires D to put in swimming pool, says he wants it to be 7 feet 6 inches deep so he can put in diving board,
when its done it is only 6 feet 9 inches, only way to fix it would be to start again which would cost $65,000
• Contractor says to look at value of property with and without pool

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 • says he wants it to be 7 feet 6 inches deep so he can put in diving board, when its done it is only 6 feet, only
way to fix it would be to start again which would cost $65,000
• Do we give P 65K
Reason

• Problem with giving 65K?

• What is diff of value of land with pool with 6’9 inch deep or 7’6 land?
o First instance judge: doesn’t want to give 65K. to purchase exact performance again. Thinks damages
is only 2500 for loss of enjoyment.
Problem with giving 65K is that person is probably going to pocket the money
o Case appeals to CoA: should give P exact amount of money necessary to get performance bargained
for. If costs 65K to rip out old pool and build new one, why don’t we give them?
• Case appealed to HL: P entitled to difference between value of property with improvement and value of
property with what was delivered.
• Sooo….first instance judge was kind of right. limit damages to that amount bc would be unreasonable to
require rebuilding
o What is this saying: if I am going to get contract to provide service that is personal to me, shouldn’t I
be able to say I want that service performed?

Note the Problem: perf requested under contract is not commercial, it is persona; to party that asked for the
performacne

• See the problem in awarding him 65K – not reasonable bc going to pocket money. on the other hand, problem
in limiting amount of damages to get to diff of property with perf and without. Shouldn’t I be able to build a
statue of myself and say I saved you money bc property worth less.

Groves v John Wunder Co (1939)

Similar to Ruxley

Facts

• D leased pieced of land from P and was supposed to extract gravel and then level it before lease expired, he
gives land back but hadn’t leveled it
• Told it would cost $60K to regrade property and bring back to level required by contract
• If that is done properly, Value of land was $12,600
• So what do we get for damages for breach of contract? Do they top out at 12,600? Or should we required
D to pay amount of money necessary to perform contract – 60K

Reason – D should pay 60K

• Is this right? suppose P sells land or has plants to sell lands prior to trial. Do we still give them 60K? lets say
he sold for 5K, then also getting 60K for land that’s only worth 12,600? Does this make a difference?\
• What if its family situation – then it is like Ruxley?

Sumary to Now
SO: do we follow groves and ruxley at court of appeal level? Those instances say damages should be amt
necessary to get someone else to perofmr the contract

OR

Do we say that doesn’t always make sense (HL): sometimes requiring completion of contract is unreasonable

ANSWER: DEPENDS

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 • Commercial transaction should be limited to value of what party has lost. Put party in same position
financially as if contract had been performed
o Diff between land w/ improvement and land w/o improvement
o Most can get si value of what lost
• Contract where one of party’s has personal interest in performance
o Maybe can say I have personal interest in performance and 1 of my children is diver and that pool is
no good to me at 6’9 inches. If have personal interest maybe it does make sense to fi problem
o Damages = amount of money that allows to fix the problem
o P should be entitled to compensation that will allow for personal performance. UNLESS that is
unreasonable. (this kind of brings back to HL)
o Most can get is value of what lost but what lost is benefit tht you contracted for that was personal to
you!

Howe v Teefy (1927)

How to deal with lost chance

Facts

• Wants to buy racehorse and train. Cannot afford horse so get someone else to buy. Agreement – you buy
racehourse, ill train and we will share the purses
• Two parties have falling out. Person who owns horse says contract is over. P says lost something from breach
of contract – lost the chance of getting a benefit
• D says horse never won a race
• P says that is bc I didn’t train
• What is problem for P here:
o Cannot with absolute precision quantify amount of damages
o Does that mean doesn’t get anything?

Reason

• Court says P lost value of chance

• Court has to look at whatever is avail as relevant evidence and will say what if P had trained horse, he lost the
chance. Court has to quantify value of lost chance.
• No defence for D to say cannot prove amount lost.
• SO court tries to figure out what its worth – doesn’t stop from awarding damages for lost chance.

Remedy 1 - Damages – Intangible Injuries / Punitive Damages

HvB TEST

Fidler v Sun Life

Facts

- Sun Life denied Fidler long term disability benefits she was entitled to- Mental distress was within
reasonable contemplation of parties when they entered into contract for disability insurance- flows directly
from contract

- SCC- damages awarded for mental distress

Reason

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 • APPLY HvB TEST: Is possibility of intangible injury in reasonable contemplation at time of contract
or was special info gibven that would indicate this damage was a possibility

Jackson v Horizon Holidays

Facts

- Jackson and family go on terrible vacation- come back and sue for damages for loss of holiday on behalf of
himself/family

- Holiday company will give money back – wonnt be happy with this! The fact that they blew the holiday
messed everything up

Decision

• Should get compensated for intangible loss – value of fact that D messed up holiday
• Such amount of money that flows naturally from brech of contract. Everyone knows that if have a bad holiday
will suffer intangible losses
• Subject to HvB

Problem

• P’s family are third party beneficiaries

• Denning: not going to compensate wife and kids for their loss bc they are third parties. But P had greater
damages bc they screwed up his family’s holidays too. Not going to say they have compensatable benefit bc
they are third party to contract and privity doesn’t allow us to do that. So increase P’s loss bc familys
vacation was messed up as well

Whiten v Pilot Insurance

Punitive damages: contracts are bargains. If breach bargain – what do lose out of breached bargain? Punitive are
so terrible that give P extra money to prevent this sort of activity from occurring int eh future.

Facts

- Family living in cottage, burns down in the middle of the winter—insurance company says it was arson,
fire marshall says it was not and was unintentional fire
- Jury awards punitive damages ($1 million)

Decision

• Court comes to conclusion that D was pressuring P to accept less than should. No basis for D to claim breach
of contract. Have to pay under the policy
• But also should pay more than policy – d acted so reprehensively that should pay more than the policy
• How to come to this decision
• In order to get punitive damages, there has to be more than breach of contract.
o What is more? Failure to perform D duty to perform in good faith (sounds like bhasin)
o Combining fact that breached insurance policy with failure to perform in good faith gives basis for us
to say they deserve more than the value of the contract

when Whiten came out, there was no Bhasin. But this was one of the situations that good faith had applied to in
past already. Now that have bhasin would say there is punitive damages. Bhasin might have expanded ability
to get punitive damages for breach of contract. If whiten says get punitive damages from breach of another
duty, bhasin may be telling us now there is a general other duty. And if there is breach and failure to perform
in good faith maybe entitled to punitive damages. AT LEAST if manner of breach is so egregious that say

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societal interest in ensuring these things don’t happen can award punitive damages. AND THERE IS DUTY
TO PERFORM IN GOOD FIATH.

SO: attach whiten to bhasim: the thought coming out of whiten now applies to broader circumstances.
Breach to perform in good faith may toll punitive damages. Court still has to come back and say this is bad
and the bad behaviour should not happen again so we create disincentive by awarding punitive damages.

Why do way pay them more? Not just bc duty of good faith, but also bc deterrent .

If tie bhasin and whiten – broadens punitive

But when do we do punitive – deterrence.

SUMARRY
Two rules

• Commercial venture (Groves); financial loss cant be worth more than value of land
• Personal (ruxley): award damages to allow to get exactly performance bargained for subject to it not being
unreasonable

Mental shock: recoverable, as is loss for something like lost vacation. Use HvB test

Puntiive damages: can have punitive damages, but there has to be a breach other than breach to contract. Mb its
breach to perform in good faith. This has been extended by Bhasin. So mb broader entitlement to punitive damages
but override is same as it is in tort – not just giving person extra money, has to be situation where there is social
disincentive for activity of the type

Remedy 1 - Damages – Mitigation

Mitigation

• P with breach of contract has obligation to act reasonably to limit amount of the loss
• Failure to do so doesn’t create penalty on P, but thought is bc haven’t acted reasonably extra damage doesn’t
come from D but from failure to act in reasonable action
• Have to take action to limit damages
o Victoria: drop boiler, still have to get out and say how would reasonable person act -could find dif
way to produce services

Payzu v Saunders
Facts: D contracted tell silk to P P’s check wasn’t received, second cheque is late bc of delay D refused to
make another delivery unless paid in cash. P refused and claims damages for breach

Reason: missed…….

Employment contracts where ppl treated badly, walk away and say breach of obligation? No obligation to return to
employer. Not reasonable

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In other circumstances unless can say there are continuous breaches

White & Carter v McGregor

Fact pattern:

• contract to make machine. Price = 10k. Profit = 1K

• person who is supposed to buy walks away and says doesn’t want machine
• erspon who is going to build machine continues to do so. When ready for delivery says have machine, pay me
10K.
• can you do that?
• generally no.
• however – if I can prove special damages (e.g. all my skilled labour might leave) – if have special interest in
perf other than simply profit and can perform without assistance of other party then I can in fact perform the
contract and demand the contract price
• have reason for not just asking for profit. Need contract to keep skilled labour. Can perform without
assistance of the other party.

Have a duty to act as reasonable person would act to limit the damages. Otherwise, the thought is the damages
doesn’t come from D breach but from own failure to act reasonably once breach occurs

But – times where acting reasonably means have contract with person in breach and have to do it and don’t have to
engage in activity that is going to have the same result.

What does act reaoanbly mean? Can continue to perform. Acting reasonably, if have no other reason for doing it
other than asking for money – that’s not mitigation. But if have good reason for doing it – this case says I can do.

Remedy 1 - Damages – Remoteness

Hadley v Baxendale

Victoria Laundry v Newman

Remedy 2 – Specific Performance

ISpecific perfoamnce = compel performance

Injuction = ask court to stop breach of negative

Won’t be awarded unless damages aren’t appropriate

when are damages not the right remedy?

• Item is unique (Falk v Gray) – damages wont be right remedy for this
• Each piece of land is considered unique – so should always get specific performance to compel performance
for contract for land (Falk v Gray)
• If other party to contract asks the court for enforcement of a benefit payable to a third party, and D says you
have no damages (bc benefit went to third party) so need to order specific performance

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Don’t order specific performance for contract for personal services. But we will order an injunction to enjoin breach
of neg stipulations unless doing so absolutely compels performance of positive stipulations. (WB v Nelson)

Co-Operative Insurance: courts won’t order specific performance if they think its too difficult to police. Court wont
order specific performance if think will have to continuously police performance of the contract. grant for
specific performance has to be done with after the first time grant it. Won’t get specific perf for something that
requires specific engagement over a period of time.

• In that case it is contract for mgmt. of business

• Court said if order specific perf there would be disputes every week and we wont engage in that sort of thing

Falke v Gray
Co-Operative Insurance Society v Argyll Stores

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