CONTRACTS ILLEGALITY AND PUBLIC POLICY

Introduction Public policies are sometimes treated by courts and be legislators as being more significant than freedom of contract; thus contracts are sometimes said to be illegal or contrary to public policy on various grounds. Maddox v. Fuller (1973) The true test is whether the public interest is injuriously affected in such substantial manner that private rights and interests should yield to those of the public. Restraint of Trade (Effect of restrictive covenant) Contracts, clause or combinations designed to eliminate or stifle competition, effect a monopoly, artificially hamper the course of trade or obstruct the course of trade or commerce as it would be carried on if left to the control of natural economic forces. For example, one cant set up shop in specific area. Shopping Center Leases may impose a restraint of trade that is in the best interest for all parties. Onus is on the party who wants to enforce restraint to prove the reasonableness for public policy (i.e. shopping mall limits the number of competing stores so that mall is a good mall). Unreasonable restraints of trade which are illegal per se restraints interfering with competition in business and commercial transactions which tend to control market to the detriment of purchasers or consumers of goods and services. Restrictive Covenant/Agreement (Clause) Protects an employer from having an employee as a competitor in the future. Restrictions can be for A) a period of time and B) within a certain geographic area General Rule: for a restrictive covenant to be enforceable it must be reasonable A) between parties and A) must be in the public interest Solus Agreements Exclusive purchasing agreements in which one party promises to buy all his or her requirements of a certain commodity from the other party (e.g. Zehers is exclusive seller of Precedence Choice) Illegal Contract Illegal contracts which are in breach of a statutory regulation are unenforceable. Any property transferred under it is irrevocable, and any money paid out is lost. (Still v. Minister of National Revenue). Doctrine of Illegality is divided in 2 categories: common law illegality and statutory illegality. Three Issues dealing with the effects of Illegality Are contracts that offend a statute or common law head of public policy ever enforceable? Yes. Can a party ever recover money paid or property passed under the contract? Yes. To what extent are courts willing to sever offensive provision? To a fairly great extent. Nine Types of Contracts which Offend Public Policy (Common Law) Contract to commit a crime, contract that is sexually immoral, a contract prejudicial to the public safety, a contract prejudicial to the administration of justice, a contract liable to corrupt public life, a contract to defraud the revenue, a contract to oust the jurisdiction of the courts, a contract that tends to prejudice the status of marriage and a contract in restraint of trade.

Facts KRG Insurance Brokers Inc v. Shafron Shafron joined KRG after selling them his business and was subject to restrictive covenant that prevented him from competing with KRG in Metropolitan City of Vancouver for three years from termination When he left a number of customers moved their business with Shafron to his new employer KRG sued to enforce the restrictive covenant prohibiting competition Shafron challenged that Metropolitan City of Vancouver was not a recognized location. Still v. Minister of National Revenue Worked without a work permit in good faith

C SCC 2009

Holding Restraints of Trade and Restrictive Covenants An ambiguous clause cannot be a reasonable clause, and will not be enforceable. Notional severance has no place in restrictive covenants of employment contacts Blue line severance will rarely be useful for restrictive covenant

Ratio In cases where there is a restraint of trade or restrictive covenant, and as long as they are 1) reasonable to both parties and 2) in the public interest, then the courts will enforce them. The clause must be reasonable to three factors: 1.) Must have reasonable geographical scope 2.) Must have reasonable time limit 3.) Must be reasonable in the activities it seeks to restrict Reasonableness is determined by the language of the covenant and the surrounding circumstances, the nature and character of the business employment on a case by case basis

Notes Employers should not be invited to draft overly broad restrictive covenants with the prospect that the court will sever the unreasonable parts or read down the covenant this would change the risks assumed by the parties Although the SCC said there may be cases where a blue pencil can be used to strike out a problematic portion of a clause (i.e. Metropolitan), this will be done sparingly and only when a removal is trivial and not part of the main purpose of the restrictive covenant.

CA 1998

Effects of Illegality CA allowed her to obtain UI benefits because acted in good faith; dealt with on a case to case basis and looks at true intention of parties did person intend to harm or violate purpose of the Act? Language in document was unambiguous No other Canadian would take the job (most Canadians would be unwilling to take this job)

- An illegal contract may be unenforceable, but the Judge has discretion to enforce some or all of the contract where circumstances and fairness dictate - Reflects new modern approach to determining if a contract is void for illegality that is flexible and takes into consideration surrounding circumstances

Although a statute may prohibit an activity there is discretion in judgment; certainty must give way to flexibility. Courts construe a more flexible view of illegality to uphold public policy. She was paying EI while working so no depletion of the fund If there was proof that she knew she was not supposed to be working than enforcement of S.18(1) of Immigration Regulations would be enforced

MISREPRESENTATION AND RESCISSION

Representations & Terms: Classification and Consequences Representations are things that someone says to induce the other party to enter into a K Misrepresentation = a representation made to someone to induce them into entering into a K that has later proven to be false. Four kinds of misrepresentation (type of remedy you are seeking determines the type of misrepresentation) 1. Mere Puff: Has no remedy i.e. Buying a certain car does not mean you will attract girls for sure 2. Innocent: Rescission, puts party back into pre contract position(Redgrave; Smith) (Where you do not mean to tell a lie; do it recklessly) 3. Negligent: Damages, puts part in position is contract was not breached (Bank of B.C.) (It is a kind of Tort) 4. Fraudulent: Unravels everything, same position as if contract was not breached. Whatever best suits the victimized party (Test Kupchuck; Redican) Also have Consumers Protection Relief is through the Consumer Protection Act Who is Protected an individual acting for personal, family or household purposes and not a person who is acting for business persons What is not included under the CPA S(2) of Act Defences Just giving my opinion on things No longer an opinion if one person has or should have much more information than another 3 types of statements: 1. Sales talk or mere puff- representations made in advertising. NOT a term of the K 2. Pre-contractual statements/representation can lead to limited legal consequences 3. A statement which can be construed as a term of the K attaches more serious liabilities if broken Advertisers are not allowed to tell an outright lie A false representation can lead to 2 possible situations: 1. Rescission return to pre-K position, if you have been sleeping on you rights (delay in bringing rescission action, then action is void) 2. Damages for breach of K general common law remedy. Compensation for what you should have received if K not breached. Post-K position. Ways in which rescission cant apply: 1. completed K (applies to land, questionable whether it applies to goods and services) 2. where there are latches (undue delay in bringing action) 3. when it is impossible to put parties back to pre-contractual position (absent fraud) Exception: fraud or complete failure of consideration Warranty is a representation that has become a term of the K; very difficult to establish a warranty; best thing to do is to write it into the K.

Facts/Case Redgrave v. Hurd D (young lawyer) wanted to purchase Ps law practice & home. P told D yearly income was 300 400; receipts showed that actual income was 200/yr. D refused to complete transaction; P sued for Specific Performance. D countersued for rescission, return of deposit & damages for deceit Smith v. Land and House Property Corp. P sold hotel to D. P told D that hotel was leased to most desirable tenant. After purchase tenant went bankrupt. D refused to complete transaction, claimed P in position to know of tenants desirability Bank of B.C. v Wren Developments Bank had Allan (D) sign new guarantee after Smith (D) requested release of shares. Allan thought bank still held shares. Bank sued Allan (D) for outstanding sum b/c nobody else had $

C (1881) Ch. D. CA

Holding Order for rescission & return of deposit D did not get moving expenses Had not proven deceit

Ratio The negligence of the party seeking relief is no defence for the party who has made the misrepresentation. The party making the allegation of negligence has the onus of proving negligence. A party should not profit from their own misrepresentation. Today: we would argue Negligent Misrepresentation Tort was not available until 1950s here maybe old man would be forced to pay but stay in the practice

Notes 1. The person who made the misrepresentation can escape liability if they show: that the other party had clear knowledge of the truth and didnt rely on the statement OR the other party did not rely on the statement (objectively) 2. Doesnt matter that the party had the opportunity to test the veracity of representation it only matters that they relied on it

(1884) Ch. D. CA

P misrepresented desirability of tenant to D Shows difference between an opinion and a misrepresentation

Statement of belief isnt innocent representation, but statement made where material facts are not equally well-known by both parties = misrepresentation If facts are not equally known by both sides a statement of opinion by one knowing facts is usually a statement of material fact, for that party implies he knows the facts to justify that opinion Silence does not constitute misrepresentation and a Bank will always be held to a higher standard when dealing with the public as they have a fiduciary duty to their clients If a true representation is followed by a change in material circumstances prior to an agreement which renders the statement false, the representor has a duty to draw the change to the representees attention

If both parties have the same knowledge, it is a statement of fact When one party has more information/knowledge, it is a statement of opinion

(1973) B.C. S.C.

Allan (D) is not liable to P on second personal guarantee. Action dismissed

Silence can be misrepresentation only for a bank Bank has a duty to check for Mr. Allan before they made him sign. Bank has a fiduciary duty toward their customers

Kupchak v. Dayson Holdings Ltd. (A) purchased shares in a motel in return for 2 properties & a mortgage given to (R). R sold interest in one of the properties, tore down existing bldg & built an apartment this is after they had notice that they were being blamed for misrepresentation A discovered that R misrepresented past earnings of motel. A stopped making pmts

(1965) B.C. C.A.

Order for rescission, however because of circumstances, recession cannot take place, so the court referred to it as compensation

Hyrsky v. Smith Redican v. Nesbitt D purchased leasehold property from P. 2 days after keys & lease delivered to D, D inspected & discovered misrepresentation on several crucial particulars. D stopped payment on cheque & P sued for amount of K [1924] SCC D cannot claim rescission because K was fully executed.

In cases of fraud, rescission is available and monetary compensation is available to restore parties to their pre-contractual position There are at least three bars to rescission: 1) affirmation of a contract (appear to accept contract through conduct e.g. running hotel for 4 years), 2) latches or delay (sleeping on your rights), 3) third party interest (where there is a third party interest, rescission may not be available Fraud = give parties whatever they want Fraud unravels everything Monetary compensation is not available for rescission Once K is executed for land (conveyance), rescission for innocent misrepresentation is not an available remedy for the defendants Exception to the rule: where there is a patent defect concealed (major defect e.g. crack in foundation) Burden falls on D to prove that there was misrepresentation to prove rescission

HYRSKY v. SMITH Cannot award damages for an equitable remedy damages is a common law remedy and this is the problem in this case

KUPCHAK

Class Note: When you buy a house there are two contracts: 1. Agreement to Purchase and Sale 2. Conveyance You have had all the time during Contract 1 to look at the house might get damages if there was misrepresentation but will not be able to return the land this could result in chaos in terms of the real estate market

Red Flag - general rule of law: an executed (completed) K for the sale of land cannot be rescinded for innocent misrepresentation except under very strict conditions (or huge error or fraud) How to establish fraud: 1. Agent knew representation was false, or 2. Made representation without belief in truth 3. Made representation recklessly or carelessly of whether it was true or false

Esso Petroleum Co. v. Mardon Man buying an Esso service station stations are now tied contracts only can sell Esso Oil Asks the oil company what the traffic is like at that location was told it was good Man claims he relied on this representation Company says it was just an opinion and they are not in the business of giving estimates of traffic flow

Court held that an individual here relied on the oil companys statements

Opinion was based on information not known by the owner

Representations & Terms

Recession: an equitable remedy, so therefore cannot get damages. A contract may be rescinded in a proper case of innocent misrepresentation (i.e. K has yet to be executed) an executed/completed contract cannot be rescinded for innocent misrepresentation Warranty: a representation that has become a term of the K, to establish a warranty though it is difficult, best thing to do is write in contract Damages is a common law remedy Fraud: unravels everything, can get recession & can also get money for any losses incurred as a consequence of the deceit Facts/Case C Holding Ratio Notes

Helbut, Symonds & Co. v. Buckleton Appellant underwrote shares in a rubber company. Shares were devalued. Respondent sued for fraudulent misrepresentation & alternatively for damages for breach of warranty that the company was a rubber company Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd. P brought action for breach of warranty on sale of car. D made representations about cars mileage.

[1913] H.L.

There was no misrepresentation or

warranty made no intention that there should be contractual liability with respect to the accuracy of the statement

[1965] C.A.

There was ample foundation for the inference of warranty & that the warranty was broken Ds statement was a warranty of K & P was entitled to damages

Leaf & International Galleries P purchased painting & discovered it was not by the artist that he thought it was when he went to sell it 5 yrs later

[1950] C.A.

P is not entitled to rescission court

determined that the term was a condition of sale & not a warranty

Existence of a warranty must be intended by the parties to be a contractual term. There are no damages available for innocent misrepresentation (See Smith Above) An oral collateral contract is the same as an oral warranty these are pre contractual contracts to induce you into the main contract Requirements for a warranty: If a representation is made for purpose of inducing the other party to enter a contract, and it actually induces the person to enter the contract, that is prima facie ground for inferring that the representation was intended as a warranty Whether a warranty was intended depends on the conduct on the parties, on their words & behaviour, rather than their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice. A court will not relieve a party of a bargain if the mistake is related to the quality of goods rather than to their identity. Once a buyer has accepted or is deemed to have accepted the goods in performance of the K, he cannot thereafter reject but is relegated to his claim for damages. On a K for the sale of goods, an innocent material misrepresentation may in a proper case be a ground for rescission even after the K has been executed

Oral collateral warranties are

smaller Ks that induce one to enter into a main K. Must prove that there was intention to create a collateral K it is very rare that a collateral K is found. Policy rationale behind this case: trying to make contracts more certain To try to get around a warranty, in the written K, can put a clause in the K such as, There are no oral representations, warranties, etc. made in this contract. However, can still get around this its usually in boilerplate, which isnt always binding. HELBUT - When you have one person selling to another CPA does not apply only when between company and individual it applies If you are the P, you would argue breach of warranty & you would get damages which would be the difference of what its worth & what you paid Note: Sales of Good Act once a buyer has accepted, or is deemed to have accepted (passage of a reasonable time) then the claim is barred). If barred under SOGA for delay, it will be delayed under rescission (weaker remedy)

Concurrent Liability in Contract & in Tort

Theory of Concurrency The right to sue in tort is not taken away by the K, although the K may limit or negate tort liability The mere fact that parties have dealt with a matter expressly in their K does not mean they intend to exclude the right to sue in tort Express-Implied Distinction Difficult to distinguish the right to sue based on the implied-express distinction; both are considered as being equal in effect, both treated seriously in court, not evident that expressed terms intended to oust the availability of tort remedies in respect of that duty Strictly tort remedies as a way to resolve disputes may be specified in an express clause of the K The question on whether a concurrent action in torts lies would depend not only whether the K expressly deals with the matter, but also on the elasticity distinction b/w commercial & non-commercial Ks, the courts perception of relative bargaining power, and finally, whether the court sees the result as just or unjust To establish a duty to exercise reasonable care: A special relationship must exist: 1. Person is in business of giving advice 2. Where person has special skill or knowledge and knows the other is relying on him for his advice; can be anyone in position to have someone rely on them 3. A special relationship often arises in context of pre-existing relationship Where there is a special relationship, you can be held liable if you fail to exercise a reasonable duty of care in rendering an opinion. (Hercules Management v. Ernst & Young): 1. Is there a sufficient relationship of proximity such that in contemplation of wrongdoer carelessness on part may likely cause damages to plaintiff? 2. Are there any policy considerations to negate #1? Degree of proximity can be established in 2 ways: 1. Defendant ought to reasonably foresee that the plaintiff will rely on representation; and 2. It would be reasonable for the plaintiff to rely on the representation. What court will look at for reasonable reliance when not so clear: Defendant had direct or indirect financial interest to the representation that was made Defendant is a professional or someone who possesses skill, judgment or knowledge Advice or information was given in the course of the defendants business Advice or information was given deliberately & not on a social occasion (this may not hold today) Advice or information was given in response to a specific inquiry or request Advantages of Concurrent Liability: Can have more options available to you (most advantageous route) Where concurrent liability in tort & K exists, the plaintiff has the right to assert the cause of action that appears to be the most advantageous to him in respect of any particular legal consequence (Central Trust v. Rafuse)

Facts / Case Hedley Byrne & Co. v. Heller Easipower went to ad agency (Hedley) for loan. Ad agency sought creditworthiness & Bank (Heller) gave favourable opinion w/out checking. Easipower went into liquidation & Hedley sued

C (1964)

Holding

Sodd Corp. v. Tessis D (a chartered accountant & licensed trustee in bankruptcy) overvalued goods of company by 100%.

(1977) Ont.

Pre-contractual negligent misrepresentation induced P to submit its tender, therefore D is liable. D is professional accountant & trustee in bankruptcy which created a special relationship & corresponding duty of care to P. Ds stipulation amounted to an overriding of the exemptory clause

Ratio Launched tort or negligent misrepresentation Must be some sort of special relationship between parties, and person giving the information, must be people in the business of giving advice (e.g. doctor, lawyer, banker) For a pre-contractual misrepresentation that induced one party to enter into a K, you can sue in either tort or for breach of K Advice-giving professional has 3 options: 1. Remain silent 2. Give opinion but with a qualification 3. Answer without qualification if this option, then he has accepted a special relationship with the inquirer Pre contractual misrepresentation may give rise to liability in tort if a representation is made negligently, which induces the other party to enter into the contract (looks like oral collateral warranty)

Notes

Reasonable person would have known, or ought to have known that his representations would be relied upon

BG Checo International Ltd. v. BC Hydro & Power Authority BC Hydro called for tenders to erect transmission towers. Area shouldve been cleared prior to work being started, but wasnt. P claims negligent misrepresentation. D tries to use clause stating that its the tenderers responsibility to inspect the site to their satisfaction.

[1993] SCC

D is liable for breach of K. Specific clauses in the K override general ones The tort duty was not limited or excluded by any express provision. P can also claim for negligent misrepresentation

Overrules Hedley: unless the parties

indicate otherwise (e.g. limited liability clause) you can sue in tort AND contract Exceptions to concurrent liability: Where the contract is void for fraud, mistake, or unconscionability, A clause limiting liability may not apply in cases where the tort (personal wrong) is independent or falls outside the scope of the K (e.g. personal wrong has nothing to do with the contract)

If a K stipulates a more stringent

obligation than tort law would impose, then you would only sue in K (would be easier to argue liability.) If a K limits the right to sue in tort, then you have to sue in K. If the duties in tort & K are similar, & tort has not been excluded, then can sue in either tort or K and you would use both.

Parole Evidence Rule

Traditional Rule: Anything that is not in the written agreement is extrinsic to the agreement (any oral conversation that adds, subtracts, or contradicts something in a written contract is parole evidence and There will always be a written K with this rule. Everything that has been decided on is in the K, and it has been signed by the parties. Old version of rule: Anything that is not in the agreement is extrinsic to the agreement. If anything adds, subtracts or modifies the written agreement, it is parole evidence and it cannot be added to the K. This rule is a presumption that a document that looks like a K is to be treated as a whole K. This is a rebuttable presumption. It is open to either party to allege that there was in addition to the written agreement an oral express stipulation not intended by the parties to be excluded, but intended to continue in force with the express written agreement.

8 Important Factors (GALLEN v. BUTTERLEY) 1. You cant make 2 Ks that contradict each other 2. The rule is not absolute, parole evidence rule is really just a rule of evidence and not a law 3. Canadian case law has recognized that it isnt absolute. 4. If the contract is induced by a oral misrepresentation that is inconsistent with the written contract, the written contract cannot stand (Bauer) 5. This parole evidence rule is a strong presumption (i.e. in favour of the written document). This is rebuttable 6. strongest when oral representation is alleged to be contrary to written agreement, less strong when oral representation only adds something or varies the contract 7. The presumption is strongest in individually negotiated contracts & less strong in standard form Ks 8. Where there is a specific oral representation versus a general exemption clause, then the presumption is less strong (favours oral evidence)

10

Facts/Case R. v. Horse A group trying to enforce verbal conversation b/w them & the govt Zell v. American Seating Co. $1000/month, commission to be determined at a later date to fall between 3 8%. Written K replaced commission with a bonus amount to be determined & given at employers discretion

C (1988) SCC [1943] C.C.A.

Holding

Ratio

Notes

Court applied parole evidence rule

Parties deliberately intended the written K to be a misleading statement of their real agreement

Where the K is not ambiguous, there is no

need to allow parole evidence

Once the parties agree that a written

promise is not to bind them or the written contract is a sham, then the written agreement lacks legal efficacy & then parole or other extrinsic evidence will be admissible Today, courts derive the mutual assent (intention) of the parties from their actions based on a reasonable person Parole evidence rule does not stand up when the intention of the parties and expression is SO different from the provisions of the contract Outside evidence is only admissible where the provision of a written K is ambiguous A collateral (oral) agreement cannot be established where it is inconsistent with or contradicts the written agreement (this is the parole evidence rule applied)

Hawrish v. Bank of Montreal P (lawyer) signed guarantee on banks usual form; P had oral assurance that guarantee was to cover only existing indebtedness & would be released once they obtained a guarantee from directors.

[1969] SCC

Parole evidence expressly contradicts the written agreement. No clear evidence of an intention to create binding oral agreement court found in favour of the bank

The following factors affect the strength or weight to be attached to the parole evidence rule: Form & content of the writing Whether writing has been signed Status of the parties Circumstances surrounding the preparation of the document Subsequent conduct of the parties Whether the K is a standard form Nature & effect of the parole testimony The presence of a merger clause in the writing Any agreement collateral or supplementary to the written agreement may be established by parole evidence provided it is one which an independent agreement could be made without writing & is not inconsistent with or contradictory of the written agreement

11

Bauer v. Bank of Montreal P guaranteed loan; book debts of company supposed to be assigned by bank but bank does not properly register; subsequent bankruptcy of company bank not preferred creditor

[1980] SCC

Parol evidence would expressly contradict the terms of the guarantee that gave the bank the right to abstain from registration & perfection of security. Hence, it would be inadmissible under parol evidence rule & any collateral agreement founded upon it could not stand bank was able to collect

There must be sufficient evidence of an oral

misrepresentation which induced the party to enter a K for the parole evidence rule to be set aside. If the K is induced by an oral misrepresentation that is inconsistent with the written K, the written K cannot stand

J. Evans & sons v. Merzario o During shipping machine was stored on deck, fell off and lost into ocean

A breach of an oral warranty

(misrepresentation)that induces a party to enter into written contract, OR there was both an oral and a written contract (that when looked at as a whole form the entire agreement) the breach of either oral or written components will give rise to damages Created a window for people to get around parole evidence rule by saying there clients did not have legal advice

Same decision as Hawrish Curtis v. Chemical Cleaning Where there is misrepn that is either innocent or fraudulent, they cannot rely on written K in contradiction of the misrepn. Roberts v. Montex repns in a brochure (merger clause = integration clause). Can get around parole evidence rule if there is unequal bargaining power. Counter case: Hawrish and Bauer

Lister v. Dunlop Lister was advised by lawyer not to sign a written contract that contradicted an oral contract but signed anyway Gallen v. Butterley K for buckwheat. Seed company first brought action b/c farmers did not pay for seed. Farmers countersued for breach of warranty & loss of profit b/c of no buckwheat

Parole evidence rule applied (probably because Lister had legal advice) (1984) BC CA

Counter to Evans

The word crop in this context meant yield. The oral warranty & the written agreement do not contradict each other No contradiction dont need to use parol evidence rule. Farmers lost

If there is a contradiction between written terms & oral representation, there is a strong presumption in favour of the written document but if there is clear evidence that the oral warranty was to prevail, it will prevail 8 principles (above)

Specific term overrides a general term

12

Classification of Terms
Frustration of Contract Where existence of a specific thing, either by the term of the K or in contemplation of parties, necessary for performance of a promise in the K, duty to perform promise is discharged if thing is no longer in existence at time of performance. Frustration of Purpose A party to a K will be relieved of his or her duty to perform when the objective purpose of performance no longer exists (due to reasons beyond that partys control). This doctrine excuses a promisor in certain situations when the objectives of K have been utterly defeated by circumstances arising from formation of agreement, & performance is excused under this rule even though there is no impediment to actual performance.

If a condition is breached, can repudiate K & stop performing. Would write this into the K. If a warranty is breached, all you get are damages. Must continue performing K cannot repudiate it. It is often not clear whether a clause is a condition or a warranty.

Key to whether youre looking for a condition or warranty: someone wants to repudiate.

13

Facts / Case Hong Kong Fir Shipping v. Kawasaki 24 month K (lease), owners to maintain efficient state of ship; no payments for repair time exceeding 24 hours; ship delivered undermanned & old/inefficient. Couldnt lease ship and kept in drydock for total of 20 weeks. D wanted to repudiate K & get damages. P sued.

C 1962 Eng.

Holding This was a warranty Ds were not substantially deprived of the K

Ratio Hong Kong Fir test is only used where terms cannot be identified as conditions or warranties by traditional tests of construing the K. 2. Test: a. Construe the K to see if theres a condition or warranty; b. Take into consideration the nature of the industry (e.g. ships tend to get laid up in drydock); c. If terms cannot be identified as conditions or warranties, look at the consequences, nature & effect of the breach. d. If the breach deprives the innocent party of substantially the whole benefit of the K then the innocent party may repudiate (stop performing/get out of the contract). Otherwise, remedy is damages. 1.

Notes Hallmarks of case: Must be an ongoing K. Is it a condition or a warranty? If innominate/intermediate (ambiguous) term, look at consequences of breach (TEST). If substantial deprivation of benefit, then can repudiate. Hong Kong Fir test: The party that breaches the contract cannot use their breach as a means of rescission (still must perform). If the breach deprives the innocent party of the whole benefit (or a substantial part) they may repudiate. Otherwise remedy is damages

Krawchuk v. Ulrychova Cribbing horse Wickman Machine Tool Sales Ltd. v. Schuler A.G. Provision in K that included weekly visit from sales rep. Provision is called condition. 2 clauses in conflict termination of K & weekly visits

1996 Alta Prov. Crt. 1974 Eng. HL

Did not deprive P benefit of whole K but gave her of her money back anyway

This is the Canadian application of the

Hong Kong Fir test (look at consequences & gravity of breach). Use of the word condition is not conclusive if that construction leads to an unreasonable result. Subsequent action is often a clue as to the intentions at the time of creation of the K. Must write condition into K breach of which will give rise to repudiation. Must make intention clear or will not be able to repudiate. Denning had to harmonize between the 2 terms specific & general Rule in British courts was reviewed: cant look @ subsequent actions to interpret parties intentions were at the time of the K (British rule; in Canada, you can look @ subsequent actions)

14

Discharge by Performance or Breach

To what extent is the party in default able to enforce the K itself? In cases where breaches do not relieve innocent parties the defaulting party may enforce the K Often K are created in a way that avoids this situation from happening, for example, building Ks may stipulate that it is a condition of the obligation to pay that the work must be completed & to the owners satisfaction this K would be enforceable once work is done satisfactorily Definitions: Deposit a sum payable in advance to secure a K. If K not performed, deposit is forfeited Down payment a sum paid in advance toward the full sum. If K not performed, money is returned Penalty clause a sum provided for in a K which only becomes payable after a breach of the K. For example, for every day late, there is a daily payment Contra proferentem decision against the person who put forward the standard form agreement. The party should have been cleared.

Facts/Case

Holding

Ratio

Notes

15

Cutter v. Powell Employment K for seaman who died at sea without performing all of his obligations. Family tried to claim for his wages

1795

Family not entitled to wages

When someone signs an entire K, they must completely perform everything in K before they get paid. Strict rule! Has led to the mitigation of this drastic outcome.

Modifications to mitigate strict rule: See if that clause can somehow be severed from the K so that can receive pay. Doctrine of substantial performance if substantially performed, are entitled to be paid for it

Markland & Associates v. Lohnes M renovated Ls property L made some payments by refused to pay the balance of the contract price because of defects in workmanship M sues for price of contract Fairbanks Soap Co. v. Sheppard D made soap machine for P. P paid $1000, D refused to do any more work until full payment made. P sued to recover money paid. D countersued for full contracted price Sumpter v. Hedges Contractor building a house, ran out of money and abandoned project Another contractor finishes the contract Original contractor sued for money for work completed

1973 NS SC

M entitled to some money based on partial performance minus cost of defects

Elaborates on doctrine of substantial performance Where the contract has been substantially performed but with defects, the judge will award the completed price, minus the amount to fix the defects Where a contract is entire, or a lump sum contract, there will be no payment unless it has been substantially performed Substantial completion will be assessed according to all of the circumstances on a case by case basis. When you make a contract for a lump sum and you dont substantially finish, you are not entitled to any money Similar to Deglman established law of restitution. Where someone has made some investment into a property & gets nothing out of it, you dont allow the other party to benefit from it. Unjust enrichment Case shows need for drafting clauses in the event of a breach When a K has not been rescinded, you have to deal with whether the money is a deposit or a down payment

1953 SCC

Crt held for P. There was no substantial completion of K since D abandoned it. D could not receive any money

1898 Eng. CA

Ruling for defendant (against original contractor), no substantial performance

Contractor today would get something back under the law of restitution (quantum meruit) an equitable remedy Law does not want people to gain windfalls at other peoples expense

16

Howe v. Smith Contract for land, 500 deposit Purchaser defaults on payment and doesnt close on closing date Vender wants to keep 500 pounds as a deposit

1884 CA

P is not entitled to recover has lost right to both specific performance & right to sue for damages for its non-performance

A deposit may be construed as a forfeiture

rather than a part payment, depending on the conduct of the parties, surrounding circumstances, language used, and size of the contract on a case by case basis

Hallmarks: Deposit is binding (almost like consideration) & the amount is a very small fraction of the entire sum generally a certain percentage of the brokers fee Courts do not generally like penalty clauses unless they are very fair a penalty clause comes after the breach A deposit is never implied it is always express In a standard form K, the crt interprets ambiguous terms in favour of the party signing, not the party that submitted the K for signing A seller should not use words of uncertain meaning when he could have removed all room for doubt by the use of more specific language as to whether prepayment was deposit or not

Stevenson v. Colonial Homes Ltd. Purchaser goes into office and receive a standard form contract Contract has both down payment and deposit written on the contract Purchaser signs under down payment side Purchaser decides he wants out of contrac

1961 Ont. CA

Ruling for Purchaser (Taken as a down payment, if it was construed as a deposit, not entitled to money back)

To determine if there was a down payment or a deposit must look at the intention of the parties, the language used and the surrounding circumstances Standard form contracts are interpreted against the party who has brought it (contra proferentum). If there are ambiguities, they are interpreted against the party bringing the contract Contra proferentem: Onus is on the party who proffered the standard form K to make the other party aware of the specific terms look at language, circumstances surrounding it. (Standard form = boilerplate)

17

Standard Form Contracts & Exclusion Clauses

Whether or not a person is bound by conditions on back of ticket: If person receiving ticket did not know there was writing on back, he is not bound by conditions. If he knew of writing & that it contained conditions, he is bound by them. If he knew there was writing but didnt know that it contained conditions, he is bound by them if reasonable notice was given of conditions Contra proferentem (strict construction) If K drafted by one party, any ambiguity goes against drafter of the K; strictly interpret the words as they appear on the K. Fundamental breach one of the parties has failed to do what they agreed to do & breach goes to the root of the K; cannot then rely on limitation of liability clause

18

Facts / Case Machtinger v. HOJ Industries Ltd. 2 employees of used car lot. Dismissed without reasonable notice Given 4 weeks notice pursuant to Act but argued they were entitled to more (reasonable notice) then the minimum even though they contracted for less Scott v. Wawanesa Insurance Son set fire to house deliberately. Clear provision that Insurance did not cover willful or deliberate acts.

C 1992 SCC

Holding Termination clause was a waiver (because did not need to give notice of termination) but cannot waive out of a statutory obligation (Act) clause is null & void

Ratio The presumption is rebuttable if the contract specifies otherwise Common Law reasonable notice prevails unless contract states otherwise (no less than minimum) Contractual terms can be implied by fact, law or custom & usage.

Notes Statutory interpretation is necessary & of importance in the legal field

1989 SCC

Policy does not cover damage no ambiguities in clauses

Parker v. South Eastern; Gabell v. South Eastern Pls left belongings at railway. Pls did not read nor notice limitation of liability clause on paper ticket or posted on sign.

1877 CA

Railway company did not give

plaintiff reasonable notice of condition

This particular case turned on the simple fact on whether the wording in the exclusion clause was ambiguous or not. Once it is unambiguous or clear there is no liability to the insurance company Contra preforendum applies to ambiguities in favour of the insured If it is generally known that such tickets contain conditions, then the person is bound even if the conditions are unread If the party relying on the conditions gives reasonable notice, and has brought terms to the attention of the other party, then the exemption clause will be upheld

Insurance K is the classic boilerplate K

Thornton v. Shoe Lane Parking Parking garage, car dropped on plaintiff Conditions written on ticket and posted around garage waiving liability for person injury Posted conditions werent visible until after formation of contract

1971 Eng. CA

D cannot rely on exclusion clause; condition did not form part of K

Any unusual or onerous exclusion clause is ineffective unless brought to the parties attention before the time the contract is concluded

If person receiving ticket did not know there was writing on back, he is not bound by conditions; if he knew of writing & that it contained conditions, he is bound by them. If he knew there was writing but didnt know that it contained conditions, he is bound by them if reasonable notice was given of conditions Condition deals w/ personal injury different than personal items in car or the car itself. If theres going to be an exemption for personal injury, it must be brought to the customers attention ahead of time b/c not normal practice (red finger pointing to the clause)

19

Barnes v. Union Steamlines Northern BC. Ship went to an inaccessible area in BC to bring people to Vancouver. Ticket purchased once person is on ship had limited liability clause. Person was injured

See class notes (good luck) probably same as ratio from McCutcheon

Interfoto Library Ltd. v. Stiletto Visual Programmes Ltd. Photographic transparencies + terms sent by P to D in bag. Note stated late charges. D claims not not aware of charges. McCutcheon v. David MacBrayne McCuctcheons car is lost on a ferry Conditions posted limiting liability Never signed risk note

1989 Eng. CA

P did nothing to draw Ds attention

to condition 2 - it did not become part of K

In a good faith in contract where the terms

and conditions are particularly harsh, they must be brought to the attention of the opposite party and the condition must be fair (not only buyer beware, but seller be fair

McCutcheon should be fully compensated for his car

Must prove actual knowledge that party

was aware of the terms and conditions if one wishes to hold a party liable for the terms and conditions (west thinks this is wrong) If a service provider is trying to bring the best possible service to customer and the alternative is no service, or a much higher price of service, the courts are more likely to consider limiting liability fair

This was the only company providing this service in the area; if found liable, they may not service the area any longer dilemma for the court. SCC convened twice to hear the case. Not sure what the holding is. MUCUTCHEON (same) TILDEN (same) FRASER (different) Judge may determine what is fair and order damages based on market value Sometimes penalty clauses are treated as exclusionary clauses In this case, the penalty clause was found to be exorbitant BARNES (same)

British Crane Hire Corp. v. Ipswich Plant Hire Ltd. Oral agreement by D to hire Ps crane. No mention of conditions. Crane was then delivered & soon after P in accordance with its business practice send D a printed from to be signed setting out conditions of hire. Before D signed, the crane sank in marshy ground. By printed condition, D was required inter alia to indemnify P against expenses incurred in connection w/ the use of crane.

1974 Eng. CA

Should D be bound by an agreement that he had made but that wasnt signed? YES.

Objective (reasonable) person would know that these agreements contained exemption clauses. Also, there had been previous courses of dealings w/ P, & D knew that there were exemption clauses. D was deemed to know. NOT a subjective test

Where party are equal & know the norms of the industry, implied terms can be inferred

20

Tilden v. Clendinning D rented car from P. D agreed to pay additional $2/day for full non-deductible insurance, with stringent no alcohol clause D did not read contract, had one drink and crashed car P sued for damage to vehicle

1978 Ont. CA

P cannot rely on exclusion clause D not liable for damage

If a Company uses extremely stringent terms in a contract, that they do not bring to the attention of the other party, and the terms are not intended to be relied upon, they cannot rely on the signature of the other party

Contractor inserting clauses inconsistent w/ overall purpose of K must use reasonable measures to bring to attention & not simply hand over to be signed BARNES (similar) FRASER (different)

Delaney v. Cascade River Holidays Delaney late addition to rafting trip. While boarding bus, passengers signed std liability release. All except Delaney received brochure detailing liability exemption prior to trip. Paid fee for trip, and was asked to sign release after. Wife sued for compensation

1983 BC CA

D was negligent in not providing life jackets of proper buoyancy, but P failed to show that Ds negligence caused Delaneys death b/c it could not be shown that he would have survived if he had worn a jacket of more buoyant specs

DISSENT IS NOW LAW!!! People who go on adventures are deemed to know there is risk and there will be a wavier of liability Dissent: Past consideration, paid for trip, waiver came after the fact (past consideration is no consideration) Insufficient notice: provision too onerous to be singed in a rush, obligation of river company to bring it to Delaneys attention (no presumption of advance knowledge of disclaimer); use of word standard induced a sense of security in passengers; release didnt mention personal injury or death no ratio provided in class, but it looks like a waiver is not valid if signed while intoxicated

Red flag in Delaney

difference b/w this case & Tilden is that there is a personal risk, the person knows it & probably knows that they will have to sign a waiver. The company has done its part in bringing the exemption clause to the attention of the customer.

SUNDANCE party at a ski hill somebody takes a rubber tube down moduls after drinking signed waiver while intoxicated LEstrange v. F. Graucob P bought cigarette machine from D & signed agreement w/out reading. A clause stated any express or implied condition, statement or warranty, statutory or otherwise not stated herein is hereby excluded. Machine was defective. P sued

company liable because they were aware of the intoxication (hosted party)

Eng

When a document containing contractual terms is signed, then, in the absence of fraud & misinterpretation the party signing it is bound & it is wholly immaterial whether he has read the document or not ENGLISH CASE

21

22

Fundamental Breach and Unconscionability

FUNDAMENTAL BREACH Construe a K read the K as a whole. Look at all the terms & conditions & harmonize them with each other. Primary K = the actual performing of the K (ex., security guard providing security) Secondary K = obligations that arise when a breach occurs (look to the consequences i.e., degree of loss & see what the remedy is ex., damages)

Fundamental Breach Karsales Halbutt

Fundamental Breach Against Suisse Photo Productions (modified/overrules) Hunter Engineering (modified)

UNCONSCIONABILITY Considerations for unconscionable Contract (Davison v. Three spruces) 1. Was K standard form drawn up by bailee? 2. Were there any negotiations as to terms or was it a sign here K? 3. Was bailors (P) attention drawn to limitation clause? 4. Was the clause unusual in character? 5. Were representations made that would lead ordinary person to believe clause would not apply? 6. Does language of K read with clause render implied duty on bailee to take reasonable care meaningless? 7. Considering all facts & representations by bailee, would the upholding of the limitation clause be an implied approval by courts of unacceptable business practices? acceptable business practices varies from industry to industry

23

Facts/Case
Karsales (Harrow) v. Wallis Appellant viewed car and agreed to purchase a week before delivery Exempting clause waived liability to the seller for condition of car upon delivery When delivered the car was butchered Appellant refused to accept the car Defendant sued for payments Suisse Atlantique v. Rotterdamsce

C
1956 C.A.

Holding
Appeal allowed (ruling for purchaser) Implied term in course of business that the car would be delivered in substantially the same condition

Ratio
When you have a fundamental breach, the court will strike down the exception clause by rule of law If a breach goes to the root of the contract, then an exclusion clause cant be relied on Three later cases rule to the contrary

Notes
See top for counter cases

1967 A.C.

Habutt Plasticine v. Wayne Tank Wane tank company put tanks and duraplastic pipes in plasticine company (exemption clause relieving Wane Tank of liability) For grand opening wanted to show plasticine in pipes, turned on machine and went home for the night Duraplastic pipes cracked from heat, spilled on to floor of factory and place burnt down

When you have an exemption clause you should construe the contract on its own terms No automatic striking down of exemption clauses (the ROL does not apply Denning said this is a fundamental breach that goes to root of contract, and court will not uphold the exemption clause because of a rule of law Denning attempt to resurrect Doctrine of Fundamental Breach

See top for counter cases

See top for counter cases

24

Photo Production Ltd v. Securicor. Transport Ltd. Night patrol service, security guard started fire deliberately while on duty. Exemption clause limiting liability of security company to persons performing actions pursuant to their employment Does exemption clause apply?

1980 Eng HL

Words of clause are clear A can rely on clause; liability is excluded Court distinguishes between primary and secondary obligations Primary obligations: to perform contract Secondary obligations: pay if performance is not carried out

An exclusion clause is to be applied to

fundamental breach by construing the contract (determine intention of the parties at time of signing) and not a rule of law Where parties are of equal bargaining power, and the risks are normally allocated by insurance, parties should be free to determine for themselves the terms and conditions of their contract

Whether or not an exclusion clause is to be applied to a fundamental breach is a matter of construction & not a rule of law (the K must be construed as it was on the day it was signed) This case modifies/overrules the concept of fundamental breach

Hunter Engineering v. Syncrude Canada K bw def and pl was regarding 32 gear boxes for $750,000 and 4 extraction gear boxes for $400,000. Merger clauses differ in both K one stated that this was the only warranty & no other warranty, statutory or otherwise, would apply

1989 SCC

Exclusionary clause applied b/c it expressly excluded Sale of Goods Act

Two approaches to exemption clauses (unconscionable v. unfair and unreasonable) Dickson: look at intentions of party at the time of signing, and see if there is anything unconscionable, if not it will be upheld Wilson: look at exclusion clause after a breach, see if it is unfair and unreasonable and leave discretion to the courts Both: Exemption clause should be strictly construed against the party seeking to invoke it. And clear and unambiguous language is required to oust an implied statutory warranty

Canadian version of Photo Production v. Securicor

UNCONSCIONABLITY

25

Davidson v. Three Spruces Realty Bulk storage contract contained a liability clause that relieved all liability to the defendant Defendant did not take propert precautions to protect valuables and they were stolen (negligent care) Defendant seeks to rely on exemption clause.

1977 B.C. S.C.

Exemption clause is so unreasonable that it cannot be enforced

If the exemption clause is so extreme that it leaves one of the contracting parties with no obligations, then it is unreasonable or unconscionable Considerations for unconscionable K (has freedom of contract been abused) 1. Was K standard form drawn up by bailee (person entrusted with goods)? 2. Were there any negotiations as to terms or was it a sign here K? (adhesion K). 3. Was plaintiffs (bailors) attention drawn to limitation clause? 4. Was the clause unusual in character? 5. Were representations made that would lead ordinary person to believe clause would not apply? 6. Does language of contract read with clause render implied duty on bailee to take reasonable care meaningless? 7. Considering all facts & representations by bailee would the upholding of the limitation clause be an implied approval by courts of unacceptable business practices? acceptable business practices varies from industry to industry

Can build an arbitration clause in that would send the matter to commercial arbitration on the grounds that the crts may get it wrong (better to go before someone who has the expertise)

Fraser Jewelers v. Dominion Electric Protection Co. P contracts w/ D (security company), includes limiting liability clause. Store gets robbed, alarm company delayed in calling police.

1997 Ont. CA

D (security company) entitled to rely

on clause

In determining if a clause is unconscionable its not enough to say the parties are unequal, there must be an abuse of bargaining power Mere inequality of bargaining power does not entitle a party to repudiate an agreement. In the absence of fraud or misrepresentation, a person is bound by an agreement to which he has put his signature whether he has read its contents or has chosen to leave them unread.

PHOTO PRODUCTIONS (same) The set of rules in Davidson not all of these need to be present. Crt would deem that a reasonable person would know. There does not appear to be a duty on an employee to point out an exemption clause to a customer exception is in Tilden when a customer asked, employees were to tell them that the insurance didnt cover them if they have been drinking.

26

Solway v. Davis Moving company leaves trailer with plaintiffs expensive goods on street and it is stolen Contract stated that trailer would be kept in protected yard Limited liability clause for moving company based on weight (according to statute

2002 C.A.

Ruling for the plaintiffs Invoked relieve power of S.C.C. to grant relief against onerous provisions Dissent argued for moving company based on statutory law limiting liability by weight

Court applied Wilsons test Can apply test of unreasonable and unconscionable at time of breach (Wilson), or at time of signing (Dickson)

Mistake as to Terms
Courts are generally unsympathetic for mistakes that are not caused by misrepresentations (courts like to uphold contracts and rarely employ mistake to override) Common mistake parties have same mistaken perception Mutual mistake both parties are mistaken but do not share same mistake Unilateral mistake one party makes a mistake while the other knows of it. Ex., A agrees to sell car for $5000 but in e-mail confirming formal offer, forgets a 0 so offer reads, I offer to sell you my car for $500. One party knows there has been a mistake as to terms usually price

MISTAKE, UNLIKE MISREPRESENTATION, DOESNT INVOLVE AN ORAL AGREEMENT/ PROMISE.

Snapping up a Mistaken Offer: When one party knows there is a mistake, and it is clear to everyone Hartog (below), McMaster v. Wiltshire Construction Co. where there is a mistake so obvious that anyone would know it, cannot snap up the offer. (Where there is a mistake on the face of the record so obvious that anyone would know it; a mistake that you can see, such as miscalculation or adding mistake, quoting something by the piece when you know it should be by the pound, etc.) Mistake as to quality or substance of thing contracted for must be distinguished from mistake as to term of the K in former case, it will be an error merely as to motive which will not avoid a K In mutual or common mistake the error or mistake in order to avoid the K at law must have been based either upon a fundamental mistaken assumption as to the subject matter of the K or upon a mistake relating to a fundamental term of the K In unilateral mistake, crts will apply subjective test & permit evidence of intention of the mistaken party to be adduced Error or mistake which negatives consent is really not mistake at all b/c it prevents the formation of K due to lack of consensus & the parties are never ad idem General rule equity follows the law in its attitude towards Ks which are void by reason of mistake. If the K is void at common law, equity will also treat it as a nullity. Equity, however, will intervene in certain cases to relieve against the rigours of the common law, even though the mistake would not be operative at law Equity seeks the broad & more flexible approach by attempting to do justice & to relieve against hardship Crt will afford relief in any case where it considers that it would be unfair, unjust or unconscionable not to correct it Mistake as to terms K may be avoided Mistaken assumptions on the part of both parties generally do not allow you to set aside the K

27

Facts/Case

Holding

Ratio

Notes

28

Hartog v. Colin & Shields

Cannot snap up an offer knowing that the

person youre buying it from doesnt know. You might be able to unravel the K. There should be no snapping up of an offer when someone knows there has been a mistake.

In the past, equity was never triggered if there was a mistake, too bad. Today, equity has come into the law of mistake. In a sense, its confused things because we no longer know for sure whether or not mistake will unravel a K.

Lindsey v. Heron & Co. P asked D what will you give me for 75 shares of Eastern Cafeterias of Canada? P replied later I will give you $10.50 a share for your Eastern Cafeterias. P accepted the offer. D then claimed that he meant to buy Eastern Cafeterias (not Canada). and therefore, being no consensus ad idem there was no contract. Stainman Steel v. Commercial and Home False information given to purchaser indicating a shipment included only old steel, but actually contained both Purchaser only wanted old, so seller decided not to deliver Glasner v. Royal LePage Real Estate Services Ltd. P listed house for sale with D. Made representation that the house had never been insulated with UFFI. P changed warranty to read that currently no UFFI insulation, however P knew that D was mistaken. P wants to take advantage of mistake

1921 Ont. CA

Yes, there was a meeting of the minds. Appeal dismissed.

When you are going to determine the

validity of the transaction you use an objective test (what is reasonable in the circumstances instead of what was the intention of the parties), what does it look like happened (majority) In this case, one could equally argue on the basis of formation of K analysis that there was really no K formed. Its sort of a hit or miss on which side should win. Pretty useless case, use Lindsay

1976

Ruling for purchaser

Application of the ratio from Lindsay v.

Heron: use an objective test that the parties as to what was reasonable under the circumstances

1992 B.C. S.C.

P loses

Equity will give relief where a contract was concluded, where one party knew the other party was mistaken about a material fact and took advantage of that mistake Will not be bound by a K where there is fraud or misrepresentation leading to a mistake. If you have a mistake that is promoted by bad faith in one of the parties (which may be by misrepresentation), the court may find the K to be unenforceable.

29

R. v. Ron Engineering K A/ K B tendering process. Error in submitting tender. Ron forgot to include labour costs, but no mistake on face of tender Ron forfeited $150,000 deposit tried to get it back Calgary v. Northern Construction Contractor submitted a bid that was a mistake (not on face of record) Owner accepted mistaken bid (contract A), moved to contract B Construction company refused to build building at low bid price Owner sued for difference between their low quote and second bid (difference of $400,000 Smith v. Hughes Horse trainer old oats v. new oats Defendant refused delivery when he learned plaintiff was selling new oats Common knowledge that horse trainers only buy old oats

1981 SCC

Terms of K A clearly indicate a contractual right in the owner to forfeit the money No money back for Ron

If a party makes a mistake that is not on the face of the record then it will be concluded that the contract has been created Where there is no mistake on the face of the record (i.e., where the mistake is not obvious), an offeree can accept an offer which might be suspiciously low.

The court upholds the integrity of the bidding process & the bidder bears the risk in submitting the tender Tenderers have own engineers that know est. $, if something comes in too low, may be alerted

1986 Alta CA

City entitled to damages of approx. $400,000

Court applies Ron Engineering. D is stuck

w/ tender. In strict K terms, an offer inspired by an error is nevertheless an offer & may be accepted w/ knowledge of the error (very harsh rule in tendering process)

1871 QB

Ordered new trial, ambiguous instructions given to jury

OBJECTIVE TEST: If intention to contract can be derived from someones actions (based on a reasonable person), they are bound to the contract, whether or not they intended to contract Apply an objective test when there is doubt what would a reasonable person believe?

The only way in mistaken assumption for buyer to get relief is if seller induced that assumption Balanced buyer beware with seller be fair

MISTAKEN ASSUMPTIONS

30

Bell v. Lever Brothers (Common law) Bell & Snelling were given golden handshakes big compensation packages. Company found out that they breached their duty & that they couldve dismissed them w/out compensation

1932 HL

Contract is valid, ruling for Bell and Snelling

A contract will not be terminated by reason that the quality of the contract differs from expectations unless the quality is fundamentally and essentially different than what you bargained for It doesnt matter that Lever couldve gotten the same results (i.e., termination of employee) another way (without compensation)

Still a decisive case in K law There are cases where the mistake is so fundamental as to quality that the K will be unenforceable (Smith v. Hughes old oats). Only time court would not enforce a mistake as to quality is if the mistake went to a fundamental term

McRae v. Commonwealth Disposals Commission D sold P rights to oil tanker that didnt exist

1951 Aust HC

There was a K but since there was no tanker, there was a breach of K P entitled to damages

If the party that wants to avoid K has made a mistake, recklessly, negligently & w/ wilful blindness, they cannot rely on that mistake. Where a person makes a reckless and negligence promise then that promise will bind the person making it to the contract

Cant contract for something

that doesnt exist (COUTURIER v. HASTIE) Would have been decided differently today as negligent misrepresentation

31

32

TD Bank v. Fortin (#2) Prospective purchaser of companies placed deposit, which was forfeited. BC SC determined that D sold companies without authorization. Purchaser sued to get partial deposit back because D was unauthorized to sell companies in the first place Solle v. Butcher (Equity) Parties entered into a tenancy K believing rent controls did not apply because of renovation. P granted a 7 year lease wanted to recover difference in rent

1978 BCSC

D will return deposit of $10,000 to P

1950 Eng KB Mutual mistake- both made the mistake that there was no rent control K not void from beginning, but is viodable

Compromise agreements are enforceable unless one of he parties has no power to contract Generally, relief for a mistake of law is unavailable unless there is a fundamental mistake going to the root of the K A mistake at law could case a contract to be void ab initio At common law, a K could be voidable if it was a common mistake the party that induced the mistake cannot take advantage of their mistake Equity will set aside K whenever its unconscionable for 1 party to take advantage of a certain mistake Equity will relieve a person of a K if induced by a mistake that was neither fraudulent nor fundamental (there is potential for chaos when apply a rule so loosely). This case has been overruled in Britain but we appear to follow it in Canada & the courts incorporate equity Solle v. Butcher has been overruled by Great Peace Shipping v. Tfarlierif 2003 QB 679 English CA (facts of case are in last years exam) Mistake of law in Canada is confused we follow both Bell v. Lever and Solle v. Butcher

33

Great Peace Shipping v. Tfarlierif Ship suffered damage, Mistake of law in Canada is confused we follow both Bell v. Lever and Solle v. Butcher

Contract is valid (ruling for Great Peace), awarded full 5-day fee

There is really no room for equitable mistake, except in very rare circumstances, and the rule, as laid out in Bell v. Lever Bros. applies where you have a common assumption that turns out to be in error, the contact is enforceable CANADA STILL USES SOLWAY V. BUTCHER THERE HAS BEEN NO CASE THAT HAS OVERTURNED IT The only difference in quality in the subject matter which will allow the K to be set aside is the difference which makes the K impossible (its so fundamental that it would render the K impossible).

When there a mutual assumption of facts, and they are wrong: 1) there must be a common assumption as to a certain state of affairs, 2) there must be no warrantee that that state of affairs exists, 3) the non-existence of the state of affairs cannot be attributable to the fault of either party, 4) the non-existence of the state of affairs must render the performance of the contract impossible, 5) the state of affairs might be the existence or a vital attribute of the consideration to be provided, or circumstances which must subsist if performance of the contractual adventure is to be possible This case overruled Solle v. Butcher

34

Mistake & Third Party Interests

Mistaken Identity mistakes of identity usually happen because of fraud it concerns the rights of mistaken owners not against the party with whom they contract but against innocent 3rd party interest into whose hands the subject of the transaction has passed

Facts/Case
Phillips v. Brooks P (jeweller) sold ring to person who came into store. Wrote a chq, but P asked for cash or for person to wait until chq cleared. Person who bought was Sir George something, and said he couldnt wait. Chq didnt clear, but in meantime the rogue sold ring to 3rd party.. Ingram v. Little Little old ladies sold car to con-man who pays with a useless cheque Con-man sells car to little (innocent third party) Lewis v. Averay Lewis wanted to sell a car for $450 Con-man assumed the role of a popular actor managed to get the car without paying Then sold the car to Avery, a university student, who paid $200 Shogun Finance v. Hudson con-man got Patels drivers license, and bought a car Shogun checked everything to make sure he was who he was supposed to be Patel got the car, and then sold it to Hudson

C
(1918)

Holding Crt found that property had passed

from rogue to 3rd party, so 3rd party got to keep ring

Ratio
Court determine that Phillips had intented to contract with the con-man, which allowed Brooks to retain title of the jewellery (as innocent third party)

Notes
INGRAM (opposite)

Court gave good title to ladies (sympathy?)

Found for ladies intended to K w/ Hutchinson, not the rogue. No K b/w P & rogue.

When K with someone, identity of person is of vital importance sometimes. It was of vital importance to the ladies. PHILLIPS (opposite) If there is an enforceable contract than a con-man can actually pass good title to a 3rd party

(1972) Eng CA.

There was an enforceable contract Avery allowed to keep car There was a K but it is voidable. Jmt for D (innocent 3rd party)

1. There is a presumption in law that the K is made with the party who appears in person unless they intended to K with a particular person. 2. The K is voidable but only if its voided before 3rd party rights have been engaged.

UKHL 2003

No contract Shogun had dealt with paper and did all the normal safeguards

Since the contract was a written document,

and not a face to face encounter, we need to construe the contract (look to the intention of the parties) Once construed, the company had intended to contract with the real Patel who had not authorized the agreement

35

DOCUMENTS MISTAKENLY SIGNED (NON EST FACTUM)

Saunders v. Anglia Building Society Nephew had aunt sign document purporting to transfer house to him when she dies, but document actually said that transfer was to take place immediately. Aunt was negligent in signing doc Marvco Color Research v. Harris Daughters boyfriend had her parents sign collateral mortgage. They signed w/out reading document, but relied on incorrect info given to them by bank employee that said that change was only as to date when it was in fact a 2nd substantial mortgage Norside v. Strickland Wife signed papers b/c husband told her to. She claimed that she had no rights to express her own opinion in the marriage about financial affairs. 1971 Eng HL Valid contract (even though signed under fraudulent misrepresentation K enforceable cannot rely on non est factum because she was negligent

A person who signs a document differing

fundamentally from what they believed is disentitled from successfully pleading non est factum if their signing of the document was due to their own negligence

1982 SCC

Appeal allowed (ruling for Appellants to foreclose mortgage) 3rd party won. P is entitled to accept mortgage as valid. D was careless so 3rd party should not suffer

If there has been negligence by the first

party, the doctrine of non est factum is not available (negligent first party should bear consequences, not innocent third party 1. Non est factum is only available where there is no negligence on the part of the person signing the document. 2. Where there is no negligence, the test is whether the documents are radically or fundamentally different. 3. There is a policy need for certainty & security in commerce. Unconscionability should be argued instead of non est factum

ONLY IMPORTANT CASE ON THIS TOPIC

1990 NS TD

Judge may have been overly sympathetic

36

Rectification
With rectification, usually we accept that there is a K and determine whether it should be corrected The type of mistake that results from a typo Fairly stable & straightforward area of law Exception to parol evidence rule which enables the crt to correct written documents that do not reflect the real agreement between the parties where there has been a mistake in the reduction of the terms into writing In order to decide if the remedy is appropriate, the crt must admit extrinsic evidence of matters preceding the written K

3 flags: 1. There must be a common intention to agree on terms different from those stated in the document 2. The parties seeking relief must be ignorant of the discrepancy at the time the document is made 3. The standard of proof of a mistake requiring rectification is higher than the balance of probabilities The standards of proof shift. Sometimes its clear & convincing evidence (ex., when the College of Physicians & Surgeons is investigating a complaint of a doctor, & theres a chance of someone losing their licence/livelihood) but sometimes its BOP.

37

Facts/Case

Holding

Ratio

Notes

38

Bercovici v. Palmer P sold 2 businesses, but Rob Roy cottage not included in K. P seeks rectification on agreement in writing to omit cottage D says it was always part of the deal.

1966 Sask CA

Rectification order granted to P. Rob Roy was never intended to be part of K

You can look at subsequent events to

determine what should be a fair and reasonable resolution or outcome for rectification Rectification has a standard of proof that is above a civil standard (balance of probabilities) but lower than a criminal standard (beyond a reasonable doubt) such as no fair and reasonable doubt or clear and convincing evidence. 1. To get rectification, there is a very high std of proof that is just below BRD. 2. To ask for rectification on the grounds of unilateral mistake, the party asking must prove some sort of improper conduct on the part of the adversary. Five criteria for determining availability of rectification 1. Must prove existence and content of prior oral agreement (e.g. arial photo) 2. The terms of rectification must be precise (e.g. change ft. to yards) 3. Must be existence of convincing prove (higher than civil standard, but below criminal standard) 4. Must show some sort of fraud or conduct on behalf of the other party (e.g. existence of third party purchaser) 5. Might have to show the exercise of due diligence on behalf of person seeking rectification (at discretion of judge) Bars to rectification Sleep on your rights and existence of third party Fraud unravels everything

For rectification, the crt must find a common intention between the parties that exists when the parties (TD ratio) In addition to looking at subsequent events, rectification allows one to look at parol evidence w/out having to get around the Parol Evidence Rule (it comes with rectification). Wife can still sue lawyer

Coderre (Wright) v. Coderre Couple agrees to share matrimonial home, wife tells lawyer Lawyer forgets to include clause for interest of house in separation agreement Sylvan Lake v. Performance Ind. real estate deal, discrepancy in dimensions between oral and written contracts (ft. v. yrds) appellant fraudulently misrepresented terms on written doc. And wants rectification

1975 Alta SC

P not entitled to rectification No clear convincing proof that husband said this

Appeal dismissed with costs Fraudulent parties should not benefit from their own wrongdoing

Augdome Corp. v. Gray Merger of mining company with Augdome. Agreement failed to include the phrase of whatever nature & kind when referring to its assets. Gray owes $ to mining company but refuses to pay

1975 SCC

All assets belong to Augdome crt added the words of whatever nature & kind to show this. D must pay. Here, no 3rd party rights have been affected

1. High burden of proof to get rectification. 2. Can get rectification even though parties do not plead it in the first place. 3. Can award rectification on the basis of affidavit evidence alone. 4. Rectification will not be granted where 3rd party rights are affected (Wise v. Axelford Ont. CA).

39

Frustration
Frustration v. Mistake Frustration & mistake often look alike. Mistake concerns event that happened at the time of K. Frustration concerns event that hasnt happened yet. Mistake Frustration Assumptions at present..K..Events in future Frustration allows the parties to walk away from their future obligations because of a supervening (unforeseen) contingency. It automatically terminates the K as of the moment of frustration regardless of the wishes of the parties. Both parties are automatically discharged from future performance, although any obligations in force prior to frustration will continue to be in force. When claims of frustration may occur: Death Destruction/unavailability of subject matter Illegality Method of performance becomes impossible Thwarting of a common venture Frustration occurs very rarely because most things can be anticipated. Exception: a change in the law is generally unforeseeable to the average person. Risk is usually borne by the promisor. 1. The law of frustration deals w/ impossibility of performance because some unforeseen event has occurred. It can be contrasted w/ the law of common mistake, which deals w/ the problem of impossibility of performance because some state of affairs existed at the time of contracting, but unknown to the parties, which made performance impossible. 2. The parties may either expressly allocate the risk of supervening events or, if not, it may be clear from the nature of the K that the parties intended the risk of supervening events to lie where it falls. 3. 2 propositions follow: A K should not be frustrated where it expressly provides for the event which has occurred, and; A K should not be frustrated by an event which was, or clearly should have been, foreseen by the parties. In these circumstances the parties are said to have consciously accepted the risk so that the obvious inference seems to be that they intended the loss to lie wherever it might fall 4. Foreseeability or foresight of supervening events excludes frustration. Foreseeability is an objective test what a reasonable person would foresee. 5. If the event which has frustrated the K is attributable to the fault of one of the parties, or the event has been self-induced, the doctrine of frustration does not apply. 6. Practically speaking, frustration will arise in 3 areas: Total destruction of the subject matter; Subsequent changes in the law which renders performance illegal; Frustration of the common venture i.e., the substantial objective that the contracting parties had in view is no longer attainable

40

Facts/Case

Holding

Ratio

Notes

41

Taylor v. Caldwell Music hall destroyed by fire. P sued D (music hall owner)

1863 Eng. QB

Both parties excused from K K is frustrated because music hall no longer exists

There is an implied term in a K that the

parties intended the K to terminate should the subject matter be destroyed through no fault of their own (e.g. death of musician) & not subject to any stipulations or conditions 1. As a general rule, courts will place the risk of unforeseen events on the Promisor 2. Where an event is foreseeable a contract will not be frustrated (the doctrine of frustration is not applicable)

Can. Govt Merchant Marine Ltd. v. Can. Trading Co. K to ship lumber from Vancouver to Australia ships not ready in time due to dispute between govt & shipbuilders, Appellants claim contract frustrated Krell v. Henry People rented rooms along procession route, but King Henry was sick, and procession was cancelled Herne Bay Steam Boat v. Hutton Boat company chartered boats & was going to take people out into the Bay to look at the ships that were there for the coronation. King didnt attend as planned Claude Neon General Advertising v. Sing P entered into K with D to make, erect & maintain neon sign. Power restrictions during war, so D couldnt illuminate sign at night. D claims frustration of K Davis Contractors v. Fareham U.D.C. P contracted to build houses within 8 month period. Post-war labour shortage caused delay. Work took 22 mos. P claimed frustration & that they were entitled to damages

1922 SCC

K not frustrated no evidence to indicate that delay was not foreseeable

Objective (reasonable person) test

Contract frustrated Real basis of contract was to have a room with a view to see the Coronation

K not frustrated people still did go

& have a day cruise but they just didnt see the King. K is not so sufficiently different than what was expected since they still got benefit from K 1942 NS SC

If the subject matter is not destroyed , but the whole object of the contract is defeated, then there is a mistake of contract WEST: Not an unforeseen event that a procession would be cancelled, in 2006 this would not likely have been frustrated As long as K is not sufficiently different & there is still some benefit, it is not frustrated

CLAUDE NEON (opposite) HERNE BAY (opposite)

KRELL V. HENRY (opposite) CLAUDE NEON (same)

Contract is not frustrated (valid

contract. D still gets benefit from sign.

Where a contract is still possible, although

altered in form (but not fundamentally), the doctrine of frustration does not apply

(HERNE BAY (same) KRELL (opposite) Objective reasonable person standard established

1956 Eng HL

K not frustrated contractor should have provided for risk of delay

Radical Change in Performance/Obligation test Frustration occurs when contractual obligation become incapable of being performed due to no fault of either party, because the new circumstances render it radically difference from the original contract. Construe the contract in light of the radical change

Reasonable Person is the Judge

42

Facts/Case
Capital Quality Homes Ltd. v. Colwyn Construction Ltd. Purchaser (P) wants deeds to 26 lots of land & vendor (D) could not provide them because of legislative changes which required consent by the ministry. P wants deposit back claims K has been frustrated. Victoria Wood Development Corp. v. Ondrey P contracted with D to purchase of land for the purpose of subdividing (intentions known to both parties), but not specified in written contract (for whole part of land) Prior to close, law passed that precluded subdivision of land, P claimed frustration KBK NO. 138 Ventures v. Canada Safeway Contract for purchase of development property Before close director of planning applied to have area rezoned severely restricting sq footage (self-motivated) D sold premises to 3rd party, P lost deposit and sued for frustration

C
(1975) Ont. CA

Holding
Contract was frustrated, parties restored to pre-contractual positions (return of plaintiffs deposit)

Ratio
Doctrine of frustration is available when a supervening event beyond the control of the parties and not foreseen by them results in a radical change in the original obligation Frustration can apply to the sale of land

Notes
One needs to assess factors which may constitute impossibility of performance in order to establish the doctrine of frustration & in turn terminate the K DAVIS (same) VICTORIA WOOD (opposite) Purchaser could have safeguarded from delays or zoning changes by inserting proper conditions in K CAPITAL HOMES (opposite)

(1977) Ont. H.C.

K was not frustrated Legislation did not go to the very foundation of the agreement and did not affect the parties abilities to perform their respective roles

The entire foundation of K was not

destroyed no frustration. (Opposite to Capital Homes)

(2000) B.C. C.A.

Appeal dismissed (contract frustrated, return deposit). Director of plannings actions were very unusual Intervening event went to root of contract, entirely beyond what was contemplated by the parties, and radically altered the meaning of the contract

This is an example of a real frustrated

contract, more than mere knowledge on behalf of vender regarding intention of the purchaser (distinguished from Wood) Application of proposition from Davis

WOODS (opposite) DAVIS (same)

43

Kesmat Invt. Inc. v. Indust. Machinery Co. & Canadian Indemnity Co. D obtained easement from P to enable it to build sewer line across Ps property. In exchange, D undertook to obtain a rezoning & subdivision of Ds lands & to pay P $50k if it was unsuccessful in doing so. In order to get rezoning appn, D wouldve had to conduct an envirl study. It did not do so & failed to obtain the rezoning. P sued to recover the $50k. Maritime National Fish Ltd. v. Ocean Trawlers Ltd. Ministry restricted D to 3 licenses for any of its 5 boats. D chose not to take. St. Cuthbert was 1 of the 2 vessels that D chose not to licence. Ps had contracted with D for the charter of the St. Cuthbert. Both were aware the amendments were made to the Fisheries Act Capital Quality Homes Ltd. v. Colwyn Construction Ltd. See above

(1986) NS CA

No frustration because undertaking the environmental study is not onerous. P entitled to jmt of $50k

Hardship, material loss or the fact that the

work has become more onerous than originally anticipated are not sufficient to amount to frustration in law to terminate a contract and relieve the parties of their obligations If the inconvenience, hardship or material loss is extreme, courts should consider that the K was frustrated A foreseeable event, even if it causes economic loss, hardship or inconvenience, will not frustrate a K so as to terminate K & relieve parties of their contractual obligations A K will not be frustrated if frustration was self-induced. If the performance of the K is dependent on something being granted, & it was by election that the performance was prevented, then it is the assumption that it is the own partys fault which frustrated the K & it cannot, therefore, rely on their own default to excuse them from liability under the K The doctrine of frustration extends to contracts of land

These 2 parties are of = bargaining powerwould there be the same result if one had more bargaining power? Maybe

SELF-INDUCED FRUSTRATION
1935 Privy Council K was not frustrated self-induced

FRUSTRATION & Ks CONVEYING AN INTEREST IN LAND

(1975) Ont. CA

COMMERCIAL IMPRACTICALITY / FRUSTRATION & SOCIAL FORCE MAJEURE

Commercial frustration relates to supervening events that affect the relationship between 2 parties in commercial transactions An increase in expense or the fact that performance has become onerous will not suffice to invoke doctrine of frustration Contractors know that there is a possibility that risk may arise ex., you are a landlord & your lease says you must pay $700/month. During 2nd month of rental, you have accident & can no longer afford to pay. Should you be forced to pay? Nordic law says that it should be included in lease K to be merciful to those who lease land (this is difficult to monitor) Anticipating the unforeseeable: force majeure clauses are an attempt to allocate risk in the event that an exogenous contingency applies because the clauses seek to exclude performance, transferring risk to other party possibly leading to an equitable allocation of risk; courts are inclined to construe these clauses strictly EFFECTS OF FRUSTRATION Unlike in mistake of K, it does not render K void ab initio, rather parties are released from further obligation Unlike a serious breach in which the innocent party can choose whether to treat the K as repudiated or not, frustration does not allow for election. Both parties are discharged from further (future) obligation despite some for the financial consequences that may result When K is frustrated, general rule is to let whatever happens, happen whoever has partially performed, tough! (& vice versa). Court will do what is fair & under

44

certain circumstances may ask for quantum meruit but by & large its difficult to know what a court will order Atlantic Paper v. St. Anne1976 D held liable for damages In cases of alleged frustration, Force Nackawic SCC Market was available they just Majeure clauses are interpreted very K for sale by P to D of 10,000 didnt get at it effectively strictly (akin the an act of god, tons of waste paper/year for 10 supernatural event beyond the control of yrs to be used as secondary fibre. either party e.g. strike earthquake) After 14 mos, D repudiated. P SCC will be very restrictive in sued for damages. Clause in K: interpreting force majeure clauses against shall not be less than 10,000 a company b/c things like market tons, unless as a result of an act availability should be foreseeable. of God, the Queens or public enemies etc. D pleaded nonavailability of mkts for pulp or corrugating medium

Protection of Weaker Parties - Duress

Duress Commercial pressure, threats of physical violence, threat to seizewill amount to duress Duress = common law doctrine Duress K is voidable, not void

Facts/Case

Holding

Ratio

Notes

45

Pao On v. Lau Yiu Long

Promise by the P to perform their existing contract with a company in which the D were principal shareholders D argued that their guarantee was procured by economic duress

1980 PC

Gordon v. Roebuck

1992

Ont. Joint venture in apartment buildings. D agreed to execute CA docs in return for $50K pmt + $80K in promissory notes. P subsequently refused to honour promissory notes & commenced action as trustee to have Dec. 29 K declared voidable by reason of economic duress

The plaintiff must prove that his will was coerced and that the pressure exerted was over and above regular commercial pressure 4 criteria for economic duress 1.) Did the party protest?(must be yes) 2.) Was there an alternative course open to him?(must be no) 3.) Was he independently advised? (must be no) 4.) After entering the contract did he take steps to avoid it?(must be yes) 5 criteria for economic duress 1.) Did the party protest? (must be yes) 2.) Was there an alternative course open to him? (must be no) 3.) Was he independently advised? (must be no) 4.) After entering the contract did he take steps to avoid it? (must be yes) 5.) Is economic duress justified? Even where economic duress is found, courts may find it justifiable on other factors not considered in the test If you can satisfy the PAO ON test, burden falls on person raising duress to prove the duress was not justified

blank

Very few cases that find economic duress

Protection of Weaker Parties Undue Influence

Undue Influence Defn: the compulsion under which a person acts through fear of personal suffering as from injury to the body or from confinement, actual or threatened. Undue influence = equity doctrine Undue influence unconscientious use by 1 person of power possessed by him over another in order to induce the other to enter a K (lower threshold) Undue influence is found where there is an ability to exercise exceptional power in relation to another persons choices Domination of someones will in a long-lasting relationship 2 ways to prove: o 1) Actual undue influence: dominated party is tricked or forced into the transaction o 2) By proving a special relationship exists b/w parties raises presumption that undue influence was exercised Transaction must constitute a disadvantage sufficiently serious to require evidence to rebut presumption that in the circumstances of the relship b/w the parties it was procured by exercise of undue influence

Facts/Case

Holding

Ratio

Notes

46

Geffen v. Goodman Estate Sister was bipolar brothers looked out for her best interests

1991 SCC

Undue influence claim rejected where a sisters best interests were being advanced by her brothers. The sister had relied on independent legal advice.

Royal Bank of Scotland v. Eldridge Eight appeals of wives claiming undue influence after charging their interest in their matrimonial homes to their husbands (business ventures)

To trigger a presumption of undue influence the court will look for the ability of one person to dominate the will of another through manipulation coercion or the abuse of power. The doctrine of manifest disadvantage does not apply to cases of gifts or trusts The determination of a special relationship will be made on a case by case basis (spouses do not trigger a presumption of undue influence (Duguid v. Dufuid) Three step process of undue influence 1. There can be undue influence where the trust agreement is not manifest disadvantage (e.g. person relationship not commercial) 2. Did the relationship between the parties give rise to the presumption? 3. What factors establish the presumption of undue influence? Factors that establish undue influence 1. Potential for domination of the will 2. Was there independent legal advice? 3. Timing: duress must exist at time K is made 4. Nature of the transaction (commercial or gift?): Two types of transactions 1) Commercial (parties looking out for own interests this is only place where you have to show manifest disadvantage); 2) Gifts or trusts (no manifest disadvantage) There is no presumption of undue influence between a husband and wife, unless there are other compelling circumstances (above and beyond normal wife pressures) Banks are put on inquiry: A bank is required to explain a risk in every case where the relationship is non commercial (e.g. marriage)

Relationships that give rise to a presumption of undue influence: Priest and penitent Mother superior and a nun Doctor and a patient Lawyer and his client Trustee and beneficiary Parent and child

If tricked or forced into the transaction, then it is actual undue influence, otherwise difficult to find a presumption

47

Protection of Weaker Parties - Unconscionability

Unconscionability A contract that has two problematic factors 1) unequal bargaining power; 2) unfair contract (generally these two things must occur together) Where 2 people stand in a relship to each other (no matter if confidentiality is present) that one can take an undue advantage of the other by reason of distress or recklessness or wildness or want of care & when the facts show that 1 party has taken undue advantage of the other by reason of the listed circumstances, a transaction resting on such unconscionability will not stand. Unconscionability is a one-shot deal not a long-lasting relationship. Even where no confidential relship exists, where parties are not on equal terms, the party who gets a benefit cannot hold it without proving that everything has been right & fair & reasonable on his or her part The excuse of unconscionability is available where 2 elements are present: 1. An improvident bargain. 2. An inequality in the positions of the parties. If these criteria are met, there is a presumption of fraud that must be rebutted by D can do so where prove that P obtained independent legal advice.

Facts/Case

Holding

Ratio

Notes

48

Morrison v. Coast Finance 79 year-old widow mortgaged home, gives money two men (that tricked her to pay off their debts) Two men are supposed to pay off mortgage, but instead purchase cars and disappear Marshall v. Cdn Trust Co. Man in nursing home sold land to bro for less than it was worth (with independent legal advice). Lawyer pulled out b/c man was unfit. Man wants rescission Lloyds Bank v. Bundy Father mortgaged house beyond its value to help son whose business was failing

1965 BC CA

Appeal allowed, unconscionable

contract between unequal bargaining partners (ruling for old lady) Bank manager deemed to know that contract was indecent, bank manager given the promissory note so they can collect from missing men

Unconscionable contracts have two parts:

1) unequal bargaining power; 2) an unfair contract (generally both must be present) D can rebut presumption of unconscionability if he can prove that the transaction was fair, just & reasonable (can do so by getting independent advice) Test for Unconscionability (outdated) There are 2 things that needed to be proven for unconscionability: 1) there must be inequality (weaker & stronger party) 2) the contract was unfair or improvident Denning test for unconscionability Parties will get relief when they enter into a contract on (very) unfair terms, with (grossly) inadequate consideration, with impaired reasoning based on their own needs, desires, or ignorance, combined with undue influence for the other parties benefit Independent legal advice will not save every transaction, but its absence may be fatal Another test for unconscionability Unconscionability is whether the transaction, seen as a whole, is sufficiently divergent from community standards of commercial morality that it should be rescinded. This is a SUBJECTIVE test. Followed in Canada Categories of inequality of bargaining power: Duress of goods Unconscionable transaction Undue influence Undue pressure Salvage agreements LLOIDS (same application) Two unconscionability tests: Lloyds Bank, and Harry v. K case by case evaluation to determine which to use Consumer Protection Act will pick up some of the slack

1968 Alta SC

D entitled to rescission no costs.

Contract was unconscionable b/c: Inequality of power b/w the parties K was unfair bargain Inequality of bargaining power. Bundy entered into contract that was largely unfair Other two judges agree with Denning, but on grounds of breach of Fiduciary Duty by bank

1975 Eng CA

Harry v. Kreutziger Ab man sold fishing boat & license to someone who led him to believe that he could obtain another license. D knew that boat was worth far more than purchase price b/c of fishing license

1978 BC CA

K rescinded

49

Protection of Weaker Parties - Incapacity

Capacity to Contract General Rule: All k entered into by an infant (under 18 years of age) must be for his or her benefit or the k is void. Except: 1. minor will be bound if the k is for the necessity (i.e. food, clothing and shelter) if the k is an employment k benefiting the youth (i.e. hockey player k) K made by a minor will be binding if he or she ratifies the K on reaching majority certain types of long-term Ks are presumed to be ratified unless the minor expressly disclaims the Ks during minority or shortly on reaching the age of majority. Such Ks include: leases of land, share Ks, partnership agreements, marriage settlements

2. 3.

Ks made w/ people who are mentally incapacitated in some way are likely to fall into the unconscionable K category. Clearly someone who is mentally disabled, impaired by drugs or alcohol, or enfeebled by illness is in an unequal bargaining position. For a case which discusses mental incapacity in the context of capacity to K, see Hart v. OConnor. This case reverses the long-standing authority of Archer v. Cutler which has been followed in Canada & holds that: The validity of a K entered into by a lunatic who is ostensibly sane is to be judged by the same standards as a K by a person of sound mind, & is not voidable by the lunatic or his representatives by reason of unfairness unless such unfairness amounts to equitable fraud which would have enabled the complaining party to avoid the K even if he had been sane.

Facts/Case
Hart v. OConnor P purchased land from D. P did not know at the time that D did not have sufficient mental capacity to enable him to enter into K.

C
1985 PC

Holding
K is valid b/c the person did not know that the other person is incapacitated even though there is a contractual imbalance

Ratio
Where a bargain is sealed in good faith but the person doesnt know the other person lacked capacity & theres nothing exploitative (equitable fraud) about the arrangement, the K will stand. Steps: 1. person knew that other person was mentally incapacitated 2. determine whether or not the K is unfair by analyzing if there is at least one of the two: procedural unfairness or contractual imbalance

Notes
K may be unfair in 1 of 2 ways (may overlap): 1) Unfair manner in which it was brought into existence (undue influence) procedural unfairness (where 1 party takes advantage of or exploits the other) 2) Unfair by reason of fact that terms of K are more favourable to 1 party than to the other contractual unfairness (contractual imbalance)

50

Remedies

Aggravated damages = award that aims at compensation but takes full account of intangible injuries, s/a distress & humiliation, that may have been caused by Ds insulting behaviour. Compensation for P. Punitive damages = punitive in nature & may only be employed in circumstances where the conduct giving the cause for complaint is of such nature that it merits punishment. Punishment for D. Actionable wrong

Remoteness The rule in Hadley v. Baxendale articulates the courts concern to limit the recoverability of damages which are not too remote The rule is two-pronged: there will be liability for damages: 1. Reasonable contemplation test Damages which arise in the usual course of things, in the reasonable contemplation of both parties Ordinary damages Objective test Knowledge is imputed OR 2. Special circumstances test Damages which arise where there are special circumstances, which are communicated by P to D Extraordinary damages Subjective test Knowledge is actual Waddams says this rule is really not sufficient it is merely a statement of conclusion that the court comes to, & is not a test which can be figured out beforehand

Facts/Case

Holding

Ratio

Notes

51

Chaplin v. Hicks Competition for up & coming actresses. Too short a time frame for acceptance. P sued for loss of chance of being selected Groves v. John Wunder D was to restore land to original condition. D deliberately breached K because restoring would cost $60k but land only worth $12k.

1911 Eng CA

1939 Minn CA

The average chance of each competitor was . Certainty in assessing damages for a breach of contract is not a necessity. In this case, that assessment was best left with the jury who awarded 100. Ds are liable to P for reasonable cost of doing what they promised & wilfully declined to do (full costs awarded $60K)

Where you have damages that cant be assessed with certainty does not relieve a wrong doer with the necessity form having to pay damages

The measure of damages in these situations

is going to be the cost of rectification or the cost of performing the K instead of the mkt value of the contractual object (in this case land) Only entitled to the value of the increase of land ($300)

Peevyhouse v. Garland Coal A stripmining lease purported to demand that D surrender the land with the reclamation required. If the mining company had restored the land, the value of the farm would have increased by $300, while the cost of restoration would have been approximately $29,000. Nu-West Homes v. Thunderbird Petroleums P contracted to build D a home. Serious deficiencies were found due to Ps work hump in basement floor, electric wiring, plumbing, shoddy framing, fireplaces of wrong size, etc. D Kd with someone else to fix & finish building. D brought in experts, who determined that cost of repairs were $16k. TJ only awarded $4k. Jarvis v. Swans Tours P purchased holiday that didnt live up to his expectations. Sued for loss of enjoyment & entertainment and mental distress TJ awarded half of the cost of vacation. P appealed.

1962 Oklaho oma SC (US)

On appeal, Ps damages were limited to $300.

Cant amend claims for damages (cant start out asking for damages & then change pleading to alternative). Thats why its good to go in seeking alternative damages PEEVYHOUSE (opposite) GROVES (opposite) Which case you use depends on your facts see class notes under When determining costs consider

1975 Alta CA

D acted on the advice of experts & did so reasonably entitled to damages of $16K

General rule: P can recover damages to put him/her in a position contracted for (i.e., the cost of rectification). Crt looks at what was done & looks at what was reasonable under the circumstances Where the cost of rectification is great compared to the nature of the defect, the crt may not enforce the K strictly.

Very common type of remedy case!

1973 Eng CA

Damages should be 125

compensate for loss of entertainment & enjoyment. Seems to be double the cost of the original trip, but crt doesnt say how they arrived at that figure

Court brings in the notion that damages for mental distress can be recovered in K. Must prove that there was really mental distress (expectation that something will give you pleasure, & no pleasure should give you tangible compensation) Where there is a promise within the control of the Promisor you may have grounds for mental distress

Brings into K law the ability to recover damages for loss of enjoyment & mental distress Newell if can establish special circumstances (old age), then easier to claim damages for mental distress

52

Vorvis v. ICBC P dismissed without cause but with appropriate notice (8 months). P sued for punitive and aggravated damages for wrongful dismissal Wallis v. United Graingrowers D fired him for cause but initially didnt tell him what it was. Brought wrongful dismissal claim, but D could not point to cause.

1989 SCC

Conduct not sufficiently offensive to constitute actionable wrong does not justify imposition of punitive damages.

1997 SCC

Crt held that it was a bad faith discharge. Gave damages of $15k. In light of P.s age, his 14 year tenure as the company.s top salesperson and his limited prospects at reemployment, a lengthy period of notice was required, especially given the inducements offered by D for P to join its company. D.s actions seriously diminished P.s prospects of finding similar employment. RESTORED 24 months salary in lieu of notice. Special circumstances were never communicated to D by P. Loss of profits cannot reasonably be considered a consequence of the breach of K as could have fairly & reasonably been contemplated by both the parties when they made this K. New trial ordered

Hadley v. Baxendale Shaft for Ps mill broken, mill unable to operate without it. P wanted to ship via D. D promised to have it delivered by the following day. Through neglect, item not shipped in time. Victoria Laundry v. Newman Indust. Ltd. Expanding company needed boiler to operate. P bought boiler from D. In process of moving, it was damaged & delayed delivery by 5 months. Victoria lost money from special contracts with the government

1854 Exch

Damages for wrongful dismissal are usually the number of years of employment reflected in months (1 month/year). Aggravated & punitive damages will be rarely awarded. (unless theres something beyond the norm, damages are limited to the amount of notice pay) To ensure that employees receive adequate protection, employers ought to be held to an obligation of good faith and fair dealing in the manner of dismissal, the breach of which will be compensated for by adding to the length of the notice period. not all acts of bad faith or unfair dealing will be equally injurious. in each case, the judge must examine the nature of the bad faith conduct and its impact in the circumstances. Compensation does not flow from the fact of dismissal itself, but rather from the manner in which the dismissal was effected by the employer. See above re: remoteness Two types of damages: 1) what would be expected in normal course of business, and 2) special damages arising from special circumstances and communication between the parties (p902) If there are special circumstances that were not explicitly communicated, but could have been foreseeable in the circumstances, then you should still be eligible for special damages as there may be implied knowledge

Neither damages did not pass here because he wasnt a unique situation (he just lost his job)

The law for wrongful dismissal is unclear

Remoteness: Defendant has to

have actual knowledge of special circumstances, or damages would be too remote. (Ex., moving company doesnt know about valuable art = damages too remote to claim)

1949 KB

It was implicit in the ordering of the

machine that D knew P needed prompt delivery for reasons of profit. Appeal Allowed and the issue referred to an official referee as to what damages, if any, is recoverable in addition to the 110. awarded at trial.

53