Contract Law

http://www.duhaime.org/LegalResources/Contracts/LawArticle-5/Part-1-Contract-Law-Introduction.
aspx
Part 1: Contract Law
What follows is a general summary of the common law and equity principles on contract law. The law of Quebec, contained in
the Civil Code chapter on Obligations, is very similar but, in some respects, different. For example, consideration is not required for a
binding contract in Quebec.
Readers should also be aware that significant codification and, in some cases, variation of these common law and equity principles has occurred
in individual common law provinces, mostly in sale of goods legislation (see, for example, British Columbia's Sale of Goods Act).
DUHAIME'S CONTRACT LAW
: Eight chapters of pure, unadulterated contract
law love.
1. Contract Law - Introduction & Origins
2. 3. 4. 5. 6. 7. 8.
Privity, Consent and the Reasonable Man Consideration & Deeds Offer & Acceptance Mistake, Rectification & Misrepresentation Restraint of Trade, Assignment, Novation & Frustration Interpretation of Contracts Time Limits, Breach & Remedies
Part 1: Introduction and Origins
"Withdraw contract
suppose that no one can count upon the fulfillment
of any engagement and the members of the human community are atoms that cannot effectively combine; the complex cooperation and division of employments that are the essential characteristics of modern industry cannot be introduced among such beings.
"Suppose contracts
freely made and effectively sanctioned, and the most
elaborate social organization becomes possible."

H. Sidgwick, The Elements of Politics, 1879
Contract law, like so much of English-origin law, is sometimes described in lengthy legalese diatribe, from which it is no easy task to excise a short, succinct and plain-language description. Consider, for example, the following definition we came across for "contract" in the Canadian Encyclopedic Digest:
"... an agreement free from vitiating factors such as mistake or misrepresentation and constituted by the unconditional acceptance of an
outstanding offer involving a reasonably precise set of terms between two or more contractually competent parties who intend to create mutual
and reciprocal rights and duties that may be the subject of judicial sanction if they are expressed in any required form, are free from the
taint of illegality or immorality and are not subsequently discharged by law, by agreement, by breach or by sufficient supervening
circumstances."
The great American legal scholar Fred Rodell got it right when he opined:
"The whole law of contract is based on the idea thhat men in general cannot be trusted to keep their promises and around this area of mutual
mistrust, the law lays down its principles."
Another clarification is in order. The description given in this document is indicative of the common law only. In many jurisdictions, laws have been implemented which directly
alter the common law.
For example, the United States of America has a Uniform Commercial Code which codifies much of the contract common law, but also changes much of it.
The contract common law still applies in the USA but only to the extent that it has not been changed by statute.
Similarly, in Australia, Canada, England, New Zealand, laws have been enacted to change the rules of contract common law in certain areas. For example, contract common law recognizes all contracts whether they are written or verbal.
But a Statute of Frauds has been adopted in many common law countries which requires a written document for some contracts (eg. land contracts - for more on the Statute of Frauds, see Part 7: Interpretation of Contracts). Consumer protection laws are in place in many jurisdictions as well.
The Courts also ignore contracts that are against public policy, refusing to enforce them (quod ab initio non valet in tractu temporis non convalesait ); albeit sparingly and with caution, so as to not unnecessarily interfere with freedom of contract.
Therefore, what follows is the general rule of common law which applies only to the extent that it has not been changed by specific laws. Those readers with a real legal problem should be careful to do additional research in their own jurisdiction to verify to what extent, if any, statutes have altered the following summary of contract common law. In addition, the Case Books summaries are those of the author only and may not convey doctrine which, to other readers, may have appeared important. Note also that case names may have been shortened.
Origin and relationship to tort

Contract law has come to us from common law and it is said that it is an offspring of tort law.
Both contracts and torts give rise to obligations. But tort obligations (ie. the obligation to indemnify for your negligence) are imposed by the law; it is not normally a choice one
makes.
Contracts, on the other hand, are a vehicle by which persons voluntarily create obligations upon themselves.
In some circumstances, you can contract your way out of tort liability. For example, the owner of a sporting event stadium or a concert hall may have a disclaimer on the back of your ticket (a tiny contract but a contract nonetheless) which says that they cannot be held liable for any accidents on the premises. This is an attempt to contract out of tort liability.
In addition, tort liability does not require consideration (see discussion on "consideration" in Part 3).
It should also be said that the existence of a contract does not necessarily relieve a person of liability under tort law between the contracting parties, unless the contract specifically says so.
Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147 "Where concurrent liability in tort and contract exists the plaintiff has the right to assert the cause of action that appears to be most advantageous to him in respect of any particular legal consequence" except where the effect of this "concurrent or alternative liability in tort ... would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort." Sodd Corp. v. N. Tessis, 79 D.L.R. (3d) 632 (ONCA, 1977) A trustee in bankruptcy misrepresented the value of inventory of a furniture store he was trying to sell. The purchaser relied on those statements in executing the contract of sale. The court found that there was a "pre-contractual negligent misrepresentation which induced the plaintiff to submit its tender, and the defendant's liability follows." BG Checo International Ltd. v. British Columbia Hydro, [1993] 1 S.C.R. 12 Canada's Supreme Court recognized that the parties to a contract may "preclude the possibility of suing in tort for a given wrong where there is an express term in the contract dealing with the matter.... It is always open to the parties to limit or waive the duties which the common law would impose on them for negligence." This distinction made, the court then went on to review "three situations that may arise when contract and tort are applied to the same wrong."
"Where the contract stipulates a more stringent obligation than the general law of tort would impose. In that case, the parties are hardly likely to sue in tort." "Where the contract stipulates a lower duty than that which would be presumed by the law of tort in similar circumstances. The most common means is ... a clause of exemption or exclusion of liability in the contract. The duty imposed by the law of tort can be nullified only by clear terms.... In the second class of cases, there is little point in suing in tort.... An exception might arise where the contract does not entirely negate tort liability."
"Where the duty in contract and the common law duty in tort are co-extensive. The plaintiff may seek to sue concurrently or alternatively in tort to secure some advantage peculiar to the law of tort, such as a more generous limitation period."
Promises are what contracts are all about. A contract is made up of a promise of one person to do a certain thing in exchange for a promise from another person to do another thing.
Contract law exists to make sure that people keep their promises and that if they do not, the law will enforce it upon them.
Contract law is based on several Latin legal principles, the most important of which is consensus ad idem, which means a meeting of the minds between the parties or, in other words, a clear understanding, offering and acceptance of each person's contribution. Lawyers say that it is from the moment of " consensus ad idem" that a contract is formed and may be enforced by the courts.
So a contract requires an agreement between the parties.
But not all agreements are contracts. Non-business, religious, or charitable agreements are not always contracts. The same has been said of family or household agreements (in one case, a casual arrangement between friends to share hockey tickets was held not to be a contract: Eng v. Evans, 83 Alta. L.R. (2d) 107 (ABQB, 1991). In fact, there exists a common law presumption against such agreements being contracts, although this presumption can be rebutted. Conversely, where an agreement issues from a commercial relationship, it will be presumed to be a contract.
An example of family agreements or situations not being construed as being contracts arose in Canada several decades ago. At the time, there were no laws giving common-law spouses any rights to their spouses property even if they had been living together for a long time and both spouses had contributed to the growth of those assets. Rather than construe a contract out of the situation, the Canadian courts preferred using another mechanism, that of unjust enrichment, to resolve the unfairness.
Balfour v. Balfour, [1919] 2 K.B. 571 When a husband failed to pay a promised allowance, the wife sued. The court said "There are agreements between parties which do not result in contracts within the meaning of that term in our law. The ordinary example is where two parties agree to take a walk together (or) arrangements which are made between husband and wife. They are not contracts because the parties did not intend that they should be attended by legal consequences. Each house is a domain into which the King's writ does not seek to run." Rose and Frank Co. v. J. R. Crompton and Bros. Ltd., [1923] A.C. 455 Two businessmen signed a document which read: "This arrangement is not entered into, nor is this memorandum written, as a formal or legal agreement ... but it is only a definite expression and record of the purpose and intention of the ... parties concerned to which they each honourably pledge themselves with the fullest confidence, based upon past business with each other, that it will be carried through by each of the ... parties with mutual loyalty and friendly co-operation." The deal went sour and one of the parties sued. The court: "It is quite possible for parties to come to an agreement by accepting a proposal with the result that the agreement concluded does not give rise to legal relations. The reason of this is that the parties do not intend that their agreement shall give rise to legal relations. This intention may be implied from the subject matter of the agreement, but it may also be expressed by the parties. In social and family relations such an intention is readily implied, while in business matters the opposite result would ordinarily follow."
Contract law is said to be a part of private law because it does not involve or bind the state or persons that are not parties to the contract.
Some legal commentators have described contract law as a private miniature legal system which persons establish between themselves; the contract becoming binding upon them as a sort of self-imposed law. Thus, contracts are voluntary and require an "exercise of the will of the parties".
<p >>> continued >>> Chapter 2 ... </p
<p</p
law love.
1. Contract Law - The Introduction
2. 3. 4. 5. 6. 7. 8.
Privity, Consent and the Reasonable Man Consideration & Deeds Offer & Acceptance Mistake, Rectification & Misrepresentation Restraint of Trade, Assignment, Novation & Frustration Interpretation of Contracts Time Limits, Breach & Remedies
Published: Thursday, October 19, 2006 Last updated: Wednesday, March 13, 2013 By: Lloyd Duhaime Permalink
http://www.duhaime.org/LegalResources/Contracts/LawArticle-87/Part-2-PrivityConsent-and-the-Reasonable-Man.aspx Part 2: Privity, Consent and the "Reasonable Man"
One sure sign of the personal and private nature of contracts is that no one but one of the parties can go to court and enforce the contract even if the contract was to operate to a third party's benefit.
: Eight chapters of pure, unadulterated contract law love.

1. Contract Law - The Introduction 2. Privity, Consent and the Reasonable Man 3. Consideration & Deeds 4. Offer & Acceptance 5. Mistake, Rectification & Misrepresentation 6. Restraint of Trade, Assignment, Novation & Frustration 7. Interpretation of Contracts 8. Time Limits, Breach & Remedies
Part 2: Privity, Consent and the Reasonable Man
This is known as the privity of contract rule (see also the Legal Definition of Privity of Contract).
There are exceptions to it (see also From The Case Books below):
Agents, or employees who obviously accept or offer a contract not in their own personal names but on another person's or a corporation's behalf. In these situations, the contract is said to be signed by an "agent". The person employing the agent is called the principal and the principal could sue or be sued under contracts entered into by his or her agent even though the principal did not sign the contract directly.
Another exception allowed under special laws is cheques and promissory notes (which are really just miniature contracts but contracts nonetheless). In these cases, enforcement rights are created by special laws between non-signatories as the cheque exchanges hands, from one bank to another or from one person to another.
Contracts that restrict or impact upon the use of land (eg. an easement) may be enforceable upon the next land-owner, even though they were not privy to the original contract. This is an old exception to the rule of privity of contract that is still applicable today.
The law of trusts, where a person may contract to the benefit of another, operates to convey certain rights to the third party even though, in fact, this third party was not party to a contract which created the trust.
Tweedle v. Atkinson (1 B. & S. 393, 1861)

"No stranger to the consideration can take advantage of a contract, although made for his benefit. Consideration must move from the person entitled to sue upon the contract." This is the case most commonly cited as at the origin of the rule that a person not party to a contract cannot sue under it.
Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. [1915] AC 847
Dunlop sold its tires to a wholesaler on the condition that they were sold to retailers who agreed to sell at the specified prices. Selfridge was one such retailer and they sold at prices below the specified prices. There appeared to be no privity of contract between Dunlop and Selfridge. The court also noted that there was no consideration flowing from Dunlop to Selfridge so it was not possible for Dunlop to enforce against Selfridge.
Beswick v. Beswick [1968] AC 58
A nephew bought out his uncle's coal business. One of the terms was that the nephew would pay support to the uncle's wife upon the uncle's death. When the uncle died, the nephew reneged. The widow sued. The widow was able to sue, not personally, but as executor of the uncle's estate and on his behalf (the uncle, of course, having been a party to the contract). "Where a contract is made with A for the
benefit of B, A can sue on the contract for the benefit of B and recover all that B could have recovered if the contract had been made with B himself."
Vandepitte v. Preferred Accident Insurance Co. [1933] 1 DLR 289
"A party to a contract can constitute himself a trustee for a third party of a right under the contract and thus confer such rights enforceable in equity on the third party. The trustee then can take steps to enforce performance to the beneficiary by the other contracting party as in the case of other equitable rights. The action should be in the name of the trustee. If, however, he refuses to sue, the beneficiary can sue, joining the trustee as a defendant.... The intention to constitute the trust must be positively affirmed; the intention cannot necessarily be inferred from the mere general words of the (insurance) policy."
McCannell v. Mabee McLaren Motors Ltd. [1926] 1 DLR 282
In this case, the issue was the extent to which a contract between a car manufacturer (Studebaker) and a dealer could be enforced by another dealer, with exactly the same contract with the manufacturer. The court decided that the manufacturer was "the agent of the several dealers to bring about privity of contract between them. The consideration is not moving from the company to the dealer, but from one dealer to another." The court based its opinion on the fact that the contract between the manufacturer and each dealer was exactly the same. Nor was the court swayed by the absence of an express designation to the effect that the manufacturer was the agent of the dealers. "The function which he (the manufacturer) fills in bringing the parties together and their recognition of the relationship which his efforts have created is the test of agency."
New Zealand Shipping v. A. M. Satterthwaite & Co., [1975] A.C. 154
A stevedore damaged a drill and was sued by the consignee. The stevedore objected to the liability suit because it was not taken within a year of the damage as required by the bill of lading. The court decided that the limitation in the bill of lading was available to the stevedore, that the stevedore was a party to the bill of lading: "The bill of lading brought into existence a bargain initially unilateral but capable of becoming mutual, between the shipper and the appellant, made through the carrier as agent. This became a full contract when the appellant performed services by discharging the goods. The performance of these services for the benefit of the appellant should have the benefit of the exemptions and limitations contained in the bill of lading."
London Drugs Ltd. v. Kuehne & Nagel International Ltd. [1992] 3 SCR 299
A transformer belonging to London Drugs was stored by the defendant, a storage company. Their contract had a liability clause limited to $40. When two employees of the storage company, through their negligence, damaged the transformer to the tune of $33,955 of damages, London Drugs sued them personally, for the whole amount. The employees sought to invoke the liability limitation clause. Canada's Supreme Court recognized that the privity of contract rule prevented beneficiaries from enforcing a contract to which they were not a party. To this, the court made an outright exception in the case of employees. "An employer such as Kuehne & Nagel performs its contractual obligations with a party such as the appellants through its employees. As far as contractual obligations are concerned, there is an identity of interest between employer and employee." The court then set two conditions allowing "employees (to) be entitled to benefit from a limitation of liability clause found in a contract between their employer and the plaintiff: ... (1) the limitation of liability clause must, either expressly or impliedly, extend its benefit to the employee(s) seeking to rely on it; and (2) the employee(s) seeking the benefit of the limitation of liability clause must have been acting in the course of their employment and must have been performing the very services provided for in the contract between their employer and the plaintiff when the loss occurred."
Beware the "reasonable man"!
Another important feature of the law of contract is that where there is a dispute as to whether or not a contract exists, the courts will assess the situation not from the perspective of the parties, but from the perspective of a reasonable man. In other words, the judge will want to decide if, given all the circumstances, a reasonable man would believe there to be a contract. An 1871 English case, Smith v. Hughes, (1871) 6 QB 597, summarized this principle as follows:
"If whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to terms proposed by the other party and that other party, upon that belief, enters into a contract with him, the man thus conducting himself would be equally bound as if he had agreed to the other person's terms."
Theoretically, then, both parties could deny having entered into a contract but if a third party brought them to court and asked the court if there was a contract, the judge could decide that there was one based on this objective standard.
In the real world, mere conduct will rarely cause a judge to "make" a contract between the parties. This is particularly true if some type of written document has been prepared or exchanged between the parties. Rather than invent a contract, the judges would then take any written document between the parties and try to make sense of it given it's wording, rather than suppose terms. A 1978 Canadian case ( Marquest Industries Ltd. v. Willows Poultry Farms Ltd., 67 DLR (2d) 753, 1967) sets out the principle as follows:
"... if the real intention of the parties can be collected from the language within the four corners of the instrument, the Court must give effect to such intention by supplying anything necessarily to be inferred and rejecting whatever is repugnant to such real intention so ascertained."
Furthermore, where a key element of the contract has not been negotiated between the parties, then it makes more sense to conclude that there was no contract rather than a court trying to fill in such a huge blank. Such a situation might be an "agreement in principle," but not a contract (see also Interpretation of Contracts below). Letters of intent are not normally held to be binding.
R. v. Cae Industries Ltd. , [1986] 1 FC 129
A memorandum signed by three federal ministers was held to be a contract even though it was somewhat vague. For example, the contract provided that the government would make "best efforts". The court repeated the principle that the onus of proof is on the person who asserts that no legal effect is intended, and the onus is a heavy one and that the courts "should make every effort to find a meaning in the words actually used by the parties in deciding whether an enforceable contract exists."
Nicolene Ltd. v. Simmonds [1953] 1 QB 543
A clause to the effect that "the usual conditions of acceptance apply" was held to be so vague and uncertain as to be incapable of any precise meaning. The court then severed the clause "but the contract, nevertheless, remains good."
Hillas and Co. Ltd. v. Arcos Ltd. (1932)
If there are essential terms of a contract of sale undetermined and therefore to be determined by a subsequent contract, there is no enforceable contract. An agreement to make an agreement is not enforceable. But if the uncertain parts can be construed from the context of the agreement, the contract will be binding.
May and Butcher v. R. (1929, reported at [1934] 2 KB 17
"An agreement between two parties to enter into an agreement in which some critical part of the contract matter (eg. price) is left undetermined is no contract at all. It is of course perfectly possible for two people to contract that they will sign a document which contains all the relevant terms, but it is not open to them to agree that they will in future agree upon a matter which is vital to the arrangement between them and has not yet been determined."
Foley v. Classique Coaches Ltd. [1934] 2 KB 1
The issue of price was omitted from a contract that nevertheless ran for three years without a hitch. When the defendants tried to buy petrol elsewhere, basing their argument that the exclusivity contract was void for lack of agreement on price, the court disagreed. Each case is decided on its own merits and for three years, both parties believed they had a contract. The court implied into the contract a clause to the effect that the petrol was to be of reasonable price and quality.
For a building contract, the absence of agreement on price or a method by which the price is to be calculated (not dependent on
Courtney and Fairbairn Ltd. v. Tolaini Brothers [1975] 1 WLR 297
the negotiations of the two parties themselves) means the absence of an essential term and there is no contract. A contract to negotiate, like a contract to enter into a contract, is not a contract known to law.
An agreement to purchase property set up a system for determining the price "not being less than 12,000" involving
Sudbrook Trading Estate v. Eggleton [1983] 1 AC 444
consultation with assessors appointed by each party. The court decided that this was a valid contract. "The parties intended that the lessee should pay a fair and reasonable price to be determined as at the date when he exercised the option."
DeLaval Co. v. Bloomfield [1938] 3 DLR 405
The contract provided for a total payment of $400, "$200 on November 1, 1937 balance to be arranged." The court rejected the defence that the contract was void for lack of certainty. "In the present case, it is not the price but the mode of payment only that is held over."
A tenant and landlord had a renewal contract that provided for a rent of "market rental prevailing ... as mutually agreed. If the Landlord and Empress Towers Ltd. v. Bank of Nova Scotia, 73 DLR (4th) 400 the Tenant do not agree upon the renewal rental within 2 months ... then this agreement may be terminated."
(1991)
The landlord submitted an outrageous increase including a sum payable of $15,000. The court was asked if the renewal clause was void for uncertainty and decided that it was not. The court decided that the contract used the words "mutually agreed (which) carries with it an implied term that the landlord will negotiate in good faith .... and ... that agreement on a market rental will not be unreasonably withheld."
Meyer v. Davies (1989) deal struck by phone
In this British Columbia case, two lawyers had exchanged correspondence related to the sale of a law practice. One of the letters had concluded: "please call me ... so that we can arrange to draw up a formal agreement." During a subsequent phone call, the lawyers reviewed and agreed on outstanding issues. Offering to complete and courier the documents for immediate signature before the vendor left for vacations, the vendor said "Don't worry about it ... deal with it when I get back." The court decided that at this moment "a bargain was struck." Quoting precedents, the case states: "if the documents ... relied on as constituting a contract contemplate ... a further contract between the parties, it is a question of construction whether the execution of the further contract is a condition or term of the bargain, or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. In the former case there is no enforceable contract either because the condition is unfulfilled or because the law does not recognize a contract to enter into a contract. In the latter case there is a binding contract and the reference to the more formal document may be ignored."
Knowlton Realty Ltd. v. Wyder, 23 DLR (3d) 69 (1972)
"If we are successful in negotiating a lease on your behalf on terms acceptable to you, we will be entitled to a commission." But the lease was never fully executed, just an interim agreement "subject to execution of the lease documents." Where the words similar to "subject to contract" appear, they indicate a conditional offer or acceptance only. The court decided that "the event on which commission became payable never occurred."
Many provinces have sale of goods legislation which provides that a contract for the sale of goods is valid even though no price has been agreed, in which case "the buyer shall pay a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case." These provincial laws also deal with problems associated with third-party valuations and warranties which are implied in sale of goods cases such as "quiet possession", "free from any charge or encumbrance" and, where representations have been made, that the goods are "durable for a reasonable period of time."
BC's Sale of Goods Act, at 12, as of 2007, provided that the price in a contract of sale may be fixed by the contract, or may be left to be fixed in manner thereby agreed, or may be determined by the course of dealing between the parties. Where the price is not determined ... the buyer must pay a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case.
Consent
As noted above, a contract involves a "meeting of the minds". For this, all parties must be capable of consent.
It is a common feature of corporation legislation to give companies the ability to contract, as long as their contracts are within the scope of their stated purpose. To get around this, many companies make sure their incorporation documents are very generally worded so as to prevent any restriction on their ability to contract.
With children, contracts can be voided at their request if they are not beneficial to the child. One exception exists and that is a contract for necessaries of life (see, also, Contracts With Children, for more detail).
The rule was stated in a 1925 case, Miller v. Smith & Co., in which the judge said an " infant may bind himself to pay for his necessary meat, drink, clothing, medicines and likewise for his teaching or instruction."
Remember also that if a minor ratifies a contract upon reaching the age of majority, he or she is then bound to it.
The situation is different with regards to a person judicially declared to be mentally incompetent. Here, the contract is voidable at the option of the incompetent person if the other party knew about the mental incompetency or ought to have known under the circumstances. Again, an exception is made for contracts for the delivery of necessaries of life for which even a mentally incompetent person would be liable.
A totally drunk person also lacks the ability to consent to a contract and has the option of voiding a contract signed while intoxicated, providing it is done at the earliest opportunity upon sobriety.
"Capacity to buy and sell is regulated by the general law concerning capacity to contract, and to transfer and acquire property; except that
where necessaries are sold and delivered to a person who by reason of mental incapacity or drunkenness is incompetent to contract, he must pay
a reasonable price for them. Necessaries ... means goods suitable to the condition in life of the person, and to his actual requirements at the time of the sale and delivery." {section 7 of B.C.'s Sale of Goods Act.
A contract accepted under threat of physical, mental or economic harm, may be voided by the party so threatened. Acceptance must be freely given. The same is true for contracts entered into between persons in a relationship of power imbalance. The law calls this undue influence and it will be presumed in some cases such as parent-child, trustee-beneficiary or doctor-patient contracts.
The case law offers two varieties of undue influence.
Duress is a common law doctrine and, technically, includes the element of compulsion. Contracts executed under duress are voidable.
Undue influence per se is an equity remedy and involves the "unconscientious use by one person of power possessed by him over another in order to induce the other to enter a contract.
Duress falling short of the common law requirements may also constitute undue influence in equity ( Brooks v. Alker 1975 DLR 577).
Gordon v. Roebuck, 92 DLR (4th) 670 (1992)
It was suggested that a contract between lawyers be set aside on the grounds of economic duress. The court assessed the facts based on the four tests first put forward in the Pao On v. Lau Yiu case (also summarized in page 3 of Duhaime's Contract Law). Did the party claiming economic duress protest? Was there an alternative course open to him? Was he independently advised? After entering the contract, did he take steps to avoid it? The judge concluded that there was economic duress but then went on to say that "the appellant, in claiming unjustifiable economic duress, had the onus of proving that (the defendant) was not entitled to the amounts required under the impugned agreement." This was a matter of evidence and the onus having not been satisfied, "the agreement was not one which could be set aside as one executed under unjustifiable economic duress."
The Supreme Court of Canada reviewed a case from Alberta where a trust was set up by a "manic depressive and immature" woman. She Geffen v. Goodman Estate, [1991] 2 SCR 353 went to see a lawyer recommended by her brothers to set up a trust. After her death, her son was not happy with the trust and tried to have it set it aside arguing that his mother was unduly influenced by either the brothers or the lawyer. The Supreme Court refused to buy the argument and allowed the trust to stand. The Court was unable to agree on some fundamental principles but the following is what Justice Wilson came up with: a presumption of undue influence can arise in certain relationships; each relationship must be looked at individually; the existence of confidentiality between the parties is not a absolute requirement; a presumption of undue influence arises between parent/child and solicitor/client; in commercial transactions, undue disadvantage or benefit must also be shown; that once the presumption exists, it must be rebutted with evidence that the transaction was entered into "as a result of his own full, free and informed thought."
Justice La Forest declined to endorse Wilson's "commercial transaction" dicta, saying that this case did not even involve a commercial transaction. La Forest noted that the deceased had a "deep-rooted poor relationship" with her brothers which tended to negate the suggestion of undue influence.
Another category of contract situations where consent seems to be fatally affected are what the law calls unconscionable contracts.
This is a slippery area of the law which suffers from a lack of judicial unanimity. In essence, the theory is that the court will rescind contracts which are totally unfair and, while just short of being fraudulent, are considered unconscionable.
Although legal academics try to do so, it is difficult to intellectually differentiate this from the theory of undue influence discussed above because, in both cases, it deals with a power relationship imbalance and the taking advantage of this imbalance.
Also, opening up the flood-gates of judicial review of contracts on the grounds of unconscionability could result in a plethora of contracts being brought to court as every person who had improperly negotiated a contract would seek judicial relief.
Luckily, many provinces of Canada have enacted consumer protection legislation which allows the cancellation of consumer contracts within a certain time. This legislation was designed to cover most of the situations that the contract common law claim of unconscionability might have alleviated.
Morrison v. Coast Finance Ltd., 55 DLR (2d) 710 (1965)
A 79-year old widow was induced into mortgaging her home to allow two men to buy cars. "Undue influence attacks the sufficiency of consent ... that a bargain is unconscionable invokes relief against an unfair advantage gained by an unconscientious use of power by a stronger party against the weaker. On such a claim, the material ingredients are proof of inequality in the position of the parties arising out of the ignorance, need or distress of the weaker which left him in the power of the stronger, and proof of substantial unfairness of the bargain obtained by the stronger. On proof of these circumstances, it creates a presumption of fraud which the stronger must repel by proving that the bargain was fair, just and reasonable." The court held the finance company responsible because they "undertook the
preparation of the documents" and took "advantage of her obvious ignorance and inexperience to further their respective business" raising a presumption of fraud. The mortgage was set aside.
Marshall v. Canadian Permanent Trust Company, 69 DLR (2d) 260 (1968)
According to doctors, John Walsh was "definitely not capable of transacting business" having just suffered a stroke. This did not stop Marshall from seeking and obtaining his signature on an offer to purchase Walsh's land. Two months later, Walsh's affairs were formally turned over to the administration of Canadian Permanent Trust, appointed under provincial mentally incapacitated persons legislation. The trust company refused to close the deal arguing that it was unconscionable. The court said there were two criteria to be met: "(1) that Walsh was incapable of protecting his interests; (2) that it was an improvident transaction for Walsh. With respect to (1), it is not material whether Marshall was aware of Walsh's incapacity. With respect to (2), the onus rests with the plaintiff (Marshall) to show that the price given for the land corresponded to its fair value." The plaintiff succeeded on both accounts and the contract was rescinded.
Lloyds Bank v. Bundy [1975] QB 326
In this British case, an old farmer mortgaged his farm to the hilt to help out his son and soon enough, the bank moved in to foreclose. The court acknowledged that "in the vast majority of cases a customer who signs a bank guarantee or a charge cannot get out of it. There are many hard cases which are caught by this rule.... Yet there are exceptions.... where the parties have not met on equal terms." The court went on to mention that cases of duress of goods are voidable; when a party is taken advantage of because of a desperate need of the goods. And then there was the "unconscionable transaction ... when a man comes into property - and then being in urgent need - another gives him ready cash for it, greatly below its true value.... Even though there is no evidence of fraud or misrepresentation, nevertheless the transaction will be set aside." The third category is undue influence where a relationship gives some advantage. Then there are the cases of undue pressure and the salvage agreements (the latter when a vessel is in danger of sinking .. and the rescuer takes advantage of his position). The court suggested that all these instances "run on a single thread: inequality of bargaining power" and that "undue" does not mean wrongdoing nor "that every transaction will be saved by independent advice but the absence of it may be fatal." The court then concluded that the bank had a relationship of confidence with the farmer, a conflict of interest and by failing to suggest that he seek independent advice, the court disallowed the foreclosure action.
Harry v. Kreutziger , 95 DLR (3d) 231 (1978)
A fishing boat was sold in a high pressured bid by the defendant. When "a claim is made that a bargain is unconscionable, it must be shown for success that there was inequality in the position of the parties due to ignorance, need or distress of the weaker, which would leave him in the power of the stronger, coupled with proof of substantial unfairness in the bargain. When this has been shown, a presumption of fraud is raised, and the stronger must show, in order to preserve his bargain, that it was fair and reasonable." The court then proceeded to rescind the contract because the "appellant was so dominated and overborne by the respondent that he was ... within the power of the respondent in these dealings." Another judge hearing the case agreed but for slightly different reasons, invoking "community standards of commercial morality." Both principles prosper in Canadian case law.
>>> continued >>> Chapter 3 ...
DUHAIME'S CONTRACT LAW: Eight chapters of pure, unadulterated contract law love. 1. Contract Law - The Introduction 2. Privity, Consent and the Reasonable Man 3. Consideration & Deeds 4. Offer & Acceptance 5. Mistake, Rectification & Misrepresentation 6. Restraint of Trade, Assignment, Novation & Frustration 7. Interpretation of Contracts 8. Time Limits, Breach & Remedies
Published: Monday, May 07, 2007 Last updated: Wednesday, January 18, 2012 By: Lloyd Duhaime Permalink
http://www.duhaime.org/LegalResources/Contracts/LawArticle-88/Part-3-ConsiderationDeeds.aspx Part 3: Consideration & Deeds

One of the other important elements of contract law, which is difficult for the non-lawyer to understand, is the requirement of consideration.
DUHAIME'S CONTRACT LAW : Eight chapters of pure, unadulterated contract law love.
Consideration
One English case, Currie v. Misa, 10 Ex.D. 153 91875), offered a definition of consideration which is still used:
".. some right, interest, profit or benefit accruing to the one party or some forbearance, detriment, loss or responsibility given, suffered or
undertaken by the other."
As such, a contract differs from a gift.
This also explains why you sometimes hear of very expensive objects sold for $1; which is done to ensure that what is essentially a gift, comes with the legal protection of contract law.
Under contract law, there is no contract if there is no consideration.
But consideration does not necessarily have to be quantified or quantifiable in monetary terms. Any discernible detriment to one of the parties could be that party's consideration.
In one case, Hubbs v. Black, 46 D.L.R. 583 (ONCA, 1918), agreeing not to take a certain plot in a cemetery was considered to be sufficient consideration.
Giving a right to sue on a bona fide claim has been deemed to be adequate consideration.
Also, the courts don't really care about the adequacy of the consideration. This is the business of the parties and not a matter for judicial interference.
Some other notes on consideration:
The consideration must be reciprocal, each party offering consideration.
Motive is different from consideration. Your motive for contracting is your personal reason for contracting. It may not coincide with the consideration you are giving, or receiving, as part of the contract.
If a consideration is already "spent" in a prior contract, a new contract using that same consideration would be valid. In the words of one law professor (The Law of Contract in Canada , G. Fridman): "where a contractual duty already exists, it may be possible...to vary the original agreement without necessarily establishing a whole new contract with fresh consideration on both sides." In fact, refreshing a commitment to do something for a third party is consideration under common law.
The consideration cannot be something or some act which is illegal, immoral or contrary to public policy (see also the section on Restraint of Trade contracts ). If a certain act is punishable by some law, then it is "illegal". An example would be a work contract to an unlicensed electrician.
Eastwood v. Kenyon, 11 Ad. & E.
Past consideration is not enough to create a valid contract.
In this case, the past services (consideration) were done at the request of the subsequent promisor and it was implicit that there Lampleigh v. Brathwait , Hob. 195 (1615) Thomas v. Thomas, [1842] 2 Q.B. 851; also at 114 E.R. 330
The court reviewed a verbal promise made by a dying man, which ran contrary to his will. The executors gave effect to those wishes by putting the spouse of the deceased (the plaintiff) in possession of the home. But was there a valid consideration to make the promise enforceable?
would be payment. There was a valid contract.
motive is different
No, said the court:
"A pious respect for the wishes of the testator does not in any way move from the plaintiff. Motive is not the same thing with consideration. Consideration means something which is of some value in the eye of the law, moving from the plaintiff."
Stott v. Merit Investment Corp., 48 DLR (4th) 288 (1988)
forbearance as consideration
This case involved a stock broker that made a professional error and then signed a document promising to pay his employer back for the damages sustained because of that mistake.
The Ontario Court of Appeal upheld the agreement finding that there was an implied agreement on the part of the employer to forbear (i.e. not to sue the stock broker) for as long as he made regular payments towards paying back the loss sustained.
This case reviewed how forbearance can be valid consideration of a contract: the claim must actually exist and constitute a real claim of action, being neither nor frivolous or vexatious; a serious claim, honestly made. actually exist and constitute a real claim of action, being neither nor frivolous or vexatious; a serious claim, honestly made. "But even if the claim is doubtful, forbearance to enforce it can be good consideration. And he same rule applies even if the claim is clearly invalid in law so long as it was in good faith and reasonably believed to be valid by the party forbearing."
Pao On v. Lau Yiu Long, [1980] AC 614
An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration: (1) The act must have been done at the promisor's request; (2) the parties must have understood that the act was to be remunerated either by money or some other benefit; and (3) the money or other benefit, must have been legally enforceable had it been promised in advance. This case was also important because it refused to allow arguments of a "dominating bargaining relationship (undue influence or economic duress) where businessmen are negotiating at arm's length.... There was commercial pressure but no coercion." (Note: but see the D. & C. Builders Ltd. v. Rees case below.)
old for new ... not!
Gilbert Steel Ltd. v. University Const. Ltd., 36 DLR (3d) 496 (ONCA, 1976)
In this case, a verbal agreement, midway through a construction project, to pay more for steel than what was originally agreed upon, was ruled unenforceable for want of consideration.
The court rejected the argument that the new agreement on price replaced the original contract (which, following Morris v. Baron & Co. old for new ... not! 1918 AC 1, could have stood as valid consideration) as the evidence did not support the contention that the parties intended to rescind the original contract.
"Consideration for the oral agreement is not to be found in a mutual agreement to abandon the earlier written contract and assume the obligations under the new oral one."
Williams v. Roffey Bros. & Nicholls (Contractors) Ltd., [1990] 1 All ER 512
A carpenter stopped doing his work midway through a construction project. The contractors agreed to give him more money if he honoured his contract. This was valid consideration. The case seems to contradict the principle that fulfilling an existing legal duty is not valid consideration with the following 6-prong test: 1. If Adam has entered into a contract to do work for, or to supply goods or services, to Bob, in return for $100 by Bob and ... 2. 3. 4. 5. At some stage before Adam has completely performed his obligations under the contract, Bob has reason to doubt whether Adam will, or will be able to, complete his side of the bargain and Bob thereupon promises Adam an additional $25 payment in return for Adam's promise to perform his contractual obligations on time and As a result of giving his promise, Bob obtains in practice a benefit, or obviates a disbenefit, and Bob's promise of the extra $25 is not given as a result of economic duress or fraud on the part of Adam, then
old for new ... ok!
6.
The benefit to Bob is capable of being consideration for Bob's promise, so that the promise will be legally binding.
Foakes v. Beer, 9 AC 605 (1884)
Beer held a judgment for 2,000 against Foakes and they agreed that he would pay 500 down and "to give him time in which to pay such judgment," the rest in instalments. Meanwhile, Beer agreed she "will not take any proceedings whatever on the said judgment." When the debt was paid in full, Beer sued for interest.
get your cake and eat it too The court had to decide if the agreement was enforceable against the respondent, for which there had to be found valid consideration.
Accord and satisfaction is when one party buys himself out of a contractual obligation and this "satisfaction" becomes valid consideration for the new contract. In this case, "there could be no complete satisfaction so long as any future instalments remained payable."
The court added that "the payment of a lesser sum in satisfaction of a greater cannot be satisfaction for the whole." The court noted that if the agreement had of been under seal, the result would have been different. Note: Many Canadian provinces have adopted legislation to circumvent the Foakes v. Beer precedent. For example, the 1996 version of the relevant British Columbia law stated: "Part performance of an obligation either before or after a breach of it, when expressly accepted by the creditor in satisfaction or rendered in pursuance of an agreement for that purpose, though without any new consideration, shall be held to extinguish the obligation." The Central London case, below, may have extinguished the effect of this case as a precedent.
Central London Property Trust Ltd. v. High Trees House Ltd., [1947] KB 130
A landlord agreed to significantly reduced rent because of a high vacancy rate, in apparent amendment of a contract under seal.
The judge writing the decision proposed that the Foakes v. Beer doctrine no longer applied in contemporary law and that "a promise to accept a smaller sum in discharge of a larger sum, if acted upon, is binding notwithstanding the absence of consideration."
no to Foakes In this case, the evidence suggested that the reduction was only for the duration of low vacancy:
"When a creditor and debtor enter on a course of negotiation
, which leads the
debtor to suppose that, on payment of the lesser sum, the creditor will not enforce payment of the balance, and on the faith thereof the debtor pays
the lesser sum and the creditor accepts it as satisfaction: then the creditor will not be allowed to enforce payment of the balance when it would be inequitable to do so."
D. & C. Builders Ltd. v. Rees, [1965] All ER 837
But equity has intervened and disallowed such action under certain conditions (see the Central London Property Trust case above). equitable accord & satisfaction Under the common law, a creditor who accepts partial payment as settlement for a debt can still go after the debtor for the balance.
"But we must note the qualification. The creditor is barred from his legal rights only when it would be
inequitable for him to insist on them. Where there has been a true accord, under which the creditor voluntarily
agrees to accept a lesser sum in satisfaction, and the debtor acts on that accord by paying the lesser sum and
the creditor accepts it, then it is inequitable for the creditor afterwards to insist on the balance."
The judge went on to find that there was "undue pressure" and "intimidation" in the case so that there was no true accord.
John Burrows Ltd. v. Subsurface Surveys Ltd., [1968] SCR 607
A debtor was consistently late in his payments even though the contract allowed the creditor to sue for the entire amount if payments were late. When the personal relationship between the two parties soured, the creditor sued. The debtor argued equitable estoppel.
being nice is not estoppel
"(Equitable estoppel) can not be invoked unless there is some kind of evidence that one of the parties entered into a course of negotiation which had the effect of leading the other to suppose that the strict rights under the contract would not be enforced. This implies that there must be evidence from which it can be inferred that the first party intended that the legal relations created by the contract would be altered as a result of the negotiations. It is not enough to show that one party has taken advantage of indulgences granted to him by the other."
Combe v. Combe, [1951] 1 All ER 767
A promised series of maintenance payments were never made. Seven years later, the wife sued for arrears.
The court reiterated the principle of the High Trees case (see above) as follows: where one party has, by his words or conduct, made to the promissory estoppel and forbearance other a promise or assurance which was intended to affect the legal relations between them and to be acted on accordingly, then, once the other party has taken him at his word and acted on it, the one who gave the promise or assurance cannot afterwards be allowed to revert to the previous legal relations as if no such promise or assurance had been made by him. He must accept their legal relations subject to the qualification which he himself has so introduced, even though it is not supported in point of law by any consideration but only by his word. But the principle never stands alone as giving a cause of action in itself, it can never do away with the necessity of consideration.
In this case, the court could not find any consideration for the promise to pay maintenance. While it may be true that the wife did forbear from suing the husband on the arrears for seven years, this forbearance was not at the request of the husband.
Foot v. Rawlings, [1963] SCR 197
new payment, new contract
"The giving of a ... series of post-dated

cheques
constituted good consideration so long as the
for the agreement by the respondent to forbear from taking action on the
promissory notes
appellant continued to deliver the cheques and the same were paid by the bank on presentation."
The court distinguished this case from others which rejected the payment of a lesser amount due as valid consideration for a new contract because cheques were different from money.
"If you substitute for a sum of money a piece of paper, or a stick of sealing-wax, it is different, and the
bargain may be carried out in its full integrity.
"A man may give in satisfaction of a debt of $100, a horse of the value of $5, but not $5. If for money you give
a negotiable security, you pay in a different way."
Saskatchewan River Bungalows Ltd. v. Maritime Assurance Co., [1994] 2 SCR 490
A cheque lost in the mail caused an insurance policy to be canceled.
The postal rule was excepted because of an express term in the policy that required that payments be made at Maritime's head office. But Maritime represented to the appellants that payments could be made by mail and in fact encouraged this practice. For this reason,
waiver/estoppel
"Maritime was estopped
from terminating the policy for
nonpayment of the premium until such time as the appellants were notified that payment had not been received and that it was required forthwith. Thereafter, the appellants had a reasonable time within which to effect payment."
Because the appellants took a further three months after being so notified, the court thought that this was not reasonable.
W. J. Alan & Co. v. El Nasr Export & Import Co., [1972] 2 All ER 127
Although the contract called for payment in Kenyan currency, the vendor accepted a letter of credit in U.K. currency (sterling) and payments in sterling. When the UK currency was devalued, the vendors invoiced for the difference based on the different exchange rates.
waiver
"The sellers ... seek to rely on the analogy of a sale of goods contract where the goods are deliverable by
instalments and one instalment falls short. The buyer is not obliged ... to treat the contract as repudiated.
That is not ... a true analogy. The relevant transaction here is not one by instalments. It is a once-for-all
transaction."
Another judge (Lord Denning, pictured) came to the same conclusion adding:
"One who waives his strict rights cannot afterwards insist on them. His strict rights are at any rate suspended
so long as the waiver lasts. He may on occasion be able to revert to his strict legal rights for the future by
giving reasonable notice in that behalf, or otherwise making it plain by his conduct that he will thereafter
insist on them. But there have been cases where no withdrawal is possible. It may be too late to withdraw; or it
cannot be done without injustice to the other party. Instances of these principles are ready to hand in
contracts for the sale of goods: a seller may, by requesting delivery, lead the seller to believe that he is not
insisting on the contractual time for delivery; a seller may, by his conduct, lead the buyer to believe that he
will not insist on a confirmed letter of credit but will accept an unconfirmed one instead; a seller may accept
a less sum for his goods than the contractual price, thus inducing him to believe that he will not enforce
payment on the balance. In none of these cases does the party who acts on the belief suffer any detriment. He
has conducted his affairs on the basis that he has that benefit and it would not be equitable now to deprive him
of it."
Socit Italo-Belge v. Palm and Vegetable Oils (Malaysia) , [1982] 1 All ER 19
Sellers of palm oil failed for over a month to submit a "declaration of sailing." When they finally did, the buyers did not initially object and replied asking for more documents. The buyers then sent the declaration down the line to their own sub-purchasers. When the subpurchasers rejected the overdue declaration, the buyers tried to reject it as well. The seller pleaded equitable estoppel. The court allowed the rejection of the declaration and made two statements of principle on equitable estoppel.
equitable estoppel The person having made the representation which gives rise to the claim of estoppel "will not be allowed to enforce his rights where it would be inequitable, having regard to the dealings which have thus far taken place between the parties. To establish "in equity," it is not necessary to show detriment."
But this does not mean, according to the court, that in every case in which the recipient of the representation has acted or failed to act, relying on the representation, it will then be inequitable for the person making the representation to enforce his rights. The nature of the action, or inaction, may be insufficient to give rise to the equity. The Court added that it could see anything which would render it inequitable for the buyers thereafter to enforce their legal right to reject the documents.
Petridis v. Shabinsky , 132 DLR (3d) 430 (1982)

A landlord allowed continued occupancy after the lease expired while negotiations continued with the tenant. When negotiations failed, a plea of promissory estoppel was raised by the tenant. But the judge rejected that argument saying that promissory estoppel had to have a estoppel/waiver legal basis and, here, the basis would have been the option to renew, said option having expired at the end of the lease. But the court then found that the landlord had waived, by his actions, his option to terminate the lease and, invoking equity, ordered the lease renewed.
Robichaud v. Caisse Populaire de Pokemouche Lte., 69 DLR (4th) 589 (NBCA, 1990)
sword/shield, doesn't matter
The New Brunswick judge reviewed the principle that "estoppel could be used as a sword but not as a shield" which meant that it could be used by a defendant but not as a plaintiff.
Quoting a well-known Canadian contract law expert (Waddams), the judgment said: "it seems irrational to make enforceability depend on the chance of whether the promisee is plaintiff or defendant." The judge concluded: "if the principle of promissory estoppel could be invoked successfully as grounds of defence ... then ... to refuse its application on the pretext that it is not invoked as grounds of defence is, in my opinion, untenable and contrary to the principles of equity."
Waltons Stores v. Maher, [1988] HCA 7
The parties were negotiating a lease when on representations to the effect that "we shall let you know tomorrow if any agreements are not agreed to", the tenant began to demolish the old building on the leased premises and erect a new one.
promissory estoppel
When the landlord tried then to back out, the court was faced with estoppel by representation arguments pressed by the tenant. The court opined that it was unconscionable for the landlord to watch the demolition and partial construction take place without advising the tenant that their position was not yet decided. "The doctrine of promissory estoppel ... extends to the enforcement of voluntary promises on the footing that a departure from the basic assumptions underlying the transaction between the parties must be unconscionable."
Contracts Under Seal

There is one exception to the requirement of consideration and that is a deed, which is a contract "under seal" or a "specialty contract".
In centuries past, persons contracting would drip a drop of hot wax on the bottom of the contract and press a family ring into the wax, thereby signifying consent to the terms of the document.
Nowadays, deeds are used mostly - if not an outright statutory requirement - in contracts that involve real estate.
In legal theory, if a contract is a deed, then no consideration is required. If charitable donations are made under seal, they are valid contracts even though there is no valid consideration.
Above, it is said that only a party to a contract can sue under it's terms, except for where agents have been employed, this later state of affairs allowing the principal to assume legal rights under the contract.
Not so with contracts under seal. Only signatories to a contract under seal can seek to enforce it even if these signatories were agents. This is a peculiar rule of law. Also, the time limits within which you can enforce contracts (see Time Limits) under seal may be different, depending on which provincial laws govern the contract.
Considering the confused state of common law's contract law component, and the extent of contemporary commercial transactions, the special status of contracts under seal is now so far outdated that it verges on ludicrous.
Judges squirm when faced with arguments based on deeds or "under seal" and have since added that the absence of a seal is not fatal as long as the intention to seal was clear!
There is building pressure in legal circles to eliminate the requirement for consideration entirely from the list of contract requisites (as is the case with civil law).
In the meantime, any seal will do. Many contracts do have red seals, dots or "made under seal" text boxes next to the signature block to show that the contract is under seal.
If this writer may allow himself a political statement: Halleluhah!
: Eight chapters of pure, unadulterated contract law love.

1.
Contract Law - The Introduction
2. Privity, Consent and the Reasonable Man 3. Consideration & Deeds 4. Offer & Acceptance 5. Mistake, Rectification & Misrepresentation 6. Restraint of Trade, Assignment, Novation & Frustration 7. Interpretation of Contracts 8. Time Limits, Breach & Remedies
http://www.duhaime.org/LegalResources/contracts/lawarticle-89/part-4-offeracceptance.aspx
Part 4: Offer & Acceptance
law love.
OFFER
Each contract requires an offer and acceptance of that offer.
"... to constitute a contract, there must be an offer by one person to another and an acceptance of that offer by the person to whom it is
made. A mere statement of a person's intention, or a declaration of his willingness to enter into negotiations is not an offer and cannot be
accepted so as to form a valid contract" {Acme Grain Co. v. Wenaus, [1917] 36 DLR 347 (Sask.)}
An offer must be a clear, unequivocal and direct approach to another party to contract. Lawyers speak of certainty of terms as a condition of a valid offer.
For this reason, advertisements, catalogues or store flyers are not offers. In an advertisement, a pivotal term is uncertain: e.g., quantity.
Nor is a "for sale" sign on a used car.
The law calls these invitations to treat; essentially invitations to the general public to make an offer on a particular item. But, even here, there have been exceptions. For example, in a 1856 case, an advertisement of train rates was held to be a valid offer. Much depends on the wording of the "invitation".
An offer, once made, can be revoked before acceptance unless it is under seal. An offer can also expire if a deadline for acceptance passes.
If there is no specified deadline, then the offer expires in a "reasonable time", depending on the subject-matter of the contract.
For perishable goods such as food, a "reasonable time" would likely be a matter of days. The "reasonable time" would be longer where the subject matter of the contract is a building.
Blair v. Western Mutual Benefit Association, [1972] 4 WWR 284 (BCCA)
A corporate resolution is not an offer unless efforts are made to communicate it.
Canadian Dyers Association v. Burton, 47 OLR 259 (1920)
price quotes are not offers
A contract requires an offer and an acceptance.
Are price quotations offers?
Each case should be decided on the facts.
The question is one of intention.
"We quote you" has been held not to be an offer but "shall be happy to have an order from you to which we will give prompt attention" was held to be an offer.
"In each case of this type, it is a question to be determined upon the language used, and in light of the
circumstances in which it is used, whether what is said by the vendor is a mere quotation of price or in truth
an offer to sell."
Pharmaceuticals Society of Great Britain v. Boots Cash Chemists, [1952] 2 All ER 456
"In the case of an ordinary shop, although goods are displayed and it is intended that customers should go ahead
and choose what they want, the contract is not completed until, the customer having indicated the articles which
he needs, the shopkeeper, or someone on his behalf, accepts that offer. Then the contract is completed."
R. v. Dawood, 27 CCC (2d) 300 (1976)
A woman falsified a price tag on an article and then paid for it.
cashier completes contract
"When the appellant took the jumper and blouse to the checkout counter ... she was representing to the cashier
that both articles had been displayed for sale at this price, although she knew such was false. The cashier had
authority to accept such offer which she did by accepting the cash proffered. At that point a contract of sale
had been made; true, it was a voidable contract as having been induced by fraud. The cashier had a general
authority to accept such offer and to sell the goods on behalf of her employer."
Goldthorpe v. Logan, [1943] 2 DLR 519 (ONCA)
careful what you promise
A woman answers an ad guaranteeing removal of facial hair. Treatment failed. Was there a contract? The judge thought so. The ad was the offer. Relying on the Carbolic Smoke Ball case (see below under Acceptance), the judge added:
"[I]f the vendor's self-confidence persuaded her into an ... extravagant promise, she cannot now escape a
complaint from a credulous and distressed person to whom she gave assurance of future excellence and relief from
her burden. The weak unfortunate person, however gullible, can be sure that the courts ... will not permit
anyone to escape the responsibility arising from an enforceable contract."
In a fixed bidding sale where the vendor states that they will accept "the highest offer", they are so bound. In this case, the bids were to be Harvela Investments Ltd. v. Royal Trust Co. of Canada, [1986] AC 207
"The mere use by the vendors of the words "offer" (in "would accept the highest offer") was not sufficient....
called "offers" but the court overlooked this nomenclature:
The task of the court is to construe the invitation and to ascertain whether the provisions of the invitation,
read as a whole, create a fixed bidding sale."
R. v. Ron Engineering & Construction (Eastern) Ltd., [1981] 1 SCR 111
In this case, a tender required a deposit of $100,000 which, the tender document stipulated, would be forfeited if the tender was withdrawn. The contractor, after submitting both tender and deposit, then tried to change his tender but was denied. The contract went to another company and the deposit was not returned.
tender contract A
The Supreme Court said that there was a preliminary, initial and "unilateral contract" which the court called "contract A" (which creates no obligation on any party until a bid is made); and the main contract, which the court called "contract B." Contracts A provide that the person issuing the tender can select one of the tenderers and enter into contract B with the tenderer so selected. Upon the person doing so, the tenderers, other than the one so selected, would be discharged from any obligation under contract A. The tenderer selected, however, would then be required to enter into contract B with the person issuing the tender (the process has been compared to a leaseholder exercising an option to purchase). Contract B, however, does not come into force until executed by both parties. In this case, under the terms of contract A, the deposit was not refundable.
The court said that the person that issues a call for tender creates an "offer to contract" which, once a bid is submitted both in conformity with, and in response to, the invitation to tender, is binding and is irrevocable if the tender conditions says that the bids are irrevocable.
This case has had a profound effect on the tendering process in Canada.
This case followed the "contract A, contract B" analysis in the Ron Engineering case (see above). R. v. Canamerican Auto Lease & Rental Ltd., 37 DLR (4th) 591 (FCA, 1987) In an invitation to treat situation, the court held that a contract "A" (using the words of the Ron Engineering case) was formed when the bid was submitted, binding on the person issuing the tender.
This British case also found that an invitation to tender can constitute an offer to bid which, if complied with, can create a contract. Blackpool and Fylde Aero Club Ltd. v. Blackpool Borough The obligation of the invitor (the person issuing the tender) is to consider each bid received.
Council, [1990] 1 WLR 1195
A reward was posted for information leading to the arrest of a murder suspect. An eyewitness who believed she was dying, and aware of Williams v. Carwardine, 5 C. & P. 566; also at 172 ER 1101 (1833) The court found that she was so entitled even though "the plaintiff was not induced by the reward." the reward but not for that reason, gave evidence which led to the arrest. When the eyewitness recovered she tried to collect the reward.
The Crown proclaimed a reward for information leading to the arrest of a murder suspect. One of the gang leaders, Clarke, turned R. v. Clarke, 40 CLR 227 (HCA, 1927) informant fearful that he might be falsely accused of the murder and testified against the murderers. A month later, Clarke tried his luck and attempted to claim the reward.
The court held that the informant, Clarke "did not intend to accept the offer of the Crown ... did not act on the faith of, in reliance upon, the proclamation."
Byrne v. Van Tienhoven, [1880] 5 CPD 344
revoking an offer
On October 1, an offer to sell was mailed. It was received on October 11 and was accepted by telegram sent on October 11, confirmed by letter mailed October 15. But on October 8, a letter was sent by the offeror revoking the offer (the offeror received the letter of acceptance on October 20).
The court decided that the revocation was inoperative; that the postal rule was "inapplicable to the case of the withdrawal of an offer.
The court said that "an offer can be withdrawn before it is accepted and it is immaterial whether the offer is expressed to be open for acceptance for a given time or not."
But a withdrawal has no effect until it is communicated to the person to whom the offer has been sent.
"A state of mind not notified cannot be regarded in dealings between man and man; and that an uncommunicated
revocation is for all practical purposes and in point of law no revocation at all."
Once a person is informed that the thing that was offered to him was sold to another person, there is an implied communication of the Dickinson v. Dodds, [1876] 2 Ch. D. 463 revocation of the offer and it is too late for acceptance.
Errington v. Errington, [1952] 1 KB 290
The father paid the down payment of a house and then told his son and daughter-in-law that they could live in it, to pay the monthly mortgage and that it would be transferred to them upon the father's retirement.
When the father died, before the mortgage was paid, the court decided that the occupants did not have a contractual obligation to pay the mortgage but that as long as they did so regularly (based on the deceased's promise to them) and once the mortgage was paid, they would own the house.
Daulia v. Four Millbank Nominees, [1978] 2 All ER 557
Potential purchasers were told that if they could produce a bank draft for certain amount of money "by 10 am the following day", they could buy the property. When the plaintiffs tried to hand over the draft before 10 am the next day, the defendants refused to accept it or complete the deal. The court ruled that there was an
offeror can't thwart condition

"...implied obligation on the part of the offeror not to prevent the condition becoming satisfied, which
obligation it seems to me must arise as soon as the offeree starts to perform. Until then the offeror can revoke
the whole thing, but once the offeree has embarked on performance it is too late for the offeror to revoke his
offer."
An offer was given for a house which included an obligation for the vendor to insure it. When the house burnt to the ground, the offer was Re Reitzel and Rej-Cap Manufacturing Ltd. (1985) immediately accepted, ostensibly so the purchaser could benefit from the new construction at the price given to him based on the pre-fire building.
The court held that the destruction of the building substantially altered the state of the goods, thereby voiding the offer and no longer open to acceptance
ACCEPTANCE
Acceptance validates the contract; it gives it life. It is at that moment that a contract exists; that there is consensus ad idem (assuming a valid offer and consideration).
It also must be clear, unequivocal, unconditional and made by the person to whom the offer is intended.
It is not enough to say that you find the offer to be "agreeable"; you must "accept" the offer although your acceptance can be implied by your conduct. It must also be brought to the direct attention of the offeror before a valid contract exists.
Conduct can amount to acceptance in the proper circumstances such as the delivery of the goods mentioned in the offer or the classic handshake.
The courts have laid down two conditions for conduct to be equated with acceptance:
(1) that the conduct was an expression of acceptance and not done for some other reason or motive, and
(2) that the action or conduct was intended as acceptance. If a judge were called upon to assess conduct for this reason, the judge would not
weigh the acceptor's conduct subjectively, but would decide if a "reasonable person" would infer acceptance from that conduct.
A written offer can be verbally accepted unless the circumstances suggest that both parties expected the acceptance to be in writing.
In the vast majority of contracts (consumer transactions), acceptance is verbal or implied by conduct, the best example of which is a foreign tourist buying a product from a local merchant speaking a language the tourist cannot understand.
The offeror can dictate the terms of the acceptance. Offers may set certain conditions on acceptance and to these, the acceptor is bound. For example, the offer may require acceptance in writing (if such a requirement has not been made, then a written offer may be accepted verbally.)
In one case, a mobile home was purchased. With the home came a warranty card which had to be returned to the manufacturer for it to be held valid. The card was not sent to the manufacturer. The warranty was said to not apply because the purchaser never accepted the manufacturer's offer.
To this legal quagmire, should be added those rare situations where someone puts out an offer at-large, such as the famous Carbolic Smoke Ball Company case did in 1893 (formally, Carlill v. Carbolic Smoke Ball Company, [1893] 1 Q.B. 256).
The company put a sum of money on deposit with a bank and said they would pay this money to anybody who got influenza while using their product.
Well, a consumer caught influenza.
The courts held that a special "unilateral contract" could be created in these circumstances and the Smoke Ball Co. had to pay up.
One trick offerors sometimes attempt is to say that the proposed acceptor's silence will amount to acceptance. This is invalid and cannot have the effect of forcing a person to a contract without the requisite of positive acceptance, delivered to the offeror, either in words or conduct.
Another game potential contractors play with one another is called the battle of the forms.
This happens when, for example, I send you an offer and you amend it slightly and then send it back signed but amended! This action destroys the original offer and is not acceptance. It is a new offer entirely, called a counter-offer. Only if the person who submitted the original offer accepts the counter-offer, would you have yourself a contract.
In this case, two persons were haggling over the price of property. The offer was for $1,800. Livingstone v. Evans, [1925] 4 DLR 769 The buyer counter-offered "Will give $1,600 cash."
Vendor replied "Cannot reduce price" after which the buyer accepted.
The court stated that a counter-offer normally terminates the original offer, which is no longer subject to acceptance. But in this case, the judge thought that the "cannot reduce price" message "was a renewal of the original offer ... that (the vendor) was standing by it and, therefore, still open" to acceptance.
The judge said that: Butler Machine Tool Co. v. ExCell-O Corporation, [1979] 1 WLR 401
"... where there is a
battle of the forms, there is a
contract as soon as the last of the forms is sent and received without taking objection to it. In some cases, the battle is won by the person who
fires the last shot. He is the person who puts forward the latest term and conditions; and, if they are not objected to by the other party, he may be taken to have agreed with them."
But in this case, the battle of forms was resolved in favour of the original document because it stipulated that its terms would "prevail over any terms and conditions in the buyer's order."
A battle of the forms played itself out and then a purchase order came in which called for arbitration in case of dispute. The purchase order Tywood Industries Ltd. v. St. Anne-Nackawic Pulp & Paper Co. Ltd., 100 DLR (3d) 374 (Ontario High Court of Justice, 1979) The court noted that the defendant did not draw the attention of the plaintiff to the arbitration clause nor did it complain when the plaintiff did not sign the purchase order. The court decided that the reference to arbitration had never formed part of the contract between the two parties. was never signed by the plaintiff.
Dawson v. Helicopter Exploration Company, [1955] SCR 868
Correspondence had been exchanged between two parties which did not make it clear if there was a contract.
Plaintiff had been offered a 10% share in exploration rights if he would accompany the defendant on exploration flights. The plaintiff wrote acceptance by conduct back: "If you will inform me, if and when you obtain a pilot for your helicopter, I will immediately take steps ... to be on hand." Defendant ignored the "agreement"
One judge of Canada's Supreme Court wrote that "a promise may be lacking, and yet the whole writing may be "instinct with an obligation ... imperfectly expressed ... which the courts will regard as supplying the necessary reciprocal promise."
Another judge wrote:
"The (plaintiff's) letter ... constitutes an acceptance of that offer, more particularly as every portion
thereof is consistent only with the (plaintiff's) intention that he was accepting and holding himself in
readiness to perform his part. While it has been repeatedly held that an acceptance must be absolute and
unequivocal, it is equally clear that such an acceptance need not be in express terms and may be found in the
language and conduct of the acceptor."
An uncle and nephew were negotiating the price of a horse. The uncle wrote offering a certain amount. The nephew did not reply but asked Felthouse v. Bindley, 142 ER 1037 (1862) The uncle sued and the court disagreed saying that there was no contract; the nephew had never communicated his intention to accept to his uncle "or done anything to bind himself." an auctioneer to exempt the horse from an auction. The auctioneer forgot the instruction and the horse was sold to another party.
In this case, while there was no written acceptance to the offer, the conduct of the respondent was such that the court drew the conclusion Saint John Tug Boat Co. v. Irving Refinery Ltd., [1964] SCR 614 that is accepted the offer. Quoting an old English decision, the court said:
"If, whatever a man's intention may be he so conducts himself that a reasonable man would believe that he was
consenting to the terms proposed by the other party and that other party upon that belief enters into a contract
with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other
party's terms."
A contract was found not to exist between these two parties because the defendant had delivered acceptance to a place other than that Eliason v. Henshaw, 17 US 225 (1819)
"An offer of a bargain by one person to another, imposes no obligation upon the former, until it is accepted by
stated in the offer. Justice Washington of the Supreme Court of the United States:
the latter, according to the terms in which the offer was made. Any qualification of, or departure from, those
terms, invalidates the offer, unless the same be agreed to by the person who made it. Until the terms of the
agreement have received the assent of both parties, the negotiation is open, and imposes no obligation upon
either."
An offer was to expire at 6 pm. By the given time, in spite of best efforts, the real-estate agent (Mr. Tilley) could not locate the bank Carmichael v. Bank of Montreal, 25 DLR (3d) 570 (MBQB, 1972) manager but managed to leave a telephone message, just before 6 pm, that the offer had been accepted.
But the court held that the offer had been properly accepted because "acceptance was conveyed to defendant through its agent Tilley. The verbal communication of the acceptance of the counter-offer to a responsible person in charge at the defendant's bank was, in my opinion, sufficient acceptance of the offer."
The court decided that "in some cases an offer in writing for the sale of land may be accepted by parol evidence, but it does not follow that Jen-Den Investments Ltd. v. Northwest Farms Ltd., 81 DLR (3d) 355 (MBCA, 1978) The judge went on to reject the verbal counter-offer because "in Manitoba the understanding of conveyance and lawyers generally is that in the case of an offer in writing made through a real estate broker or salesman, the normal and usual mode of acceptance is in writing." an offer in writing for the sale of land may be accepted by parol evidence in every case."
A potential purchaser took 25 days to respond to an offer of farm land. By that time, the land had been sold to someone else. An offer, Barrick v. Clark, [1951] SCR 177 unless revoked or containing a deadline, is only valid for a reasonable time, each case to be decided on its merits. For stocks the time frame would be far shorter than for farmland. In the context of this case, 25 days was judges to be too long, or unreasonable.
Manchester Diocesan Council of Education v. Commercial and General Investments Ltd., [1970] 1 WLR 241
An equivocal "the sale has now been approved" letter was endorsed as a valid acceptance even though the letter went on to say that the approval of a government agency was also necessary.
One interesting problem that has surfaced in contract law is the use of modern technology in the communication of an acceptance. It has led to an exception to the general rule that acceptance must be personally delivered to the offeror. In the absence of specific instruction to the contrary by the offeror, a person may mail an acceptance to the offeror
and the contract is said to be perfected when the acceptor places this acceptance in the mail box for return mail even if, in fact, it never reaches the offeror.
This is known as the postal rule. If the post office loses or delays the acceptance letter, there is still a binding contract.
The rule was summarized in Henthorn v. Fraser , [1892] 2 Ch. 27 as follows:
"Where the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usages of
mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted."
If the acceptor decides to use another means of delivery than that requested by the offeror, then the acceptor assumes any risk associated with that means of communications; if nondelivery occurs for technical reasons, there is no contract.
The implications of the above used to be important in determining not only where the contract was made but then, under which law will the contract be subject?
The general rule is the law of the state where acceptance was brought to the offeror's attention, except for situations where the postal rule applies. Then, since the contract is perfected wherever the acceptance is posted, it would be that law which would apply. However, courts no longer solely rely on those strict rules for deciding which law to apply to a contract.
A fairer, more general rule now applies wherein the laws of the state with which the contract has the "closest and most real connection" will apply. As this is an area of the law that is uncertain, many contracts specifically state which laws will apply to resolve any dispute about the contract.
This case was one of the first to establish the postal rule. For contracts formed by correspondence through the post, the judge said that the Household Fire & Carriage Accident Insurance Co. v. Grant, [1879] 4 Ex. D. 216 If the post office be such common agent, then it seems to me to follow that, as soon as the letter of acceptance is delivered to the post office, the contract is made complete and final and absolutely binding as if the acceptor had put his letter into the hands of a messenger sent by the offerer himself as his agent to deliver the offer and receive the acceptance." "post office (is) the agent of both parties.
The postal rule does not apply if (1) the express terms of the offer specify that the acceptance must reach the offeror and (2) if, having Holwell Securities v. Hughes, [1974] 1 WLR 155 regard to all the circumstances, including the nature of the subject-matter under consideration, the negotiating parties cannot have intended that there should be a binding agreement until the party accepting an offer ... had in fact communicated the acceptance or exercise to the other."
See also the Saskatchewan River Bungalows case where wording such as "the acceptance must be received at the head office of X" would preclude the postal rule unless there had been representations that communication by mail was acceptable or encouraged.
In this British case, negotiations were held internationally, using a variety of communication devices. The court first stated the general rule Brinkibon Ltd. v. Stahag Stahl, [1983] 2 AC 34
"A contract is formed when acceptance is communicated by the offeree to the offeror. If it is necessary to
that:
determine where a contract is formed ... this should be at the place where acceptance is communicated to the
offeror."
It then decided that in cases "of instantaneous communication ... the contract (if any) was made when and where the acceptance was received."
This is an exception to the postal rule. So at common law, the postal rule does not apply to fax transmissions.
law love.
Published: Monday, May 07, 2007 Last updated: Friday, October 26, 2012 By: Lloyd Duhaime Permalink
http://www.duhaime.org/LegalResources/Contracts/LawArticle-90/Part-5-MistakeRectification-Misrepresentation.aspx
Part 5: Mistake, Rectification & Misrepresentation
"There is great uncertainty about what the present Anglo-Canadian law of mistake is. No two authors agree in their analysis and the same confusion exists in the case law." Ontario Law Reform Commission, 1987
DUHAIME'S CONTRACT LAW: Eight chapters of pure, unadulterated contract law love.
1. 2. 3. Contract Law - The Introduction Privity, Consent and the Reasonable Man Consideration & Deeds Offer & Acceptance Mistake, Rectification & Misrepresentation
4.
5.
6. 7. 8.
Restraint of Trade, Assignment, Novation & Frustration Interpretation of Contracts Time Limits, Breach & Remedies
MISTAKE
A contract requires a meeting of the minds, which Roman law called a consensus ad idem.
If one or both parties have been mistaken about an element of the contract, then there is no consensus ad idem.
But that does not necessarily mean that the contract is void.
Such a rule could breed abuse.
So the common law has tried to develop a fairly sophisticated set of rules for dealing with mistake (see, also, Legal Definition of Mistake) Unfortunately, as with so much of contract law, the final determination of what those rules are is still up in the air, moving with the changing currents of the courts.
In Seppanen v. Seppanen, 59 BCLR (2d) 26, British Columbia's Supreme Court summarized the law by stating:
"In common mistake, both parties make the same mistake. Each knows the intention of the other and accepts it but each is mistaken about some
underlying and fundamental fact. In mutual mistake, the parties misunderstand each other and are at cross purposes. In unilateral mistake, only
one of the parties is mistaken. The other knows, or must be taken to know, of his mistake."
The court went on to use the example where, for instance, that Alan agrees to buy from Bob a specific picture which Alan believes to be a Picasso but which in fact is a copy. If Bob is ignorant of Alan's erroneous belief, the case is one of mutual mistake. But if he knew of it, it is a unilateral mistake.
When both parties are mistaken on a basic and fundamental element of the contract: the contract is void from the start if the mistake is of such significance that, in the words of English case law, it is a "false and fundamental assumption" of the contract ( R. v. Ontario Flue-cured Tobacco Growers', 51 DLR (2d) 7, ONCA, 1965).
For example, if the identity of a contracting party is a fundamental element of the contract, such as an athlete or artist, a mistake in this regard will void the contract. Another example is a contract involving something that, unbeknownst to the parties, has been destroyed.
"Where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when the
contract is made, the contract is void."
10, B.C. Sale of Goods Act, 1996.
Sometimes, only one party will be in error. If the other party is aware of the misconception or should have been aware of the mistake, the contract may not be enforceable, even if the enlightened party did not cause the mistake. The law books call this a "unilateral mistake."
Mistakes of law would not give rise to judicial interference with a contract. Everyone is presumed to know the law (but see cases like Solle v Butcher, below, and Capital Quality summarized in Chapter 6 of Duhaime's Contract Law).
One kind of mistake that give the courts difficulty involves a party who mistakes the kind of contract being signed. Because this type of "mistake" could be abused, it is severely limited by the common law.
There is a legal maxim, non est factum, which means "not his deed" and a special defence in contract law to allow a person to avoid having to respect a contract that she or he signed because of certain reasons such as a mistake as to the kind of contract.
For example, a person who signs away the deed to a house, thinking that the document signed was only a guarantee for another person's debt, might be able to plead non est factum in a court and on that basis get the court to void the contract.
Non est factum cannot be relied upon if the party could have easily have read the contract in question or if the party had a general idea as to the nature and purpose of the contract.
"It will not do for a man to enter into a contract and, when called upon to respond to its obligations, to say that he did not read it when he
signed it, or did not know what it contained. If this were permitted, contracts would not be worth the paper on which they are written."
Upton v Tribilcock, 91 US 45 (1875)
The person pleading non est factum would also have to prove that they sincerely believed that the document they thought they were signing was fundamentally different from the one they actually signed. In order to protect the commercial system, the courts have consistently shown that in the presence of a signature by a person endowed with the capacity to contract, non est factum is a very difficult defence to hold in court.
Smith v. Hughes, [1871] 6 QB 597
unilateral mistake not enough
Defendant, a horse trainer, refused to accept a shipment of new oats from plaintiff, saying that the contract had been for "old oats." The plaintiff could recall no such reference.
The court ordered the contract performed because it appeared that the words "old oats" were never used at the moment of "meeting of minds." "There is no legal obligation on the vendor to inform the purchaser that he is under a mistake, not induced by the act of the vendor."
A unilateral mistake does not prevent the acceptance of an offer unless (1) the mistake is as to the terms of the contract (as opposed to motivation) and (2) the mistake is known to the offeree at the time of purported acceptance. Some members of the court were also impressed with the fact that the defendant had been given a sample of the oats which he held in his possession for two days. Mistaken assumptions are immaterial to a contract.
"If, whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he
was assenting to the terms proposed by the other party, and that other party upon that belief enters into a
contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the
other party's terms."
Bell v. Lever Brothers Ltd., [1932] AC 161
a heavy onus
A severance payment was made to senior executives of a subsidiary of Lever Brothers Ltd. At the time, Lever Brothers was unaware that the senior executives had been in breach of their fiduciary duties as directors of the subsidiary. They tried to have the court void the severance contract claiming it was paid under a mistake of fact.
"Mistakes as to the quality of the thing contracted for raises ... difficult questions. In such a case a mistake
will not affect assent unless it is the mistake of both parties, and as to the existence of some quality which
makes the thing without the quality essentially different from the thing as it was believed to be."
But in this case, the court concluded that the "identity of the subject-matter was not destroyed by the mutual mistake." Once a contract has been made, when both parties have agreed with sufficient certainty in the same terms on the same subject matter, then the contract is good unless set aside for failure of a condition precedent or fraud. Neither party can rely on his own mistake even if the mistake was, to his mind, fundamental.
Solle v. Butcher, [1950] 1 KB 671
A high rent was given to Solle by Butcher in the mistaken belief,
voidable mistakes under equity
shared by both, that the amount would have been permitted under rent control legislation. Solle later sued Butcher claiming reimbursement of the difference between the control level and the actual rent paid. Butcher counter-claimed asking for rescission which, in the final analysis, the court granted. This case is best known for its extensive review of the law of mistake. The court said that a mistake can be of the kind which renders a contract void from the start or ab initio. These mistakes are the purview of the common law and are to be considered in light of the Lever Brothers decision (see above). Other mistakes are the purview of equity and make a contract voidable if to do so renders no injustice to a third party and if it would be "unconscientious for the other party to avail himself of the legal advantage which he had obtained."
>Unconscientiousness was defined as a mistake induced by a material misrepresentation even though not fraudulent or fundamental, or if one party is aware of the other's mistaken belief and does not correct it. Equity, the court added, can also set aside a contract based on mistake if the "parties were under a common misapprehension either to the facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault." In this case, the mutual mistake of fact made the contract voidable and it was consequently rescinded.
Toronto-Dominion Bank v. Fortin, 88 DLR (3d) 232 (1978)
equity, part II
A receiver exceeded his authority by trying to sell a company and during the course of his attempts, he accepted a non refundable deposit of $25,000 from a prospective purchaser. When the purchaser decided to back out of the deal, he negotiated with the receiver and had his deposit reduced to $10,000. When a court later found that the receiver did not have the authority to sell the company, the prospective purchaser claimed the return of the entire deposit, arguing that the money was paid under "a mistake of law."
The court ruled the compromise agreement "though not a nullity at (common) law, is liable to be set aside in equity."
McRae v. Commonwealth Disposals Commission, 84 CLR 377 (HCA, 1951)
Relying on rumours, the Commission sold to McRae the remains of a marooned oil tanker. But there was no tanker at the specified location and, apparently, never had been. McRae sued the Commission for breach of contract and damages. The Commission tried to say that the contract was based on a mistake but the court noted that the Commission:
"... took no steps to verify what they were asserting and any "mistake" that existed was induced by their own
culpable conduct. In these circumstances it seems out of the question that they should be able to assert that no
contract was concluded."
R. v. Ron Engineering & Construction (Eastern) Ltd., [1981] 1 SCR 111
An error in calculations in the "contract A" of a tender process was held not to invalidate the contract. The contractor intended to submit the figures he submitted right up to and including the moment of submitting the tender, which formed contract A (see summary of facts).
Calgary v. Northern Construction Co., 67 AR 95 (1986)
snapping it up
An error in calculations was made by a clerk of a tenderer, resulting in a bid $180,000 less than it should have been. It was only after the tender had been selected that the contractor discovered his staff's mistake. But the court found that the error was:
"... to motive and not to terms. The tender sum sent to the city was the term which Northern intended to offer. It
decided to offer that term because of a mistake, a mistake which offered it a false reason or motive to make that
offer. By the traditional rule, then, the construction contract is enforceable notwithstanding this mistake."
The court then declined to interfere with the contract under equity because it could not find the contract unconscionable as there was no "grossly disproportionate burden upon the tenderer."
Lindsey v. Heron & Co., 64 DLR 92 (ONCA, 1921)
Lindsey offered stock in "Eastern Cafeterias of Canada" to defendant who gave $10.50 each. But when the defendant discovered his mistake (he really wanted "Eastern Cafeterias Limited" stock, a different company), he tried to argue that there was no contract. The court disagreed.
"Judged by any reasonable standard, the words used by the defendants manifested an intention to offer the named
price for the thing which the plaintiff proposed to sell, i.e., stock in Eastern Cafeterias of Canada Limited."
Staiman Steel Ltd. v. Commercial & Home Builders Ltd., 76 DLR (3d) 17 (1976)
reasonable man
A purchaser bid for steel at an auction thinking it was a mix of new and used steel, when it was really only used steel. The court said that since the one party thought that the lot included new steel and the other that it did not, that this was a mutual mistake. In these cases,
"... the court must decide what reasonable third parties would infer to be the contract from the words and conduct
of the parties. It is only a case where the circumstances are so ambiguous that a reasonable bystander could not
infer a common intention that the court will hold that no contract was created. In this case ... a reasonable man
would infer the existence of a contract to buy and sell the bulk lot without the building steel and therefore ...
there was a contract to that effect binding on both parties, notwithstanding such mutual mistake."
If a party tries to slip in an important amendment....

Glasner v. Royal LePage Real Estate, (BCSC, 1992)
"...and if the circumstances are such that the amendment might readily be missed, he should be particularly
reluctant to assume ... knowledge (of that amendment by the other party)....
"Equity will relieve against performance of a contract obtained by a party who knew the other side was mistaken
about a material fact and who took advantage of that mistake."
Lewis v. Averay, [1972] 3 All ER 907
beware the conman
A person managed to con a person selling a vehicle that he was a famous actor and made off with the car leaving a forged cheque in the actor's name. The con-man then sold the vehicle to another unsuspecting man who was looking for a car, this time assuming the identity of his first victim.
The court held that the first contract, though voidable for fraud or mistaken identity, was valid until so voided and the contract stands before third parties who have, in good faith, acquired rights under it. Thus, valid title was conveyed to the second victim and the loss was absorbed by the first victim.
Saunders v. Anglia Building Society, [1969] 1 All ER 1062 (aka Gallie v Lee)
A plea of non est factum will fail "if the signing of the document was due to his own negligence ... (meaning) carelessness."
For example, failing to read a contract before signing it. As far as the kind of difference required between the document believed in, and the contract in reality, the court said that the difference would have to be "fundamentally ... radically ... or totally different."
read it!
Marvco Color Research Ltd. v. Harris, [1982] 2 SCR 774
I said "read it!"
Through no fault of the bank, defendants signed a loan guarantee without reading the document first and relying on the representation of the loan debtor's word that they were only signing an insignificant administrative document. When the bank tried to collect from the defendants, the latter pleaded non est factum.
The court said no. The carelessness of the party requesting non est factum should not be allowed against an innocent third party when it was through his own carelessness that he failed to discover the misrepresentation.
"The party who, by the application of reasonable care, was in a position to avoid a loss to any of the parties,
should bear any loss that results when the only alternative available to the courts would be to place the loss
upon the innocent appellant."
RECTIFICATION
If between the parties, the terms are clear enough, but there has been a drafting error that was not caught before signature, then there is a separate judicial procedure called "rectification" which should be used (although the parties are better off to amend the original contract themselves then pay the cost of judicial rectification).
This would not entail voiding the contract but correcting or amending it under judicial supervision.
Bercovici v. Palmer, 59 DLR (2d) 513 (SKCA, 1966)
A lawyer's "inexplicable error" extended a conveyance of real
nice try
property to include a cottage. One of the parties later tried to assert that the inclusion was intended but the trial judge did not believe this evidence and concluded that he was "satisfied beyond any fair and reasonable doubt that the (cottage) was not intended by either party to be included in their transaction."
On appeal, the court added that in cases where rectification is an issue, it is within the purview of the court to consider conduct subsequent to the contract.
Coderre (Wright) v. Coderre, [1975] 2 WWR 193
In this case, the Alberta court "was not satisfied beyond a reasonable doubt that the agreement alleged by the plaintiff was entered into orally by the parties."
Rectification usually results from a common mistake (when parties share the same mistaken belief in some important element of the contract). But rectification may also be available in circumstances of unilateral mistake if the party "in the know" takes advantage of the mistake "and that the taking advantage of it would amount to fraud or misrepresentation amounting to fraud."
Augdome Corp. v. Gray, [1975] 2 SCR 354
A court can order rectification even if it has not been specifically pleaded. Also, although rectification is not granted when the rights of third parties are affected, this does not apply when the "third parties" are before the court.
MISREPRESENTATION
Misrepresentation is when one of the parties to a contract made a wrong statement about some material element of the contract and, because of this statement, the other party entered into the contract. Contract common law treats fraudulent misrepresentation differently from innocent misrepresentation.
In his book The Law of Contracts in Canada, 1994, p. 295, Professor G. Fridman says there are four conditions that must be met before a court will accept that there has been fraudulent misrepresentation:
"(1) that the representations complained of were made by the wrongdoer to the victim (before the contract); (2) that these representations were
false in fact; (3) that the wrongdoer, when he made them, either knew that they were false or made them recklessly without knowing whether they
were false or true; and (4) that the victim was thereby induced to enter into the contract in question (a legal presumption exists in this
regard)."
Notice that the courts will not entertain a request to rescind a contract if the representation was merely a puffed-up opinion on a particular product. Parties should know better than to give full credence to commercial aggrandizements.
Nor will a misrepresentation on the law be a cause for judicial intervention under this heading, and for the same reasons as given above: everyone is presumed to know the law. Silence can be construed as misrepresentation in certain circumstances.
Redgrave v. Hurd, 20 Ch. D. 1 (1881)
A lawyer agreed to buy a law office from another based on exaggerated representations made on the value of the practice. When the practice proved to be "utterly worthless", the purchasing lawyer sued for rescission of the contract. The court allowed the rescission saying:
"If a man is induced to enter into a contract by a false representation it is not sufficient answer for him to
say, "If you had used due diligence you would have found out that the statement was untrue. You had the
means ... of discovering its falsity, and did not choose to avail yourselves of them.""
Smith v. Land and House Property Corp., 28 Ch. D. 7 (1884)
A leased property was sold on the representation that the tenant was "a most desirable tenant." Turns out the tenant had been defaulting on his rent and before the deal was closed, actually filed for bankruptcy. The purchaser asked the court to rescind the contract and the court agreed. Where the facts are equally known to both parties, then representations between the parties are mere opinions.
But representations become "material facts" where the facts are not equally known, as was the case in this situation ("statements on a subject as to which prima facie the vendors know everything and the purchasers nothing").
Bank of British Columbia v. Wren Developments Ltd., 38 DLR (3d) 759 (BCSC, 1973)
A corporate secretary renewed a personal guarantee on a company loan on the belief that collateral deposited as security when the guarantee was first signed, was still with the bank as security. It was not, having been released by the bank to the company president.
"When he signed the second guarantee, (defendant) was misled by the words, acts and conduct of the plaintiff
into believing that there had been no change in the collateral securities held by the plaintiff, and otherwise
he would not have signed it. Defendant is not liable to the plaintiff."
Kupchak v. Dayson Holdings Ltd. Kupchak, 53 DLR (2d) 482 (BCCA, 1965)
Properties were exchanged between the parties including a motel. When the new owner of the motel found out that the stated past earnings of the motel were false, he sued for rescission of the contract. The court found that there was fraud and went on to say that rescission is a equitable remedy and while it is true that a court, under equity, cannot award damages as such, it can order one party to pay compensation to the other. The court preferred to order compensation because the party that had committed the fraud had already made permanent changes to the real property they had acquired by the contract. On the defence of laches, the court stated that this is feasible where:
"... the party has, by his conduct, done that which might fairly be regarded as equivalent to a waiver of it, or
where by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a
situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted.... Two
circumstances, always important in such cases, are the length of the delay and the nature of the acts done
during the interval."
The court denied the defence of laches because several lawyer letters had transpired (in spite of long delays between those letters) and the institution of court action.
Redican v. Nesbitt, [1924] SCR 135
A house was sold without prior inspection. The keys were exchanged for the cheque and when the purchaser saw the property for the first
time, ordered a stop-payment on the cheque. The vendor sued for payment and the purchaser defended by suing for rescission.
"Innocent misrepresentation (i.e non-fraudulent but such as renders the subject of sale different in substance
from what was contracted for), such as will support a demand for rescission in equity ... will serve as a good
equitable defence to a claim for payment under contract as well as afford ground for a counter-claim for
rescission."
The court first decided that the property did not differ to that extent from the representations made about it. Considering the circumstances of the case, notwithstanding that the cheque was stopped, the contract was executed (for innocent misrepresentation (i.e. non-fraudulent), rescission is not possible where the contract has been executed).
Heilbut, Symons & Co. v. Buckleton, [1913] AC 30
A company underwriting a new share offering was contacted by a client and was asked if the new company was "alright." The underwriter replied that "we are bringing it out," from which the client implied a warranty. When the shares did not do well, the client sued based on fraudulent misrepresentation. The court could not find a collateral contract related to the character of the new company.
The courts said these contracts are very rare, will be interpreted strictly and one must show animus contrahendi (i.e. an intention to contract) on the part of all parties to them. In order to succeed, the plaintiff must prove fraudulent misrepresentation "or what is equivalent thereto, must be made recklessly, not caring whether it be true or not."
Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd., [1965] 2 All ER 65
Harold sold Dick a car saying that it only had 20,000 miles since major repair. Harold bought the car. Turns out the car had done much more then 20,000 since the last major repair. The court said:
"An affirmation at the time of sale is a warranty, provided it
appear on evidence to be so intended.... The question whether a warranty was intended depends on the conduct of
the parties, on their words and behaviour, rather than on their thoughts. If an intelligent bystander would
reasonably infer that a warranty was intended, that would suffice." In this case the representation was made for
the purposes of inducing the sale. The court said that it was thus prima facie ground for inferring that the
representation was intended as a warranty. It is not necessary to speak of it as "collateral."
The court went on to say that the defendant could rebut this presumption by showing that his representation was innocent. In this case, the vendor made the statements without checking them out and so the representations were not innocent.
Leaf v. International Galleries, [1950] 1 All ER 693
A gallery sold a painting representing it as being done by a famous painter. Five years later, while trying to resell the painting, the purchaser found out that it was not done by that painter.
The vendor honestly believed the identity of the painter to be that which he had represented. The plaintiff sued for rescission of the contract but his claim was denied because for five years he had held on to the painting without rejecting it.
>>> continued >>> Chapter 6
1. 2. 3. Contract Law - The Introduction Privity, Consent and the Reasonable Man Consideration & Deeds Offer & Acceptance Mistake, Rectification & Misrepresentation Restraint of Trade, Assignment, Novation & Frustration Interpretation of Contracts Time Limits, Breach & Remedies
4.
5. 6. 7. 8.
Published: Monday, May 07, 2007 Last updated: Thursday, October 25, 2012 By: Lloyd Duhaime Permalink
http://www.duhaime.org/LegalResources/Contracts/LawArticle-91/Part-6-Restraint-ofTrade-Assignment-Novation-Frustration.aspx Part 6: Restraint of Trade, Assignment, Novation & Frustration
1. 2. 3. 4. Contract Law - The Introduction Privity, Consent and the Reasonable Man Consideration & Deeds Offer & Acceptance Mistake, Rectification & Misrepresentation Restraint of Trade, Assignment, Novation & Frustration Interpretation of Contracts Time Limits, Breach & Remedies
5.
6. 7. 8.
Restraint of Trade Contracts

In contemporary commercial environments, restraint of trade contracts are common.
These are contracts that state, for example, that a person selling a business agrees not to open a similar business within 50 miles of the business being sold and for a period of ten years.
On the face of it, such contracts, while not illegal, fly in the face of public policy as it is considered to be "good for the state" that men and women be free to ply their profession without restriction.
This is yet another area where the common law flip-flops and it is difficult to pin point the rule of law from one case to the next. Through it all, some general principles have prevailed, as aptly summarized in a 1894 case, Nordenfelt v. Maxim Nordenfelt Guns & Ammunition Co., a case so widely-accepted that it has becomne known as the Nordenfelt test:
"All interference with individual liberty of action in trading, and all restraints of trade themselves, if there is nothing more, are contrary
to public policy and therefore void. That is the general rule. But there are exceptions: restraints of trade ... may be justified by the
special circumstances of a special case. It is a sufficient justification, and indeed it is the only justification, if the restriction is
reasonable - reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the
public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in
no way injurious to the public."
Some of the factors that a court will look for to decide the "reasonableness" of the restraint of trade contracts will be situations where trade secrets were involved. But special skills learned by an ex-employee while on the job belong to that employee and the exercise of those skills alone cannot be curtailed. Nor should the restraint be for an inordinate amount of time or a geographical limit that is excessive or that exceeds the actual scope of the business at the time of sale.
In restraint of trade contracts pursuant to the sale of a business, the court's are more receptive but, again, only if the contract is reasonable in the circumstances. Each case will be decided on its own merits (see also cases such as Shatilla and H. F. Clarke in page 7, Interpretation of Contracts).
ASSIGNMENT & NOVATION

A person can transfer their rights, benefits and liabilities under a contract to another person. Where the original contract stays intact and party transfers rights, benefits and liabilities under a contract (the assignor) to a new party (the assignee), this is called an assignment.
An assignment must be absolute with no contractual strings to remain attached between the assignor and the other original contracting party. Nor does an assignment require the permission of the other original contracting party. An assignment is not possible where the services or the consideration was linked to the person of the party which wants to assign the contract. For example, if you hire a special performer, the performer cannot assign the contract to another performer. If an assignment creates a new or special burden to the other original contracting party, it may also be prohibited. Special provincial laws may exist to alter the common law with regards to assignments, such as "judicature acts" and readers are invited to consult these laws for further research.
Sometimes assignment operates under law such as in the case of a bankruptcy where a trustee comes in and takes over all the contracts between the bankrupt and the creditors. Another example of legal assignment is upon death, where the executor assumes the position of the deceased and to whom all contracts of the deceased are assigned.
Novation is the replacement of one contract between two parties with another contract, either between the same parties or others.
For example, if I had a contract with you to cut my lawn and if John had a contract with me to cut his lawn, we could novate both contracts and replace it with a single contract wherein you agree to cut John's lawn.
Contrary to assignment, novation requires the consent of all parties. Consideration is still required for the new contract but it is usually assumed to be the discharge of the former contract.
The criteria for a successful novation is the complete acceptance of the liability by the new debtor, the acceptance of the new debtor by the creditor, and the acceptance by the outgoing creditor of the new contract as full performance of the old contract.
FRUSTRATION
"Where there is an agreement to sell specific goods, and subsequently the goods, without any fault on the part of the seller or buyer, perish
before the risk passes to the buyer, the agreement is avoided." {Section 11 of B.C.'s Sale of Goods Act, 1996.}
No person can be held to a contract if, since acceptance, there has been a radical change which makes performance impossible or illegal. Under certain conditions, a person can be relieved of their duties under a contract under the common law heading of frustration (see Legal Definition of Frustration).
For example, an act of God may have destroyed the object of the contract (but see the Atlantic Paper Stock case below).
However, frustration cannot be invoked just because the contract has suddenly become more difficult or expensive for one of the parties, if the party was partly responsible for the intervening event which destroyed the object of the contract, or if the event was foreseeable.
Severe sickness of one of the parties is an example where frustration might apply to relieve one of the parties of their obligations under a contract.
In the body of the contract, the parties may specifically bar a defence of frustration and make their contract absolute.
Many provinces have short "frustrated contracts" legislation which sets out the allocation of reimbursements or "restitution" in the case of frustrated contracts. The thrust of most legislation is to allow recovery of benefits conferred before discharge of the contract.
Mr. Jane was unable to occupy land leased to him by Mr. Paradine because the territory was under military occupation for a considerable time. Too bad, said the court; rent is due.
"When the party by his own contract creates a duty or charge upon himself, he is bound to make it good, if he
Paradine v. Jane (1647)
may, notwithstanding any accident by inevitable necessity, because he might have provided against it by his
contract.... As the lessee is to have the advantage of casual profits, so he must run the hazard of casual
losses.... Though the land be surrounded or gained by sea, or made barren by wildfire, yet the lessor shall have
his whole rent."
A certain music hall was rented but burnt down just before the event. The court first stated the general principle to the effect that a party to a contract must either perform or if:
"... in consequence of unforseen accidents, the performance of his contract has become unexpectedly burdensome or
Taylor v. Caldwell (1863)
even impossible", pay damages. But then the court excused both parties from their obligations because there was
an "implied condition.... From the nature of the contract, we find that the parties contracted on the basis of
the continued existence of the particular person or chattel."
A building, which was supposed to take 8 months to complete, took 22 because of unexpected labour shortages. The contractors claimed Davis Contractors Ltd. v. Fareham U.D.C. (1956) that their contract was partially frustrated but the court disagreed. The delay "was not any new state of things which the parties could not reasonably be thought to have foreseen." The court also stated that:
"... frustration is not to be lightly invoked as the dissolvent of a contract.... Frustration occurs whenever the
law recognizes that without default of either party, a contractual obligation has become incapable of being
performed because the circumstances in which performance is called for would render it a thing radically
different from that which was undertaken by the contract.... It is not hardship or inconvenience or material loss
itself which calls the principle of frustration into play. There must be as well such a change in the
significance of the obligation that the thing undertaken would, if performed, be a different thing from that
contracted for."
Labour unrest delayed a ship building contract and prevented a contracted voyage. Canadian Trading said the contract was frustrated. The court said no. "No term should be implied when it is possible to hold that reasonable men could have
Canadian Government Merchant Marine Ltd. v. Canadian Trading Company (1922)
contemplated the taking of the risk of the circumstances being what they in fact proved to be when the time for performance arrived." The events of labour unrest were not "due to any extraordinary occurrence, to anything outside the ordinary course of events. It could certainly have been foreseen that something might occur in the ship yard, especially in these days of labour trouble."
Between the date of a land purchase contract (including the condition that the lot would be conveyed subdivided into 26 separate building lots) and closing, legislation intervened and made subdivision impossible by the closing date. No arrangement had been made to deal with extending the date.
"There can be no frustration if the supervening event results from the voluntary act of one of the parties or if
Capital Quality Homes Ltd. v. Colwyn Construction Ltd. (1975)
the possibility of such event arising during the term of the agreement was contemplated by the parties and
provided for in the agreement."
But in this case, the intervening legislation "destroyed the very foundation of the agreement. The lack of ability to do so creates a situation not within the contemplation of the parties when they entered the agreement.... Both parties are discharged from performance." This case was also important in setting aside a rule that seemed to be in effect in England, that the doctrine of frustration not apply to land lease contracts. Planning legislation intervened and precluded the subdivision of land for which an offer had been accepted and for which closing was pending. Victoria Wood had made its intentions to subdivide clear to Ondrey. Relying on the Capital Quality Homes case (summarized above), the claim was based on frustration. But the court thought the facts were different in this case.
Victoria Wood Development Corporation v. Ondrey (1977)
"In my view, in the present instance, the ... foundation of the agreement has not been destroyed.... The
agreement is in no sense made conditional upon the ability of the purchaser to carry out its intention.... A
developer, in purchasing land, is always conscious of the risk that zoning or similar changes may make the
carrying out of his intention impossible, or may delay it."
The usefulness of a rented neon sign was suddenly diminished by a wartime night lighting restriction. The court:
Claude Neon General Advertising Ltd. v. Sing (1942)
"I do not think that I should say that the contract is for an illuminated sign.... No part of the contract
between the parties became impossible. The defendant certainly gets very much less benefit from the sign, but it
is not entirely useless as a daylight sign."
A rezoning undertaking by Industrial, of Kesmat's land, was unexpectedly subjected to a mandatory, and expensive, environmental assessment. The court concluded that this additional requirement did not operate to frustrate the contract.
"Hardship, inconvenience or material loss or the fact that the work has become more onerous than originally
Kesmat Invt. Inc. v. Industrial Machinery Company & Canadian Indemnity Company (1986)
anticipated are not sufficient to amount to frustration. Courts have, however, interpreted impossibility of
performance to encompass .. impossibility in the sense of impracticality of performance due to extreme and
unreasonable difficulty, expense, injury or loss." But in this case "the requirement of an environmental impact
report was not an unknown requirement" and it could not be said "that no man of common sense would incur the
outlay."
Atlantic Paper Stock Ltd. v. St. Anne-Nackawic Pulp & Paper Company (1976) St. Anne promised to buy waste paper from Atlantic for ten years "unless, as a result of an act of God ... or the non-availability of markets for pulp or corrugating medium." Fourteen months into the contract, St-Anne tried to invoke the "non-availability of markets" clause to end the contract.
Canada's Supreme Court thought that the clause was a typical "act of God" clause and, as such, required "the unexpected, something beyond reasonable human foresight and skill.... an event over which the respondent exercises no control." But the evidence showed strong and competitive international demand for the product and that the difficulty of St-Anne in finding markets were the result of its poor marketing. "I do not think St. Anne can rely on a condition which it brought upon itself." Maritime National rented a fishing trawler from Ocean Trawlers bringing their fleet to five vessels. The rented boat could only operate with a trawl. Then, the federal minister of fisheries allocated only three trawling licenses to Maritime. Maritime elected to use their licenses for the other boats in their fleet and then claimed their contract with Ocean was frustrated by the lack of an operating license. But the judge said:
Maritime National Fish Ltd. v. Ocean Trawlers Ltd. (1935)
"it was the act and election of (Maritime National) which prevented the (rented boat) from being licensed for
fishing with an otter trawl.... The essence of frustration is that it should not be due to the act or election of
the other party (or) without any default of either party."
>>> continued >>> Chapter 7 ...
1. 2. 3. 4. 5. Contract Law - The Introduction Privity, Consent and the Reasonable Man Consideration & Deeds Offer & Acceptance Mistake, Rectification & Misrepresentation Restraint of Trade, Assignment, Novation & Frustration Interpretation of Contracts Time Limits, Breach & Remedies
6.
7. 8.
Published: Monday, May 07, 2007 Last updated: Friday, May 25, 2012 By: Lloyd Duhaime Permalink
http://www.duhaime.org/LegalResources/Contracts//LawArticle-92/Part-7-Interpretationof-Contracts.aspx
Part 7: Interpretation of Contracts
Don't neglect Duhaime's Interpretation of Statutes and of Contracts Law Dictionary, your night-vision goggles in the fog and darkness of murky contracts.
DUHAIME'S CONTRACT LAW : Eight chapters of pure, unadulterated contract law love.
The Interpretation of Contracts
"The law has outgrown its primitive stage of formalism when the precise word was the sovereign talisman, and every slip was fatal. It takes a
broader view today.
"A promise may be lacking, and yet the whole writing may be instinct
with an obligation....
"If that is so, there is a contract."
Wood v Lucy Duff-Gordon, 222 NY 88 (1917)
The courts are frequently asked to resolve disputes around the meaning of certain words in contracts given, as contracts often are, to drafting by the parties themselves, who are not legal experts.
Almost from the instant of the meeting of the minds or the drying of the ink on a written contract, a contract becomes exactly what it was often intended to avoid: a living, breathing, flexible code of private law. Richard C. Cabot, in the Meaning of Right and Wrong (1933) wrote:
"The spirit of any agreement is thus disconcertingly wider and deeper than its letter, because both are parts of the human spirit, a network of
interweaving purposes aware of but a fragment of its own implications. Its purposes are not sharply or permanently outlined. They grow as it
grows.... They find meaning after meaning hidden like a nest of Chinese boxes inside the one that they start with."
Arguably, each case of the interpretation (aka construction) of a contract will be determined on its own merits as each contract is different. As Justice Hogan wrote in Rhodes v Forwood, [1876] 1 AC 275):
"Judicial decision on one contract can rarely help us to the understanding of another."
Nonetheless, a wide range of general interpretation rules guide the courts in their inevitable (and unenviable) task of having to interpret a contract which is, on the face of it, ambiguous (Mensa moment: if both parties agree on a certain interpretation to be given to a term in a contract, a court has no reason or justification for pursuing the matter further and should accept this interpretation).
A court will always try to discover the intentions of the contracting parties using the plain, ordinary and popular meanings of the words used. Reference to a common usage dictionary is perfectly in order. A court should not try to re-write a contract using interpretation rules but, rather, to use these rules to pinpoint the intentions of the parties at the moment of contract.
Courts will imply a term into a contract based on a test of "necessity.... In determining what is necessary, regard must be had to both the inherent nature of a contract and of the relationship thereby established." Machintger v. Hoj Industries Ltd., [1992] 1 SCR 986 Examples repeated by the court included the duty of care imposed on a servant, restrictive covenants such as a contract not to disclose confidential information, not to betray secret processes or the duty of an employer not to require his employee to perform an illegal act. The court, in this case, said that the requirements for reasonable notice in employment contracts fall into the category of terms implied by law since this duty was not displaced by express contrary agreement. Madill v. Chu, [1977] 2 SCR 400 As a general rule, clauses in an insurance policy providing coverage are interpreted liberally or broadly in favour of the insured and those clauses excluding coverage are construed strictly against the insurer.
It should be assumed that no article of the contract is void of any meaning or superfluous but must have some purpose. It is only where no clear alternate interpretation is available to remove absurdity or ambiguity from an article, that the court will void an article of a contract.
A court can refer to words that have been crossed out, or words in headings, margins, recitals or preamble for the purposes of interpreting terms of the contract which are ambiguous.
Where ambiguity is an issue, a court may refer to the factual circumstances under which the contract was signed or agreed upon to assist in interpretation. These could include letters or earlier agreements but not earlier drafts.
The same word used in one place in a contract should be given the same meaning throughout the document.
The word "may" is permissive and not obligatory.
The word "about", "approximately" or "almost" do not constitute any guarantee that the signatory will meet or exceed estimates worded in such a fashion unless performance falls significantly short of these estimates.
A court may even incorporate a business custom into a contract if it is so certain, universal and notorious as to be worthy of judicial notice unless this trade or commercial usage was unknown to one of the parties (or not reasonably known) or contradicted by a specific term in the contract. This would apply within the context of certain industries or professions which have standard operating procedures.
Where a contract is open to two different but equally probable interpretations, it is interpreted against the author, especially if there is a power imbalance between the parties ("verba fortius accipiuntur contra proferentem").
If language of an insurance contract is ambiguous, the contra proferentem doctrine applies. But:
Scott v. Wawanesa Mutual Insurance Co. (1989)
"... when the wording is clear and unambiguous, courts should not give it a meaning different from that which is expressed by its clear terms, unless the contract is unreasonable or has an effect contrary to the intention of the parties."
In this case, a majority of Canada's Supreme Court thought that the insurance clause in question was unequivocal and "the damages suffered by the appellants are clearly excluded."
If a conflict develops between a type-written part and a hand-written insertion, the contract will be interpreted giving more weight to the hand-written part. The parol evidence rule applies which holds that verbal evidence (parol) will not be allowed to contradict a written contract.
To this, there are several exceptions. For example, some provinces have trade practice legislation which, for consumer transactions, the parol evidence rule is set aside if the alleged verbal agreement purports to prove deception or unconscionability.
The text of 1997 British Columbia's Trade Practice Act, RSBC 1996, c 457 (repealed in 2004) read as follows:
"In a proceeding in respect of a consumer transaction, a rule of law respecting parol or extrinsic evidence, or a term or provision in a
consumer transaction, shall not operate to exclude or limit the admissibility of evidence relating to the understanding of the parties as to
the consumer transaction or a particular term or provision of it."
The parol evidence rule has been severely criticized by numerous law reform experts; that it is "ambiguous" and "more honoured in its breach than its observance."
Nevertheless, it still forms an important part of Canadian contract law.
Hawrish personally guaranteed a loan to a company but on the bank manager's assurance that the guarantee would be released if another guarantee, from the company's directors, was obtained. This latter guarantee was obtained but Hawrish's was not released. Nothing in the Hawrish v. Bank of Montreal, [1969] guarantee document suggested that it was of limited duration. S.C.R. 515
"The appellant's argument fails on the ground that the collateral agreement allowing for the discharge of the appellant cannot stand as it clearly contradicts the terms of the guarantee bond which states that it is a continuing guarantee."
"This (verbal or parol) evidence would go towards imposing a limit on the bank's rights with respect to the security given by the debtor. This Bauer v. Bank of Montreal, [1980] S.C.R. 102 would clearly contradict the terms of the guarantee which, as has been pointed out, gave the bank the right to abstain from registration and perfection of security. On this basis, it would be impossible under the parol evidence rule and any collateral agreement founded upon it could not stand." In a contract for the transoceanic shipment of goods, a clause stated that the shipper "reserves to itself complete freedom in respect of ... procedure to be followed in the handling and transportation of the goods." But there was a verbal agreement in which the defendant promised that they would transport the plaintiffs cargo below deck. The court's decision:
"The question is whether the company
can rely on those exemptions. I
do not think so. The cases are numerous in which

J. Evans & Son (Portsmouth) Ltd. v. Merzario (Andrea) Ltd., [1976] 2 All ER 930
oral promises have been held binding in spite of written exempting conditions... There was a plain breach of the oral promise."
One of the judges thought that the contract was "partly oral, partly in writing.... In such a case the court does not require to have recourse to lawyers' devices such as collateral oral warranty in order to seek to adduce evidence which would not otherwise be admissible. The court is entitled to look at all the evidence.... One has to treat the promise that no container would be shipped on deck as overriding any question of exempting conditions." Subsequent to oral assurances that buckwheat would smother weeds, farmers entered into a contract which contained the words: "no warranty ... pertaining to the seed sold ... and will not in any way be responsible for the crop." The buckwheat planted did not act as a weed control and the crops were smothered and destroyed. The British Columbia court decided that the evidence showed an oral warranty that defeated the "the strong presumption" in favour of the written contract. It then issued a series of "comments" about the parol evidence rule. The rule is a rule of evidence. One can introduce evidence to prove a collateral agreement provided it does not contradict the written agreement because it cannot be that the parties would agree to two contracts which disagree with each other. Since the written contract was demonstrably made, "reasons requires one to conclude that the oral one, contradicting it, was never made." The principle is not absolute; it is "not a tool for the unscrupulous to dupe the unwary." The court can look for evidence of an intention to create a binding oral agreement such as it did, albeit unsuccessfully, in the Hawrish and Bauer cases summarized above.
"If the contract is induced by an oral misrepresentation that is inconsistent with the written contract, the
Gallen v. Butterley, 9 DLR (4th) 496 (BCCA, 1984)
written contract cannot stand." "The principle does not apply with equal force where the oral representation adds
to, subtracts from or varies the agreement recorded in (as opposed to contradicting) the document."
The parol evidence rule is a "strong" presumption that a written contract represents the whole agreement between the parties; "strongest when the oral representation is alleged to be contrary to the document and somewhat less strong when the oral representation only adds to the document." The presumption is not as strong for a printed form document "though it would be a strong presumption in both cases." The presumption would also be "less strong where the contradiction was between a specific oral representation and an .. exclusion clause that excludes liability for any oral representation whatsoever."
Were a law such as the Statute of Frauds requires a certain kind of contract to be in writing, it is enough that the contract be signed by the person against whom enforcement is sought even though the plaintiffs to a contract suit did not themselves sign the contract. Where a written contract is required, the contract should contain, as a minimum, the names and signature of the party against whom the contract is to be enforced, identification of the property and the price.
Provincial legislation varies substantially on the requirement of a written document to ensure the enforceability of a contract.
British Columbia only requires a written document for guarantee (answering for the debt or default of another) and land contracts.
Others, like Manitoba, have eliminated the Statute of Frauds entirely.
"Subject to this Act and any Statute in that behalf, a contract of sale may be made in writing, either with or without seal, or by word of
mouth, or partly in writing and partly by word of mouth, or may be implied from the conduct of the parties; provided that nothing in this section shall affect the law relating to corporations." {From B.C.'s Sale of Goods Act
, 1996.}
A contract for the sale of "four acres more or less" was challenged as being "not sufficiently certain to satisfy the Statute of Frauds." But the court Dynamic Transport Ltd. v. Oak Detailing Ltd., [1978] 2 S.C.R. 1072
"Courts have gone a long way in finding a memorandum in writing sufficient to satisfy the Statute of Frauds."
constructed the contract, including reference to the conduct of the parties, to make reasonable adjustments for a warehouse that sat on the border of the proposed division.
A nephew said that while he lived with, and cared for, his aunt, she had promised him the house they lived in. Upon her death, the court rejected his claim because there was no written document as required under the Statute of Frauds for contracts concerning land. Deglman v. Guaranty Trust Co., [1954] S.C.R. 725 The court stated that to succeed in a case of this nature, the acts relied upon as part performance must be "as could be done with no other view or design than to perform that agreement." But the court did allow a quantum meruit claim for the value of his services, considerably less then the value of the real property. A labourer worked with a farmer for fifty years, the latter promising to convey the property to him upon his death. This was done but the will was lost. The evidence showed total commitment by the labourer to the farm over the course of those fifty years and there was third-party testimony to Thompson v. Guaranty Trust Co., [1974] S.C.R. 1023 The court allowed the land transfer to the labourer despite the absence of a written document required under the Statute of Frauds because of the circumstances, the evidence and that the actions of the labourer were referable to, and indicative of, a contract dealing with the farm. Lensen v. Lensen, 14 DLR (4th) 611 (SKCA, 1984; reversed at [1987] 2 SCR 672) The court expounded on the requirements to circumvent the Statute of Frauds requirements for claiming a land contract without a written document. In this case, the large investments of the son could hardly be equated with that of a tenant. In addition, the court found that the son had passed up on other chances to buy land because he believed that the family farm had been dedicated to him. Acting upon the alleged contract to his detriment "is an important circumstance when determining whether or not the acts relied upon are sufficient enough." On matters of contracts of sale of land and the requirement of a written document under the Statute of Frauds, if there was "sufficient part performance", the requirement of a valid written contract is lifted. the effect that the deceased farmer had stated his wish that the farm go to the labourer.
Currie v. Thomas, 19 DLR (4th) 594 (BCCA, 1985)
Quoting from a previous English decision, Steadman v. Steadman, [1976] AC 536, the Canadian court said that "to do this, the plaintiff has to prove that (i) on balance of probability he acted to his detriment; (ii) it was more probable than not he so acted because he was contractually obliged to the defendant to do so; (iii) such actions were consistent with the oral agreement which he alleges."
Where a written and signed contract is required, a signature need not be at the end of the contract, as long as it does not appear to be restricted to one or more specific terms next to which it is apposed. The fact that a contract is hand-written by a defendant may suffice in lieu of signature. Initials may also be enough. Alterations inserted after the time of signature, without the consent of the other party, are not permissible and may result in the rescission of the contract.
Time is of the essence means that any violation of deadlines contained in the contract will equate to a breach of contract. Any delay will allow the other party to terminate the contract.
Time is of the essence can be presumed in some contracts.
A fine distinction is made with regards to articles that set out an amount another party must pay for non-performance (called liquidated damages). As a general rule, the court will not enforce penalty clauses but it will enforce articles which "pre-determine damages".
The most important factor in determining whether a clause is a penalty clause or a pre-determination of damages is the reasonableness of the amount.
Exclusion clauses that prevent damage claims based on the contract are legal although they cannot operate to protect a party from fraud. Exclusions clauses must be brought to the attention of all parties and will be interpreted strictly against the author. A party can never agree to waive the right to address itself to a court of law absolutely and for all purposes for contractual redress although it can be bound to an agreement to prior arbitration or be bound to a waiver against a claim for damages. Mind you, even if a contracting party retains the right to petition a court, a court will, barring fraud, uphold a validly signed exclusion clause.
All this may be tempered by provincial legislation. For example, many provinces have insurance and sale of goods legislation which restricts or regulates the use of exclusion clauses.
However, the parties are usually free to contract-out of the provincial legislation.
Parker v. South Eastern Railway Company, [1877] 2 CPD 416
"In an ordinary case, where an action is brought on a written agreement which is signed by the defendant, the agreement is proved by proving his signature and, in the absence of fraud, it is wholly immaterial that he has read the agreement and does not know its contents.... There may be cases in which a paper containing writing is delivered by one party to another in the course of a business transaction, where it would be quite reasonable that the party receiving it should assume that the writing contained in it no condition and should be put in his pocket unread. For instance, if a person driving through a turnpike-gate received a ticket upon paying the toll."
According to the court, the customer is bound by the exempting condition if he or she knows that the ticket is issued subject to it or if the company did what was reasonably sufficient to give him notice of it.
Entering into a parking garage, a patron paid his money into an automatic teller and out came a ticket. Although the patron did not notice it, the ticket contained a notice "This ticket is issued subject to the conditions of issue as displayed on the premises." There was also a notice Thornton v. Shoe Lane Parking Ltd., [1971] 1 All ER 686 The judge decided that the liability exemption condition did not apply because the contract was concluded when the patron put his money into the machine. board outside that read "All cars parked at owners risk."
"The customer is bound by those terms as long as they are sufficiently brought to his notice beforehand, but not otherwise. He is not bound by the terms printed on the ticket if they differ from the notice, because the ticket comes too late (the patron having already paid). The contract has already been made."
A photo company lent 47 pictures to a design company. In little letters, the document which accompanied the photos said that the recipient Interphoto Picture Library Ltd. v. Stiletto Visual Programmes Ltd., [1989] QB 433 would have to pay 5 a day per picture if the pictures were not returned after 14 days. The design company officer phoned the photo company when he received the photos and indicated that he was interested in several of the photos. The pictures were then returned several weeks later and the photo company sued for 3,783, which worked out to be 5 per picture per day that the photos were retained past the 14-day viewing period. This appeared to the court to be an extravagant penalty clause. draw to attention or else
"If one condition in a set of printed conditions is particularly onerous or unusual, the party seeking to enforce it must show that the particular condition was fairly brought to the attention of the other party. In the present case, nothing was done by the plaintiff to draw the defendant's attention particularly to (the) condition."
Eight orange juice casks belonging to Bradshaw were stored with Spurling, who had a no-liability clause inserted into the contract of warehousing including that all risks were assumed by Bradshaw. When the goods were handed over to Bradshaw's agent, it was discovered that contents of three of the casks were damaged. The judge said that a liability exemption clause will not operate to excuse a fundamental ("radical; a breach which goes to the root of (the contract)") breach of the contract. But this case did not merit any "exceptional treatment" as it had been adequately brought to the attention of Bradshaw. The Spurling (J.) Ltd. v. Bradshaw, [1956] 2 All ER 121 court was also impressed with the fact that Bradshaw did not complain of the condition throughout the eight months of storage and during which he made the monthly payments.
A car was lost when a ferry boat sank, partly due to the negligence of the operator. A liability exclusion clause existed but this one time, the car owner had not signed it. The ferry boat operator tried to rely on previous dealings with the passenger to have the exclusion clause implied. McCutcheon v. David MacBrayne Ltd., [1964] 1 All ER 430 The court said no.
past dealings irrelevant

"Previous dealings are relevant only if they prove knowledge of the terms, actual and not constructive, and
assent to them."
A man had a car accident and later pleaded guilty to a charge of impaired driving. His car rental agreement said that the rental company's Tilden Rent-A-Car v. Clendenning, 83 DLR (3d) 400 (ONCA, 1978) insurance would not cover accidents occasioned while the driver was intoxicated. The court found that the exclusion clause did not apply:
"The party seeking to rely on such terms should not be able to do so in the absence of first having taken reasonable measures to draw such terms to the attention of the other party."
quickie contracts
The court said that in ordinary commercial situations, where the parties have ample time to review the contract, the assumption could be that the signatory fully acknowledged acquiescence to its terms. But car rental agreements are signed quickly; in fact "the speed with which the transaction is completed is said to be one of the attractive features of the services provided." A car was bought with "no condition or warranty that the vehicle was road worthy." An earlier inspection of the vehicle had shown it to be
Karsales (Harrow) Ltd. v. Wallis, [1956] 2 All ER 866
road worthy, but it was no longer so upon delivery. The exclusion clause was set aside. "Notwithstanding earlier cases which might suggest the contrary, it is now settled that exempting clauses of this kind, no matter how widely
fundamental breach defeats exclusion clause Photo Production Ltd. v. Securicor Transport Ltd., [1980] AC 827
they are expressed, only avail the party when he is carrying out his contract in its essential aspects. He is not allowed to use them as a cover for misconduct or indifference or to enable him to turn a blind eye to his obligations.... If he has been guilty of a breach of those obligations in a respect which goes to the very root of the contract, he cannot rely on the exempting clauses." A security guard deliberately threw a match but not with the intent that a fire be created, which destroyed part of Photo Production's building. The security agreement included an exclusion clause to the effect that "under no circumstances shall the company (Securicor) be responsible for any injurious act or default by any employee of the company."
clause was unambiguous
The invalidity of exclusion clauses where a fundamental breach had occurred was discarded (see Karsales and Spurling above). Instead, exemption clauses are to be construed by the same rules of contract interpretation on whether or not a fundamental breach had occurred or not. Whether or not liability was excluded was to be decided simply on the construction of the contract. The court found the clause to be quite clear and unambiguous and found that it precluded the liability of the security company. A white-water rafting operator, just moments before the trip, quickly got the participants to sign a waiver. Three participants drowned Delaney v. Cascade River Holidays including Delaney and his estate sued Cascade. A majority of the court held the exclusion clause was sufficient: "the deceased was Ltd., 44 BCLR 24 (BCCA, 1983) informed that unless he signed the release form he would not be taken on the trip."
exclusion clause upheld
In this case, the court applied the rule that a party's signature to a document meant that, absent fraud or misrepresentation, he agreed to the terms contained in that document. Plaintiff stored some valuables in a safety deposit vault managed by defendant which were later stolen. A liability exclusion clause was relied upon by the defendants. The judge refused to allow the defendant to rely on the exclusion clause.
In this case, the plaintiffs were not asked to read the contract, they were not advised of its contents, they were told that it was not necessary Davidson v. Three Spruces Realty to obtain additional insurance coverage and they were not given a copy of the contract. The court stated that it would not lightly interfere Ltd., 79 DLR (3d) 481 (BCSC, 1977) with the freedom to contract. But: "the terms of a contract may be declared to be void as being unreasonable where it can be said that in all the circumstances it is unreasonable and unconscionable to bind the parties to their formal bargain." Important factors included whether the contract was a form contract, whether the contract came from negotiations or was a "sign here" contract, whether the attention of the plaintiffs was drawn to the exclusion clause, whether the exclusion clause was unusual, whether representations were made which would lead a reasonable man to conclude that the clause did not apply, did the clause make the bailee's reasonable care obligation meaningless and would the acceptance of the clause lead to tacit acceptance of the court of "unacceptable commercial practice." A house was bought and left unoccupied for two months, in spite of a clause in an insurance contract that voided coverage if the house was Hirst v. Commercial Union Assurance Company of Canada, 8 B.C.L.R. 396 (1978, BCCA) left "vacant" for more than 30 consecutive days. A toilet stated to leak on about day 30 of the vacancy and was only discovered on day 40, at which time it had caused close to $10,000 damage. The court would not let the insurance company escape coverage. Because the relevant provincial insurance act allowed a court to void an exclusion clause if "unreasonable or unjust", the court did so in this case, noting that it was restricted to the "peculiar circumstances of this case." Gearboxes proved defective but only after the manufacturer's one-year limitation period had expired. Canada's Supreme Court found the manufacturer cleared of liability because of the exclusion clause but for differing reasons from the bench. Hunter Engineering Co. Inc. v. Synacrude Canada Ltd., [1989] 1 SCR 426 Two of the judges (Dickson and La Forest) thought that Canada should eliminate the doctrine of fundamental breach invalidating exclusion clauses. Instead, exclusion clauses should be set aside, if at all, using the principles of unconscionability.
exclusion was unconscionable
unconscionability or fundamental breach
Two other judges (Wilson and L'Heureux-Dub) , preferred to retain the doctrine of fundamental breach in reviewing the validity of exclusion clauses and could not endorse a reference to the doctrine of unconscionability in the review of the validity of exclusion clauses. They adopted the following definition of such a breach: "where the event resulting from the failure of one party to perform a primary obligation has the effect of depriving the other party of substantially the whole benefit which it was the intention of the parties that he should obtain from the contract."
law love. 1. Contract Law - The Introduction 2. Privity, Consent and the Reasonable Man 3. Consideration & Deeds 4. Offer & Acceptance 5. Mistake, Rectification & Misrepresentation 6. Restraint of Trade, Assignment, Novation & Frustration 7. Interpretation of Contracts 8. Time Limits, Breach & Remedies
Published: Monday, May 07, 2007 Last updated: Monday, February 11, 2013 By: Lloyd Duhaime Permalink
http://www.duhaime.org/LegalResources/Contracts//LawArticle-93/Part-8-Time-LimitsBreach-Remedies.aspx Part 8: Time Limits, Breach & Remedies

We start off by quoting Mr. Justice Romer in Biggs v Hoddinott, [1898] Ch. D. 313:
1. 2. 3. 4. 5. 6. Contract Law - The Introduction Privity, Consent and the Reasonable Man Consideration & Deeds Offer & Acceptance Mistake, Rectification & Misrepresentation Restraint of Trade, Assignment, Novation & Frustration Interpretation of Contracts Time Limits, Breach & Remedies
7.
8.
TIME LIMITS, BREACH OF CONTRACT AND REMEDIES

Good, ol' fashioned judicial wisdom is hard come by in contract law but when it's there, you gotta use it.
"There is a great principle which I think ought to be adhered to by this court and by every court where it possibly can do so; that is to say
that a man shall abide by his contracts and that a man's contracts should be enforced as against him."
Persons are required to abide by their contracts, to "discharge" their contractual obligations.
Doing so completes the contract and frees each party from it.
In some circumstances, the same is true for those parties who want to, and attempt to discharge their obligations, but are prevented from doing so by some action of the other party.
This interference with the contract (lawyers call it "repudiation") may free the party who is trying to perform from their contractual responsibilities.
Where the payment of a sum of money is one party's obligation, this must be done by offering legal currency. The creditor is not required to make change nor is the creditor required to accept a cheque (although you'd get a scowl or two from a Court if this is what your case was all about).
If contractual obligations are not respected, the delinquent party is said to be in breach of contract. Breach of contract allows a party to bring the party in default to court and to get the court to correct the situation, as best the court can.
The courts will intervene even if time for performance has not arrived where a side to a contract has given a clear indication that they do not intend on honouring the contract. This is known as the doctrine of anticipatory breach.
Because a contract is private law, the courts will not throw the full brunt of the law against a person found to be in breach of contract. On the other hand, as discussed below, a variety of tools are used by the courts in dealing with breach of contract and ensuring that the person who defaults on a contractual obligation adequately compensates the person who did not receive full contractual benefit.
Time Limits on Enforcing Contracts
It would make no sense if legal claims were allowed to exist forever. Signatories die and records are eventually lost.
For this reason, any claim for breach of contract must be brought before the court within a certain period of time.
This is called a limitation period and is usually set in a statute of limitations. Every jurisdiction has its own deadlines. For example, in the case of non-real estate contracts, the standard limitation may be six years from the date the party would have first been entitled to bring action (i.e. the date of breach).
A partial payment will set the limitation period clock back to the start.
The Statutes of Limitation protects contractors from debtors that disappear by suspending the limitation period for the time of hiding.
Contracts related to real estate have very special rules governing the time limits of legal action taken upon them and tend to vary from province to province.
Breach and Remedies

Breach of contract comes in many forms. You could have a complete breach, where one party completely refuses to deliver on any part of their undertaking. In other situations, a person may do most of what the contract requires but omit or refuse to do a small residual portion. This latter situation is called "substantial performance" and it has the effect of binding the other party to performance, at least in an equivalent portion.
The first thing a lawyer will look for when faced with a possible breach of contract situation is a clause in the contract that has already decided what happens if there is a breach (see comments on "liquidated damages" and "exclusion clauses" on previous page). These clauses are perfectly legal and will bind the parties.
Another important factor is that each party has a responsibility to mitigate their losses. That means that even if your contractual partner is not keeping their end of the bargain, you should try to keep your losses at a minimum.
For example, if you are fired in breach of your employment contract, you would be expected to try to find another job as soon as reasonable, to minimize your losses due to the breach. Or, if you sign a contract to deliver apples to another person, and that other person refuses to take delivery (in so doing, is in breach of contract), you would be well advised to try to sell the fruit elsewhere to minimize any damages that you suffer by the breach.
The law does not require a party to do cartwheels to minimize losses; just what can be reasonably done without incurring substantial costs. The English case, Yetton v. Eastwoods Froy Ltd. [1967] 1 W.L.R. 104 stated the general rule by saying that:
"If (the plaintiff in a breach of contract case) can minimize his loss by a reasonable course of conduct, he should do so, though the onus is
on the defaulting defendant to show that it could be, or could have been, done and is not being, and has not been done."
Some of the cases below deal with mitigation of damages.
Specific Performance
There are several options available to the court in cases of breach of contract. The preferred remedy is damages (see below). Specific performance is exceptional and ordered only when an award of damages would be "inadequate." With land contracts, however, the courts have far greater direct authority and specific performance is the preferred remedy for breach of land contracts. The court would then order the delinquent party to perform his or her end of the bargain, if feasible, given the nature of the contracts and the irreplaceable character of the goods or services covered, and the ability of the court to enforce such an order.
This type of remedy has been called "coercive" and is obviously directed at getting the faulty party to fulfill their obligation. It is also a creation of equity which means it is very much a discretionary power of the court and it is subject to the tenets of equity, especially that which says that "he who comes to equity must come with clean hands."
If specific performance requires court supervision, the court will be reluctant to order it. A court will not order a singer to perform against his or her will even if not doing so is a breach of contract. Nor will a court order specific performance for non-specific goods such as "grain" or "petroleum", since they can be replaced, albeit perhaps at a higher price (provincial Sale of Goods laws provide similar statutory guidelines on specific performance).
Mennonite Land Sales Co. Ltd. In this case, specific performance was requested of a court where the defendant had breached a contract for the sale of crop. v. Friesen (1921) The court declined since the goods were not "of so unique or special a character that money compensation is not adequate."
Injunctions
An injunction is another coercive legal remedy which can be used in some breach of contract cases where a direct order is required to stop a party from continuing an ongoing breach, such as misuse of leased premises.
One of the features of coercive remedies such as specific performance and injunctions, is that the failure of the defendant to comply, results in a form of contempt of a court order and gives the plaintiff access to public enforcement weapons such as fine or imprisonment.
Nelson (aka Bette Davis) suddenly walked away from an exclusive acting contract. The plaintiff sued and asked for an injunction preventing her from further breach. The court issued an injunction preventing the actress from acting for other companies. This did not force her to act for the plaintiff so it was thought to respect...
Warner Brothers Pictures v. Nelson, [1937] 1 KB 209
"...the principle that specific performance of a contract of personal service will never be ordered.... (Nor will the court) grant an injunction in the case of such a contract to enforce negative covenants if the effect of so doing would be to drive the defendant either into starvation or to specific performance of the positive covenants."
Geometrics & Geometrics Services (Can.) Ltd. v. Smith, 65 DLR (3d) 62 (1975)
An interlocutory injunction (restraining until trial) was sought. The court said:
"... the basic issues ... are balance of convenience, the irreparability of the damages and the question whether
a prima facie case has been established."
The request was denied because the injury to the person sought to be restrained "could well be beyond compensation in damages" and there was no evidence of irreparable damage which could not be repaired, if proven, by damages.
Damages
Compensatory remedy is synonymous to the claim for damages. Instead of asking the court to require the faulty party to fulfill their obligation, the plaintiff asks the court to compensate him for out-of-pocket expenses caused by the breach. An order for damages is enforced privately by the judgment creditor. In some cases, the seizure of assets may be possible.
When it comes to damages, we enter a murky world of the law, a world which is still muddied by the influence of two distinct sets of criteria for assessing and ordering damages for breach of contract. The first set of rules comes from common law. The second set comes from a corollary body of law which developed in England in centuries past as a check on the cut-and-dry approach of the common law: equity. For example, where common law would bind a person to any contract given a signature apposed without duress, equity might weigh the relative positions and assess the "equitable" nature of the contract. The contract defence of undue influence and of unconscionability are equity-based, as is specific performance, and are good examples of remedies which rely on basic fairness rather than the strict rule of the law.
Damages are an attempt by the court to compensate the innocent party to the contract, the party that suffers the breach. The purpose is compensation not punishment so only real, actual damages can be ordered by the court. However, it seems that Canadian courts are no longer deaf to pleas for punitive damages in breach of contract cases. In wrongful dismissal cases based on breach of an employment contract, punitive damages are not uncommon.
Generally, there are two main methods of calculating damages:
The difference between what was contracted for and what was received. This is known as the diminution of value test. Provincial legislation makes it the prima facie rule in sale of goods contracts (eg. B.C.: "Where there is an available market for the goods in question, the measure of damages is to be ascertained, in the absence of evidence to the contrary, by the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted, or if no time was fixed for acceptance, then at the time of the refusal to accept"). The diminution of value method is applied in sale of goods cases because the plaintiff is required to mitigate his or her damages. If mitigation is not possible or reasonable, the alternate "cost of performance test" can be applied (for example, a defective product can be fixed at a reasonable price). To illustrate the diminution of value method: if I contract that you will sell me apples for $1,000 on July 1. The goods are delivered on July 4 forcing me, on July 1, to buy apples elsewhere for $1,300. Damages are $300.
Whatever it costs to put the plaintiff in the position he would have been in had the defendant fully performed his contractual obligations. This is known as the cost of performance method. The defendant is ordered to pay the cost of fixing the defect, of completing the contract. This is the prima facie method for assessing damages in breach of contracts involving buildings. The court will not order damages based on the cost of rectification if those costs are unreasonable when compared to the diminution of value of the building caused by the breach.
THE most cited case of all time when it comes to damages. A broken shaft was given to a carrier to bring to a repair shop. The carrier was not told that the absence of the shaft meant complete work stoppage for the owner. The carrier was in breach of contract by being several days late in delivery. Admitting to damages, the defendant nevertheless argued that the loss of profit damages were too remote. The court said that damages should be restricted to what...
Hadley v. Baxendale, 156 ER 145 (1854)

rule of remoteness and special circumstances
"... may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of
things, from such breach of contract itself, or such as may reasonably be supposed to have been in the
contemplation of both parties, at the time they made the contract, as the probably result of the breach of it.
Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs
to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract,
which they would reasonably contemplate, would be the amount of injury which would ordinarily from a breach of
contract under these special circumstances so known and communicated."
A boiler was sold, broken upon leaving the premises of the vendor and then never delivered. The court issued six "propositions:"
Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd., [1949] 2 KB 528

reasonably foreseeable
1. 2. 3. 4. 5.
The rule that damages try to put the aggrieved party in the same position as if his contractual rights had of been observed, can be too harsh at times, because some damages are too unpredictable or improbable. Only damages which are "reasonably foreseeable" from the breach are recoverable. What was "reasonable" depends on the knowledge of the party that commits the breach. Knowledge can be imputed ("ordinary course of things") or of "special circumstances outside the ordinary course of things of such a kind that a breach ... would be liable for more loss." It is not necessary to prove that the wrongdoer contemplated the loss. "Parties at the time of contracting contemplate not the breach of the contract, but its performance. It suffices that, if he had considered the question, he would as a reasonable man have concluded that the loss in question was liable to result."
6.
It is not necessary to foresee "that a breach must necessarily result in that loss. It is enough if he could foresee it was likely so to result. It is indeed enough ... if the loss ... is a serious possibility" ... "real danger" or "in the cards."
A ship, the Heron II, was nine days late with a cargo of sugar. During those nine days, the market price of sugar fell and the plaintiff asked for damages based on the price they could have obtained if the sugar had been delivered on time. The court could not agree saying that:
Kuofos v. C. Czarikow Ltd. (The Heron II), [1969] 1 AC 350

degree of risk
"... the crucial question is whether, on the information available to the defendant when the contract was made,
he should, or the reasonable man in his position would, have realized that such loss was sufficiently likely to
result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or
that loss of that kind should have been within his contemplation."
The court then allowed the damages but took the opportunity to reject part of the Victoria Laundry decision (see above) saying that while damages that are "likely" are recoverable, "serious possibility, real danger or in the cards" possibilities are not.
Bowlay Logging Ltd. v. Domtar Ltd., 87 DLR (3d) 325 (1982, BCCA)
no real loss ... then nominal damages
Bowlay was hired by Domtar to log 10,000 cunit of timber. But Domtar was unable to provide enough trucks so Bowlay sued for breach and damages. But there was no evidence of loss. The claim was based merely on the total expenditures of Bowlay minus what it had already been paid by Domtar.
But Domtar argued that the loss was not a result of the breach. Bowlay, Domtar argued, ran a highly inefficient business and would have lost much more had Domtar not have pulled its trucks.
The court agreed. The plaintiff having elected to claim for expenses, was rebutted by the defendant showing that the plaintiff would have incurred a loss had it completed the contract (i.e. the defendant did the plaintiff a favour). Nominal damages of $250 were awarded Bowlay. In this case, defendant had sold an nonexistent tanker to plaintiff. Defendant had relied on anecdotal evidence to assert that a marooned oil tanker could be found in a certain area. After an exhaustive search, the plaintiff sued for breach and damages.
McRae v. Commonwealth Disposals Commission, [1951] HCA 79
First, the court said that "the mere difficulty in estimating damages did not relieve a tribunal from the responsibility of assessing them as best it could."
Even though the Commission did not promise that a tanker could be salvaged, they did promise that one would be where they said it would
be. The court made an analogy with a contract for the sale of sheep: if there are no sheep at the point of delivery, the buyer will be able to recover his expenses incurred and wasted in sending a truck to take delivery. But not all the heads of damages were accepted by the court.
For example, capital assets such as equipment bought before the date of the contract was not admissible, as was the case with ordinary wasted expenses recoverable shipping supplies. Reconditioning of the search vessel, some of which was done way before the contract, was also disallowed.
McRae tried, too, to press a claim for the equivalent value of a tanker found with oil aboard. The court rejected this claim as the defendant had not promised that a salvageable tanker would be found nor that it would have retained its oil cargo. Damages were awarded based on money the search vessel might have made if it had not been engaged in the futile search for the nonexistent tanker. {Note: this case is also discussed in page 5.} "The general rule for the assessment of damages for breach of contract is that the award should put the plaintiff in the position he would have been in had the defendant fully performed his contractual obligations."
Keneric Tractor Sales Ltd. v. Langille, [1987] 2 SCR 440

equipment lease breached
The defendant rented farming equipment from Keneric. Keneric assigned the lease to the manufacturer as security on the purchase of the equipment. Langille stopped paying midway through the lease. The court decided that "a lessor who terminates a chattel lease by virtue of a provision in the lease allowing him to do so, is limited in his remedies to the rent due at the time of the termination.... When one party repudiates the contract and the other party accepts the repudiation, the contract is at this point terminated or brought to an end."
The court also stated that whether the contract was repudiated by the lessee or terminated by the lessor because of breach, "makes no difference to the assessment of damages." Keneric had, in their contract with the manufacturers, a penalty clause, which they paid, and which they sought to recover from Langille. Langille was aware that their lease with Keneric had been used as security and so the compensation for these payments was not remote enough to be excluded.
Sunshine Vacation Villas Ltd. v. Hudson's Bay Company, 13 DLR (4th) 93 (BCCA, 1984)
allowable expenses
Hudson's Bay reneged on a deal to allow the plaintiff to become the exclusive travel agency in several of its western Canada stores. In this case, the court stated that a plaintiff may choose between a claim for "expenses rendered futile by the breach" or the normal measure of damages (i.e. put the plaintiff in the position he would have been in had the defendant fully performed his contractual obligations).
Since, as had been done in Bowlay, the plaintiff had elected to proceed on the basis of "incurred and wasted expenses ... the onus of establishing ... that the amount of the expenditure to the date of breach was less than the net loss which would have been incurred had the contract been completed." The court accepted the amounts submitted as lost capital including the $80,000 initial investment by the investors and the line of credit balance of $115,000
Chaplin v. Hicks, [1911] 2 KB 786

loss of chance
A contestant in a beauty contest complained that although she was one of fifty finalists, the final selection appointment was given on such short notice that she did not receive the letter on time to make the appointment. In defence, the argument was that the chances of the contestant to win, in any case, were impossible to assess.
But the court said that the "fact that damages cannot be assessed with certainty does not relieve the wrong-doer of the necessity of paying damages for his breach of contract."
Giles v. Edwards, 7 TR 181; also at 101 ER 920 (1797) Hunt v. Silk, 5 East 449; also at 102 ER 1142 (1804) A.V.G. Management Science Ltd. v. Barwell Developments Ltd., [1979] 2 SCR 43
Bain v. Fotherhill is out
This old and short English case involved a man who, one-sixth of the way through the job, reneged on an agreement to cut firewood. The plaintiff sued to recover the advance payment. The court said yes, that the plaintiff "had a right to put an end to the whole contract and recover back the money that they had paid under it. They were not bound to take a part of the wood only." This has become known as "restitution."
Another old, short but important English contract law case involving a 19-year lease signed on the condition that certain repairs be done. The tenant moved in and then moved right out again when it became apparent that the repairs would not be forthcoming. He asked the court for the return of his down payment of 10.
The court denied restitution because the plaintiff had begun to receive the benefit of the contract: a few days occupation, "a part execution of the agreement."
A vendor sold the same land twice believing that the first deal had fallen through. The error was done in good faith; there was no attempt at fraud. The case gave Canada's Supreme Court the opportunity to review the applicability of the rule in Bain v. Fotherhill. This was an English case which said that the purchaser may decline to take the land and be excused from the contract, if the vendor fails to produce a good title. But the court added that nor was the purchaser entitled to damages unless there was evidence of fraud or bad faith.
In this case, Canada's Supreme Court decided that the rule was no longer applicable in Canada, because of vastly improved land title registration systems, particularly where the Torrens System was in place.
Nu-West failed miserably at constructing a house for Thunderbird, causing serious dispute between the two parties (the defendant
Nu-West Homes Ltd. v. Thunderbird Petroleums Ltd., 59 DLR (3d) 292 (1975)
building contract
complaining about serious deviations), to the point where Nu-West stopped construction. The evidence showed that Thunderbird then hired another contractor to finish the job and was advised that even the concrete foundation would have to be removed and redone to correct some deficiencies.
The general rule is that "the owner of the building is ... entitled to recover such damage ... as will put him in a position to have just the building he contracted for." But where "the cost of rectification is great in comparison to the nature of the defect, the court will not force a slavish following of the precise specifications of the contract .... The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures, and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken."
The evidence showed that in other respects, Thunderbird accepted some minor defects instead of tearing the whole place down and so the court assessed the damages to include the cost of removing the concrete floor.
Groves v. John Wunder Co., 286 NW 235 (1939)

cost of performance
This was a famous American contract law case in which land was leased to a competitor on the condition that he leave the ground on "uniform grade." The contract was breached "deliberately." The value of the land was about $15,000 but the cost of grading the land as had been promised was $60,000.
But the court ordered the $60,000 in damages saying that "in a case such as this, the owner is entitled to compensation for what he has lost, that is, the work ... which he has been promised and of which he has been deprived by the contractor's breach." Sunshine was to explore and develop mining land owned by Dolly Varden but failed and breached the contract. Sunshine stood to gain a half-interest in the land if it completed the contract but this reverted back to Dolly Varden on breach. Dolly Varden sued Sunshine and then contracted with another company to develop the same land.
Sunshine Exploration Ltd. Dolly Varden Mines Ltd., [1970] SCR 2 Scyrup v. Economy Tractor Parts Ltd., 40 DLR (2d) 1026 (1963)
foreseeability part II
The Supreme Court came down hard on Sunshine, saying that Dolly Varden could retain the half-interest and that Sunshine had to pay, in damages, "equivalent to the cost of doing the work" and that the agreement with the third-party was not a factor in assessing damages. The net result of this case was that Dolly Varden gained more then he would have had Sunshine performed the contract.
Scyrup ordered equipment from Economy advising them that it was needed in a hurry and to complete a job on behalf of a customer. Repairs needed on the faulty equipment caused Scyrup to lose the contract with the third party.
The court said that the rules laid down Victoria Laundry case is that knowledge, whether imputed or "special", revolved around the reasonable foreseeability of the damages and in this case, the loss of the contract with the third party. Whether on the basis of reasonable foreseeability, or on the basis of the Hadley rule, the defendant was liable to compensate Scyrup for loss of the contract.
This English decision seemed to reverse an earlier holding from Addis v. Gramaphone [1909] AC 488, which said that non-financial Jarvis v. Swan had no place in a breach of contract action. In Jarvis, a holiday was a disaster for a customer due to the breach of contract of the Tours Ltd., [1973] damages tour organizer. 1 QB 233 The court held that the injury was in the reasonable contemplation of the parties (in other words, that they conform to the normal rules for remoteness of damage in contract) and that while mental distress damages are normally not available in breach of commercial contract mental distress cases, they were in non-commercial contract cases.
A lawyer was dismissed in a rather heavy-handed way from a British Columbia Crown corporation giving the Supreme Court of
Vorvis v. I.C.B.C., [1989] 1 SCR 1085

punitive damages
Canada a chance to review if punitive damages were available in wrongful dismissal cases. Yes, said the court, but very rarely and only "in respect of conduct which is of such a nature as to be deserving of punishment because of its harsh, vindictive, reprehensible and malicious nature.... extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment."
In this case, the majority of the Supreme Court did not think that the conduct deserved punitive damages. The court noted that punitive damages are not compensatory in nature. Aggravated damages are different and are compensatory in nature, taking into account "intangible injuries." The court endorsed the Jarvis precedent (see above) "that aggravated damages may be awarded in actions for breach of contract in appropriate cases."
In this Supreme Court of Canada case, a 1957 contract to return shares in 1960 was breached. The defendant argued that once Asamera Oil it became clear that the shares were not forthcoming, the plaintiff should have bought other shares to mitigate his damages, Corporation v. particularly since the value had increased so much that had the plaintiff of done so, the profit would have covered any Sea Oil & General subsequent loss. Corporation, But Canada's highest court agreed with the plaintiff's arguments that shares are highly speculative investments and that to mitigate by [1979] 1 SCR 633 buying other shares would have been extremely risky. The duty to mitigate, in ordinary sale of goods cases, was clear: "a plaintiff is entitled
to recover damages for the losses he has suffered but the extent of those losses may depend on whether he has taken reasonable steps to shares and mitigation
avoid their unreasonable accumulation" and "it is for the defendant to carry the (evidentiary) burden of that issue."
The traditional rules about mitigation of damages "are inapplicable to nondelivery of share" cases. The court was also of the view that the value of the shares, for the purposes of assessing damages, should be the date of the breach unless the plaintiff purchased other shares to attempt to mitigate losses, in which case the claim for damages would have been based on the date of the trial. An employee executed a 3-year contract with a local waste disposal firm for the rental of advertising space on receptacles. The contract had a clause that if any payment was late, the whole 156 weeks worth was immediately payable. When he discovered it, the business owner
White and Carter was furious with the contract and repudiated it, refusing to pay. The court: (Councils) Ltd. v. McGregor, [1962] "If one party to a contract repudiates it in the sense of making it clear to the other party that he refuses or AC 413 will refuse to carry out his part of the contract, the innocent party has an option. He may accept that
repudiation and mitigation
repudiation and sue for damages for breach of contract, whether or not the time for performance has come; or he
may ... disregard or refuse to accept it and then the contract remains in full effect."
A house vendor backed out before closing because his wife suddenly placed a lien against the property under matrimonial property legislation. The purchasers sued. The situation was made more peculiar because the value of the property increased dramatically, doubling by the date of trial.
"The normal rule is that the general damages to which the purchaser is entitled for breach of a contract for the
Wroth v. Tyler, [1974] Ch. 30

when calculated
sale of land are basically measured by the difference between the contract price and the market price of the land
at the date of the breach, normally the date fixed for completion."
But the court did not see this rule as "inflexible" and that "the sale of a house is a case par excellence in which the court has jurisdiction to entertain an application for ... specific performance."
But the matrimonial property issue prevented the court from ordering specific performance. So where specific performance is unavailable through no fault of the plaintiff, the court can order the equivalent in money. The court felt that the increase of value of the house was foreseeable and they awarded damages of 5,500, which represented the increase in value of the property as of the date of trial, in lieu of specific performance.
Miliangos v. George Frank (Textiles) Ltd., [1976] AC 443

foreign currency
An international contract was breached, the contract stipulating that payment was to be in Swiss funds. The English court had to set a date of conversion. The old rule (in a case known as Havanas Railways) held that the date of breach was the date of conversion. The English court said that the court could choose any conversion date that best served justice and, in this case, they chose the "date of payment ... the date when the court authorizes enforcement of the judgment."
A salesman breached a no-competition agreement, which provided for payment of $10,000 "as liquidated damages, and not as penalty."
Shatilla v. Feinstein, [1923] DLR 1035

penalty clause rejected
The court said that "when the damages which may arise out of a breach of a contract are in their nature uncertain, the law permits the parties to agree beforehand as to the amount to be paid in case of a breach." Whether the agreement is a penalty clause or not will be decided on a case-by-case basis. If a fixed sum is given on the breach of a number of obligations, as was the case here, there is a presumption that this is not a liquidated damage clause but a penalty clause (courts will not enforce a penalty clause).
This presumption can be rebutted if it can be shown that it has been carefully thought out provided, still, that it is not "extravagant or unreasonable." The danger lies, however, in that "the strength of the chain must be taken to its weakest link and if it can be seen clearly that the loss in one particular breach could never amount to the sum stated, then the conclusion is that the sum is a penalty may be reached." The clause was considered to be a penalty clause and thrown out.
Thermidaire Corp. In this case, a liquidated damage clause provided, rather than a set sum, a formula, "an amount equal to the gross trading profit realized through the sale of ... competitive products." v. H. F. Clarke Ltd., [1976] 1 The court let the appellant off the hook and voided the clause as it was "a grossly excessive and punitive response to the problem to which it SCR 319 was addressed." A liquidated damages clause "must yield to judicial appraisal of its reasonableness in the circumstances." The power to
relieve from penalty clause is of equity and it does not relieve from liability from normal damages "which a court would fix if called upon to do liquidated damages excessive so."
J. G. Collins
A clause in the contract provided for "$1,000 as and for liquidated damages." Striking down a penalty clause, the court stated, is a blatant interference with the freedom to contract, and should only be done "for the purpose of providing relief against
Insurance Agencies Ltd. v. Elsley, [1978] 2 SCR 916

liquidated damages
oppression.... If the actual loss turns out to exceed the penalty, the normal rules of enforcement of contract should apply to allow recovery of only the agreed sum."
Stockloser v. Johnson, [1954] 1 All ER 630

forfeiture clause
The contract stated that the vendor would remain full owner until and unless every last instalment was paid. Upon default, the plaintiff sought to recover the instalments. But the court disagreed and let the vendor keep the instalments, partly because "there is an express clause, a forfeiture clause ... permitting him to keep it."
Where there is no forfeiture clause, if the seller rescinds the contract, then he must refund the instalments and can then sue for damages. Where there is a forfeiture clause, then no recovery is possible except under equity if it can be proven that the clause is "of a penal nature, in the sense that the sum must be out of all proportion to the damage; and, secondly, it must be unconscionable for the seller to retain the money."
1. 2. 3. 4. 5. 6. Contract Law - The Introduction Privity, Consent and the Reasonable Man Consideration & Deeds Offer & Acceptance Mistake, Rectification & Misrepresentation Restraint of Trade, Assignment, Novation & Frustration Interpretation of Contracts Time Limits, Breach & Remedies
7.
8.

Contract Law

Transféré par

Informations du document

Description originale:

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Contract Law

Transféré par

Droits d'auteur :

Formats disponibles

http://www.duhaime.org/LegalResources/Contracts/LawArticle-5/Part-1-Contract-Law-Introduction.

binding contract in Quebec.

DUHAIME'S CONTRACT LAW

: Eight chapters of pure, unadulterated contract

Part 1: Introduction and Origins

suppose that no one can count upon the fulfillment

freely made and effectively sanctioned, and the most

elaborate social organization becomes possible."

mistrust, the law lays down its principles."

alter the common law.

Origin and relationship to tort

So a contract requires an agreement between the parties.

<p >>> continued >>> Chapter 2 ... </p

DUHAIME'S CONTRACT LAW

: Eight chapters of pure, unadulterated contract

http://www.duhaime.org/LegalResources/Contracts/LawArticle-87/Part-2-PrivityConsent-and-the-Reasonable-Man.aspx Part 2: Privity, Consent and the "Reasonable Man"

: Eight chapters of pure, unadulterated contract law love.

Tweedle v. Atkinson (1 B. & S. 393, 1861)

Beswick v. Beswick [1968] AC 58

Vandepitte v. Preferred Accident Insurance Co. [1933] 1 DLR 289

McCannell v. Mabee McLaren Motors Ltd. [1926] 1 DLR 282

New Zealand Shipping v. A. M. Satterthwaite & Co., [1975] A.C. 154

Beware the "reasonable man"!

R. v. Cae Industries Ltd. , [1986] 1 FC 129

Nicolene Ltd. v. Simmonds [1953] 1 QB 543

Hillas and Co. Ltd. v. Arcos Ltd. (1932)

May and Butcher v. R. (1929, reported at [1934] 2 KB 17

Foley v. Classique Coaches Ltd. [1934] 2 KB 1

DeLaval Co. v. Bloomfield [1938] 3 DLR 405

Meyer v. Davies (1989) deal struck by phone

Knowlton Realty Ltd. v. Wyder, 23 DLR (3d) 69 (1972)

The case law offers two varieties of undue influence.

Gordon v. Roebuck, 92 DLR (4th) 670 (1992)

Morrison v. Coast Finance Ltd., 55 DLR (2d) 710 (1965)

Marshall v. Canadian Permanent Trust Company, 69 DLR (2d) 260 (1968)

Lloyds Bank v. Bundy [1975] QB 326

Harry v. Kreutziger , 95 DLR (3d) 231 (1978)

>>> continued >>> Chapter 3 ...

http://www.duhaime.org/LegalResources/Contracts/LawArticle-88/Part-3-ConsiderationDeeds.aspx Part 3: Consideration & Deeds

undertaken by the other."

As such, a contract differs from a gift.

Under contract law, there is no contract if there is no consideration.

Some other notes on consideration:

The consideration must be reciprocal, each party offering consideration.

Eastwood v. Kenyon, 11 Ad. & E.

Past consideration is not enough to create a valid contract.

would be payment. There was a valid contract.

No, said the court:

Stott v. Merit Investment Corp., 48 DLR (4th) 288 (1988)

Pao On v. Lau Yiu Long, [1980] AC 614

old for new ... not!

old for new ... ok!

Foakes v. Beer, 9 AC 605 (1884)

"When a creditor and debtor enter on a course of negotiation

, which leads the

John Burrows Ltd. v. Subsurface Surveys Ltd., [1968] SCR 607

being nice is not estoppel

Combe v. Combe, [1951] 1 All ER 767

Foot v. Rawlings, [1963] SCR 197

new payment, new contract

"The giving of a ... series of post-dated

constituted good consideration so long as the

bargain may be carried out in its full integrity.