TOPIC 1: REPRESENTATION AND TERMS Three broad categories of statements made during negotiations leading up to signing of k: 1.

Sales talk/mere puff- noyt part of k, not remedies if broken 2. Mere representations- not terms of k but can lead to limited legal conseqs if broken 3. Statements that are construed as terms of k -Second and third lead to different remedies so distinction is important; negligent misrepresentations can also lead to tort liability steps: show misrep (redgrave test, good faith duty; nature of statement); deal with bars to rescission via making collateral agreement (warranty) to get damages (A) Misrepresentation and Rescission Three basic issues: 1. What kinds of pre-contractual statements will, if false, be characterized as misreps giving rise to rescission? 2. What is the nature of the remedy of rescission? 3. What limitations are imposed on ones ability to rescind for a mispre? Rescission= put party back to pre-k position- status quo ante Damages= expectation, put party in place they would have be in if k had been performed Basic principles: $ innocent misrepresentation is sufficient ground for rescission Redgrave v Hurd $ must be a misrepresented statement of fact or promise, not a st of opinion, unless made by expert (Smith v Land and House Prop Corp) $ can characterize st of opinion as st of fact by saying st of opinion had an underlying implicit st of fact that there were facts to support the opinion ( Esso; Smith v Land) $ What about silence- Non-disclosure, a duty of good faith in negs? general principle- at common law, no duty to disclose to party one is negotiating with ( but see: Bank of BC v Wren; exceptions) $ Rescission: Misrepresentation Generally: Redgrave v Hurd 1881 Eng CA: innocent misrepresentation is sufficient ground for rescission Facts: misstatement of fact, K to purchase solicitors house and practice entered into after material misrep (that the practice made money) made; he didnt look at papers on the additional business of the practice P sues for spP; Hurd (D) counterclaims for rescission alleging he was induced to enter K by misrep Trial J dismisses CoCl b/c D failed to examine the documents, so must be taken that he didnt rely on the representations as to the value Issue: does H have claim to rescind K b/c pre-contractual discussion constitutes misrepresentation? Holding reserves- innocent misrepresentation is sufficient ground for rescission - unjust enrichment if a party who induced a transaction by misrep is allowed to retain the benefit of it Test: (i) must be statement of fact or promise made (not opinion, not law-are NOT facts)

(ii) material statement (misrep m/b relevant to whether someone wld enter K) (iii) reliance (was it intended to induce, did it induce? misrep need not be exclusive reason for entering K, can infer reliance on material misrep as matter of law (unclear if same in Canp.390 notes) no obligation on representee to do anything (check facts etc); negligence of representee is no defence defense - D must prove there was NO reliance statement did NOT induce P to enter K e.g. P has knowledge the representation is untrue Ratio: innocent material misrep gives rise to equitable remedy of rescission; test for legal sign of innocent misrep; can presumed reliance as a matter of law Notes: ordinary case use Redgrave but for securities its not helpful (prob: whether fact was complng) - good that P does NOT have to prove reliance (sometimes dont want to put P on the stand, class actions difficult to prove, etc) The Nature of the Statement: $ must be a statement of fact made during or prior to formation of kB clear law $ if you want a have a contract binding- make st of opinion or a promise $ Fitzmorris- promise is a implied statement of fact about a current state of mind/intention of promiser- if falsely made- then it is a misrepresentation $ statement of opinion not a statement of fact, st of mere opinion do not give rise to claim for neg/fraud misrepresention (unless expertB see Smith v Land and house property-p.390 he is a good tenant- st of opinion B implicit statement of fact that there is a factual basis for making that statement of opinion- that there are facts to support the opinion) $ Esso v Mardon- Denning tweaks a st of opinion (estimate of annual consumption of gas at gas station) into a misrepresentation implicitly made (that forecast was sound and reasonable) $ if you want to have a claim for neg/fraud misrepresentation-make st of op or promise into a st of fact- like Denning did $ what about st of law? Not for lay people but what if it=s a lawyer? Can argue that st of op is a promise that the lawyer has checked into it and that there are facts to support his opinion (like Smith v Land and House) Non-disclosure, a duty? $ general principle- at common law, no duty to disclose to party one is negotiating with ( but see: Bank of BC v Wren; expcetions) ought to be good faith in bargaining; American K law duty of good faith included in Uniforn Commercial Code rule in Cdn law: no duty to disclose in law, but: (p. 394) half-truths- truth, lie; statement made without checking whether that was so and not saying that hadnt checked=misrepresentation Fraudulent circs p. 39- 4-- in Canada- Gronau- - concealed structural problem in real estate deal- found to be a misstatement of fact even though its just silence what about changes in circs -duty to disclose when changes render statements made no longer trueB applies to one transaction (see UCC) Special relationship- fiduciary relationships (will have to make full and frank disclosure) family settlements, some special contracts like insurance-uberrimace fide -of upmost good faith cannot actively conceal facts [= misrepresentation (contrast w/ negligence) = fraud]

Arguments re disclosure about a material change: misrepresentee material change creates continuous disclosure obligation, justified b/c its more efficient to require misrepresentor to disclose (law & economics argument) misrepresentor put it in ink if disclosure is important crt Redgrave continuous disclosure if circumstances change is there an obligation to reveal this? Bank of BC v Wren Facts: assets being guaranteed by someone- D asks if collateral is still there, banker says hed look into it, guarantor signs anyways; personal exposure to liability from big corp debt Issue: Is non-disclosure a misreprestnation giving rise to rescission of guraratee k? Holding: this was non-disclosure, amounting to misrepresentation -set aside personal guarantees Reasoning: $ this was a unilateral mistake of part of D induced by misrep of P for failing to disclose material facts $ make case for changing circs=non-disclosure rule? Technically its a series of many discrete transactions, where doctrine applies to one transactions $ McCamusB cts don=t like personal guarantees $ pushing the envelope of the doctrine; is this a great expansion of the doctrine? Ways to expand non-disclosure doctrine Expanding the doctrine scholarship on reform this area some consumer protection laws Kronman article- incentive for engaging in productively economic conduct its about accidentally vs deliberate research to find information $ Issue: where is that line? Good faith test? US: Non-disclosure is misrepresentation were it would amount to bad faith if it wasnt disclosedsee Restatement of Contracts 2 nd s. 161 (in supp materials)changing circumstances; correcting a basic assumption the other side is making; in reasonable standards of fair dealing; where there is relationship of trust and confidence $ Super vague $ S. 161- offers examples of bad faith- US- must disclose if you know that there is fraudulent concealment whether you do it or not; Canada- seems that our law says that its only if you engage in fraudulent or negligent concealment $ Compare to Bentley case where there is statement, vs here where there was nothing stated Good faith test in Canada- Martel- pure economic loss tort doctrine Good Faith and Disclosure Martel v Canada Re: lease to govt agency Tenant might keep lease or may tender out Landlord/loser tenderergovt acted in bad faith (which not a tort, there is no duty to bargain in good faith as a tort) At SCC- switches to a negligence case govt was careless No previous case for pure economic loss resulting from negotiations Use the Anns test to determine duty of care- 1) proximity; 2) policy reasons to negate- indeterminate liability, indeterminate quantum, policy questions unique to negotiation (contrary to the purpose of negotiation)

Iacobucci: Meets step 1, no indeterminate liability here, but other concerns (nature of negotiationzero sum game, would discourage bargaining, turn cts into regulator of bargaining, needless litigation) negate duty of care to negotiate in good faith giving rise to economic loss, as a tort So no tort for bargaining in bad faith, but there might be a duty to bargain in good faith (not decided) Cornell Engineering case Termination arrangements in standard employment k, with job and possibility of buying interest in company of young guy to older family friend mentor Younger drafts it, older doesnt read before signingCA duty to disclose the contents of k or misrepresentation? [but more likely to be framed in terms of a formation problem (not being able to accept an offer unknowingly)] Ont CA in certain circs there is a duty to disclose in good faith during negotiations Stuff on duty of good faith re negotiations, but all obiter b/c ratio is: older is bound even though he didnt read it, unless overriding duty (ie fiduciary duties) Stepps Investment v Security Capital coreferred to- about drawing attention to changes in a k (compared to this case where it was surprising term not dealt with in negotiations) Note article by Paul Fin-the fiduciary principle (p. 616)three equitable standards-fiduciary [must act selflessly, exclusively in clients interest], unconscionability [not to take advantage] and good faith [act self-interestedly but take others interests into account] o Cts use fid duty to impose disclose obligations, why not just recognize good faith duty to disclose information: o base them 5 factors, none exclusive: past practice of advice giving [no], advisory responsibility/relationship [no other way around], access to information [no], expectation of reliance based on manner of relationship [no], trust and confidence relationship [no here] o if those factors meet- one might reasonably expect that the other side will take the others sides interest into account o CA doesnt say it has to be a very important fact, like in US- maybe thats assumed o maybe wouldve been different if it was older mentor who added new stuff

Rescission remedy for misrepresentation to put party in place they would have been before they entered into the contract go back to when equity and common law were separatesomeone goes to common law to get damages for k breach; in equity- def asks for rescission, or compensation in lieu and is set aside to rescind- must be giving back and taking back of benefits exchanged under the contract (dont need ct order necessarily, if both agree and its practical) there must be able to re-exchange benefits (restitution) Issue- third party intervention then to late to rescind-in equity but it is a rescission and the third party gets screwedif sold to third party before rescission then ok, if after rescission than not ok b/c rescission makes the contract void, nothing, status quo ante, so buyer would have had nothing to sell to third party Kupchak v Dayson Holdings 1965 BCCA flexible nature of equitable remedy of rescission; need to avoid unjust enrichment F purchased motel, stopped making mtg pymts on learning representations re past earnings were false I relief where a change in the character of co/shares (in the identity of property); is there power to award pymt of $ under equitable principles to adjust rights consequent upon rescission

H we can restore to transferor the monetary equivalent at the time the transaction closed- at least for fraudulent misrepresentation $ fraud rescission should NOT be refused unless impractical or clearly unjust to the party seeking to uphold the transaction $ crt determines whether rescission is practical can remove inequities through compensation/indmnty $ introduces flexible remedies: crt can order return of profits; compensation for deterioration of assets Note: indemnity awards return property & indemnify P against paying mtg - available only where out of pocket expense confers value on other party on rescission - not a literal giving back and taking back on both sides - accounting see how money can be equitably distributed btwn parties - compensation money makes up for the loss (restore P to pre-K position); value of property on date exchanged Note: what if only one asset had been transferred- in Kupchak, there were other assets transferred that were returned Rescission and Money Compensation issue is whether an ungive-backable asset can be replaced by monetary equivalent- not damages per se, but a monetary equivalent as compensation- a restitution interest rescission is a restitution remedy- restitution interest is the recovery of value conferred on defendant (other types of restitution, found generally in common law sense is reliance ie out of pocket loss and other interests (in torts), and expectancy (loss of profits, as in contract) restitution- status quo ante, restitutio integrum Whittington v Seale p. 401 - misrepresentation of sanitary conditions of poultry farm, chickens dieplt had various expense- rent, buying poultry, improvements, taxes, profits he would have made o if he claimed in damages- he wouldve got all of it (reliance loss); but under rescission- gets monetary equivalent of benefits to def- gets monetary value of rent, improvements, taxes but not loss of chickens, loss profits- only restoration o indemnity is the same Nocton v Lord Ashburton- br of fid duty case- lawyer gives bad advice, injury not recoverablenot recovery in tort (then only for fraudulent misrep at the time: Derry v Peek) and contracts b/c limitation over o HL says P get equity get damages for negligent misstatement for fid duty cases (Hedley 1960s- tort liability for all neg misrepresentation) o SCC still relies on this case for aboriginal case- giving equitable damages Dusik v Newton-award of damages in lieu of rescission (restitutionary) in a case of unconscionability (in case where it was too late to rescind) BC CA Bank of Mtl v Murphy Note 5, p. 401damages shouldnt be confined (not the law yet, possible road)BCCA in obiter Third party intervention-- can that be overcome with monetary compensation? These lines of cases suggest maybe in future? Summary: --you can get rescission for neg mispres; --you can also get monetary compensation on a rescission award --monetary restitution for value of assets conferred on the other party as in Kupchak where as a practical matter its impossible to restore; and Whittington where its represents out of pocket expenses that conferred value on def (tradition doctrine restricts you to this relief) --what about where restitution not possible? Not traditionally but Murphy and Dusik suggest possibility to think about this

Bars to Rescission intervention of third party rightsbut Crime Universal recall sold car with bad cheq; subsequently sold to police- rescission occurs when owner A calls police and CAA- prevents transfer to third party b/c rescission occurred prior to selling car to third party laches- equitys version of the limitation statute- cut of a claim in equity 2 elements- 1) delay and 2) prejudice o so not just timealso what happened in that passing of time, probably likely to come up with time frame similar to the common law limitation period o (caveat- new limitation period of 2 yrs- laches irrelevant after to years, what about before that?) affirmation or election?if done clearly then ok- indicating to the other party that you will not use rescission execution or performance under the contract- Redican v Nesbitteffectively, execution is bar to rescission- [silly b/c a party probably cant discover misrepresentation until they have taken possession- policy reason- stability of transaction] o sale of good, real estate Leaf v Intl Galleries- Lord Denning- said plt should have pleaded br of k- would have won on warranty- looks to sale of goods act- you have a reasonable time to examine goods after taking possession o Innocent misrepresentation not as powerful as br of k- so thinks that it cant be more than what youd have for a br of k o So for k, short period of time to examine, and can rescind Sale of land- where innocent misrepresentation lead to an error in substantialibus (substantial error) [Canadian doctrine, only in Canada] (B) Representation and Terms Misrepresentation and Getting Over Bars to RescissionMaking it a collateral agreement to get damages For contract- no rescission (if barred), no damagesso need to find that 1. representation was a contract in itself (collateral k?) that is, that the misrepresentation is a promise (b/c only promises not statements of fact are contractually enforceable); 2. and the promise is a warranty- in binding contractual sense Look to intention of representor was to be bound by promise (Heilbut) Heilbut, Symons v Buckleton 1913 intent required for statement to be Kual term F shares in rubber company, purchaser bought w/out prospectus I was there a warranty (collateral K) that they promised co was a rubber co (pre-contractual utterances) H - an affirmation at time of sale is a warranty provided it appears on evidence to be so intended - Pre-contractual utterance was statement of fact, BUT no intention of contractual liability in respect of accuracy of the statement Conservative, strict approach - person is NOT liable in damages for an innocent misrepresentation (pre Hedley Byrne) - argument for P: its a rubber company was statement intended to induce misrepresentation gives rise to rescission (what if its too late to rescind?) give statement contractual force by turning into a warranty convert statement of fact into promise previously: opinions & promises become statement of fact (ie Esso) now: fact becomes promise/an undertaking, so when its not a rubber co its a breach (warranty)

 convert statement of fact promise warranty contract (contractual force) Test for converting: what kind of contractual arrangement might exist usually unilateral K bilateral K (promise for a promise = binding K) unilateral K (promise on one side, an act on the other Carlyle v. Carbolic Smoke) if you do X, I promise Y (acceptance & act are same) if you buy, I promise its a rubber co --Lord Molten says thats rare collateral warranty, collateral unilateral K 2nd agreement (after main K) Test for statements to be collateral K (warranty): (i) prove there was a misrepresentation (ii) pre-contract warranty must exist (based on promissory intent parties must have animus contrahendi (spirit/intention of K look to language, conduct, circs) without it, no K

Dick Bentley v Smith Denning 1965

F: br of warranty on the sale of a car; seller made misrep that car only had 20,000 miles on it PH: county J found that there was a warranty (re speedometer) and that it was breached and that damages were 400+ but gave award for 400+ as requested in pleadings I: 1) whether this rep was an innocent misrep (no dams pre Hedley) or whether it was a warranty (dams) H: Denning finds that the representation is a promise/warranty Representation made for purpose of inducing someone entering into a k, and does enter into the k, that is a prima facie ground for inferring the representation was intended as a warranty (and is binding) (looks like pre Heilbut jurisprudence); if someone has special knowledge, is an expertise etc Uses objective test to determine if it was intended to be a warranty Distinguishes from a old case of his where there was no special knowledge; here, car dealer ought to have known better Inducement should be causal reason for entering into the k, but not necessary the only reason (recall Redgrave v Hurd) Remedies for Misrepresentation Leaf v Intl Galleries Denning 1950 F: Bought a painting apparently painted by certain painter incl in terms of K (turned out it wasnt); didnt plead br of k, claim only for rescission I: can buyer rescind the k on account that painting wasnt a Constable? H- buyer deemed to have accepted picture CANNOT rescind Analysis: o NOT a mistake as to subject matter of the k o Is either a condition or a warranty o If condition buyer cld reject for breach of condition BEFORE he accepted it or was deemed to accept it o if warranty buyer could not reject it BUT could claim damages o Denning finds the term a condition o significance is in damages: o breach of K expectancy - enough $ to put purchaser in position wld/h/b in if K performed o tort for innocent misrepresentation (carelessly false statement) reliance - enough $ to make purchaser whole put in position they were in before they met dealer

o restitution rescission & restitution (Redgrave v. Hurd) o here want to go from misrep term of K b/c its too late to rescind o Condition allows period of examination (get reasonable period of time after receiving goods to examine; that expands the customer rights from the point of delivery being end of time to rescind) (gets over execution as bar to rescission) (pro-consumer but doesnt help in this case) o on K for sale of goods, an innocent material misrepresentation may be ground for rescission even after K is executed; but claim for rescission on ground of innocent misrep is barred where claim to reject for breach of condition is barred (purchaser had ample time to examine the goods) warranty = promise collateral warranty = when promise is made as inducement to enter into K, the consideration for which is entering the K (C) Statutory Reform OLRC Report on Amendment of Law of k Business Practices Act, ss. 1-4 Problems with the doctrine of misrepresentation: 1. Can be injured by innocent by non-neg misrepresentation and there is no remedy, unless you look to finding a contractual intention (hardish to do) 2. Right to rescission- remedy disappears rather quickly the bars (which has the effect of removing relief b/c thats the only remedy that equity could give 3. Doctrine is slippery, courts manipulate it o US hasnt helped much- an affirmation at time of sale (or exchange) is a warranty only if it is part of the basis of the bargain o UK- enlarges the right to rescission and for damages for misrepresentation treats statements inducing ks as part of contractual terms- exploding lines between Bentley (condition) and Redgrave (misrep) o Canada Law reform commission- get rid of execution rule for rescission, give cts discretion to not allow rescission and give damages in substitution, give restitution of the ill gotten gains/reliance damages (discretionarily); misrepresentations of law and of fact should be treated as the same (unlike what cases say; it like the US law) (McCamus says use rewording to change st of fact/opinion to undertakings that st are true); no change for fraudulent misrepresentation o Not adopted o Consumer protection field- Ont- Business Practices Act- gives right to rescission in respect of misrepresentation inducing k for the sale of goods and certain services to consumers o Offences: 1) making false statements; 2) entering into unconscionable arrangements with consumers (consumer misrepresentations) o Indexed definition of misrepresentations o Remedies- section 4s. 4(1)(a)- consumer is entitled to any remedy therefore that is at law available, including damages [issue is what about limitations of doctrine, repeated by this? Unclear what this means] (D) Concurrent Liability in Contract and Tort o arising from Hedley Bryne- damages in tort of neg misrep where there is a special relationship could claim now in either(the three types are) rescinding, expectancy damages and reliance (ie tort) damages can claim in either of the latter two o Canada: SCC in Nunes Diamonds 1972- no tort dams where parties governed by a k o Sodd Corp. v N. Tessis- tries to narrow Nunes

BG CHeco Intl v. BC Hydro and Power Authority- overrules Nunes, 1993

Negligent Misstatements Inducing Contract- Getting Damages in Tort o Denning- Esso v Mardon- founding case on allowing recovery for careless pre-contractual misstatements inducing entering into contract UK o Sodd v Tessis OCA neg misstatement inducing entering into k gets rise to restitution claim o Exemption clause doesnt apply- maybe b/c the clause is not on point; maybe b/c there was a collateral warranty that was not included in the exempted out areas Coll warranty would be?? Officer made promise that he took reasonable skill in assessing value of goods (mine not McCamus) o Can be both neg misstatement inducing k AND a collateral warranty o Emphasis on skill of officer of D as to value of goods that were the subject of the tender o Exemption clause could have been better drafted (this is the case that changes the law) What if it was better? Can you still be liable? o Note 4 p. 427issue with effect of exemption clauses on tortuous liability for pre-kual statements o Ronald Elwyn Lister- trial J allowed clause that no reps, inducements, promises or agreements oral or otherwise between the parties not embodied in k shall be any force or effect to have the effect of precluding tortious liability for careless misstatements which induced entering into k b/c P had gotten legal advice that they were taking a chance in signing an agreement with a clause like that; affirmed SCC o Hayward v. Mellick dissenting judgment: adopt such provisions only when language is very clear; majority- strict construction only appropriate where pre-k st related to some overriding or collateral matter not when related to quality or fitness of the subject-matter of the K o Carman Const v CPR. SCC- non-reliance provisions (representee does not rely on any info or st made to him prior to entering k) not really exemption clauses, not subject to strict construction (that is if its not written its not in k) and P was aware of provision and understood he couldnt rely Concurrent Liability in Tort and Contract Reasons for Concurrency
(1) remedies available

Contract
expectation damages what parties wld have had if K were performed reliance dmgs restores parties to pre-K positions no recovery for personal injury better damages obligation arises out of K freedom to K out of CL tort liability and duty of care prove K existed prove breach show extent of damage

Tort
consequential damages to restore parties to position they were in prior to incident

(2) statute of limitations is different (3) policy reasons Course of Action

longer limitation period obligation arises from CL

prove duty of care arises from some relationship prove breach of duty (party was negligent or did not take reasonable care) prove harm not just amount of

Analysis

pre-contract misrepresentation ways in which pre-K misrep can be incorporated into K so breach can be demonstrated collateral warranty suing on preK statement prove statement strictly and show it induced reliance

damages pre-contract statement misrep establish that party had a duty of care duty: person must not negligently tell you something that cld bring harm to you duty to act reasonably misrepresentation becomes breach of the duty prove damage damage is that on basis of a misrep you entered K, the result of which is the harm suffered

Is negligent misstatement also contractual in nature? McCamus analysis & strategy for dealing w pre-contractual statements: (i) argue that statement is important and is a term of K liability for misrepresentation; or (ii) argue misrepresentation was collateral warranty (a second K especially good where theres exculpatory clause): collateral warranty term of K enforceable damages for breach (iii) argue 2 Ks:(i) if you buy, I promise it has value; (ii) purchase K (contains exculpatory clause) - exculpatory clause in 2nd K does NOT bar liability in 1st K exc. clause only speaks to K where it is a term; can be tortious liability for negligent misstatement inducing K Remedies
Fraudulent Misrep Common Law tort claim in deceit unenforceable (void?) no rescission, no damages (Redgrave)? tort (Hedley Byrne; Sodd Corp v. Tessis) nothing Equity rescission voidable rescission voidable rescission (unless too late) voidable

Innocent Misrepresentation (a) negligent (b) non-negligent

Unenforceable vs voidable o o Equity gives rescission remedies; CL gave damages But- rationally- they are the same

Void vs Voidable: Generally: o CL- void (was never anything b/c unlawful); unenforceable ab initio- from moment it was entered into o equity- voidable- set aside ks that are valid at common law; unenforceable until as of

moment it is rescinded, but enforceable before that For fraudulent misrep: o CL unenforceability and equitable voidable are the same BC Checo Int. Ltd. v. B.C. Hydro & Power 1993 tort & K claims CAN be concurrently pursued F tender for hydro work, clearing contracted out to 3rd party who performed the work inadequately - contractual agreement to check land; Checo sued for breach of K (won) and negligent misrep I whether claims lie in K and tort H actions in K and tort may be concurrently pursued UNLESS parties by valid contractual provision indicate they intended otherwise (in Checo duty not to negligently misrep is NOT excluded by K) - concurrent liability: pre-K statement induces K becomes term is tortious liability still possible - sue in tort for negligent misrepresentation (rescind K), sue in K for breach of K (damages) - fact that statement becomes term does NOT preclude suing for negligent misrepresentation contract to interpret conflicting terms construe one term as a qualification of other - general terms (Checo responsible for inspection) qualified by specific terms (who clears land) - scope of general does NOT extend to subject-matter of specific tort where tort duty is not contradicted by the K it remains in tact and may be sued upon - 3 situations arise when K & tort apply to same wrong: (i) K stipulates more stringent obligation than general law of tort would impose: - e.g. product quality absolute liability in K, K says guaranteed free of defects - right to sue in tort is NOT extinguished (ii) K stipulates lower duty than law of tort would impose: - parties indicate intention that usual tort liability will NOT bind them, through exemption clause or exclusion of liability - I will be liable for defects only if the result of gross negl - construe clause narrowly against person claiming to avoid liability - majority: duty imposed by tort is only nullified by clear terms - if clear, then K trumps tort duty primacy of freedom of K, subject to doctrine of fundamental breach - if inconsistent K terms exist (Im liable only for gross negligence) and cld limit duty in tort depends on circumstances - crt not sure, intention of parties is theyre NOT liable for anything else BUT tort is there unless you clearly K out of it (uncertain part of jdgmt) (iii) concurrent liability K and tort duty are the same - distinction btwn implied term (tort survives) and express term (tort dies) distinction does NOT make sense majority says P can claim in tort whether the matter is implied or express (simplifies) - Iacobucci dissent Q of whether concurrent action in tort lies depends on whether K expressly deals w matter, whether K is commercial/non-commercial, crts perception of relative bargaining power, and whether crt sees result as just/unjust BUT McLaughlin disagrees w this analysis pre-contractual negligent misstatement becomes part of K (b/c it induced the K) gives rise to action in tort (negligent misrepresentation) and action for breach of K (E) Classification of Terms History of Classification of Terms (from Hong Kong Fir) goes through history of promises- promises were not reciprocal (promise to pay independent of promise to perform)- promise is enforceable even if other promise was not done- then it would be two lawsuits cts then develop dependency of promises- one is not enforceable until other is performed o ie Cant sue for wages unless EE has done work

So cts are implying in terms into k- that when obligations cant be enforced, and that promises are dependent, how can it be terminated First question: is performance of obligation must occur prior to (as a condition) to enforce the other promise; or are promises independent so that performance of one doesnt affect other Conditions: These terms (conditions) stipulate events which must occur before promise obligations become enforceable the arrangement, rather than the promisethey are not promises to perform but the ordering the promising to make it enforceable o Sometimes its another promise that must occur, or that a non-contractual event that must happen before the obligations are enforceable 19th century: Sale of Goods Act- codification of some areas of the common law o the term condition changed ie note 5 p. 474- s. 27: concurrent condition means mutual tendering of goods before obligations enforceable condition as really important term, so that obligations are not enforceable unless it is performed (breach a condition, other guy can terminate)-- the conditions are the promisesso its collapsing the language condition vs warrantywarranty is unimportant, dont give rise to rights to terminate, (compared to use of warranty in misrepresentation- heilbut -rubber factory) o Bittiny opera singer- must arrive 6 days before first concert- arrives before first show, but less that 6 days before- is fired (not in k to fire)Question- is arrival on time for rehearsals a dependent or independent term? Does it go to root/essence of contract (fundamental, etc)? Bittiny v Guynot so important to terminate- gives rise for damages, but not termination; is performance of arriving on time the condition precedent to the obligations- using condition in the new way- as important term o

Honk Kong Fir Shipping Co v Kawasaki Kisen Kaisha 1962 F: k to hire vessel for 24 months; k provided that off-hire periods (when under repairs) would be cost anything; during trips, shop off-hire for about 5 weeks; then out for 15 wks. Rates on freights dropped; In june and sept; charterers repudiation the charter; claim for wrongful repudiation PH: trial J held that owners were in br in not delivering sea-worthy vessel and negligently failing to maintain vessel in efficient state Is an oversimplification to say that the contract goes to root or not (ie condition or warranty); but no reason to think in june that owners couldnt make vessel sea-worthy by septtrial J finds that k not frustrated and no entitlement to repudiate for br of k I: br of condition (can repudiate) or br of warranty (sue for dams, no repudiation allowed)? H: where condition precedent is not performed if it deprives the party of the very thing they contracted for then they are NOT obligated to perform and can repudiate the K it is an oversimplification to say that the contract goes to root or not (ie condition or warranty) is the only test Analysis: o True Conditions- true narrow -- events that give rise to right to terminate; would be rare that a term would be such that every conceivable breach would be so severe as to be an event that must be performed before obligations are enforceable o True Warranties- true narrow are so unimportant that their breach would never give rise to terminate o Innominate/intermediary terms: In the middle--- - those not in either category; then o look to circs: is charterer deprived of substantially the whole benefit which it was the intention of the parties as expressed in the k that the charterers should obtain from further performance of their own ktual undertakings

o o o o o

grave consequences- treat like condition; non-grave consequences- treat like warranty (term doesnt become a condition or warranty but treat it like one) Application to facts: Renting a boat Under old system- being seaworthy would be fundamental to k- so condition Diplock- nah, not a condition b/c not all breaches would give rise to termination, not an event that must occur for obligations to be enforceableso look to consequences Here closer to warranties- conseqs were not grave o o

Bunge Copr v Tradax: p. 475 note 8 Validity of Hong Kong Fir reaffirmed but HL held that provision requiring purchasers to give 15 days notice was a condition notwithstanding that agreement did not stipulate conseqs, gives late notice- purchaser argues that it is not a condition but an innominate termconseq were not grave- sue me for damages but not termination o Not throwing out old law obligations stipulating notice in mercantile ks were seen as condition, didnt mean that all the old case law is no longer good (retreating from Honk Kong? A little) so- old cases are still relevant Hutchison and Wakefield restating Hong Kong Fir test: a kual term would be a condition if every br of it might deprive the innocent party of substantially the whole benefit of the k; a right to repudiate the k would be available whatever the actual effects of the br. A kual term would be a Innominate clause if some, but not necessarily every br might deprive the innocent party of substantially the whole benefit of the k; right to repudiate would only be available if the br did in fact result in the innocent party being deprived of substantially the whole benefit of the k. A kual term would be a warranty if its br would never deprive the innocent party of substantially the whole benefit of the k; a right to repudiate would never arise Krawchuk v Ulrychova 1996 Alta Prov Ct F: P purchased horse from def as a riding horse for daughter; P insists on guarantee of good health and soundness; got one form vet; horse then found cribbing. Horse got a cribbing collar and stopped. Vet at trial noticed teeth indicating cribbing but no physical problems so didnt include it in letter PH: trial J found br in that horse was unsound I: whether br gave rise to repudiate (had to look at Sale of Goods Act b/c it was covered by act) H: is a br of warranty when looking at all wrong, its a breach of a Innominate term that more closely resembles a warranty than a condition so does not give rise to repudiation only damages o Recall too that statute can deem terms conditions and then condition means right to terminate, regardless of conseqs o What about breach of k outside that statutory conditions then go to Hong Kong analysis o For Hong Kong analysis- look to conseqs and look to purpose of the k too (here its not a show horse, its for a child, wearing collar not so big) o What if k says: it is a condition that the horse is in good health? that any breach of the condition gives rise to termination (another iteration of this is a condition that all warranties and representations made by the plaintiff are true- so any falsity is a condition = terminationthat avoids Hong Kong risky analysis)!! Wickman Machine Tools Sales Ltd v L Schuler A.G.

F K stipulated it shall be a condition of the agreement that any failure to comply strictly w obligations to visit manufacturers 2x/month = breach of condition entitles S to repudiate agreement absolutely I was agreement lawfully terminated is a term a condition if its called condition in the K H no word condition seems to be interpreted to mean an ordinary term of the K only material breaches confer a right to end agreement CA - Denning: condition = (a) proper meaning a provision in legal document on which its legal force or effect depends - was the requirement a condition of the agreement in that it was a prerequisite to the very existence of agreement Denning says no b/c even if provision were not satisfied the K wld NOT be void; or - was the requirement a condition of the agreement in that it was a prerequisite to the right to recover on K No b/c clause was independent covenant, breach entitles party to damages (b) common meaning a provision/stipulation or term of K - sometimes a condition proper (a prerequisite of an obligation) - sometimes simply a term of a k (gives rise to damages if broken) - effect depends on true interpretation of clause and not on label (c) term of art term given by lawyers-- stipulation in K that carries the consequence of giving a party the right to quit obligations and sue for dmgs; contrast to warranty CA: Denning finds that condition in clause 7(b) is simply a term of a k so only material breaches would give rise to repudiate HL: dismisses appeal-- Lord Reid breach of condition; construction problem in K - says if he has only clause 7 to follow, then one missed visit will give rise to right to terminate k - looks to entire agreement to derive meaning of this clause: provisions of agreements must be interpreted in light of the larger context. - breach of cl. 7 obligation capable of being remedied cl. 11 requires breach to be remedied in 60 days; can only terminate the K through cl. 11 - argument: repudiation doesnt apply unless it was remedial material breach - if NOT a breach that can be remedied not subject to right to terminate K under cl.11 (this was the condition of the agreement) - analysis: material breach? not remedied in 60 days? Can repudiate. - Lord Reid concludes that this is a curable breach: missed visits can be cured by putting in a mechanism to ensure that this will not happen again. Because Shuler didnt allow for this opportunity to cure the breach, they cant terminate the k. dissent - Wilberforce not prepared to treat clause as anything other than the breach of which entitled the aggrieved party to treat the K as at an end How US had dealt with problem raised in Hong Kong Fir: US law: provides opportunity to the perpetrator cure the (major) breach within a reasonable time. Clause 11(a)(i) is very similar to this principle. Under US law, this rule only applies to major breaches. e.g. s.237 of Second Restatement of the Law: if there is a material breach that remains uncured, then that gives right to terminate. This rule applies to all breaches . basis for this rule: this is how people behave in the real world. This goes against the perfect tender rule, which allows the innocent party to rescind the contract if there is a breach of a condition, no matter how trivial. Shows reluctance of courts to apply the perfect tender rule even though HL affirmed that this was the law.

is there a doctrine of material breach? It appears in contracts often drafted in the US. But it also appears in this case in the UK on behalf of a German firm. It has the effect of nullifying the condition inserted into the k. Farmsworth on Contracts: US rule is that if there is a material breach that remains uncured, you can terminate the k. in UK law, material breach is a big breach s.241 of Restatement: states what constitutes a material breach: i.e. when is the breach bad enough? s.241(c): if right to terminate forfeits something of significant value to the breaching party is a relevant consideration s.241(d): s.241(e): behaviour of other party is a relevant consideration in US law: material breach is a major/fundamental breach UK and Canada: Wickman shows that HL thinks that material breach is any breach that is covered by the contract recent SCC case: Guarantee Company of Canada vs. Gordon Capital, 178 DLR (4th) 1: Bastarache says that substantial breaches that go to the root of the k is often also described as a material breach (this is consistent with US law). Then he says See for Friedman who says. . . and confuses breach with misrepresentation. English case: Verda Oil (2002) performance of k depends on indpt inspections made of the other partys performance. Rules est on how the insp was to occur. Inspector doesnt follow the procedures. Other party seeks to terminate the k. o I: what does material breach mean? o D of CA: Material means not trivial. It must be a significant fact. Material means relevant to the validity of the inspection. This is not the same as fundamental. This is consistent with Wickman. McCamus: there is no doctrine of material breach. If the term material appears in a contract, you must look at the context to find the partys intentions. Look at Bastaraches obiter in Guarantee. Better to be very specific in what breach = what remedy b/c material breach doesnt mean anything on its own

Summary
Conditions: states of affairs that MUST happen for other things to be binding (performance of a promise) Promises: performance of which MUST occur to engage some other promise (cld/b another specified event) Conditions Precedent: MUST occur before other promise/K becomes enforceable (a) promissory state of affairs that MUST exist before 2nd promise becomes enforceable (b) non-promissory can be some other event something must happen, e.g. subject to the approval of 3rd party = contingent agreement Concurrent Conditions: mutual e.g. purchase & sale of goods obligation to deliver and pay who goes first? both must tender performance in order to enforce obligation of other party Conditions Subsequent: if it does occur makes the obligation no longer enforceable; terminates obligation Remedies for breach of Warranty (for innocent party): damages Remedies for breach of Innominate Terms (for innocent party): look to consequences of

Remedies for breach of Condition (for innocent party): right to disaffirm & sue for

damages damages for breach specific performance if you disaffirm claim restitution (Hunt v. Silk)

specific performance no restitution b/c K still in effect

breach: if bad treat like breach of condition if not so bad treat like breach of warranty

(F) Discharge by Performance or BreachFor Breaching Party Looking at the extent to which the party in default may be able to enforce the agreement itself In other words, the party in default will have to forfeit the work, part of the k they did perform- does the non-breaching party get 80% of work for free? Ie one party does 80% of work then breachesisnt it unjust enrichment to the non-breaching party o Different question than if /how innocent party can terminate, damages etc Doctrine of substantial performanceeven though you are in breach, you have substantially performed, you can enforce the k by bringing damage claim for br of kyou will still be subject how ever to damages for not finishing, lost opportunity, etc regular innocent party claim Policy is always about unjust enrichment to innocent party Both parties are really in breach- one hasnt finished or finished badly, the other hasnt paid- latter has claim for damages for br of k; former has counterclaim for contract price Fairbanks Soap Co v Sheppard 1953 SCC F: S ked with F to build machine for $9,8000. F paid $1000. When close to dine, S refused to do more unless F paid $3000. F sued to recover $1000; S counterclaimed for purchase price I: was k substantially completed? H: No, not subtanially completed Analysis: o SCC: distinction between substantially performed and someone who has abandoned k- latter cant rely on doctrine of substantial performance The doc of substan perf is more for completed work with defects rather than not finishing Idea of entire contractmust perform complete k before you are entitled to get paid, where the k stipulates payment upon completion (contrary to non-complete contracts that stipulate payments along the way, or where that can be applied) o Ct could argue that the latter contracts are mini-contracts, some which are severable and can be cut out Here- obligation to provide services and obligation to paylump-sum k or entire k cts will often infer that even if not explicit So finishing work is a condition Here there was abandonment rather than substantially performed K deemed cancelled, Appellant gets $1000 back and to avoid unjust enrichment, the respondent (the manufacturer) can get the machine back from the appellants premises Marklan Associates v Lohnes 1973 NSSC F: L ked for installation of building materials and reno of property by M; L made some payments but refused to pay balance of purchase price b/c of defects and uncompleted work; M brought claim for k price I: Is entire performance a condition precedent to payment? H: P substantially performed so can get k price; but D is entitled to dams from br of terms of k

Analysis: Denning in Hoeing v. Isaacssays its not always a condition that one must finish work, br must go to root of the k--- different test from Fairbanks- Denning doesnt like distinction between finishing substantially or notwants it to be that a party will only be foreclosed from enforcing k if their breach was serious, not how much was done Here- finds that work was substantially done, if defectiverenovator gets contract price minus the costs of remedying the defects (ie what the home-owner would get on a claim for damages) Next three case- substantial performance arguments have failed Hard to claim for partial performance for provision of goods and services, unless you have made partial payments of money (always subject to other sides ability to sue you for damages) Sumpter v Hedges 1898 Eng CA- not good law?? o P Ked to erect building for a lump sum; when work part done, P said he would not go on; trial J finds that he has abandoned k; D completed work but no evidence that he entered into fresh k to pay for work that should have been done by P o P not entitled to claim for work he did do, despite D getting benefit of work done Howe v Smith 1884 CA o Def agreed to sell real estate for 12, 500; with 500 as deposit and part-payment o Agreement contained date at which balance was due and clause that if P failed to comply that vendor could sell it and P would pay difference in prices; P didnt pay balance o Issue is can P recover 500 after his default? o Money paid as deposit must be paid on some terms express or implied, no express terms here, Ct implies term that 500 becomes part payment if P pays balance or becomes deposit and is forfeited if P fails to pay balance depends on outcome o P has lost right to recover it if he has lost both right to spP and right to sue for dams for nonperformance- has lost both in this case so no recovery Stevenson v. Colonial Homes 1961 OCA o K to buy pre-fab P refused delivery; D rescinded K o P argued the $1,000 was partial-pymt of purchase price and on rescission it shd/b returned I - can P recover money paid? H yes money was part-pymt (subject to claim for dgms for breach of K) o depends on whether money paid as deposit OR part-pymt o Q: whether pymt is intended by parties to be deposit or part-pymt (words, circumstances, evidence) o no evidence that down pymt = deposit; seller shd/have removed doubt about meaning of the words general rule is that purchaser has right to recover where lang in K is ambiguous Hyundai Ships? Case- recent UK case 1989 and 1990 Boat-building, gets partial-payments for company, and personal guarantee Question distinction between deposits and part payments Ct says partial payments to fund the building of the boat implicit that if you withdraw, you dont recover; inconsistent to say it is recoverable -- so you can go after personal guarantees So maybe theres an implied right to forfeit- but its probably the nature of the k- big money to fund General rule: agree to deposits unrecoverable forfeited no agreement to forfeit recoverable - what if parties suffer no injury e.g. Stevenson where the guilty party can recover (provided there is no agreement to forfeit)

How to argue out of itdevelopments in case law make above case arcane- even in face of explicit forfeiture clause, Denning said restitution should be allowed via unconscionability or other doctrines (Denning doesnt like forfeiture Stocklosser v Johnson); look at non-mutuality of remedies available to money-provider vs goods-provider (G) The Parole Evidence Rule o when PER is applied, it has the effect of excluding from the cts consideration evidence as to oral (and indeed written) statements preceding or contemporaneous with the completion of the written k prior statements are thus confined to mere representations o different than rule of evidence limiting extrinsic evidence to interpret a document (ie as used in R v Horse-looking at transcript of negotiations surrounding a Indian treaty to determine hunting rights) o Rectification- is a common exception Zell v Amercia Seating CO 1943 US Frank C.J. The rule has two versions- hard version and soft version Hard: Loose and confusingonce evidence has establishes that the parties executed a writing contained what appears to be a complete and unambiguous agreement, then no evidence may be received of previous or contemporaneous oral understandings which contradict (add, subtract) or vary its terms o Trouble for collateral contracts doctrine where representations made outside of the writing Soft: such a writing does not acquire that dominating position if it has been proven by extrinsic evidence that the parties did not intend it to be an exclusive authoritative memorial of their agreements o Kinda circular- look to intentions to see if we intended stuff to be binding o Vs Denningits all one contract, part oral part written Rationale of the rule is to o 1) protection of the integrity of the administration of justice- ppl will lie ( Zell- ppl gonna lie anyways); o 2) business stability in writing contracts (with all exceptions, McCamus doubts great reliance on the rule); some of the many exceptions: can look at commercial setting agreed oral condition not restated in k that there was a condition precedent that deed is a mortgage o 3) judges can use this where they distrust juries Cant say we dont trust them, but can overrule them on a point of evidence, a legal issueso juries and trial judges (for CAs) Hawrish v Bank of Mtl 1969 SCC F: Guarantor makes personal guarantee for existing indebtness, see p. 446 relevant written provisions summarized- in oral agreement, bank agrees to certain additional provisions (guar to cover only existing indebtness and he would be released when bank got joint guar from company directors- see p. 445-446; Guarantee (written) contradicts those agreements; guar includes provision that no representations have be made to him and states complete opposite of oral agreement I: is evidence of oral statement admissible or it is excluded under parole evidence rule? PH: trial J found evidence admissible as exception to PER b/c it was a condition to signing the guar H: SCC- Judson J.- disagrees with trial judge- takes harsh view- if doc agrees on its face to be a complete agreement, then other evidence contradicting is inadmissible (vs. softer version that

includes intention of parties to have agreement be the whole agreement- circular b/c you have to look to conduct, oral agreement, etc) Provision (d) an exemption from liability clause- general four corners clause- finds it contradictory to oral agreement Exception for collateral contract- Byers v mcMillian p. 447finds here that independent agreement wasnt contradictory but complementary Pym v Campbell: contract held in escrow (conditionally) until agreements made orally are fulfilled- those condition precedents will be admissible o Here its a condition subsequent- here relating to termination, not initial enforceability McCamus- that seems like a silly distinction Also looks to intention-clear intention to create a binding agreement- I am not convinced that the evidence in this case indicates clearly the existence of such intention- so hard b/c he doesnt believe that the oral agreements were indeed made? Bauer v Bank of Mtl 1980 SCC F: B is guarantor of loan to bank makes guarantee, but wants book debts assigned to bank (security); then if problem, bank goes after guarantee and guarantor gets assignment (enforceability)- minimal risk- bank agrees orally; Not in written agreement, cl. that gives bank discretion to not take securities; Bank doesnt assign bank debts, Co. goes bankrupt G is personally liable PH: trial J found a collateral or qualifying agreement I: can ct look at st that gave rise to the oral collateral agreement? H: McIntrye J- contradiction between written and oral, we cant here oral- parol evidence rule so G losses No discussion of a four corners clause Again SCC follows harsh view of rule: if it is looks like the complete k, then we dont look beyond it- parol evidence rule Mentions that judge had some evidence on which he found that oral agreements were made again like they arent sure that the agreements were madedecision is based on fact that evidence shouldnt have been admitted in the first place J. Evans v Merzario, Denning 1976 F: K to carry goods over sea, oral agreement was to carry them under deck b/c of worry of rust; by negligence, carried above deck, falls into sea and is lost; written says carrier can choose route and procedure of carriage; and no liability unless by wilful neglect or default of carrier PH: trial J found def were entitled to rely on no liability clause I: does PER exclude the evidence of the oral agreement so as to rely on the liability clause? H: can rely on oral st Analysis Denning goes through test again on turning collateral k into warranty when a person gives a promise or assurance to another intending that he should rely on it by entering into k and does enter into k, we hold it as binding carrier gave oral promise or assurance; disses Heilbut, Symons v Buckleton Denning- turns rule on its head- where oral agreement is repugnant to written, we disregard the written !! Other Js less radical- k is partly oral, partly writing, part conductlook to everything to find complete k Note: Where parol evidence rule has been used by CA when they disagree with findings of fact as to whether oral agreements were actually madeSCC cases, Carmen, Chant

Techniques for getting around PER Notes p. 453 2. Lister v Dunlop- Ont HC- evidence of oral collateral contracts existing from subsequent written agreement may be given effect to even when they are repugnant to terms of subsequent k (but refused to give effect b/c of no reps/4 corners clause) and b/c P had legal advice that it was an awful chance to enter into k with such a clause 3. Curtis v Chemical cleaning- where there is a misrepresentation as to effect or menaing or kual term, misrepresenting party cant rely on written contradiction of the misrep--- oral agreement offers a meaning/interpretation of a contractual term then parol evidence rule doesnt apply- party must go with that interpretation- pretty safe to accept this argument different from whether written docs would be relied upon 3.Bank of Mtl v Murphy- BC CA: liability for of debt was the oral agreement, written says full liability agreement what about using estoppel; - if bk made rep and it was relied on and changed legal reltnsp between parties then bank is estopped from enforcing written k collateral warranty too- even though collateral undertaking is inconsistent with the written guarantee at trial, ct found that guar could be unenforceable b/c induced by material misrep ; CA finds that the bank is entitled to half the debt, not none of it Ont CA in Chant v. Infinitum- finds opposite than BC CA in Murphy- seems OCA doesnt really believe that the oral agreement was made- way to overrule trial J- refused to rectify a doc to give effect to assurancesPER- evidence of assurances admissible 4. Roberts v Montex: zipper clause (no representation except in k)- unequal bargaining power casesilence as to existence of zipper clause can equal misrepresentation, especially given contradictory oral agreements- no independent legal advice for consumer Gallen v Butterely BC CA 1984 F: farmers buy buckwheat crop after oral assurances that bkwht would smother weeds; weeds destroyed the crops; k itself says no warranty as to productiveness of seed- apparent contradict PH: farmers successful at trial on basis of br of warranty I: should ct admit the evidence of the oral assurances in the face of a no warranty clause? H: Analysis: Lambert JA: evidence of oral ass admissible either on basis that doc did not contain whole agreement or that doc contained the whole agreement but the oral rep formed the basic term of another complete agreement (I am selling you a rust-proof car or If you buy this car from me, I will guarantee that it is rust proof) Attempts to read down Hawrish and Bauer Denning style way to get around SCC authorities Lambert makes 8 points o Collateral, two contract theory (allowed in Heilbut: re rubber company representation)- that should be admissible- but must assume that same parties on same facts would not make two contradictory agreements- collateral k idea wont get you all the way where oral is contradictory to written o Rule is not absolute- uses extreme case of bank duping customer

Notes that in SCC cases, they make reference to evidence of oral agreements- why do that if its an absolute rule (suggesting same idea as Frank J in Zell- cts using PER when not convinced that oral agreemt was in fact made) o Recognized exception-Bauer v Bk og Mtl: for misrepresentation inducing contractground for rescission- you can look to oral evidence there- same with unconscionability o Adding to k not such a big deal; be more wary with subtracting and varying; even more when contradictory o Says Canadian doctrine is same as UK and USit is only a rebuttable presumption, albeit a strong one- strongest where direct conflict o Stronger presumption in a individually negotiated k than with standard form k o Presumption less strong where contradict is between specific oral vs general exception clause than two specific (one oral and one written) Finds that oral warranty does not contradict printed doc in this case- cl does not exclude all warranties; and anyways must be interpreted in light of oral assuranceb/c that colours how cl 23 would be read by parties: not be responsible for production relating to famer, soil etc but would assume risk that crop would be destroyed by weeds Warranty here: if you buy these seeds, I will guarantee that they will smother weeds (or alternatively not destroy the crop); b/c no contradiction then warranty has contractual effect and cl 23 must be read harmoniously with this warranty so liable If warranty had contradicted written doc, then oral rep intended to affect kual relationship of parties, so oral doc should prevail (estoppel arg??) Anderson JA: not respon for crop is not so unequivocal that it excludes assurances- as a matter of construction, reads cl 23 to be not respon for crops in all matters except those covered by assurances (ie weed control) o Distinguishes Bauer and Hawrishwerent about exclusionary clauses and oral assurances were contradictory to written doc (not found here) Seaton J dissent: words in cl 23 are clear and do contradict oral term not a condition precedent and were not intended to be a warranty o

Basics on PER When admission of parole evidence is restricted will be decided depending on whether harsh rule (seems like document is whole agreement) is applied or the softer (intentions of parties to have document was the whole agreement) So if you want it in- look to UK cases (generally k is seen as partly oral, partly written and try to reconcile), and Gatten; want it out- focus on SCC cases, hard rule- written doc seemingly whole doc? Canada is alone on using the harshness of the rule Note 6, p. 444: MacLauchlan- has 8 factors, taken from cases o Nature of writing, its form and contents o Whether its been signed o Status of parties o Circs around preparing of doc o Subsequent conduct of parties o Whether k is SFK o Nature and effect of parole testimony o Presence of a merger clause in writing Is Canada heading to softer version? McCamus thinks yes

Also note all the exceptions to the rule- argument for why the rule is there at all: at about 15 minutes into class- see audio: o PE is admissible as exception: 1. Ie in Hawrish- Pin v Campbell: holding k in escrow(conditions precedent) K intended to be both oral and written (not an exception if we follow soft version of rule) (in Hawrish, it was about CS not CP- SCC makes that distinction) 2. Conditional on k happening of event (ie not obligations of party but of historical- if Leafs win the Cup) 3. to show no consideration actually passed when k was made, even if doc refers to consideration received 4. no consideration in the document itself 5. Collateral ks- must not be one that conflicts with written k, but one that adds to written k 6. Subsequent agreements to vary agreements estoppel like arguments 7. Evidence for unconscionability, fraud, misrepresentation 8. (sometimes) was k intended to be partly written, partly oral? Can show evidence of oral part 9. Doctrine of rectification (incorrectly recorded agreement) can rest on parole evidence in negotiation 10. Interpretation of agreements can you look outside k to interpretanswer is yes, sometimes- if court is persuaded that some provision of agreement is ambiguous and needs implied terms (lead evidence to support implication of term, or where K by traditional law is subject to implied condition then lead parole evidence to suggest such conditions dont apply; relates to conflict btwn written and oral terms (not implied and extrinsic evidence) list of exceptions not comprehensive need evidence varying a K, showing parties agreed to abandon K at particular time o Trade Practice Act (BC), s. 28: In a proceeding in respect of a consumer transaction, a rule of law respecting parole or extrinsic evidence or a term or prov in a consumer transaction does not operate to exclude orlimit the admissibility of evidence relating to the understanding of the parties as to the consumer transaction or a particular term/prov of it Business Practices Act (Ont) s. 4(7) Trade PA actually disallows PER and the everything included provision isnt okay OBPA p. 423- same kinda thing Both are in the consumer protection area only though (H) Contingent Agreements Collateral agreements are a subset of conditions Most conditions we have talked about is the performance of a promise as a condition precedent to the other party must perform theirs Condition precedents can relate to either a partys promissory condition or be dependent on an event happening/third party doing somethingcan be either CP is a condition in a provision that must be performed (by party or other) before the other obligation kick incan then be divided into promissory (party) CP or non-promissory CP (third party)ie- I promise to pay on condition that you perform fully (??) Also there are condition subsequentcontract alive until an eventkills it- before event it is in force; where CP begins it nothing happens until the event happens Difference between CP and SP is important (McC hasnt told us why) Who has burden to prove- on party seeking to benefit it from the CP

Condition Precedent to existence of K or to enforceability of k: Important b/c if condition precedent is to existence (CP) then no k is formed until the CP happens Wiebe v Bobsien 1985 BCSC; 1986 BCCA F: Land sale dependant on buyer (P) being able to sell his house, V had option of selling to third party, but had to give 72 hr notice to P to remove CP of selling Ps house. V tried to cancel before CP date and closing date, P did not accept and continued to try to sell Ps house. P found vendor on CP date and informed V, also upped deposit amt; V refused to close on closing date. Vendor gets better deal and wants to argue that it was a standing offer (option) not a contract and so is not enforceable PH: Trial J: is a CP to the performance of a the k, not the formation- k is enforceable; K suspends performance obligations. In some circs (not this one) CP will prevent formation where it is clear that intention of parties was to not bind themselves I: at appealdoes CP prevent formation of k (ie enforceability of k) or simply suspend the performance obligations of the k that has been entered into? H: CA: maj agrees with trial J; Lambert dissenting Analysis of dissent: by Lambert: Three kinds of CP Some so subjective- so imprecise that CP goes to very existence- shows that its still at the offer stage Some so objective that the CP is clear to be to binding but suspends performance Harder is the ones objective and subjective partly eachhis example is CP is getting approval silent on who gets approvalLambert says we can imply termsif we cant imply terms or give content, then its a CP to formation of k Here we could read in get reasonable price, etc but he finds that cant be done so its uncertain so no k ever arose So use Lambert when you want to get out of the k with a CP, its unclear in language or we cant imply terms easily so that shows that k never arose Other cases Notes p. 350 Aberfoyle cited in Wiebe at trialPriv council finds existence/formation of k is dependent on fulfilling condition precedent no need to return deposit Black Gavin: buying subject to purchasers approval of hotel- finds that that is a CP to the existence of k b/c subject to preference of buyer is not an agreement at all- no commitment yet- the commitment is illusory- to vague to be a CP that suspends the performance obligations, more like an offer Murray McDermid: offer to purchase was subject to approval by co pres- this cl found not to be a CP, was only an offer Property & Bloodstock- vendor getting consent of landlord to assign lease to purchaser- CP to performance not formation of k Smallman v Smallman- agreement subject to approval by ct: CP to performance not formation Denning **Dynamic Transport: SCC-CP to performance not formation Reciprocal Subsidiary Obligations: Contingent agreements obligations are usually immediatethe effect of CPs is to suspend the performance of those (or some of those, depeding on what CP is) obligations, not the creation of the obligations

Claim for damages if that obligation not met for not meeting obs of contin agreement not main agreement failure to try, not failure to succeed Standard is to make reasonable efforts to fulfill CP

Dynamic Transport 1978 SCC: F: claim by P (DT) for spP to enforce k to Def (OK) to sell land; Selling a subdivision- contingent agreement is to get approval to subdivide buy doc silent on who has to go get approval I: was k created and suspended or not created? Who has to go to get division? How do we decide who goes? H: K was created and some obligations were suspended, still there is obligation to make reasonable efforts to fulfill CP of getting approval. Dickson- imply it into k that party that benefits/desires it must gosale requires approval so the vendor would get benefits, so vendor has duty to try to fulfill CP Appeal by purchaser allowed Use the business efficacy test- to imply term that vendor must get approval Notes p. 360 Part of debate on duty to perform in good faith those who believe it exists cite Dynamic Transport- being cooperative with co-party, etc as an implied term Drafting pointmake these things explicit rather than arguing an implied term Difference between reasonable and good faithformer is an objective standard, what about latter, more subjective and not necessarily reasonable, if still honest Note 2: Victoria Queen case, sale of tavern, with CP that P get liqueur licensing mortgager refuses to give licensing board their info- cts says you cant not comply where it will defeat term, must be reasonable and this is not- br of k found Note 3: main street case- building subject to consent of mortgagee- same as above- must be reasonable; failure to provide records was not reasonable- br and dams for loss of bargain Remedy for Br of Subsidiary Obligation: Issue is that br of subsidiary obligations make it impossible to know what the expectancy damages would have been Dynamic Transport- SCC ordered that vendor undertake to get approval and purchaser entitled to dam for loss of bargain (difference between k price and market price at relevant time) o Onerous b/c what if through no fault og vendor, approval was denied? Ct have adopted at least 3 different remedial approaches: 1. Value of lost chance: dams in lieu of spP o Cts have used Chapman v Hicks rule- beauty-contest case- placing value on the lost chance, even though there is no real market- got of the value of the prize; or half of dams o Percentage --Multi-malls: Implied obligation not to do anything that would make it impossible for condition to be met another good faith definition? Here there was 20% chance of success if it had happened- so got 20% of full compensatory dams that would have been available had approval been made and then they was a br Getting spP on the contingent agreement: -Steiner v EHDspP of the obligation to try to fulfill CP; Dynamic Transport- if fails, so does claim for dams (??) Getting SpP for primary obligation: Great Georgian Realty-p. 364- Sp performance for primary obligations with an abatement of purchase price (for installation of certain services, wouldnt

work as well in OMB approval cases b/c purchaser would be getting, for example an undivided propnot what he bargained for) So three possible remedies-damages in lieu, sp of contingent agreement, sp performance for primary obligations Communication of Satisfaction of CP Issues of notice Cts are varied Problems with unclear language: Sky Ranchers 364 bottomk with cl that deal is subject to getting financing and that the clause will be removed by nov 30 (closing date in Jan). purchaser gets financing, doesnt tell vendor, vendor wont closetrial J interprets cl as P had to get notice that he got financing; CA says P must give notice if P doesnt get financing , no need for notice if P gets financing : o Drafting- be clear on what obligation and conseq of notice Certainty of Terms Terms of CP can be vauge- so vague as to uncertain as in Pietrobon (bottom p. 365) Lambert JA in Griffin v Martens: looks at 4 different ways to see satisfactory o Reasonable person [too harsh] o Reas person in objective circs of purchaser o Reas person with all subjective but reas standards of that particular purchaser [lambert likes this- content to satisfactory but using best efforts] o Satisfactory to that particular person with quirks [is like subject to my approval- just an offer not a k] o So term NOT void for uncertainty- interpret on basis of purchaser to use his best efforts to obtain financing that is satisfactory to him and not withhold his satisfaction unreasonably Unilateral Waiver battle between OCA and SCC on this issue prior to Barnett v Harrison SCC 1976- settled that CP could be unilaterally waived by party who could show CP was inserted exclusively for her protection (ie. Beauchamp); Barnett changes thatDickson eliminates that and Laskin CJC dissents (as he did at OCA) Turney v Zhilka 1959 SCC F: Land for sale with condition for plans approval; No approval, purchaser says no problem, Ill buy anyways; vendor says no I: can one party can waive the condition? Usually term can be waived when waivee is benefiting and is severable from rest of k But Judgson J says this fact pattern is special 1. non-promissory (neither party promises to fulfill, its contingent on plans approval committee) [meaning all non-prom conditions cant be waived?]- its a true CP depending on will of 3 rd party 2. both sides obligations dependent on future uncertain event [isnt this more than a conclusion than a reason] 3. dependent entirely on will of the third party Beauchamp v Beauchamp 1973 OCA Provision for two mortgages 10% and 2.5%-- purchaser gets first mortgage of 12%; vendor doesnt want to go through

OCA says that it is only for the exclusive benefit of the purchaser, but it is not a true CP b/c not dependant on will of 3rd party, so distinguished from Turney- thus can be waived (could not waive if following Turney v Zhilka); OCA finds for purchaser Critic of this reasoning- dependent on will of third party (a bank), and OCA could have gone the other way

Barnett v Harrison SCC F: sale of land; deposit paid and k provided that additional pymt would be made on closing and balance would be covered by way of mortgage P offered to close by pymt in full in cash (k said P could pay whole or part of principal w/o notice or bonus) K Clauses: 1. purchaser to prepare and have ready to go to board w/in four months (in vendors name); offer conditional on seeking nec approvals to OMB- to be completed by Sep 30, 1968, 31 st jan 1969 at latest- if not met, agreement null and void 2. certain conditions; purchaser has option to declare agreement null and void if not met and have dep returned or accept changes to agreement 3. P not required to make changes to his OMB plans, if not approved then option to make null and void 4. sale completed 60 days after OMB approves P submitted to OMB 15 times unsuccessfully, he advised that he was prepared to take land w/o approval; vendors said approval was a true CP that they could not waive and date to secure them had passed so agreement null and void PH: trial- this is a true CP so null and void; CA-affirmed; Jessep dissenting- T v Z distinguishable b/c of unlimited appeals granted to P, hence open to accepting present zoning H: follows T v Z- cant be waived, k null and void; Laskin in dissent Analysis: Laskin in dissent: accept t v z, but distinguish here the CP is not totally dependent on the will of the k purchaser prepared documents (t v z was entirely dependent)weird reasoning-still dependent on decision of OMB here-provision was totally for benefit of purchaser how is that different than t v z ? p. 374-t v z was for mutual benefit- vendor concerned with dates for closing and conseqs of CPs vendor interested in fulfillment of condition is not being in benefit of vendormeaning that closing date is dependent on OMB condition, vendor interested in thatLaskin says no, thats not enough dependence on third partys will criteria seems not be a good criteriaother types of k can be waived o laskin says- in Turney- criteria #2-both parties obliges subject to CPp. 374 o two provisions- one with option, one without and null and void bitLaskin says no, no, null and void only if benefiting party elects it to be so Dickson in the majorityturney v z does apply o Distinction in t vz between waiving condition where other partys obligation (can be waived) vs condition on own conduct or on a third party (cant be waived)- latter is a true CP o Provision 1 says its void- cant go over that o Waive or not choice- that means giving option to buy or not o Severability is hard o Law should be predictable (early Dickson not late) o Beauchamp- there they met the condition o We can be the only common law country ot use this test: dont care P. 374 Mentions Sherman SCC- Judson- no its a CP and and cant be waived

P. 375 Mentions O-Reilly SCC- k is to buy lot 7, CP is to buy lot 8 from third party- can purchaser waive if he isnt able to buy lot 8? Judson says cant be waived o Is critical thing that its about the existence of a third party? If k cant be performed b/c of third party, then no problem; but here the k can be performed (the sale of lot 7) without the CP being met

Laskin SCC- McCauly v McVeigh 1979 Contingent on vendor getting title for closing; vendor doesnt get title in time b/c of screw up in that other contract Vendor says its a true condition precedent- so no contract o Not for benefit of one party particularly Purchaser- I will waive closing date; and you need to take reasonable steps to conclude that contract its no SCC: Laskin J- not a True CP- benefit to purchaser, not dependent on will of third party o Overruling lower Ontario courts who followed T v Z Note: in doing exam preplook to three definitions given on what a true CP is and then apply it to facts depending on which way you want to argue

Zipper (merger) clause how to deal w them

Defn: where K contains a clause that the agreement is the final and conclusive expression of their agreement, there is a case for excluding prior statement how to deal w result in Hawrish when arguing for liberal version of rule: case w zipper clause (hard case where parties say in written agreement that there are no promises other than the document) argue Franks view (Zell) rule becomes meaningless if excessive sanctity is given to contractual documents ppl dont read these agreements or are induced by oral statements harsh to ignore persons expectation (more harsh than upholding the written K) counterargument: uphold the clause b/c parties agreed to terms and should NOT be able to pull out later dont need to be sympathetic to them need the rule that parties are bound by the terms of agreements they sign (certainty) but equity applies where person is induced to enter an agreement by an undertaking that suggested different obligations crts look for solutions (consumer context especially): Legal Effect of Non-Satisfaction of a CP What is the conseqs of br? 5 possibilities1. primary obligations become unconditionally enforceable by both parties meaning as a default: 2. the k automatically terminates on failure of condition the k continues (implied if k silent or by clause like in Barnett) 3. the parties can stipulate that upon the failure of the condition the k continues to exist but is voidable by either party (Australian default position and prevails in face of kual cls that k terminates automatically) 4. provision may render the k voidable by only one of the parties (the innocent party) 5. breaching by not doing best efforts to bring about CP, the innocent party may enforce the others primary obligation as though the k were unconditional (most controversial) estoppel-like reasoning--- based on idea that defaulting parry cant use its own default to own advantage) but its use to produce in effect an enforced waiver of a con condition has been rejected

look to risk allocation of the parties: Multi-Malls- dams for br of reasonable efforts to fulfill CP successful but only awarded 20% of dams to represent 20% chance that approval would have been successful

TOPIC 2: MISTAKE
Mistake doctrine is for parties where mistakes not caused by misreps can be under misrep or offer/acceptance formation issues and certainty of terms Note that in cases of misrep, ie Dick Bentley, Leaf Intl galleries, the buyers were mistaken as to condition of car (former) or whether picture was genuine Constable (latter)- in leaf, some suggestion that purchasers mistake might have independent significance Common mistake: parties have same mistaken assumption (agreement to buy a house, unbeknownst to either, house was destroyed by fire)- more about who bears cost of shared mistake then about whether k was formed- often is a mistaken assumption Mutual mistake- both parties mistake but different mistakes- analysis is whether they reached agreement at all: ie A owns black cat and white cat, A intends to offer black cat; B thinks As offer is to sell white cat (difference between terms and fact- is B mistaken in thinking that A is selling white cat (mistake as to fact barred by caveat emptor) or mistaken in thinking that A is offering to sell white cat (mistake as to term of k)- formation issue Unilateral Mistake-one party makes mistake, other knows of itmistake as to identity or correct figure more about formation- often is a misunderstanding Classification system- G Palmer 1. mistaken assumptions- mistakes for entering into the k as to underlying facts as to accuracy of calculations-snapping up a mistaken offer offer is matched by acceptance, terms were understood, but some ambiguous key element was not okay and if wed known we would not have entered into k nothing wrong with agreement or the k also called common mistake 2. misunderstandings- issue is that there was not really any offer and acceptance b/c the parties were offering and accepting different things formation issue mistakes as to terms, identity, documents mistakenly signed- Raffles v Wichellhaus- k for cargo on Boat XYZ, turns out there are two boats named XYZ and one party thought it one and the other thought it was the other o note though that if you can prove that everyone uses the term in a certain way in the industry, etc, then the party that used the term will be successful about consensus also called mutual or unilateral mistakeanalytically confusing 3. mistake in integration (rectification) written up incorrectly, but original understanding was valid with no issues- more technical 4. mistake in performance- ie pay a debt twice- we wont look at that

(A) As to Underlying Facts Smith v Hughes 1871 UK k to buy oats V gives sample to P, who decides to buy Ambiguity as to whether P said it was old oats V says horse owners always buy old oats, and the price was higher than most would pay for new oats CA: Questions to jury doesnt make distinction between whether it was a mistake as to quality of the oats (a fact-mistaken assumption as to facts) or whether the P knew that D thought it was old oats (then its a formation issue-the terms-MISU) The latter the V cant take advantage of; the former is something that the P is stuck withcaveat emptor If you know the other party is mistaken about the meaning of the offer/terms; then there is never really an offer and acceptance Case saying there is no duty to disclose- recall the Cornell Engineering case- do ppl have to act in good faith making a duty to disclosethat would be an exception to smith v Hughes When Common law courts will void a k b/c of mistaken assumption o 1. res extincta: k for purchase and sale on non-exist goodssale for goods on a ship, but the ship had sunk- mistaken assumption case b/c k was good, but mistake as to existence of ships o 2. res sua: buying thing that is already yoursmistake is on the fact that you already on it no problem with the terms- Cooper v phibbs o 3. this one is the problemBell v lever Brothers, Lord Atkinmistake as to existence of subject matter of the kbroader b/c definition of subject matter is more flexible ie in sale of goods thats the s-m, easy; Scott v colson: insurance value for Mr Death, who was actually alivemistake as 1) to the subject matter of the sale- an insurance policy on mr death (then void) or 2) s-m is the insurance policy, period- enforceable Sherwood v Walker- S sells infertile cow to W for cheap- cow is actually with calf- subject matter of k is 1) barren cow or 2) just a cowCourt finds that s-m is a barren cow which is not what is being delivered so void at common law (not equity) o And equity comes in later through Denning in Solle v Butcher to make it voidable Bell v Lever brothers 1932 HL Lord Atkin Facts: senior execs reorganize structure of company, then they are terminated with a good package; Lever brothers finds out that they had breached a fiduciary duty and they could have fired them with cause and not paid them the package PH: trial and CA found compensation payments were void as having been made under mistake, I: are payments void under mistake? D: no, not void Progressive view of doctrine is to say whether there was a fundamental mistake here, rather than going through whether there is a 3rd category mistake (defining the subject matter) Atkin uses a tighter test than fundamental mistake- fairly conservative reading o Goes to Kennedy v Panamatest is whether there is a complete difference in substance between the subject matter of the nature of the contract from the contract that was made (cow vs barren cow) o Finds that it is the same s-m- an agreement to terminate a broken k of emplymt is not such a different thing as an agreement to terminate an unbroken k of emplymt

Is rationale underlying similar to caveat emptor- Lever brothers should have informed themselves and they cant take it back as a mistake now Lord Atkin thinks theres an alternate way of mutual mistake did they enter into the k on the basis of a contractual assumption that was mistaken- more like fundamental mistake-fundamental reason for making the k (says thats a bit misleading a statement) o No need to analyse the subject matter difference, etc; instead ask whether it was fundamental issue o P. 611mistake as to the quality of the subject matter that is so fundamental to the subject matter than its not in fact the same subject matter- fundamental test Is a common mistake b/c the execs were mistaken as to the relevance of the information to Leversmust be a common mistake in order to void it o Could it also be a fraudulent misrepresentation? Duty to disclose? Case law doesnt go that far (trial J found no fraudulent misrep) o

McRae v Commonwealth Disposals Commission 1951 Aust HC Facts: Commission entered into k to sell P one oil tanker including contents wrecked on jourman reek approx 100 miles north of Samarai. P fitted salvage expedition, but found no tanker. Comes out that their was no tanker at all. PH: trial J finds as there was no tanker, there was no k, although P could recover dams for deceit; on appeal, McRae sought dams in contract I: is k made between parties void b/c of mistake as to existence of the subject matter? H: there was a k, not void and commission cant benefit from its own negligence; P gets dams for br of k Analysis: Discussion of Couturier v Hastie: K to sell corn, corn had perished C v H became basis of sale of good act provision- k void if goods have perished Vendor saying its a sale by documentsperformance of k is the transferring of the documents including insurance claimpurchaser has taken the risk Court decides vendor not entitled to recover price from repudiatory purchaserb/c k wasnt performed b/c its not just documents-seller takes the risk so cant recover Dixon J goes over Couturier v Hastie and finds it doesnt apply, despite the C v H being an often cited case- finds that there was a case not of mistake but construction- there is a k here o b/c it was a construction case, ques as to whether the k was void or vendor was excused form performance by reason of non-existence of subject matter did not arise in C v H citing Solle v butcher: party cannot rely on a mutual mistake where the mistake consists of a belief which is entertained by him w/o any reasonable ground and deliberately induced by him in the mind of the other partyeven if the Comiss officials had a real belief as to existence of tanker, they were grossly negligent only proper construction of k is that it included a promise by the comiss that there was a tanker in the position specified Note: was before Hedley Byrne- neg misrep in tort gives rise to dams for pure economic losscould have been a neg misrep tort case too, if after Hedley If k found to be essentially different from that which the parties thought they were entering into then k is void ab initio for common mistake Associated Japanese Bank, note 5, p. 621 Framework: 1) determine if K has implied or express CP or otherwise as to who bear the risk of the relevant mistake 2) if k is silent, look to common law common mistake doctrine to see if void; if not look to equity

Solle v Butcher 1950- Equity Facts: S and B were business associates. B let apt in house after renovations to S, at price above rent control legislation )thinking alterations by reno made leg non-applicable) B relied on Ss opinion on applicability of leg. S then sues B claiming leg did apply to get difference between price paid and rent control price; B cocld on mistake of fact and asked for rescission. PH: trial J gave judgment to S I: does their mistake re applicability of rent control leg render k void ab initio? D: Bs appeal allowed, rescission granted Analysis: Denning- two kinds of mistake: 1) that renders k void at CL; 2) one that is valid at CL but renders k voidable and can be set aside on such terms as ct thinks just, in equity Denning is worried abut risk to third party buying something from purchaser if contract between purchaser and seller is voidthird parties get nothing Not void but only voidable- voidable at equity is better than void at common law b/c it protects interests of third party Issue isis there a equitable mistake doctrine?? Denning uses Cooper v Phibbs- a res sua case A tries to buy interest in estate from B w/o realizing that he already has an equitable interest in the estate transaction is rescinded Denning doesnt want to say its void b/c that would mean lease would be void and renter would lose lease setting aside the lease. But in equity, the J can impose terms on the setting aside-not so in common law Tenant doesnt get a break on rent control Says Bell v Lever bros hadnt looked at equitable doctrine Equitable doctrine- voidable where there is a common misapprehension either to facts or as to rights, provided that misapprehension was fundamental and the party seeking to set it aside is not the one at fault Same as common law? Agreed on same subject matter? If yesgo to equity Summary on Denning- if you want to go with denning: Note, denning is craftyrestricting CL to res ext and res sua protects third parties because third parties never involved Flexible remedial stuff Moves away from third category: existence of the subject matter thing Toronto Dominion Bank v Fortin 1978 BCSC Facts: prospective purchaser of companies suing receiver/ manager of companies to recover $10,000 portion of deposit retained by defP(F) had made offer to Def (S) and then withdrew; S agreed to $10,000 compromise in satisfaction of claims against P. BC Ct later found that receiver exceeded his powers by trying to sell co, was supposed to retain company and assets. P then claims that Def had no legal right to enter into k w/applicant for the sale of company and assets- was a mistake of law I: can P get money paid under compromise agreement made under mistake of law? H: Compromise agreements can be set aside; deposit returned Analysis: Generally, seems that compro agreement should be immune you are taking your chances, thats the point- agreement to not litigate and resolve claims once everyone knows whats going on

Generally, US case law says that fundamental mistaken assumption on the underlying factual framework- ie found out later that one is more seriously injured than one thought that the time Original k for sale was void ab initio, the compromise made from it is laible to set set aside in equity (make sense b/c compro is not mistake that changes k in fundamental way- same terms, same subject matter, but voidable in equity) Distinguishes AGBC v Deeks SCC 1956- agreement to pay royalties to BC govtin that case both parties are concerned about whether BC could charge royalties and both sought legal advice then tried to get out of itits like Bell v Leverdo your due diligence at the time- risks were assumed there What about compromise of not pursuing a questionable claim for consideration for promise to pay money? as long as claim was bona fide going to be asserted, not just a threat- when claim is clearly untenable, , compromise of it should not be good consideration Herethis is like a risk assessment test

Risk Allocation as test for Mistake Most of these cases are based around the risk assessment ideahave you or could you done your homework before entering into k? should party bear its own responsibility, who bears the burden--- if neither than apply mistake case (stunning surprise, fundamental, void), if one side bears risk than they get penalized Bell v lever bros-risk of not investigating employees before agreement Sole v butcher- landlord assumes risk of tenancies act McCrae- who assumes risk that there is a boat in the reef? The commission- b/c they told him, if implicitly Ask: o Did party not do everything to investigate its rightsif not, it has likely been assumed by that party; if no but an investigation wouldnt have discovered this anyway, a complete surprise- probably back to mistake o Is it a big difference in what was thought and what is? o Trade custom or business environment o Any explicit assumption of risk on an analogous matter? Comes out expressly in Great Peace, risk assessment not explicitly used in Canada US prefers this to fundamental or subject matter- Restatement of Contracts 152 K voidable where: o Mistake of both parties as to basic assumption on which the k was made that has a material [fundamental, big bad] effect on agreed exchange of performance, k is voidable by adversely affected party unless that party bears the risk of the error 154- bearing the risk o a) risk allocated by agreement of parties o b) party is aware at time of k that he has only limited knowledge w/ respect to facts but treats his limited knowledge as sufficient o c) risk allocated to party by court on the ground that it is reasonable in the circs to do so Examples for Restatement: A and B sale of land neither do anything to check title voidable? No, conscious ignorance so enforceable (enforceable being that B must buy land despite problem with title??)

in other words, Buyer bears the risk so is penalized by having to buy property with tainted title

Annuitant w/ fatal disease-neither now that but life annuity annuity- risk taking buy natureenforceableb/c implicit in the agreement insurer bears the risk so is penalized by having to pay out in insurance Contract to move gravel enough to make a bridge both parties believe that gravel is above ground level not so- its harder and more expensive to remove by 20% argument 1: conscious ignorance? enforceable argument 2: risk assumed by contractor in that business- enforceable so contractor bears risk and is penalized by having to spend more Mistaken assumptions- their impact on enforceability of contracts Distinction between misunderstandings (no consent, no formation, no k from beginning at common law) vs mistaken assumptions (mistake as to background, quality of terms) Issue of changing terminology depending on author Rules at common law and equity are/were different o CL- misunderstanding- void at CL, not enforceabilitycant go to equity b/c nothing to take to equity if no K Misunderstanding is common law doctrine only, no equitable doctrine Mistaken assumptsome ks enforceable at CL but voidable at equity (Solle v Butcher-Denning)- to get decree of rescission-order that k wont be enforced at CL with sanction of contempt of court

Mistake v Innocent Misrepresentation case Common mistake arising from innocent misrepresentation that is shared and then both are mistakencommon mistake and innocent mispre can often be on facts When to use misrepresentation? o Bars to rescission are different- using mistake they are barred- execution issue- rely on mistake if to late to rescind, then you get voided k o Mistake available to both parties, innocent misrep available only to nonmisrepresenting party (Denning says party not at fault- meaning fraud or negligence, McCamus thinks) o Misrepresentation is about a material matter that induced entering into the k, mistake is about a fundamental mattertest for misrepresentation is lower by material (doesnt have to be dominating inducement than mistake by fundamental Great Peace case UK case 2002 Facts- vessel sinking, try to get tugboat, hires the nearest boat for savage contract, agreement has a 5 day minimum hire, turns out GP (P) is farther than they thought; def doesnt cancel right away but tries to find another closer boat, enter to k with that boat and cancels with Great Peace Issue: GP says we get termination fee- min five day hire; def T says common mistake- void at CL or voidable in equity giving rise to rescission GPs Arguments- got benefit of the bargain b/c not cancelled right away; termination fee said 5 days- they accepted the risk of early cancellation Ts Arguments- common mistake as to fundamental matter (third category)

Decision: GP gets five day fee Analysis: Lord PhillipsDenning is wrong, CL doctrine not so narrow, created equitable doctrine with no basis- sees little difference between Atkin and Denning; Bell v Lever Bros is correct o Equity is to supplement CL; equity shouldnt contradict o Likes risk allocation- p. 16 o Introduces impossibility test, borrowed from frustration cases (McCamus finds this unhelpful-too narrow) May have to look outside the agreement to find out what the undertaking isto see whether its impossible (ie to perform k in a particular way or to perform k- like a bell v lever bros change in subject matter thing) o Para 76see the list- six-fold test for impossibility 1. common assumption as to state of affairs 2. there must be no warranty by either party that the state of affairs exists (unlike rubber co case) (implied in McCrae) 3. the non-existence of the state of affairs must not be attributable to the fault of either party (ie neg or fraud misreps) (McCrae) 4. the non-existence of the state of affairs must render performance of the k impossible 5. the state of affairs may be the existence, or a vital attribute, of consideration to be provided or circs which must subsist it performance of the kual adventure is to be possible (not straight up res extincta) o What to do first- risk allocation or impossibility test? Phillips- ask whether it is impossible then if not (if so, void?), look to who bears the risk allocation- p. 17-18 McCamussays look at who bears the risk, if no one has risk, then look to whether its a big mistake- if yes to second restatement o Phillips- Denning is wrong about being able to impose all these terms in equity para 157- it is impossible to reconcile Solle v Butcher and Bell v Lever Brothers o Phillips then says mistake is inflexible, it should be changed by legislation- McCamus thinks its silly b/c its Phillips that has killed Dennings doctrine o Application to this casewas the GP being farther away as to defeat the contractual purposedid that turn it into something fundamentally different from that for which the parties contracted? Trial J says No, telling point is that def didnt cancel right away, so the k after the realization of GPs position was not devoid of purpose (so not so different) CA agrees Para 166: the fact that the vessels were considerably further apart than the

appellants had believed did not mean that the services that the "Great Peace" was in a position to provide were essentially different from those which the parties had envisaged when the contract was concluded. The "Great Peace" would arrive in time to provide several days of escort service. The appellants would have wished the contract to be performed but for the adventitious arrival on the scene of a vessel prepared to perform the same services. The fact that the vessels were further apart than both parties had appreciated did not mean that it was impossible to perform the contractual adventure.
(B) As to Accuracy of Calculations: Snapping up A Mistaken Offer

Question of an offeree who knows that an offer is mistaken in some way should be permitted to snap it up Looks like offer and acceptance problem Snapping of an offer ruleSmith v Hughes-likewhen you know the other party is mistaken with respect to the terms of an offer, you cant accept it Hartog v Colin & Shield-- 1939 mistake of 10 3/4 pence per pound (or 3 pence per piece) offered by defs instead of 10 pence per piece parties had discussed latter. Ct found that P must have realized mistake and therefore claim for br of k denied -- the k is very different than what the offeror would have thought the k was Im. Glass v Consol. Supplies 1960 BC CA: Imp to bid on supplying window glass; I got quote from respondent, who miscalculated sq ftage as 1/10 of what it actually was. Using that I bid on contract, which was accepted. Respondent then realizes mistake and notifies I. Ct agrees that I knew of mistake but held that the mistake was not in the offer, the mistake was in the motive for making the offer, not in the offer. Ct found it a valid k (recall smith v Hughes-type of oats; compared to knowing whether k says old oats) McMaster U v Wilchar: Ont High Ct, affirmed w/o reasons: his analysis is confusing, but generally right- McMaster casetenderer omits page 1 of tender bid; university accepts offer- resulting in importance difference in pricewas obvious mistake and k cannot be acceptedpalpable error problem Contrast McMaster with Imperial oilmistake with respect to assumption (ie/aka: the motive for entering into k)- not to term of k- so k is ok in former Belle River1978 tendered- forgot last page- $70,000 difference bidder calls and tells the inviter so, after tender is accepted; they knew the mistake; CA says cant accept offer but CA cant say error as to term- but it is underlying mistake that has a big impaction on term- so cant acceptexpanding the doctrine from Smith v Hughes

R. v. Ron Engineering & Construction (Eastern) 1981 SCC Facts: claim to get deposit back that was included in tender that have 750,000 error; contractor tried to withdraw tender after submitting it Issue: Is tender revocable and deposit returnable b/c of the mistake, given that notice was given prior to acceptance? Decision: tender irrevocable (as matter of offer and acceptance in tendering) and deposit not returnable due to mistake Analysis: Estey J, reversing Ont CA McCamusunique to Canadian law, despite what SCC says Estey worried about the integrity of the bidding process- dont want ppl to be get out of their offers Bids always come in at the last moment- b/c worry about ppl hearing and underbid you, or bidders then saying I made a mistake and need more $; not predictable Esteyto add predictability: make bidding process a contractual relationship o Now very legalistic and complicated, gets rise to damages for lost profits from br of k Esteysubmission of the tender is acceptance of Contract A-- a unilateral k (though obvious that its a bilateral k- exchange of promises) Estey finds that mistake doesnt affect formation of Contract Athe mistake is not in the k A- Belle River doesnt come into play; contract B not made, cant be made given the big mistake in the bid; distinguishes McMaster- there is no palpable error here (leaving door open? could be in another caseunknown) P. 597see marked quotation- when error is so bad that tender is not a tender (??): If the thing is such that it couldnt be accepted as k B, then may it wasnt even a k A either Estey notes that Ron En didnt argue penalty

Calgary v. Northern Construction Co 1986 Alta CA Mistake in tender, tells inviter, city says they will accept anyways, Tenderer refuses to perform the k, the city claims for damages on the difference in price of lowest bid by Northern and the next highest bid McDermid J says no need to worry about contract Bthey didnt sign the contract to do the work question is re the damages for the refusal to enter into contract B from contract A o Contract A- term that Northern would accept to enter into contract B o Like Esteymistake doesnt prevent formation of k B, so there is a claim for damages Kerans J in concurring in result, different reasonsfinds mistakeas to motive (mistaken assumption)you intended offer at that price, mistake was in the calculations o Look to Smith v Hughesunilateral mistake does not prevent the acceptance of an offer unless (1) the mistake is as to a term (opposed to motivation) and 2); the mistake is known to the offeree at time of accpetance o Rejects Belle River Kerans J: has to mistake as to the term, not affecting the term o What if its an unconscionable tough?unilateral mistake in assumptions ought to give rise to relief where- it would be unconscionable (p. 603) and the other person is aware of the mistakeadding that caveat to smith v Hughes Talking about contract B! Doesnt say aloud, what about no liability for contract A, prevent it from being binding tooo McCamusuntidy, but likes it o Restatement of Ks. 153is the general US principle- not just for bidding o What makes a mistake grossly unfair/unconscionable? Ottawa Non-profit housing corp Unreported case-made a typo- a clerical error- intended 3mil, bid 2.2milput (the minimum) 5% of 3mil, not 2.2 miltries to argue that that makes in a palpable error- ct says no Tries to argue Kerans dissentct rejectssays the circs dont meet the tradition unconscionable requirementsie unequal bargaining power exploited McCamus didnt think that Kerans meant traditional uncon, but whatever Now- think of bell v lever bros Common mistake? Not really unilateral mistakelook to Kerans Then what about disclosure to misrepresentation 3. Misunderstandings -first start with offer and acceptance stuff, then if not solvable, go to mistake doctrine: Consensus ad idem problemie k for ship to move- each party thought it was a different Peerless: Raffles v Wichelhaus But if there is an objective way to show custom, etc then the k is enforceable McCamus thinks its not really what we would call a mistake in common parlance Aka mutual mistake- parties are mistaken but do not share same mistake (???p. 584) If no way to resolve, then not enforceable (a) Mistake as to terms Lindsey v. Heron & CO 1921 OCA

Make it a an offer and acceptance problem (no o&c = no k) before you go mistake as to an existing k Re shares in Eastern Cafeterias- P asked for shares in eastern Cafeteria of Canada, def had shares in eastern cafeterias of Canada limited: and sold them to P. P actually wanted shares in eastern cafeterias limited J finds that P wasnt ambiguous, had he asked for eastern cafeterias, it might be ambiguous enough that it find no ad idem and no k, but not the case here Dissent: no consensus ad idem- negs in morning not part of offer and acceptance- reasonable person would hold that they were not contracting for the same thing

Staiman Steel Co v. Commercial Facts: P to buy bulk lot with building steel and used steel; Def to sell bulk lot of used steel only. Trial J finds lot has used steel only. P refuses to sign waiver to effect that lot did not include building steel; Seller normally wants to enforce k, not heredoesnt want to enforce it in this case- somewhat counterintuitive Decision: C seller, breached Analysis: P had unreasonable view, seller had reasonable view But rule is the sameif misunderstanding, but objective way to figure out reasonable view, then k is binding on both buyer and seller Here C had right to insist that P take possession of lot, but no right to insist that P sign away claim that k included building steel as well Glasner v Royal Lepage 1992 BCSC- cf rectification stuff Purchaser (def) doesnt want to buy house that had ever had UFFI in it- offer to buy with that warranty; Plaintiff seller instructs real estate agent to change k, and doesnt inform the purchaser to the change in term- real estate agent did not comply and told def that house had once had UFFI; def then refused to complete or tender deposit and P sued to recover deposit Ct finds that if you dont draw attention to change then k has a consensus ad idem problem- generous interpretation of the snapping up an offer rule Case is contradictory to smith v Hughessays that if party knows other party is mistaken as to a fact in the k then thats not okS v H says only for mistake as to term of the k Dismisses Ps action for spP

(b) Mistaken Identity Misunderstanding case b/c they were thought to have had a consensus ad idem problems Then conseqs to third parties pushed cts to find that there was a k but its voidable (in equity or CL??)Solle v Butcher Two kinds of cases: 1. Contracts created in writing/correspondenceno face to face dealing Cunby v Lindsay- Blankarn- commits fraud, signing it like Mr Blankiron, Lindsay, knowing the latter, sends handkerchiefs to him (Blankarn), Blankarn sells to Cunby; Lindsay goes after Cunby b/c C has no title b/c B had no title Finds that L-B contract was voidand B knew it, so L is successful Mistake as to identity

Kings Norton Metal- 1870s caseWallis carrying on business fraudulently as Halum, makes up a factory, enters into k with Kings Norton Metal; H sells to third party; KNM tries to go after third partyct says no k is just voidable Difference with Cunby?? Ct say in Cunby, Lindsay knew Mr Blankiron and Mr Blackarnhere KNM just thought they had a big fancy businessman, too bad 2. Contracts in face to face dealings: Lewis v Avery 1972 Eng CA Denning L to sell his car; buyer says he is actor Richard Greene, signed cheque for car, R.A. Green; L asked for proof that he was Greene, buyer showed him admission pass to studio bearing name Green and photo of buyer; cheque turns out to be useless Buyer sells car to A, gives receipt as Mr Lewis- A gets in touch with L, L sues A for conversionissue is whether k between L and Buyer was good so as to make k between B and A okay Phillips v Brooks: jeweller case- buyer says he is X from Y street, jeweller looks it up and accepts cheque-- voidable contract but not void-ultimate buyer gets goods Ingram v Little- void, on basically the same fraud facts- original seller gets goods Denningprotection of third partyso finds it voidable for fraud, not void for mistakeprotect third party over the seller who was duped This is a special rule for face to face dealingscant claim mistake (thought it was someone else); but can be voidable for fraud Shogun finance v Hobson?? HL 2003 cardsapplication for funding of car purchaserapproved; There is an exception on face to face dealings in some UK actbut needs to find out if purchaser is a debtor under the Actso was k formed (c) Documents Mistakely Signed- Non Est Factum Mistake that occurs when a party has mistaken the kind of k ,that is, transaction, that is involved-- Re nature of contractual undertakingcharacter of the k, rather than the contents (the UK rule, was rigid until recently, until Saunders) A doctrine that has been revised in recent years Issuesre: carelessness of party trying to get NEF relief; second issue: problem of rights of 3 rd party who has relied on signature of one party to k when a signature was induced by fraudulent misrep as to nature of document Historywas only for deeds, now expanded Basically- person who signed was defrauded as to the character of the k Prudential Trust co v Cugnetwas leading SCC case on NEF, Cartwright in dissent o Document was represented to be mere option on mineral rights on prop, was actually a transfer for the rights; misrepresentor then sells to third party o Finds NEF applies and grants relief- transfer to misrepresenter was void and therefore third party buyer acquired no title- went to character of k o Cartwrightcontents v character is silly; should be fundamental difference rather than character of k; shouldnt apply where someone has been careless in signing Cartwrights view now vindicated in Saunders (HL) and Marvco (SCC)

Gallie v Lee- sub nom SaundersHL 1971 widow thinks shes transferring interest to nephew, in fact she is transferring it to Lee- who sells it to third party Anglia, who wants to claim it was valid HL reverses previous position in Carlislenow carelessness is important not really a tort analysis or a true estoppel casejust a way to narrow the NEF doctrine you cant give it voided and hurt third parties if you were careless in signin g; and contents v character is not important Noteissue is void v. voidablefraud is not enough- makes it voidable, but third party still gets interest then; if void then third party is out of luck Marvco Color v Harris- SCC 1982 Parents trying to help daughters boyfriend; action for foreclosure on a mortgage Carelessness preventing NEF defence in context of negotiable documentswas the rule now its a general principle for all NEF cases Third party problem takes centre stage (compare to Great Peaceno void v voidable analysis) Need for stability and certainty The testmuddled in Marvco, compared to Saundersdoesnt say the character v contents o Has law of Canada changed with regard to the testgiven test is Saunder (re distinction between class/character v contents)? McCamus thinks next time around, Saunders (and Cartwright dissent) may be found very persuasive o Note that most cases in this area- claims under undue influence, duress, unconscionability, various mistake doctrines and NEF o Ie note 3 page 647Glube J uses unconscionability language but deems it an NEF issue 4. Mistake in Integration: Rectification Equitable order to create correct doctrine and execute it Need to show a prior agreement between parties that was later miswritten in agreement Issues: o standard or proof to show inconsistent prior agreement? Note rectification is contrary to parole evidence rule, is an exception o Does previous agreement have to have been a complete agreement or can written agreement fill in gaps where not controversial parts? Does the previous agreement need to be in writing? o Appropriate to offer rescission (ie from mistake) or rectification as alternatives? o Can you get relief for a unilateral mistake in rectification? Classic rectification is where both parties agree and written document doesnt adequately represent prior agreement? Bercovici v Palmer 1966 Sask QB; Sask CA Selling retail business properties; contract says buyer gets third parcel (rob roy cottage) as well businesses Trial J satisfy himself beyond a reasonable doubt (why criminal standard?) Good case on what kind of evidence will come upo Unrelated nature of retail prop and cottage o Neither seems to have taken into account cottage in determining purchase price o Purchaser didnt try to take possession for 5 yr; no insurance, no paid taxes, etc o Disputes between parties, but never brought cottage into it o Letter from solicitor re: both properties ie two properties Orders rectification removing third property from k

Same case- at appeal o Affirms trial J o What about looking at evidence of what happened after agreement in order to construe whether the contract adequately reflects agreement Strategic play UK: behaviour subsequent does not matter, not relevant to what they meant at the time- interpretive thingCanadian courts says be cautious o CA says well, for rectify, subsequent evidence looks to be good evidence to show what they meant o Whalen case cited p. 651- documentary evidence (lawyers letter) somewhat helpful There has to be some documentary evidence as to the agreement, but entire agreement doesnt have to be in writing Coderre (Wright) v Coderre 1975 Alta S.C.unilateral rectification case; rect vs resc discussion Wife says there was previous agreement that she would get the house, says that he said he would protect the children J says not sufficient; her lawyer writing letter re the agreement and evidence of friend that wife told her what husband said Evidence that husband gave rent money to wife not enough to implicate husband in understanding that wife owned half the house Standardquestions the criminal standard- insurance cases (civil case) where matter mirrors a criminal case still uses civil standard- doesnt make a lot of sense o Responseno, common law presumption that contracts are sacrosanct What about unilateral issue- one-sided error in integration Cheshire text: k can also be rectified on ground of unilateral mistake if the P proves beyond a reasonable doubt that it was intended tocontain a certain term beneficial to P, but that the def allowed it to be concluded w/o the term, knowing the P was ignorant of the omission not found in this case o Note: why rectification, looks like a mistake case- Glasner- the generous reading of misunderstanding; or Smith v Hughesb/c there was a prior agreement here o Roberts case- referred to hereif you know that the other person of mistakeyou get rectification, rather than rescission (ie smith v Hughes) Re: remedychoice of rescission or rectification- UK cases have rejected the choice p. 655- Roberts v Leicestershire County Councilreferred to in Cheshire and Fifootsschool board there knew that other side was ignorant of change in term of k (18 mths to 30 mths)case where rectification is appropriate note high standard of burden of proof on prior agreement mentioned although Coderre judge says its not that standard in England What about where there is misrepresentation amounting to fraud or close to it? Allow rectification or rescissionMcMillian v Chaplan There must be inappropriate conduct in order to offer alternative between rescission and rectification McMillian v Chaplanmore a case of unilateral mistakewhere one side know, should have know that other side was ignorant to mistake in koffer rec or rescis o Rental for commercial premisestypo or dictation problem lessor can terminate on 3 months notice; was supposed to be lessee can terminate o What did lessor do wrong in signing it? Nothing so no rectification No clear prior understanding, no inappropriate conduct of lessor, no knowledge of others mistake and not clear that it was a mistake

 Spectrum: Clearly knew, acted dishonestly rectification

maybe knew, didnt act dishonestly really: one thats missing in analysis in Coderre Diverge in UK and Can law on whether to offer choice btwn rect and resc

Didnt, not ought to have know, not dishonest- no rectification

Middle case- McClurg case- Devald v Zieuner in note 2farmer agrees to sell land but wants to keep barn; talks to purchaser re keeping; purchaser gets k, reads it, and signs it; k includes conveyance of barn too; farmer wants rectification- McClurg says purchaser wasnt committing fraud or anything, but purchaser did know of conversation to not include barn but its not fair to purchaser o Rescission isnt good b/c then purchaser who is not fraud will get nothing (ie no k ever existed)McClurg offers choice of rescission or rectification for the purchaser o Rescission/rectification choice examined in Eng CA: Riverdale Properties v Paul- note 2 lessor thinks lessee is responsible for external repairs; not really in lease but should have thought of mistake given prior conversation- leasor argues give option between rect and resc- Eng CA says no, all or nothing- no relief via rectification for unilateral mistake unless there was knowledge of the mistake on other side ( or rectification where other side knew of his mistake)- will make finding or knowledge or no knowledge What about ought to have known- Wattams- Devald- divergence between Eng and Canadian law

How is above different then smith v Hughes? o Difference is the prior agreement in rectification cases; not so in smith v Hughes o Hartog case- p. 591snapping up the offer: product per piece (made during negotiation) vs product per pound (written agreement)- J says you must have known, so claim for br of k denied difference is that with snapping up there is no prior agreement made that it can be rectified to Unilateral mistake vs snapping upfacts can be blurryhave to make factual arguments on either side Devalddoesnt have to a prior complete agreement, but on the main things (ie which parts of land are being transferred) Unilateral mistake- when can you get relief? Actual knowledge- Eng law- yes Must have know (I dont believe that you didnt know) Ought to have known-Canadian law- yes: Devald case; Wattams likes it (good ground when not comfy saying party was dishonest), Palmer doesnt (rectification in this circs means giving on party a contract that they didnt agree to) Did not know, did nothing wrong- no relief; UK and Canada Third party rights What about those cases where innocent thirds party rights are engaged? Neither rescission nor rectification are possible

Augdome Corp v Gray not the above casevendor sells all assets including mining rights; purchaser corp wants to look into the ambiguity on whether asset was transferred we didnt want to transfer that asset- to get asset and purchase price Basically purchasers argument is that debtor (Gray) will get a new creditor and that is the effecting third party rightsSCC says no, makes no difference Third party rights are not affected

Frustration Matched set to mistaken assumptions Mis assump- deals with unfortunate circs that occur/exist prior to entering into k Frustration after Similar but different o the tests are different-McCamuss problem with the Great Peace o risk allocation analysis out loud in frustration; hidden in mistaken assumptions MAIN QUESTION: When are the intervening events so catastrophic that both parties should be relieved of their obligations? Frustration is also like br of kk is binding until event/breach occurs not a rescissionary doctrine Academics: Collins Judges dont like to be seen not having a rule- its just about fairness Js will either say just construing the contract, not making up on my own or test is impossibility Thinks its really about preserving the balance of the advantage of the k (risk allocation??); look to sophistication of parties or imbalance of obligations-ct will intervene if one side is less sophisticated, less likely where both sides are experienced in risk allocation Atiyah All about risk allocation Did one party agree to do his part even if this might happen, then not frustrateddid one party assume that risk? If yes, then enforceable; if risk is unassigned, there is a case for frustration 5 Factors1. if change affects only his own purposes in contracting and not common object of both partiesnot frustration (McCamus says this isnt a good one) 2. where remuneration is very large- tends towards risk on that person side-insuring against intervening circs Posner economic theory adding to Atiyahs listif promisor could have prevented or insured against risk then no frustration- look to who is the preferred insurer against this riskwho can insure against risk cheaper and more efficiently who can determine the potential losses better and who can in fact provide the insurance more cheaply, ie selfinsurance impossibility is not a good testquestion should be did promisor guarantee performance even if its not possible? Also- performance could be undue Trebilcock Challenges Posner: using Posners factors of prevention and insurance, it can go either waynot a good test Saysdo what contract say- literal enforcement of ks, even if harsh or unfairness at least its clear

3. circs that are deviations from the normal, little problemswe assume people assume those risks- only the crazy weird stuff 4. even if crazy thing happens, no frustration is there is relief from someone else (ie insurance)- risk is allocated by setting oneself up to be indemnified by someone else- implicit is risk of contract A propels contract B(the insurance) 5. if parties ked for performance at some distant date, one or other will be held to have assumed risk of performance whatever the future might bring

expensive but possible and promisor might be let out so impossible test is silly

Development and Application of the Doctrine Paradine v Jane 1647 o Action in debt for def had failed to pay rent on lands during English Civil war when enemy had invaded lands and occupied them o Judgment for plaintiff- must run the hazards of costs unless k allocates risk to lessor -no class notes Taylor v Caldwell 1863 Facts: Use of music hall for concerts- after making agreement, the hall was destroyed by fire Issue: Ps were renting it; def owned itquestion is who bears the cost, does P still have to pay for rental when not used? Holding: both parties excused- P doesnt have to pay; Def doesnt have to perform (the leasing of the hall) Analysis: o K had no mention of what happened if there was a fire or hall was otherwise unusable --> so must look to general rule of k law o For positive ks (k to do a thing) and absolute contractor must pay or perform even if unforeseen accidents occur, unless there are implied or express terms to alter that presumption

Unless its in the nature of the contract is such that the parties must have contemplated the continuing existence of a the foundation of what was to be donethen k read as having an implied term excusing performance of both parties o For ks of personal performance, executors of promisor are not liable for non-performance if promisor dies o Where from the nature of the k there is an implied condition of the continued existence of the life of the contractor o Test is whether by the nature of the k, there is an implied excusing where is it apparent that the parties contracted on the basis of the continuing existence of a particular person or chattel; if yes, then both parties are released from obligations from time of frustrating event ( not before) o Herelooking at whole k, Ct finds that parties contracted on the basis of the continuing existence of the music hall- and that was essential to their performance o So both parties excused- P doesnt have to pay; Def doesnt have to perform (the leasing of the hall) -no class notes o Can Govt Merchant Marine Ltd v Can Trading Co 1922 SCC Fact: hire of ship to transport goods; Vessels not ready on time, voyage and k could not be performed Issue: was k frustrated by ship no being ready on time? Holding: no, risk allocated to ship owner/builder, CCGM; so CTC gets damages for br (??) Analysis: Frustration Test (Duff J): when the time of performance arrives, that a state of things contemplated by the parties as essential to the performance according to the true intent of both of them fails to existo look to nature of k and circs in which k was made to see whether the parties must have made their bargain on the footing that a particular thing or state of facts should be in existence when performance should occur o if reasonable parties would have agreed that the ktual obligations would come to an end should the state of circs not exist- then a term to that effect is implied- use reasonable man test o here: nothing to show extraordinary circs own parties fault, Duff J seems to be saying o Mignault J, concurring: not an unforeseen event could have be anticipated so party in default cannot claim relief b/c of what happened o Contingency is not be imposed as an implied condition now that the loss has occurred --No class notes Notes Graham v Wagman: I have never heard that impecuniosity is an excuse for non-performance of a promisedef argued excuse for non-performance when it couldnt get financing- nope, P gets dams for br of k OConnell v Harkema: strike that forced company out of business found to frustrated employment k of companys sales manager Smith v Dawson OCA: fire on half-complete house; Def owner insured house and received insurance money, P contractors effected no insurance but owner asked them to complete the house and she would pay insurance money to them. She refused to pay when work completed Ps claim denied on ground that only consideration provided by the contractors for this promise was the performance they were legally entitled to do- J commented: no express term in k for excuse from non-performance b/c of the fire; so no frustration, so no release from k obligations -check with McCamus -no class notes

Claude Neon general Advertising ltd v Sing 1942 NSSC o Rental payments on advertising sign that couldnt be used b/c of wartime blackout at night (P made sign; Def to use it) o Coronation cases: o Krell v Henry- k was frustrated when coronation was cancelled- basis of k was that hire was to see the procession (not just hire was to hire a window one a particular day as noted with criticism by Lord Finlay in Larrinaga); o Herne Bay Steam Boat v Huttondef chartered a ship to see naval review following coronationwas held that coronation being cancelled did not frustrate the k- the venture was at the defs risk and that there was not a total failure of consideration or subject matterdef could still cruise around that day (no frustration, no release, P recovered) o Follows Herne Bayno part of the k became impossible- could still use it as a daylight sign k not for an illuminated sign Note: is difference between above coronation cases that Henry was customer and Hutton was a business person hired charter? Does that change risk allocation? Davis Contractors v Fareham UDC HL 1956 o Building k- build 78 houses in 8 months (P contractors; Def municipality) o Supplies of labour not available in post-war period and work took 22 months to complete (costing more for Ps)- P argues that k was frustrated and they were entitled to a sum of money on a quantum meriut basis in addition to k price o Radcliffe notes that dissolution of ks via frustration should not be lightly made o Also notes how finding an implied term to a k that the parties did not put their minds to (a requirement that also must be found for frust) doesnt make a lot of sense- Cts are really applying an objective rule on the contractual obligations o Frustration doesnt depend on true intention of parties or opinions or knowledge of the event and process is not to see what parties would have done had they put their minds to it look to the meaning of the k and what parties would have decided had they put their minds to that risk allocation o Radcliffes definition: frustration occurs whenever the law recognizes that w/o default of either party a contractual obligation has become incapable of being performed b/c of circs in which performance is called for would render it radically different from that which was undertaken in the k: Non haec in fodera veni (it was not what I promised to do) o Materials needed to examined: 1) terms and construction of k, reading in light of 2) then existing circs and 3) the events which have occurredcompared 1 and 2 against 3 o Event itself is not keyits the events significance in changing the obligation undertaken in the k o Decision here: nature of k and contractual obligations of the contractor/builders not so significantly altered by the change in availability of labour to be considered incapable of performance in the manner expressed in the k: o Delay could have been dealt with in k- not so unforeseen o Significance of delay different for each party-contractor should make allowances in tendered k price for possibility of delay (saying contractor bore the risk) Notes: Radcliffes radically different test has been used in Canadian construction cases; in Hong Kong Fir, substantially different was the applied test; and in Bell v Lever Bros, different in kind was Lord Atkins test for frustration and mistake

Capital Quality Homes v Colwyn Construction 1975 OCA o Sale of plots with intention to subdivide and sell through smaller separate conveyances-checkerboarding sale o When agreement made, lots were not restricted in subdividing; before closing, amendments made to Planning Act making it necessary to get consent from planning committee o Argument as to who had to get consents- vendor selling with them or purchaser getting them after sale o Ps Claim was for deposit to be returned when Def vendor didnt sell with consents o Def argues that P became equitable owner of the lands when execution of agreement for sale of lands was made and thus P purchaser had assumed burden of any new legislative requirements; thus P was in error for repudiating, P breached and shouldnt get deposit back o P argues that new legisl made performance of k impossible; there was a failure of consideration and equity couldnt force P to take something fundamentally different than that which it had bargained for- k was frustrated by amendments o Decision: agreement of sale=vendor required to convey a marketable title in fee simple- so k is frustrated and P gets deposit return o Frustration analysis: o part 1: not fault of either party; not contemplated by parties [ argument that one could find out that legislation was pending]; not provided for in agreement; o part 2: did amendments so alter the fundamental character of the agreement as to not reflect the original basis of the agreementCt says they did change the ks fundamental character o So both parties discharged from performance and P gets deposit back and vendor gets money put out in performance of expenses under frustrated contracts act o So in risk allocation terms, V had onus to get consents ??? o **Note: P just has to say I didnt get anything, agreement didnt go through and so P should get money back-lack of consdieration; [if there was a claim by P for damages then Def would need to get frustration] o and the doing of the intention/purpose of the agreement is literally impossible in this case Notes: o sometimes hard to figure out when the k was frustratedwhen it becomes clear that ships cant leave Basrah in the facts of this case Victoria Wood v Ondrey Ont HC 1977 o Re subdividing and leg amendments to planning act o P purchasers asking for deposit cheque back o Distinguished from Capital Quality homesvery foundation of the agreement has not changedvendor had obligation to provide a deed and purchaser would buy the property (even though vendor knew of intentions to subdivide, the agreement was not condition on ability of purchaser to carry out that intention) o Purchaser of land bears risk and can foresee and is in better position to deal with zoning and similar changes may make his intentions for a property impossible- Ps claim for return of deposit money dismissed (and vendors claim for sp performance allowed but no mention of what that was-P has to buy?) o Write condition precedent into the k if you are worried about it, purchaser!

Notes: Almag v Walker case- vendor and purchaser have k for purchase and sale for purpose of development; site is then deemed a historic site and value decreases a lottoo bad, bad luck to purchaserthey bore risk BC v Cressey- intention of transaction was set out in agreement (to convey developable land), like in Conway Focal Properties v Wimpey- obligation of vendor to get approval- Ct applied a condition precedent Kesmat NSCA 1986 1. Easement to build sewer line across Kesmats property; Def agreed to obtain a rezoning and subdivision of Kesmats property or pay Kesmat $50,000 if unsuccessful in doing so 2. For rezoning, became clear that Def needed to do environmental study to get zoningstudy to cost 25k-50k to do, Def didnt do it and claimed contract with Kesmat was frustrated 3. NSCA: hardship, inconvenience or material loss or that fact that work is more onerous than expected not enough to make out frustration 4. 1. enviro study made ktual obligations more onerous but not a practical impossibility (but does say impracticability in extreme circs might be enough-only Can case to say that); 2. Requirement of enviro study commonplace, not unheard of requirement; not so catastrophic as to alter fundamental basis of k (in other wordsthey bear the risk of being forced to do such a study) 5. judgment for Kesmat Parrish and Heinbecker v Gooding Lumber? Ont case (case not in case book- OCA case) o Def is a trucker- transports lumber from GTA to his area, decides to haul produce from his area down to GTA and then makes agreement with local distributor to supply corn o Then there is a corn blight in this area of the province and he cant supply b/c the farmer cant supply o Potential arguments o P: no impossibility b/c he could get corn from another suppliermore onerous but big deal VS D: impracticality argument-substantially more onerous o P: Hes a trucker- not foreseen for anyone, especially not someone not in business (subjectively objective-someone in your circs or purely objective?) VS D: he bore risk by being the supplier o P: Characterization of kk to deliver corn from his hometown when you look at all the context of the intentions of the trucker VS. D: k to deliver corn, period. o Ability to insure by distributor (Posner analysis) o One JAk is to deliver corn, he could get corn from somewhere else o Laskin JA- changed fundamental character of the k the foundation of the k (that corn was coming from that area which was known to both parties) was destroyed o Really trucker is more like a go-between with particular farmer and particular distributor the intention to get from his neighbourhood was clear to both parties List of factors to take into account: so black letter law is radical change-- Radcliffes rule: look to all the context and what was obliged to do (matter of characterization)to decide if something is impossible other factors actually looked at: 1. hardship, inconvenience or material loss or that fact that work is more onerous than expected not enough to make out frustration: Kesmat But Kesmat does indicate that maybe impracticability (rather than impossibility) could be enough

2. 3. 4. 5. 6. 7. 8.

Note- just use Davis (radical change) test, rather than impossibility vs impracticability must be a complete surprise, unexpected: Davis v Fareham if you warrant to perform the work you contract to perform, especially where the work is of the nature with control over it: Canadian Merchant Marine youre still getting some use: Claude Neon if the price is higher than normalthen seems an implicit guarantee how the k treats similar matterseither to argue that treat like as like or treat unenumerated as different than enumerated trade custom-- look to nature of kif one is an expert/professional in the field that they should take the risk: Davis, Canadian Merchant marine if there is literal impossibility of the k to do what the parties planned b/c of a supervening event: Capital Houses o but impossibility doesnt necessarily mean that frustration will applycan always raise the taking their chances argument) o recall then its more of a lack of consideration question 9. intention of one party to the purpose of their entering into the kdoesnt change the very foundation of the k necessarily: Victoria Woods (and does risk allocation in that case), unless the intentions are in the k (maybe- then condition precedent that voids the k)

Self-Induced Frustration o recall Can Govt merchant marine case- intimations that Govt didnt do enough to stop delay (they self-induced the delay) Maritime National Fish Ltd v Ocean Trawlers Privy Council 1935 o Appellants chartered a trawler, the St Cuthbert for 1 yr @ $590/month in Oct 1932; entered into in July 1932 o Parties aware in July of pending amendments to Fisheries Act to require licence to use trawlers o Apps granted 3 licences for their 5 trawlers and put them towards trawlers other than the St Cuthbert o Apps then say k frustrated by amendments- PC says NO o Doesnt matter that it was a rational decision to not license Cuthbert- Lord Wright- doesnt care o PC says apps could have chosen to give licences to the St Cuthbert, so they cant rely on doctrine of frustration to relieve them of ktual obligations to payApps must pay for k price to Oct 1933 o **note- P is asking for damages so Def would need to get frustration to be released, unlike Victoria homes where it was about failure of consideration (P asking for deposit back) o Noteif minister denied all licences then it could be a frustration problem Note o Lauritzen v Wijsmuller- CAL has rig and contracts with W to get rigged moved by one of Ws two barges. W chooses to assign SS2 and leased SS1 to another party. SS2 then sinks; W claims frustrationCA says nope, self-induced frustration is not frustration o On frustration: W could try to distinguish from Maritime National Fish b/c in MNF it was after supervening event that the def chose to frustration; here W choose before the supervening event o What else could he have done? Got another boat, W is the professional with connections here- thats what happens and the case was more for the costs of delay b/c the k was performed, albeit differently

If caused by negligence? Frustration cant be caused by partys own fault- no frustration on these facts What about partial performance/partial non-performance? o Whole crop goes then frustration; in this case if the peach grower supplied in full to one and ignored the other four then no frustration for those four b/c the farmer choose o Practically, the farmer would pro-rate to each of them but still be liable for partial damages b/c cases say there are no partial frustration (argument being that with any one purchaser to fulfill the k, you are engaging in self-induced frustration-- irrational!) o Its there was a force majeure clause and farmer pro-rated then you can rely on force majeure and no damages for partial performance Note 3: Dinicolacondo developer sells condos not yet built; agreement is subject to planning zoning thing and def let that date pass; war with city planning and then def stopped negotiating with city and sent letters terminating k. Ps sue for damages (got money back)CA says def choose to stop negotiation with city is self-induced k What about where A has 100 apples and agrees to sell them to B; the apple blight means only 50 apples and A calls frustration, and wants to sell to someone else. B says no and Ct agreesyou must perform as much as you can and damages for the rest o

Frustration and Conveying an Interest in Land o UK-doctrine doesnt apply to leases Capital Quality Homes v Colwyn OCA 1975 o First CA to deal with whether doctrine of frustration applies to leases- it does o Arguments against: Land ks special b/c they give rise to proprietary rights in addition to rights founding all commercial ks o UK: Cricklewood Properties v Leightons Invt Trust 1945Simon and Wright- doctrine flexible and ought not to be restricted by any arbitrary formula o Note that UK cases say- in principle it can apply to leases, but UK cts find that for other reasons its not frustrated o OCA follows- can apply to lease, so surely same with sale of land NoteWattamif the interest can in fact be transferred then no need for frustrationyou are the owner from the get goyou get what you bargained for (recall Amalg- heritage sitebuyer bore risk of chance that it would be turned into heritage site after purchase) huh? Lease cases- not problem about transferring interest but the property is not usable for a period of timeso then its about enjoyment of property Should the Doctrine of Impracticality be Expanded? Commercial Impracticality and Social Force Majeure? o Cts have said that even major expense or more onerous importance will not suffice to make a k frustrated: Kesmat and others o Suez canal closing cases- severe financial change from closing for ks by sea- cases have said not impossible o But Kesmat says maybe impracticability may be enough o Some scholar say- impossibility is too narrow a doctrine; but just use radical test doctrine to extend doctrine o Hints that doctrine could be expanded

o o o

o o o

Long term ks- more vulnerable to changes in circs, cts, besides Denning, not very sympathetic to these arguments Basis of extreme economic hardshipWilkie v Bethune Scottish case 1848- employer to pay servant in potatoes, price of potatoes goes up, ct finds employer can pay servant a sum equal to cost of potatoes before spike in price US: doctrine of commercial impracticality-Restatement of Ks 2 nd obligation to perform excused when performance as agreed has been made impractical by the occurrence of a contingency the non-occurrence of which was the basic assumption on which the k was made especially for more risky in terms of safety Rare for US cts to say increased cost alone is enough, but there are cases to that effect Australian Ct- Codelfa Construction- extreme financial hardship could grounder frustration Capital Quality Homes: situation of impossibility or commercial impracticality Some jurisdiction are cognizant of consumers who experience significant change relating to their financial positions and ability to pay loans, credit cards, etcsocial force majeure

Wilhelmsson, Social Force Majeure- a new concept in Nordic Consumer Law 1990 o As emerged in Scandinavia: o McCamus not sure that thats really true that there are in force in other countries o Thinks that doctrine says if for reasons beyond your control you lose your job, etc then debts owed are cancelled via frustration o Currently run through the bankruptcy system o Consumer affected by a special occurrence an unfavourable change in health, work, housing, family o Causal connection between change and consumers difficulties in paying o Consumer didnt foresee change when k was concluded o Change not the fault of the consumer o Possible affects o Mitigation of the sanctions (ie waive delay sanctions) o Prevention of other party from avoiding the k (ie utility companies not being allowed to shut off heating) o consumer withdrawing from a binding k or to terminate a long term k when hit by social force majeure Note: NS residential tenancies acttenant can terminate residential lease on one months notice if there has been a significant deterioration in tenants health and can no longer pay Conklin, A Contract o language as a system of signs o law mediates the lawyers interpretation of facts- separating social practices which the sign system doesnt incorporate o Legal sign system: o contract is a private matter in that it regulates the private relationships between two parties in contrast to public matter that concern the state o financial institutions are independent from the state

o o o o

contract is the epitome of freedom in that it is a private matter involving a private dispute independent from the state, that freedom is retained during the enforcement of the contract Recession in SW Ontario 1980-83: these beliefs are illusorypublic issues envelop the contractour system of signs misdescribes and conceals the suffering as practiced in Canada Banks gave too much credit, should taken some burden as lenders Many loan calls based on ability to foresee, control- even though borrowers couldnt foresee interest rates spiking or control circs Basically saying that idea of contract cuts the contract breach, enforcement, etc out of social and economic evaluations o

Class noteshow to work tonot just a frustration if one was relieved on not only interest charges but also amt borrowed (not restitutionary principle too); what about effects more widely on interest rates on borrowing; what about the work put out to that point- unfair enrichment issues Anticipating the Unforeseeable: Force Majeure Clauses o Are attempts to allocate risks o These clauses can provide for a variety of options: performance can be suspended, k could be varied, option to terminate w/o having to pay damages for non-performance Atlantic Paper Stock Ltd v St Anne Nackawic Pulp & Paper 1976 SCC o K for sale of 10,000 tons of waste paper for 10 yrs to be used a secondary fibre in the manufacture of corrugating medium at St Annes mill o St Anne said after 14 months that it would no longer accept; Atlantic sued for damages o St Anne relied on non-availability of markets for corrugating medium or pulp under a force majeure clause o Dickson on force majeure clauses: they usually operate to discharge a contracting party when a supervening, sometimes supernatural event beyond the control of either party makes performance impossible o Questionswas the change so radical as to strike at the root of the k? Could the company through exercise of reasonable skill have found markets in which to trade? o Dickson notes that other events in the clause (act of god, war, authority of law, labour unrest/strikes, damage/destruction to production facilities) indicate that discharging condition must be limited to an event over which St Anne had no control o Finds that primary cause of failure for facility was lack of an effective marketing plan for the project and that St Anne knew the US market was closed to them and had overestimated ability to sell in Canadian market o Trial J found that circs were not different at time of execution of k to time of terminating k expect that St Anne realized how much money they were really losing o Dickson says- f.m. clause is for events caused by other people, and intimates that St Anne is the author in part of their own misfortune o Judgment against St Anne o McCamusthis is an example of the strict application of force majeure clausesmust be really specific (more specific that non-availability of markets for pulp) in order to be relieved under such a clause; finds many factors are o Why is Dickson doing thisto force companies not to rely on f.m. clauses to get out of a bad bargain?

Dickson is choosing to interpret k in a way to make St Anne not be able to use frustration doctrine

Notes/Questions o f.m. cause interpreted strictly, see notes on Atcor Ltd v Continental Energy Marketing Ltd 1996 Alta CA o self-induced frustration at common law; o with force majeure clause, if you prorate reasonably then no frustration (??) o what if you have many customers owing to and choose one to pick one (the case in Atcor) CA says must show that conduct was reasonable Effect of Frustration o effect is to automatically terminate the k as of the moment of frustration, regardless of wishes of the partiescannot elect to accept or not, as with repudiation and o not retrospectiveparties are released from further obligations but rights and obligations prior to frustration continue (unlike mistake where k is void ab initio) and can be subject to damages for those pre-frustration obligations o has led to unfortunate financial conseqs- every province bar NS had enacted legislation to change common law position o Fibrosa case- Viscount Simonif you have paid before frustration and no performance happened than you can get your money back (total failure of consideration)so softens the doctrine a bit, but partial payment for partial performance prospects were grim o Ontario Law Reform Commission- report on Amendment to Law of Contract 1987 o The CL position Three questions raised Compensation for benefits prior to frustration even if k doesnt allow it and where benefits conferred are non-pecuniary performance, performance is partial Reliance expenditures recoverable and to what extent? Can ct examine surrounding circs to decide whether proper to allocate reliance losses b/c of implied agreement of parties, trade usages or general economic considerations CL position unsatisfying on these questions No compensation for moneies paid- 1904 Chandler v Websterk is not void ab initio so money paid/obligations accured up to frustration remain enforceable o Overruled in HL case: Fibrosa- sellers consideration wholly failed Appleby v Myers Eng casere recompense for non-pecuniary benefits : recovery not available for partial performance of an entire k, the performing party must perform fully to earn his or her payment o Partial overruled in SCC: Deglman- doctrine of unjust enrichment- applies to restitutionary claims for benefits conferred o but not for reliance expenses in prep for or partial performance of ktual obligation where benefits are not conferred on other party (the loss lies where it falls)

Thus a party who has prepaid all or part of the price but received no return benefits is entitled to recover his payments in full (unjust enrichment) but other party who has spent as much or more in part performance of obligations in entitled to nothing

Legislative Developments Once frustrating event occurs you dont have top perform obligations accrued before the event Act abolishes rule in Chandler- relieving a contracting party from liability to make payments accruing before date of frustration but w/o affecting claim against him/her for damages and allows recovery of any payments made before this timeCt has discretion to allow recovery Discretion to charge against pre-payments the preparations to perform costsits a set-off against the pre-payment (think of it like the pre-payment was made to pay for those kindof thingsbut only to amt of pre-payment not above even if costs of performance preparation were more than the pre-payment In other words: Non-pecuniary benefits: the ct may (not must) allow their recovery at value- party can keep payments to indemnify for expenses if monies were payable before date of frustration Does not apply to maritime ks, insurance ks, or to a k for the sale of specific goods The BC Act allows: 1. removes discretionary element in the first act to allow as a right the recovery of compensation for non-pecuniary benefits conferred before discharge of k (what about above- may not must?) 2. reliance losses shall be divided equally between parties w/o regard to any prepayments made under k o ie partial performance of house, fire as frustrating house and no pre-payments made that could be set off o BC Act says split the losses rather than contractor getting partial payment or houseowner gets unjust enrichment by getting half a house (burnt) thats free 3. recognizes explicitly that parties may have intended to allocate the risk of loss of reliance expenditures on a bsis different that that provided for in the act and establishes criteria for determining whether or not they have done so in fact

Topic 4: Illegality and Public Policy -focus on statutory illegality -comes up a lot, lots of statutes -two textbooks- UK Buckley; Enonchong -two kinds of illegal ks 1. as matter of common law, treated as illegal and not enforcable a. promotion of illegal actshiring someone to commit illegal act i. selling product for an illegal act (selling gun to known murder) ii. unlawful conduct in course of performing the k iii. k to indemnify or insure the perpetrator of illegal act (insurance to commit illegal acts if Im sued for it)lots of litigation

b.

c. d. e. f.

iv. k to pay the perpetrator of unlawful act v. k to do illegal act in a foreign country- unlawful by CL in Ontario ks that undermine married life i. k of married person to marry someone else ii. future separation ks iii. k inconsistent with parental responsibility iv. k in restraint of marriage (give you $1mil and never marry ) v. ks for marriage brokerage vi. ks promoting directly or indirectly sexual immorality to frustrate administration of justice i. ks to provide false evidence; oust jurisdiction of courts (arbitration mostly); champerty and maintenance; k relating to function of public institutions other than cts: i. ks to mislead revenue authorities, sale of public offices trading with an enemy in time of war: military and non-military community restraint of tradereflection 19th century view of the marketplacepromote personal liberty to participate in the marketplace i. see Trebilock book on this ii. k for sale of business with undertaking of non-competition, if unreasonable- b/c it deprives customers of appropriate level of marketplace iii. employment ks on restraints of tradenon-competition-again reasonability iv. applies in novel circs- neo-classical economists would say something here is dealing with the inference in trade be creative with application

2) k that are contrary to a statute thats what we are focusing on Still v MNR- shift in technical way is outdated; shift in doctrine Kingshot v Brunskill 1953 OCA (Sup 1) o farmer (p) with a small orchard sold apples, ungraded, to another farmer (def) whose main work was apples o def said some were defective and offered less than purchase price, P claims agreed upon price o Def claims illegality- P cant sell ungraded apples to anyone under regulations of a statute o The making of the k is an offence o If we were using the post-Still testlook to purpose of the statutory schemeask is it be undermined here? Here purpose is to protect public from ungraded appleshere def would have to grade them anyways so purpose not frustrated o J reluctantly agrees and P cant get purchase price (gets what Def offered him) St Johns Shipping Corp v Joseph Rank Ltd (Sup 3) 1956 Eng QB o Re overloading shipline submerged more than 11 inches in this case, contrary to regulations (cant be submerged at all)- fined at 100 pounds for each inch (related to earning capacity) o Fined 1200 pounds, but extra freight was worth 2,295 pounds- so still did well o Def wants to withhold 2295 to teach them a lessonsays that overloading was illegal and so they dont need to pay whole purchase price (50000 pounds) at all, but they will, minus the 2295 profit from overloading o Judge: doesnt work that way- def can only succeed if they wish to retain the whole freight o Slippery slope idea (small infringements could deny whole purchase price)

o o

o o o o o

Def arguments o Cant sue for legal contracts, illegally undertaken (only for illegal contracts) Anderson ltd v Daniel- here P did illegal act, cant now recover withheld amount o Cant recover if in order to claim if party must disclose that they committed illegal act: Marles v Philip Trant o Person cannot enforce rights which result from own crime Judge thinks arguments based on misconception of Anderson v Daniel; 2 correct principles: o 1. A k entered into with the object of committing an illegal act is unenforceable proof of intent at time k was made to break the law (mutual intent-not enforceable at all; unilateral intent- not enforceable against party with that intent) (Still goes beyond this) o 2. Court will not enforce a k which is expressly or implicitly prohibited by statute doesnt matter about intent, always unenforceable Finds that if consideration and matter to be performed are both legal, then party is not precluded b/c of an infringement (on his/her part) of the law Test is whether statute meant to prohibit the k in question o is the statute meant to prohibit k at all? o If so, is this the type of k the statute is meant to prohibit? The statute does not impliedly prohibit ks for the carriage of goods by improperly loaded vehicles, unless there is also intent to overload (that second part is key for the first principle) Must taken into account broad conseqs that defs argument could have on commercial ks And statute related fine to earning profit for overloadingassumes that such ks remain alive after a transgression of the k Second and third arguments for def also fail- to recover, P must only show safe carriage; P not relying on illegality to show right to price- thats from k Judgment for P

Class notes on St Johns 2 kinds of k: 1) illegal in formation (k to kill someone); 2) legal k (k to do something legal) that was performed in a manner that is inconsistent with a statute Devlinis sanction offered by the customers appropriate; should not likely conclude that the k is unenforceable Ontario Case- Lasenby Mortgage broker carrying on business Towers Corporation Not a corporation (contra business act??) And brokers statute says you have to carry on in registered name- which is Mr Lasenby not Tower Judge looks to St Johnslook to purpose of statutehere no prejudice to def, no good reason why def should get such a windfall Ashmore, Benson, Pease & Co ltd v A V Dawson 1973 CA Lord Denning: o A tube bank was loaded on a lorry, which tipped and caused damage to the tube bank, wanting to sue for negligence of driver o Claim for damages; defence is load was too heavy for the vehicle contrary to regulation and so k was illegal o Two questions- 1. k legal when made? (trial j finds yes; CA accepts even though driving company should have know it was illegal) 2. was k lawful in performance?

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Similar to St johns; but different here b/c there was an accident in St Johns; P who overloaded the boat gets judgment, why doesnt P get recovery here? Denning finds that both tube bank company and def knew it was too heavy, so P cant rely on illegality to sue for recovery in damages o So it looks (but Denning doesnt say) that a waiver- P knew that performance would be illegal so took risk of accident and now cant rely on illegality as a br of k o Not about restitution like in St Johns, this is for damages

Phillimore J o K was illegal when made- both parties knew it was too heavy; and performance was illegal o Overruling trial Js finding Scarman J: o Agrees, but doesnt want to disturb trial Js finding on legal k when made o Agrees that performance of k was illegal Still v MNR p. 791 FCA o Working while waiting for immigration papers; denial of EI benefits for that time- not engaged in insurable employment b/c of violation of Immigration Act (which only applies to ppl who knowingly contravene the legislation o Old doctrine in Kingshot outdatedunder this doctrine, it would have been decided differently o Says look to purpose of the statuteonly if purpose of statute is frustrated by the k then it will be illegal o Important points: Mere fact that k involves commission of an offence, something that amounts to an offence doesnt end the matter Look to purpose of the statute; too draconian a sanction, etc Following academia, st johns, other cases o Talking about enforceability of k but also about restitution claims (recover even though the k is not enforceable) Traditional CL doctrine: Illegal k=no relief at all Still: can grant some relief depending on purpose of statute and what illegality was Restitutionexceptions of traditional: if person is someone a victim- forced into k, purpose of k was to protect ppl like you o Factor: is this sanction disproportionate to the purpose of the statute? The st johns shipping case o Mentions Sidmay case p. 797purpose was to protect investors, no other investors; borrower would get windfall if they could keep money so enforceable-SCC affirms on that ground Royal Bank p. 798: Krever critical And others So if your client is saying enforce even if its a bad (illegal , etc)focus on Still, Sidmay, Royal Bank Severance Can you sever an illegal provision and keep the rest of the k enforceable?

Ct have said that its ok to sever if you can simply just delete and still have a full and complete (and legal) doctrine Note 8 William Thompson p. 807various factors to look at test to sever o Would the object underlying the illegality rule ben undermined by keeping the k alive? o Intentions of parties to break law? o Relative bargaining power of parties and legal advice o Prospect of unjust enrichment William Thompson was about CCC provision on interest rates- the definition of interest in CCC is broad and can capture ordinary commercial instruments (like break out fees over interest amt allowed when calculated) OCA: not intention to do wrong means that severance is appropriate and k is other wise enforceable So became an interest free loan

Late Payment Penalties Min of Energy tells utilities providers to impose penalty fees Class action to get money back Garland v Consumer Gas casegoing to SCC- interest includes late payment penalties and thats contra CCC Transport North America Inc v Solutions ?? : Culley J: new approach to issue of severance accidental criminal rate of interest J says why dont we sever excess and re-write provision so not to exceed 60% max in CCCCA reverses say you cant re-write k; SCC (Arbour) says no, trial J seems reasonable Topic 5: Interpretation of Contracts General Principles Good UK book by Lewison Two topics: Filling gaps- implied terms Giving meaning to ambiguity and inconsistencies Filling gaps- Machtinger 3 categories: o Terms can be implied in fact- what parties intended o implied in law imposed on the parties, will benefit a particular party but could be to there objection- there are legal o implied in trade custom or usage-chicken case- where everyone in trade knows this Implying in Fact: G Williams piece two kind of inferring going on- at p. 20 of handout o what parties actually had in their heads but didnt include o what parties probably would have expressed if they have been asked hard to tell difference between the two Business Efficacy Test is it necessary to read in b/c it only makes sense in business terms

Officious Bystander test bystander says did you mean to include this and parties said yes of course Dynamic Transport SCC: implies term that vendor has to make best efforts to get subdivision approval b/c the statute The parties must have intended that k would be performed and use best efforts to do so- its what they would have agreed if someone had asked them at the time If not implied, k would be unworkable When do you imply terms and what do you imply? Implying in Law: Machtingerimplied term to give reasonable notice for employment k Need for business efficacy- not really Neither of the provisions in the k were enforceable b/c contra the employment standards act Ques: once you strike down the provisions- do you replace with ESA minimum or go to common law position of reasonable notice? SCC says back to common law Discuss on implying law Doesnt need to be necessary to make the k worknecessary is necessary for the fair functioning of the k Williams article Examples of not whether k is necessary to make k work but necessary to fair functioning of k Inconsistencies, Ambiguities in Contracts Read whole agreement to find similar, or dissimilar provisions Can you look outside the agreement: no- Parole evidence rule (recall hard and strict version of the rule)but construction of an agreement is an exception as long as contract isnt clear and express in its termsthen can look to negotiations, context of agreement, commercial setting of the agreement, o What about subsequent conduct to signing agreement? Did they act in a way that supports one interepretaiton? UK says no; p. 503-- Lambert J in Canadian something could be helpful and Can rule is more flexible than UKs (and can look to it for estoppel too) Can you take many agreements entered into in the same transaction? Yes as long as truly all part of one transaction Basic tenets of interpretation in contract Rule of interpretation Contra proferentum- contract construed against the party that proffered/wrote it Mention of one thing is excluding the other thing Something? Generis--- specific words trump general; general words take their colour for specific words: St Annes Nackawic Look to k as a whole to glean intentions of the parties: BC Checo Apparent inconsistencies in the terms in kshould attempt to find interpretation that can reasonably give meaning to a consistent meaning BC Checo o Interpretation one provision as specific exception to a general provision

Dont give interpretation of term that leads to absurdity Where the k is a standard form agreement that has been annotated by the partiesif one provision revised in particular but now inconsistent with an unrevsied provision- former is Negativing implied termsexpress terms trump implied terms that would be implied already (only where express provision is not unlawful: Machtinger) If there are two interpretations and one renders the agreement unlawful and other interp lawful then go with lawful Presumption against interp that make impossible obligations

Exclusion clauses: Scott v Wawanesa Son sets fire, insurance denies Insurance defines him as insured and provision that no compensation is allowed for deliberate conduct causing damage by accused La Forest says in dissent two interpretation- if one insured causes harm then nothing for any insured OR if one insured causes damage than there damage isnt compensated o If they want to get out of it they better be clearcontra proferentum- contract construed against the party that proffered/wrote it o Context and objective of agreement to insure people- must read it consistently with purposemust make inconsistency with purpose very clear o Notes that under vandalism provision the agreement provided for insured causing damage La Forest- if they did it clear there and not here- they cant rely on it Majoritysays its obvious that the provision excludes insurance coverage for this damage o Says read as whole and see that the company was trying to protect themselves for that Fragilimentthe Chicken case P- look at negotiationswe can b/c this is an ambiguious termwe used terms chicken to refer to stewing chickens and not german word huhn Trade usage- chicken=young chickens (the good ones); P says we are new to the business and Ct agrees that trade custom must either be part of trade or so universal that everyone would know Fed regulations referred to in k and Fed regs have a definition of chickens- k did not incorporate the definition- trial J says look to it Price was more in tune with young chickens (stewing, not great) K had two sizes of chicken, one size could only be a small one, so bigs ones should be assumed to be the same- trial J not convinced

2. Interpretation and the Duty of Good Faith Performance Matter of contract interpretation Recall that we looked at duty to bargain in good faith- this is about duty to perform contractual obligations in good faith Doctrine of good faithMcCamus thinks that the ????? Controversialimplied duty to do everything in good faith implicit in every kArton v. Gateway Realty case: Zellers in anchor tenant in Gateway mall, persuaded to move, other tenants at Gateway are really upset; Zeller assigns the balance of the 17yr lease to Arton with condition that we wont sublease to a competititor

A and G talk about it and come up with idea that they will remove non-competititor part and make best efforts to lease property doesnt J looks at cases to suggest that duty of good faith already existsDynamic TransportSCC says duty to perform in good faith Ct also said there is an implied obligation to do whatever you need to to perform the k McCamus says dont really need good faith- k wouldnt work (k for severed piece of land) if you didnt takes steps to perform k (go to planning committee for severance) McCamuscould be more precise on what the nature of the duty of good faith ismost socalled duty of good faith cases are just cases where the k requires cooperation

April 6, 2004 In US- Restatement circulated (do I have this?) and Uniform Commercial Code In roman law and some civil systems Law reform comiss has undertaken reports on the duty Belababa- pro-good faith: 2 points: 1) isnt it common sense and common morality, so codifying isnt a stretch; what is good faith? Not acting in bad faith; 2) it has happened in the law, its already in statute and case law (especially old k law where its implied) so it would just be giving recognition/crystallizing the existing doctrine Anti-good faithcomplicates litigation, parties can write explicit terms on good faith but an implied term is too complicating Case law recall Martel (bargaining in good faith, but found not an issue in that case); Wallace v United Grain Growers (good faith dismissal) SCC has not pronounced on broad idea on obligation to perform k in good faith Gateway: Kelley J find that there is a duty and that it was breached here K had provision in k to make best efforts to attract new tenants Facts: shopping store has rights to rent to competitor in neighbourhood, isnt going very fast about it Kelly find that they had breached that term and secondarily that it would be a duty of good faith that would be breached Wasnt critical to the issue McCamus: finds that in all cases where the duty is recognized, it has never been the main winning argument Mc says there are three circs in which g.f. haS been recognized: 1. contractual discretionary powers are inferred in a k, it must be exercised in a way fair and reasonable way (ie good faith)- from OCA Greenberg v Meffert (employment case- commissions that came in after realtor had left, manager had discretion in order to make a fair judgment rather than cut out the realtor (manager had taken a little bribe from someone in company to cut him out)like administrative law on discretionary use of statutory power 2. Dynamic transportre a condition precedent that the vendor will make application for subdividing propertyDickson- there is an implied duty to do what needs to be done /best efforts to perform the k has continued in lower court case lawbest efforts like good faith

3. where someone is manoeuvring to evade contractual obligations cant do that theres a duty of good faith not to evade ones obligation {by following letter if not spirit??} One case- MDs work in building, there is a lab in the building; MDs then open up their own lab. The lab says there is a restrictive covenant in lease to not competitive, trial J says yes on cov and also there is good faith duty not to Another case- corp- right of first refusal of shareholder who wants to bail outis in k that there is rfr that must be complied with; company arranges for transfer at a holding company level so that the effective ownership of the shares did move (but didnt actually sell it) Justice blair says that is indirect sale and in any event, there is a good faith duty and they had to comply with that Franchisesrecent cases seem to suggest that statutory duty to act in good faith between franchiser and franchisee should include when terminating Another OCA case said that there is no free standing duty of good faith per se but?? Listen at 2:12 (we started a little late): McCamus thesis - hasnt been recognized that there is a duty but Reinstatement of k in third handout You cant do indirectly what you cant do directly- evasion of contractual obligation Ie non-competition clause in k for a mall; owner gets adjacent land and rents to a competitor- not technically Case like Dynamic transport Note that its mostly contractual interpretation of a good faith-like term of the existing k, sometimes its implying a term, its to give Basis for implying terms which may rest on idea that you can imply term to give reasonable affect to the abused party (not the implied terms test of business efficacy) --thats the newness- its the lower of the implied term test from reasonable affect from business efficacy 3. Interpretation of Exculpatory clauses Historical context: Lord Denning invented the doctrine of fundamental breach and got smacked down on it at the HL- thought it a consumer protection o Seller relies on limitation clause that says take car as is, car was a totally lemon o Denning says it is so defective (congeries of defects) so that you didnt get was you bargained for then the breach is fundamental and the exculpatory clause doesnt applyits a rule of law Is fundamental breach the same as repudiatory breach (giving rise to the right to terminate and sue for damages or whatever --br of condition, innominate term that is significant)? NO Fundamental br is more extreme it enables you to ignore limitations of liability clause Judges and student alike get confused: Suisse Atlantic- Lord Reid got it wrong in saying that Dennings fundamental breach is nothing more than repudiatory breach by the innocent party then exculpatory term doesnt apply -screwed UK doctrine on fb: Diplock Photo Productions Exclusion clauses define secondary legal obligationswrong Denning, its about construction approach resist no obligation interpretation

Note- unfair contract terms actgives ct power to strike unfair contracts- no need to interpret contracts against those who wrote them

Canadas version of fb: Leading case: Hunter v Syncrudeconflicted SCC (Dickson v Wilson) Lower ct apply each and can look to Dennings version too Dickson: Prof Wattams unconscionability doctrine runs through contract law, not just the discrete k idea- ie fb is like unconscionability: compare though: o Unconscionability- about unequal bargaining party, strikes down the agreement as rescission o Fb- Wattams- striking down the exclusion clause is like unconscionability Dicksonsays its like uncons. But no IBP b/c its a commercial k Wilson: too narrow to find just unconscionability- could never apply where there isnt IBP and dont be quick to abandon rule of law approach Wilson: so generally 1) we interpret exclusion clauses as unenforceable or altered but 2) there will be cases where the ex cl is enforceable on its face and its enforceable in this fact scenario allow a little discretion where there the facts are so yucky that the judge wants to not apply it anyway o Where substantially deprived of the benefit of the k (sounds like repudiatory caseprobably not saying that wherever there is a rep br the exculpatory br doesnt apply) Trial judges collapse the test- either uncons or is unfair and unreasonable so a fb type thingie and still wont be enforced in this case- doesnt say which one; they also use contra proferentum 4. Interpretation and Rescission Guarantee Co of Nth Am v Gordon Capital A k where the representations that were made in the application are true and if not true then other party entitled to rescission Contest is between repudiatory br (br of k of rep and warranty section and innocent party can terminate and sue for damages (performed and yet unperformed obligations) and rescission ab initio o Why does insurance co want rescission? B/c termination is from the moment of election to terminate would have them still be liable for the loss that just came up before the loss so insurance company wants rescission (back to before the k started) Employee (broker) br k of employment and causes losses, co contacts insurance co that they will make claim; insurance then finds out that the company misrepresented security stuff in their application There is another provision that says if we rescind for false statements then we will give back premiums- then sounds like rescission- okay UK p. 45-46: Rescission different than repudiation; but where representation is repeated in rep and warranty clause; (in UK)- once its part of the k, then its a ktual undertaking and rescission for misrepresentation is gone and replaced with the analysis of whether the misrep is a term or warranty or whatever (thus meaning br of k or just damages claim and k continues) Problem says McCamus p. 46, citing WattamsBastarche says you can rescind for misrepresentation that is part of the k that is big and bad (whoa, changing the law) Law before this is that you get damages for a misrepresentation that has become part of the k not resicssion Draft precise remedies

Second point- assuming that the rescission was wrongful and the insurance co in fact breached, does the contractual limitation period (2 yrs) run o This is the second half of the analysis o CA says ktual limitation refers to filing a notice with insurance co and not getting $, then 2 yrs to decide how whether to sue insurance co- not the case here o Bastarche- nope CA, it applies to all claims Would be absurd para 62- insurance co would be exposed to longer periods of uncertainty for rescission for false claim (???) compared to denying coverage for other reasons