Ontario Contract Law Primer

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Contents 1 CHAPTER 1: REMEDIES FOR BREACH OF CONTRACT 1.1 1. Compensation Principle 1.2 Test for Remoteness: 1.3 ***LOSS OF ENJOYMENT 1.4 4. Equitable Remedies 1.5 5. Reasonableness in the Face of Contract Breach (Mitigation) 2 CHAPTER 2: THE KINDS OF PROMISES THE LAW WILL ENFORCE 2.1 1. Requirement of Writing – The Statute of Frauds 2.2 2. Promises that Will be Denied Enforcement: Unfairness 2.3 3. Formal Contracts: The Promise Under Seal 2.4 4. Consideration 2.5 7. Third Party Beneficiaries and Privity of Contract 3 CHAPTER 3: THE FORMATION OF CONTRACTS 3.1 1. The Rules of Offer and Acceptance 3.2 2. Limits of the Traditional Rules 3.3 Lack of Common Intention 3.4 3. Protection of Expectations Arising from Negotiations 3.5 4. The Battle of the Forms 4 CHAPTER 4: EXCUSES FOR NON-PERFORMANCE 5 CHAPTER 5: CONTRACTUAL UNDERTAKINGS: THEIR DETERMINATION, RANGE AND REMEDIES FOR BREACH 6 CHAPTER 6: THE CONTROL OF CONTRACT POWER

CHAPTER 1: REMEDIES FOR BREACH OF CONTRACT

1. Compensation Principle

• put the injured party in same position would have been in if contract actually performed

PEEVYHOUSE V. GARLAND COAL & MINING CO. (1963) [loss in value awarded]

• cost of restoration was a lot more than the decrease in the value of the land, and in the total value of the land itself
• awarded loss in value of land (no windfall for plaintiff)
• damages = loss in value  Iff:
• 1) provision breached is incidental to the contract, and
• 2) gross disproportion between the cost of performance and the loss of value (value)

RADFORD V. DEFROBERVILLE (1977) [cost of contract awarded-not loss of value]

• land sold on condition that stone wall would be built; not built
• cost of stone wall awarded (would actually build the wall) – aesthetic value recognized (would not be windfall for the plaintiff)

RUXLEY ELECTRONICS V. FORSYTH (1996)

• pool 7" too shallow, refused to pay balance  ordered to pay balance and was awarded a smaller amount for ’loss of amenity’/loss of usefulness
• damages have to be compensatory and not punititve
• failure to achieve part of contract does not mean total failure; no loss in property value

VICTORY MOTORS LTD. V. BAYDA (1973-Sask.DC)

• contract for sale of car; refused delivery – suing for loss of commission from sale (even though car sold anyway)
• awarded commission minus commission from selling defendant’s trade in
• supply exceeds demand (of cars); would have sold 2 cars

FULLER AND PERDUE, "THE RELIANCE INTEREST IN CONTRACT DAMAGES" (1936) – p. 28

• Breach of contract harms:
• RESTITUTION INTEREST: prevention of gain received from plaintiff – plaintiff gave some value for entering into contract – defendant may be required by court to give back what got from plaintiff (deposit, advance payments)
• RELIANCE INTEREST: change in position on the promise of the defendant (move, loss of wages)
• EXPECTATION INTEREST: benefit that innocent party expected to get has been lost; any profit or benefit lost by innocent party as a result of the breach

POSNER, "ECONOIMC ANALYSIS OF LAW" (1998)

• sometimes breach caused by economic reasons – profit from breach > then profit from completed contract

2. When to Stop and Award of Damages (Remoteness)

HADLEY V. BAXENDALE (1854) [requirement: inform of special cirumcstances]

• mill stopped operations when crank broke – defendant: took to get fixed – negligence: delay in delivery to fix
• only liable for what is REASONABLY FORESEEABLE, must be INFORMED of SPECIAL CIRCUMSTANCES at time of contract formation
• loss of profits – not reasonably considered consequence of breach of contract

VICTORIA LAUNDRY V. NEWMAN INDUSTRIES LTD. (1949-CA)

• laundry dying facility – boiler ordered from defendant – INFORMED that need boiler asap – boiler damaged not repaired for 20 weeks (loss of profits? And special contracts lost?)
• awarded ORDINARY PROFITS, defendants did not have direct knowledge of SPECIAL CONTRACTS
• damages recoverable those that are reasonably foreseeable in the normal course and with implications from ’special communications’ – special communications includes the knowledge of the industry dealing with

KOUFOS V. CZARNIKOW LTD (THE HERON II) (1969-CA)

• plaintiffs chartered defendant’s vessel: reasonable time to get to destination 20 days, took 29 because captain decided to stop somewhere in between; in the mean time sugar lost value
• loss of profit NOT TOO REMOTE: would have knowledge that the plaintiff was selling sugar and reasonably would have known that some kind of fluctuation is likely
• loss FLOWED NATURALLY from breach

Test for Remoteness:

1) normal course

2) special circumstances communicated

3) 1+2 together: reasonable contemplation (extra knowledge communicated/known)

*NB: Sale of Goods Act RSO 1990 – pp. 61-63

3. Some Problems in Awarding Damages

***RELIANCE-BASED CLAIMS:

ANGLIA TV. LTD. V. REED (1972-CA)

• D backed out, unable to find another leading man – damages for all expenses undertook for production that did not happen
• Expenditure incurred before contract = reasonably in contemplation of parties would be wasted if contract breached
• Can claim for PROFIT or WASTED EXPENDITURE (not both)

BOWLAY LOGGING LTD. V. DOMTAR LTD. (1978-BCSC)

• plaintiff to log timber on defendant’s land; defendant to provide trucks; stopped doing so, stopped logging (received $108 000 expenses were $232 000) – suing for wasted expenses
• should not be compensated for making a bad bargain (would be punitive not compensatory)
• if amount of expenditure at date of breach < expected net loss = nominal damages
• if expenditures > expected loss = judgment for the excess

***REMOTENESS:

HORNE V. MIDLAND RAILWAY COMPANY (1873)

• P contract to supply shoes for army; D employee told shoes had to get there by certain date; delivered a day late; buyer refused delivery; market price fallen by then – suing for difference
• Defendant NOT AWARE of EXCEPTIONAL CONSIDERATIONS, if was aware the contract for carriage would have relected it with a higher cost for transport

CORNWALL GRAVEL CO. V. PUROLATOR (1978-ONT) [agency issue]

• tender; worth $70 000 rejected because was late – employee was informed of importance of document
• awarded LOSS OF PROFIT: employee gave assurance; special circumstances communicated

CANLIN LTD. V. THIOKOL FIBRES CANADA LTD. (1983-ON.CA) [future profits]

• P contracted with D to provide material for new market; material substandard – sued for losses (inc. future profits)
• Awarded LOSSES and LOSS OF FUTURE BUSINESS
• SGA: measure of damages = estimated loss directly and naturally resulting in the ordinary course of events from the breach of warranty

***LOSS OF ENJOYMENT

JARVIS V. SWAN’S TOURS LTD. (1973-CA)

• everything provided up not up to quality expected
• awarded damages for MENTAL DISTRESS – point of contract has to be entertainment and enjoyment
• OBJECTIVE TEST applied: would reasonable traveler be disappointed

***EMPLOYMENT CONTRACTS

VORVIS V. INSURANCE CORP. BC (1989-SCC)

• punitive damages not recoverable for breach of employment contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable

• ***WALLACE V.UNITED GRAIN GROWERS LTD. (1997-SCC) [punitive damages-correct amount to be awarded for notice period]
• P pursued by D told to expect to work there until retired; suddenly dismissed; claimed wrongful dismissal, mental distress and punitive damages
• Majority: contract not fixed for length of employment – no separate actionable wrong – discretion to extend notice period by taking into account mental distress
• EXTEND NOTICE PERIOD awarded for: expectation, reliance interests, bad faith in manner of dismissal, vulnerable
• Minority: damages awarded should be limited to factors relevant to prospect of finding new job, damages for manner of termination must be based on some other cause of action

• ***CONTRACTS PROMISING PEACE OF MIND
• insurance contract  purpose of contract is peace of mind (inferred in all insurance contracts)

WARRINGTON V. GREAT-WEST LIFE ASSURANCE CO. (1996-BC.CA)

• chronic fatigue syndrome, did not award anything because say not really suffering
• MENTAL DISTRESS: recoverable in disability insurance poicy, when distress arises from breach of contract

• ***WHITEN V. PILOT INSURANCE CO. (2002-SCC) [punitive damages]
• house burned down; insurance made one payment and then cut off without telling family (no evidence of arson, insurance company pursued arson angle trying to prove it) – compensatory and punitive damages?
• PUNITIVE DAMAGES: exceptional cases for malicious oppressive and high-handed misconduct that offends the court’s sense of decency
• Proportionality considerations: proportionate to degree of vulnerability of plaintiff, proportionate to the harm or potential harm directed specifically at the plaintiff, proportionate to the need for deterrence, proportionate even after taking into account the other penalties, proportionate to the advantage wrongfully gained by a defendant from the misconduct
• Message sent: RETRIBUTION, DETERRENCE, AND DENUNCIATION

• ***UNCERTAINTY AND DAMAGES
• mere fact that damages are uncertain or hard to determine will not stop court from making the effort

CHAPLIN V. HICKS [1911-CA]: lost chance to be one of 50 women in beauty contest – awarded £100 (probability of winning)

CARSON V. WILITTS: breach to drill wells, lost chance that of profit from oil

KINKEL V. HYMAN [1939-SCC]: deprived of opportunity to seek ratification at meeting of shareholders would have been profitable – unlikely that transaction would have been approved – nominal damages

FISHER V. KNIBBLE [1992-ALTA.CA]: chances of successfully suing doctor = 0; no damages (lawyer negligently failed to sue doctor within limitation period)

MULTI-MALLS INC. V. TEX-MALL PROPERTIES (1980-ONT): damages determines by taking profit reduced by chances of the application being refused even if defendant would have done what should have

EASTWALSH HOLMES LTD. V. ANATAL DEVELOPMENTS LTD. (1993-ONT.CA): nominal damages; expert evidence concerning probabilities rejected (trial judge averaged experts’ evidence)

*NB: an award of damages should only be justified if it can be seen as protecting the plaintiff’s reasonable expectations without doing too much violence to the expectations of the defendant if they are different=

4. Equitable Remedies

• SPECIFIC PERFORMANCE, INJUNCTION
• Ontario Sale of Goods Act: specific performance available for breach of a contract to sell UNIQUE GOODS

BEHNKE V. BEDE SHIPPING CO.LTD [1928]: specific performance: reconditioned ship – ship was peculiar and of practically unique value to the plaintiff – damages inadequate

Doctrine of Mutuality: if the purchaser of land could get equitable relief, so too could the vendor (both parties have same rights to equitable relief

LANDMARK OF THORNHILL LTD. V. JACOBSON (1995-ONT.CA): purchaser of land entitled to specific performance – did not have to prove special value or unique quality

***SEMELHAGO V. PARAMADEVAN [1996-SCC]: specific performance available for purchasers in contracts for sale of land – no longer accepted unless LAND IS UNIQUE

SOULOS V. KORKONTZILAS [1997-SCC]: specific performance or equivalent restitutionary remedy – to makes sure defendant does not gain as a result of breach – where no unjust enrichment: proper case for imposition of a constructive trust – to convey the building

• ***RELATIONAL CONTRACTS
• equitable remedies may be appropriate – have to consider framework for future co-operation in which the benefits are subject to a large number of variables

BROWN, "CONTRACT REMEDIES IN A PLANNED ECONOMY: LABOUR ARBITRATION LEADS THE WAY" p. 152

• review of cases suggests that specific performance is becoming more readily available when relational contracts are breached

SKY PETROLEUM LTD. V. VIP PETROLEUM LTD. [1974]: 10yr contract – price rose- INTERIM INJUNCTION granted to stop seller from refusing to sell gas pursuant to the contract

GILBERT V. BARRON [1958]: agreement among shareholders establishing an arrangement for the control of the corporation was SPECIFICALLY enforced when one shareholder obtained control in breach of the agreement

• *WARNER BROS. PICTURES V. NELSON [1937] [injunction w.r.t. services]
• P 1yr contract for exclusive services; D breached contract by entering into agreement with 3^rd party – injunction? And damages?
• INJUNCTION GRANTED: in the Jurisdiction of the court
• Rule: where a contract of personal service contains negative covenants the enforcement of which will not amount either to a decree of specific performance of the positive covenants of the contract or ot the giving of a decree under which the defendant must wither remain idle or perform those positive coventant, the court will enforce those negative covenants

• ***RESTITUTIONARY REMEDIES
• P interest to recover what paid defendant
• RESTITUTIONARY REMEDY: some contractual situations in which it is appropriate just to focus on the loss of the bargain – covers a range of situations some of which involve a defendant giving to the plaintiff what he gained by breaching the contract
• Many of these cases involve a breach of fiduciary duty, or some type of exploitative conduct – may be cases in which the courts are trying to deter reprehensible conduct

ATTORNEY GENERAL V. BLAKE [2001-HL]

• secret agent: double agent – writes book; British government commenced action to prevent payment of money
• RESTITUTIONARY REMEDY: breach of employment contract; awarded in cases where obtained profit for doing the very thing contracted not to do
• Rule: account of profits will be appropriate only in exceptional circumstances – where regular remedies are inadequate – general guide: whether the plaintiff had a legitimate interest in preventing the defendant’s profit-making activity and depriving him of his profit
• NB: Factors not sufficient for departing from normal basis on which damages awarded: breach cynical and deliberate, enabled D to enter into a more profitable contract elsewhere, D put out of his power to perform his contract with the plaintiff (by entering into a more profitable one elsewhere)

5. Reasonableness in the Face of Contract Breach (Mitigation)

• party faced with breach expected to respond in a way that is commercially reasonable – DUTY TO MITIGATE LOSSES
• AVOIDABLE HARMS: plaintiff cannot recover in respect of those losses or harms which, acting reasonably, he/she could have avoided

PAYZU LTD. V. SAUNDERS [1919-CA]

• contract for purchase of silk (9mo period) – misunderstanding – price of silk rising; P sued for damages claiming difference between contract price and market price
• D breached but P should not have refused to accept the defendant’s offer (to mitigate losses) – nothing to justify the appellants in refusing to consider the respondent’s offer

APECO OF CANADA LTD. VL WINDMILL PLACE [1978-SCC]

• agreed to lease space; backed out, leased to someone else
• HELD LIABLE to pay for damages (comparable to Victory Motors) – other would have rented other space in building
• No way could avoid harm

COCKBURN V. TRUSTS & GUARANTEE CO. [1917-SCC]

• employment contract cancelled; recovery DECREASED by amount that made profit off of selling items acquired at bankruptcy

WHITE AND CARTER LTD. V. MCGREGOR (MCGREGOR’S CASE) [1962]

• P to put advertising on garbage bins-3yr contract; renewed – defendant cancelled after renewal, P continued with work and sued for full contract price (3yrs)
• Plaintiff does not need permission from defendant to complete the contract

FINELLI V. DEE [1968-ONT]

• contractor to pave driveway; contractor paved without homeowner knowing
• DISMISSED: plaintiff’s failure to get permission disentitled him from suing for the contract price – should have given notice of his intention to do the work before he did it

• ***ASAMERA OIL CORP. LTD V. SEA OIL & GENERAL CORP. [1979-SCC]
• specific performance not reasonable: share not unique
• LOOK OVER AGAIN

Note on Interest and the Date for Assessing Damages:

• interest taken into account; assess claim at the time made

WORTH V. TYLER [1973] [rapidly increasing prices]

• agreed to sell house; needed wife’s consent – marriage fell apart – wife refused to sell house – price of house rose
• EQUITABLE DAMAGES: not awarded specific performance; awarded damages at time of trial (difference between price agreed on and price in the market at this time)

306793 ONTARIO LTD. V .RIMES (1979-ONT.CA) [increasing prices]

• land value was a lot higher by time of trial; at time of breach there was no difference
• awarded difference between worth at date of trial and original contract price

CHAPTER 2: THE KINDS OF PROMISES THE LAW WILL ENFORCE

• Principal doctrinal requirements for the enforcement of contracts:
• WRITING: statute of frauds; requires that some kinds of contracts be in writing to be enforceable
• CONSIDERATION OR THE EQUIVALENT: the person seeking to enforce a promise must generally have given value to the other party – courts do not require consideration if the promise is made under seal or if there has been substantial reliance on the promise
• INTENTION TO CREATE A LEGAL RELATION: court is satisfied that the person who made the promise had a reasonable expectation that it could be enforced in a court of law
• PRIVITY OF CONTRACT: person must be a party to a contract to have the benefit of it – third parties generally cannot enforce contracts

1. Requirement of Writing – The Statute of Frauds

• contracts for the SALE OF LAND and all leases (except under 3 years) must be in WRITING
• one exception = DOCTRINE OF PART PERFORMANCE
• other ways around the Statute – RESTITTION and RELIANCE interests; plaintiff may make strong argument for the protection of his or her expectation interest
• Ontario Family Law Act 1990-domestic contract is unenforceable unless made in writing, signed by parties and witnessed; courts sometimes restrict effect of the Statute when it seems unfair to apply it

Unjust Enrichment and the Doctrine of Part Performance

• party to whom promise was made has already given value for the promise – great pressure to prevent a party from getting a benefit without paying for it

• **DELGMAN V. GUARANTY TRUST CO. OF CANADA AND CONSTANTINEAU (1954-SCC) [part performance]
• promised building if helped out – throughout her life – promise enforceable?
• Deceased received full benefits of the full performance of the contract – law obliges her to pay the fair value of the services rendered to her

STEADMAN V. STEADMAN [1974] [money as part performance – not recognized]

• wife agreed to release her interest in the family home for money, husband made first payment and she refused – promise not in writing  no part performance recognized by the court

HUNTER V. BALUKE (1999) [money as part performance – not recognized]

• orally agreed that vendor would store boats and furniture in boat house for a few months after sale – purchasers would not agreed, and paid a deposit for the sale – vendors then refused to convey land – sued for specific performance  DENIED: no evidence that the vendors agreed to the final changes

ALVI V. LAL (1990): payment of money cannot constitute part performance with respect to a contract involving land

BANNISTER V BANNISTER [1948]: defendant sold properties to plaintiff on promise that defendant can live rent-free for as long as she likes – oral agreement valid (p.222)

BOONE V. COE: defendant orally agreed to lease property – plaintiff moved to the state then defendant refused to sign lease – P’s action dismissed

2. Promises that Will be Denied Enforcement: Unfairness

THE PORT CALEDONIA [1903] [unfair bargain-intro. To unconscionability]

• court considers position of the parties and whether one was in a superior position than the other so the agreement was unfair; inequitable, extortionate, and unreasonable

3. Formal Contracts: The Promise Under Seal

• NB: promise given under seal  ENFORCEABLE even if there is NO CONSIDERATION; it is the only way to make valid a promise to make a gift
• Essential requirement: document intended to be a sealed document (signing not strictly necessary, delivery not necessary, promise must be in writing)

• ***RE/MAX GARDEN CITY REALTY V. 828294 ONTARIO INC. (1992-ONT.GEN.DIV) [what constitutes a seal]
• gratuitous promise is only enforceable when made under seal
• assignment under seal = equitable assignment which is enforceable
• parties intended sealed document: black printed circle was deemed seal (word "seal" under circle)

*NB: Ontario Business Corporations Act: a corporation no longer has to have a seal

FRIEDMANN EQUITY DEV. INC. V. FINAL NOTE LTD. [2000-SCC]

• affixing a seal does not in all cases create a sealed instrument; to be determined by having a regard to the INTENTION of the parties, and the TRUE CONSTRUCTION of the document
• courts: examine instrument itself and the circumstances surrounding its creation: to decide whether corporation intended to create a sealed instrument by affixing a corporate seal

*NB: unconscionability available for contracts made under seal

4. Consideration

THOMAS V. THOMAS (1842) [consideration – what req. when gift]

• something which is of value moving from promisee to promisor; promise must have given value in order to be able to enforce the promise of the promisor, but it is not necessary for the promisor to have received value
• Here: payment of rent every year was sufficient to constitute consideration

WHITE V. BLUETT (1853) [consideration?]

• promise is not enough, has to have exchange of value; no consideration

HAMER V. SIDWAY (1891-NYCA) [live good life = consideration?]

• consideration: enough that something is promised, done, forborne, or suffered by the party to whom the promise is made as consideration for the promise made to him – any general waiver of any legal right at the request of another party is sufficient consideration for a promise
• not a requirement that the promisor benefited: consideration was that the plaintiff gave something up (gave up a legal right)

*NB: NOMINAL CONSIDERATION: legally sufficient consideration – formal exchange of something trivial (e.g. peppercorn) – not money

a) Past Consideration

- promisee has already preformed an act, and the promisor makes a promise to pay for it, promise will generally not be enforceable because the consideration is said to be in the past

- however, if promise to pay for past consideration is honoured, the payment is not recoverable

• ***EASTWOOD V. KENYON (1840) [past consideration –said would pay for a debt already incurred]
• consideration for the promise was PAST and EXECUTED LONG BEFORE, no consideration but a past benefit not conferred at the request of the defendant (debt voluntarily incurred by the plaintiff)

LAMPLEIGH V. BRATHWAIT (1615) [past consideration allowed]

• Rule: a subsequent promise to pay for the agreement at the time for the amount of payment, a subsequent promise to pay for the original thing will be enforceable if the thing was done at the defendant’s request or in the expectation that there would be some payment
• Subsequent promise is the quantification of the original legal obligation not a new obligation

*NB: traditional common law position( no legal right to enforce payment for performing a service that was not requested to do, even if a benefit is conferred (exception: doctors and hospitals)

ROSCORLA V. THOMAS (1842) [promise concerning quality after sale]

• Promise concerning quality of the thing was made following the sale – therefore the promise was WITHOUT CONSIDERATION and UNENFORCEABLE
• Promise must be coextensive with the consideration

*NB: MINORS: contracts made by minor are voidable – but can ratify the contract made when was a minor when reaches age of majority – should be in writing – liable on contract even though consideration was past

*NB: RESTITUTIONARY PRINCIPLES AND UNREQUESTED BENEFITS: courts may invoke principles to order payment for an incontrovertible benefit that is conferred without request provided that the plaintiff can show that he did not act officiously that the particular defendant has gained a realizable financial benefit or saved an inevitable expense and that it will not be a hardship to the defendant to make restitution

WEBB V. MCGOWIN (1935-ALTA CA)

• Man saved from serious injury; promised to help him out for rest of life; -- court held PROMISE ENFORCEABLE

b) Mutual Promises:

- courts enforce mutual promises and regard each promise in an executory contract as legally binding

- REQUIREMENT OF MUTUALITY: both parties are bound, or neither is bound

GREAT NORTHERN RAILWAY CO. V. WITHAM (1873) [mutual promise and consideration]

• Promise to supply = promise, making an order = promise therefore, making the order = consideration  enforceable contract
• Also found that accepting the tender can also be considered as consideration (don’t have to rely on the order to establish it)

*NB: Canadian Uniform Sale of Goods Act – p. 252- quantities; output requirements

BERNSTEIN V. WB MFG. CO. (1921-MASS.SC) [mutual promise-void clause?]

• Sample delivery did not constitute consideration or part performance – promise in clause was not made by the promisee

WOOD V. LUCY, LADY DUFF-GORDON (1917-NYCA) [employment agreement as mutual promise]

• P’s promise to use reasonable efforts to place defendant’s endorsements and market her designs = IMPLIED PROMISE
• Court determines parties’ intention and finds that the PROMISE HAS A VALUE – plaintiff has duties (had to perform or would not get any profits)

*NB: requirement of MUTUALITY is NOT ABSOLUTE; many kinds of promises are enforceable on one side only; many commercial agreements are executed by one party not both – alternative to make an enforceable unilateral promise via promise made under seal, or giving nominal consideration (peppercorn)

c) Going-Transaction Adjustments:

- consideration issues for modifying promises

- TRADITIONAL RULE: without ’fresh consideration’ a promise to modify a contract is unenforceable

HARRIS V. WATSON (1791) – [seaman; additional work for additional wages]

• No consideration: work was part of original contract

STILK V. MYRICK (1809) – [another seaman situation]

• Contract void for lack of consideration; seaman did what was within the bounds of what he was originally contracted to do

• *RAGGOW V. SCOUGALL (1915) [fixed wage for 2 years; accept lower wage due to war – lower wage enforceable?]
• MUTUAL AGREEMENT: rescission of old contract and entering into new contract
• Giving up the first contract = giving up legal right to enforce the first contract = consideration

• *STOTT V. MERIT INVESTMENT CORP. (1988-ONT.CA) [stockbroker employee-liable for margin?, signed agreement that would]
• Found for the employer; compromise agreement – employer was found to have been forebearing to sue for losses if the employee signs the agreement and pays back the losses
• Rule: consideration = forebearance to sue – validity of claim not as important as the party’s bona fide belief that they have a claim to sue – gave up legal right to sue = consideration

*NB: compromise of potential claim to cause of action or defence IS GOOD CONISDERATION if it should later turn out that the claim was without legal merit provided:

a) the claim is reasonable (not frivolous or vexatious)

b) the person giving up the claim has a bona fide belief in its chance of success

c) there has been no concealment of material facts

• *GILBERT STEEL LTD. V. UNIVERSITY CONSTRUCTION LTD. (1976-ONT.CA) [contract for delivery of steel; second revised terms; third was made orally in which parties agreed to change in price – deliveries and invoices with new prices]
• ORAL CONTRACT enforceable? NO CONSIDERATION
• Agreeing to pay a higher price for next project is NOT CONSDIERATION – not giving up something of value
• Court not convinced that parties actually intended to rescind 2^nd contract and replace it with the third one
• Extending credit = consideration? NO

d) Note on Relational Contracts and Consideration:

• **WILLIAMS V. ROFFEY BROS AND NICHOLLS LTD. [1991-CA] [relational contracts – promise to change – consideration]
• Contract to refurbish flats and repair roof for £20 000; there were progress payments made – promised to pay more per flat to finish faster – had stopped someone else finished
• Consideration for additional funds? Prevented from suing since did not actually complete work?
• CONSIDERATION = assurance that the work would continue by offering to pay extra money
• Rule: if enters into agreement to pay extra money for promise to complete contractual obligations on time – gains a benefit – and the promise is not given as a result of coercion, economic duress, or fraud – then the benefit that the promisor gets is consideration and the promise is legally binding
• NB: consideration does not mean that the promisee has to suffer a deteriment – can confer a benefit on the promisor without detriment to himself

FOAKES V. BEER (1884-HL) [suing for interest – said would not charge interest if paid in installments]

• NO CONSIDERATION; saving of trouble is not enough consideration – was not changing amount to be repaid but allows to give time for payment of the whole without interest

*NB: Ontario Mercantile Law Amendment Act 1990-p. 288- creditor and obligations

BANK OF NOVA SCOTIA V. MACLELLAN (1977-NS.SC)

• Defendant’s promise to help the bank find her husband was consideration enough to hold the bank to promise that part payment of a promissory note would extinguish the debt

e) Contracts With a Third Party:

SCOTSON V. PEGG (1861)

• No authority for the proposition that where there has been a promise to one person to do a certain thing, it is not possible to make a valid promise to another to do the same thing
• A makes a contract with B on the condition that B perform his contract with C

5. Reliance as a Basis for the Enforcement of Promises

*Promissory Estoppel:

a) unambiguous promise or assurance

b) an intention to effect the legal relations

c) the other party acts on that promise to their detriment

• When all 3 are present, promissory estoppel applies, and you are NOT permitted to act inconsistently with your promise
• PE replaces consideration – challenges sword v. shield distinction. Broad view of PE
• NB: Walton’s = high water mark of PE, USE: '''Tudale

CENTRAL LONDON PROPERTY TRUST LTD. V. HIGH TREES HOUSE LTD. [1947-UK]

• Promise to pay less during wartime period – consideration needed?
• Enforceable even without consideration – promise to accept smaller sum in discharge of larger sum, if acted upon is binding

COMBE V. COMBE [1951-CA]

• Agreement to pay maintenance after divorce; never paid anything brought action for arrears for 6 ¾ years –consideration for promise?
• PE restated by Denning
• Defence of PE = Shield, claim for promise = sword
• Cannot find a claim in PE can only defend a claim (can only use as SHIELD not SWORD)

D&C BUILDERS LTD. V. REES [1966-CA] – sets out Canadian Law

• Builders take partial payment because of bad situation – partial payment = agreement to take less? Consideration?
• Unjust and unequitable – reliance on promise, can only be ended with reasonable notice (cannot rely on economic duress to avoid agreements)

• ***RE TUDALE EXPLORATIONS LTD. AND BRUCE [1979-ONT]
• Mining case with disputed oral agreement – whether oral promise binding (intended to be acted upon?)
• Rule: '''set out above

WALTONS STORES LTD. V. MAHER (1988-HCA)

• **estoppel with pre-contractual relationship
• D estopped in all circumstances from retreating from its implied promise to complete the contract
• D not entitled to stay silent once it knew the work on the building had begun—had to communicate its intentions within a reasonable time period – unconscionable not to do so

BAXTER V. JONES (1903-CA)

• P increases insurance policy but D never tells insurers (legal duty to do so) – fire; not really had any coverage – estopped from breaking promise?
• Rule: One who makes a gratuitous undertaking (promise) on behalf of another, is responsible not only for what he does, but for what he does NOT do, and cannot rely on the lack of consider’n as an excuse for not doing it.

SLOAN V. UNION OIL OF CANADA CO. LTD. [1955-BCSC]

• Is promise to pay termination allowance enforceable?
• Concession by an employer to an employee of the right of holiday pay or termination allowance is part of consideration for employee’s services as much as is his right to wages (PART OF CONTRACT for employment)
• *MCCUNN ESTATE V. CIBC (2001-ONT.CA)
• Can P estate take advantage of the mistake of the D in debiting monthly insurance premiums to the P’s credit line after the other appellant’s (ins.co) policy had ended?
• When KNOW or OUGHT to know of mistake – cannot expect law to permit to take advantage – particularily where did NOT RELY on it to detriment, or acted in the reasonable expectation the coverage not ended

SKIDMORE V. BRADFORD (1869)

• Uncle agrees to buy warehouse for nephew and dies before payment made – is nephew liable for balance of price?
• When uncle changed name of purchaser to the nephew, he became under legal obligation to pay the money and liable to be sued

DALHOUSIE COLLEGE V. BOUTILIER [1934-SCC]

• D agrees in writing to give money to P but dies before doing so – consideration?
• NO consideration promise SHOULD NOT be enforced – word done to improve the school was NOT DONE IN RELIANCE on the deceased’s money

RE ROSS (McGILL)

• Ross promises to give money to school, and then becomes insolvent – consideration?
• YES: school agreed to name building after the donor’s family in exchange for the monetary gift = sufficient consideration for promise

6. Intention to Create Legal Relations

• contract may be held unenforceable because there was a LACK OF INTENT TO CREATE a legally enforceable relationship
• family/social context
• commercial context
• government promises

***FAMILY CONTEXT:

BALFOUR V. BALFOUR (1919-CA)

• husband promises to support wife-promise enforceable?
• Family PROMISES NOT ENFORCEABLE – lack of presumption of intention to create legal relations in family situations

JONES V. PADAVATTON [1969-CA]

• daughter goes to England to study for bar takes 5 years instead of 3, wants to enforce promise by mother to pay for her until she completes (no matter how long it takes her)
• OBJECTIVE TEST: of intention to be bound  this is void because not reasonable that daughter can take as long as she wants – implication that should finish within reasonable time

• ***COMMERCIAL CONTEXT:
• if other elements of contract exist – there is a presumption that there was intention to be legally bound

ROSE & FRANK CO. V. J.R. CROMPTON & BROS. LTD [1925-HL]

• agreement to be "binding in honour only" – can recover damages?
• NO: cannot recover

Letter of comfort: undertaking that is deliberately designed not to create enforceable obligations – intended to provide some ’comfort’ that something will be done—does not give lender any effective right to sue the maker for the loss the lender has suffered from the borrower’s insolvency

TD BANK V. LEIGH INSTRUMENTS LTD. (TRUSTEE OF) (1999-ONT.CA)

• number of comfort letters issued over line of credit which ballooned to $45 000 000 – was statement in comfort letter negligent misrepresentation – was it a guarantee?
• STATEMENT OF FACT NOT PROMISE concerning future of conduct – not bound to promise – clear INTENTION that arrangement should not give rise to binding legal relations

• ***GOVERNMENT PROGRAMS:
• few have been found to intend to give rise to enforceability
• must convince courts that promises give rise to something that is binding and enforceable

7. Third Party Beneficiaries and Privity of Contract

• DOCTRINE OF PRIVITY: only a party to the contract can enforce it; someone who is a stranger to the contract will have no rights or obligations under it
• 3 WAYS TO AVOID PROBLEMS OF PRIVITY:
• Agency: agent given authority to make contract with a third party on behalf of a person
• Assignment: creditor can assign debt to assignee: assignee can sue debtor for the amount of the debt
• Trusts: trustee holds asset in trust for another – beneficiary can enforce rights against a third party
• ALSO FROM C/L:
• Unilateral contract – "Himalaya Clause":
• bill of lading to state clearly that 3^rd party to be protected by contract
• contracting party is to be shown to have entered into the contract as an agent of the third party
• 3^rd party given authority to contracting party to act on its behalf
• requirement for consideration should be satisfied
• New Zealand Shipping [1975] application of clause p. 356
• "London Drugs" exception: only to be used as a shield and only for employer-employee relations

GREENWOOD SHOPPING PLAZA V. BEATTIE (1980-SCC)

• agreement in lease that landlord would not hold tenant responsible for fire- tenant’s employees cause fire – can they be protected under the agreement?
• NO: no privity –parties were not contemplated when the contract was made

• ***LONDON DRUGS V. KUEHNE & NAGEL INT’L LTD. [1992-SCC]
• extent to which EMPLOYEES can claim the benefit of their employer’s contractual limitation of liability clause
• Rule for exception:
• Limitation of liability clause has to extend limitation to employees (expressly or implied)
• Person seeking limitation has to be acting in the course of their employment and doing the very services that were contracted for

LAING PROPERTY AND ALL SEASONS DISPLAY INC (2000-BC.SC)

• "London Drugs" rule in leasing situation – can tenants of mall sue employees of mall under lease agreement even though can’t sue landlord?
• CANNOT – employees covered by mall’s insurance
• Application of London Drugs:
• Implied intention to protect landlord’s employees
• Negligent conduct performed in course and scope of employment

CHAPTER 3: THE FORMATION OF CONTRACTS

1. The Rules of Offer and Acceptance

• The Mirror Image Rule of Offer and Acceptance
• OFFER party A presents terms of to party B (B can accept or reject terms)  if ACCEPTS terms, then contract is made
• If does NOT ACCEPT all the terms proposed, the offer has been rejected
• COUNTER-OFFERIf makes some changes, becomes new offer and the other party is free to reject or accept that offer
• NB: ultimate acceptance must mirror the final offer
• INVITATION TO TREAT (OFFER): interest in entering into negotiations – cannot be accepted, only offer confers on offeree the power to make a contract (newspaper ads, publication of price lists-court looks at intention of parties)

LEFKOWITZ V. GREAT MINNEAPOLIS SURPLUS STORE (1957)

• newspaper ad that coats which cost $100 would be sold $1 "first come, first served"
• court looks at ’reasonable understanding of offeree’ and risk that the offeror would be caught by surprise – intention that this is an offer put forth with the specified qualification

PHARMACEUTICAL SOCIETY OF GREAT BRITAIN V. BOOTS CASH CHEMISTS LTD. [1952]

• self-serve pharmacy – offer when person picks something up in the store or is that acceptance?
• contract made when: brought goods to the cash, price on shelf=invitation to offer, offer accepted when clerk entered sale in cash register

• The Acceptance
• no binding contract unless one party sends some form of acknowledgment or acceptance (Tinn v. Hoffman & Co. 1873)
• TIME: a time limit may be specified, if time is not specified – rule is that an acceptance must be made within a ’reasonable’ time
• Reasonable time: dependant upon the circumstances (subject matter, mode of communication etc.)
• An acceptance that is too late is of no effect
• SILENCE: may be sufficient as acceptance if the parties are already in a relationship from which it would be reasonable to expect a response to the offer (Wheeler v. Klaholt (Mass SC 1901)
• REVOCATION: offer may be revoked at any time before acceptance is made UNLESS: there is consideration paid, or it’s under seal, and/or option contract made to keep acceptance open for specified time

• Contracts Made by Mail
• POSTAL ACCEPTANCE RULE: in absence of stipulation to the contrary made by the offeror, the point of acceptance in a contract that is mailed is the time when the LETTER IS POSTED, not the time when the offeror received it
• A party must specify in an offer that the postal acceptance rule does not apply or that another rule applies
• (Household Fire & Carriage Accident Insurance Co. Ltd. v. Grant (1897)) – must provide reasonable proof of having mailed the acceptance to the correct address

• CROSS-OFFERS: first one that is accepted starts the contract process

SCHILLER V. FISHER [1981-SCC]- timing of acceptance determined

• acceptance of offer must be communicated to the offeror before acceptance is complete and a binding contract is created
• Rule: acceptance can occur before communication of acceptance when offeror sets out means and timing of acceptance

• Contracts Made by Fax
• General Rule: contract made when acceptance received

ROLLING V. WILLANN INVESTMENTS (1989-ONT.CA) – fax

• fax = valid transmission method of delivery of an option to purchase land
• acceptance delivery was not specified, so it was okay

• Where is a Contract Made?
• contract subject to the Jurisdiction in which it is made
• contract made where the offeror is – if rule is that contract made when offeror receives notice of the acceptance
• if postal acceptance rule applied – contract made where acceptance is put in the mail

EASTERN POWER LTD. V. AZIENDA COMMUALE ENERGIA AND AMBIENTE (1999)

• letter of intent signed by D in Italy and faxed to P in Ontario, who signed it and faxed it back to D
• contract made in Italy – where P’s ACCEPTANCE REACHED the D
• instantaneous communication rule applied, not postal acceptance rule

*NB: for fax: use general rule – acceptance when and where it is received (not postal rule)

• E-Commerce and Contracts Made Through the Use of Computers
• electronic signatures = valid Ontario Electronic Commerce Act 2000
• contract formed by e-mail when and where the acceptance is received

RUDDER V. MICROSOFT CORP (1999-ONT)

• "I Agree" pressed two times – offer and acceptance occur – acceptance where company is based (who receives acceptance)

• Revocation of the Offer
• basic rule: offer can be revoked at any time before acceptance
• revocation must reach the offeree before acceptance
• POSTAL RULE: revocation must reach before acceptance put in the mail (Henthorn v. Fraser)
• OTHER: revocation is possible before the acceptance reaches the offeror (Byrne & Co. v. Van Tienhoven & Co.)
• Firm Offers and Unilateral Contracts
• FIRM OFFERS: will remain open for a stated period – if accepted while remains open a contract is made
• Offeror has right to revoke at any time before acceptance (promise to keep it open was made without consideration Dickson v. Dodds)
• OPTION CONTRACT: promise to keep an offer is bought by payment --- may also be executed under seal

• UNILATERAL CONTRACT: one party makes offer to one party or to the world – offer accepted not by communication of an acceptance but by PERFORMING
• Until and unless the offeree fully performs, the offeree has no right or liabilities --- courts have bypassed or ignored this rule when its application would violate some concern that is more important than doctrinal purity

*NB: CHALLENGING UNILATERAL CONTRACTS:

1) is it really bilateral? (Dawson)

2) is there any implied term? (Errington)

DAWSON V. HELICOPTER EXPLORATION CO. LTD. [1955-SCC]

• binding contract, or unilateral contract? – P discovered deposits, D made offer of 10% if helped find, D found it anyway-refused to give share
• Held: significant reliance and expectation interests on part of the P – not clearly a unilateral contract, interpreted as a bilateral contract (consideration = gave up other development opportunities)
• Contract is not unilateral if the offeror has a non-passive role in the performance of the contract

ERRINGTON V. ERRINGTON [1952-CA] – "Give you the house when you pay off the mortgage"

• Denning: once offeree embarks on acceptance, offer can’t be revoked – uses language of the offer to justify the rule
• ACCEPTANCE: full payment of mortgage
• Disagrees that it is a unilateral contract – but cannot be revoked once acceptance has begun
• IMPLIED PROMISE – no consideration
  
• Tendering in the Construction Industry and for Government Contracts
• tendering process: gives rise to 2CONTRACTS:
• Contract A: invitation for bids = OFFER, submission of the bid = ACCEPTANCE  bid irrevocable, once Contract A exists, there is an obligation to enter into Contract B
• Contract B:actual work to be done (construction)
• process usually governed by industry practice, in lots of cases, courts have implied terms to govern this relation

NORTHERN CONSTRUCTION CO. LTD. V. GLOGE HEATING AND PLUMBING LTD. (1986-ALTA.CA) – mistake by bidder

• bidder, made a mistake and underpriced bid by $180 000; refused to perform contract – main contractor awarded difference lost because had to hire someone else
• Contract A was made, bidder not entitled to withdraw from the contract

NAYLOR GROUP INC. V. ELLIS-DON CONSTRUCTION LTD (2001-SCC) - lowest bid subcontractor not awarded bid because of union issue (was assured that that wouldn’t be a problem – contractor shops his price around)

• subcontractor awarded loss of profits (same position would have been if completed contract)
• Rule: contractor can only extricate himself from Contract A by demonstrating that, in all the circumstances, its objection was ’reasonable’ and this it has failed to do
• The contractor’s conduct prevented it from arguing that it had a reasonable objection

MJB ENTERPRISES LTD. V. DEFENCE CONSTRUCTION [1999-SCC]

• D accepted non-compliant bid, second lowest (compliant)bidder suing for lost profit
• On balance of probabilities, the P would have been awarded the contract if non-compliant not accepted – has obligation to appellant and other tenderers that would only accept a compliant tender

MARTEL BUILDING LTD. V. CANADA [2000-SCC] – lowest bidder became second lowest when owner added fit up costs

• tendering authority has the right to include stipulations and restrictions and to reserve privileges to itself in the tender documents
• fit up costs were added to all bids using the same standard or method of calculation – complied with its contractual obligation to treat all bidders fairly and equally

2. Limits of the Traditional Rules

Mistake in contract formation (Really misunderstandings)

• Misunderstandings about what has actually been contracted
• 2 types of mistakes: 1) Elements or terms of the contract are unclear, a contract has been entered into, but the parameters are uncertain;
• 2) Misunderstandings arise in the course of negotiations (Uncertainty as to whether the parties have they come to an agreement or are still bargaining)

RAFFLES V. WICHELHAUS (1864-EXCH) – mistake in process of contract formation (2^nd '''''ship of the same name- arrived later)

• NO CONTRACT: no meeting of the minds (subjective approach)
• Disagreement about the terms of the contract, no reason to hold either party to the interpretation of the other

Note: If a term is misunderstood and it is relevant to the obligations of the party, the contract will be non-binding; immaterial term won’t make a contract non-binding since there is still essentially '''ad idem'''.

SMITH V. HUGHES (1871-UK) – objective approach to contract analysis

• new trial: jury to decide if "old" was within the discussions of the parties, if it was then it was part of the contract for sale (implied warranty)

Significance: Court will use objective, reasonable man approach to determine the terms of the contract; not just statements and written terms, also parties’ actions

Lack of Common Intention

2 ways that you can end up with a contract even w/o a common intention:

1) Reasonable bystander test (Staiman)

2) Reasonable understanding of unambiguous words (Hobbs)

HOBBS. V. ESQUIMALT AND NANAIMO RAILWAY CO. (1899-SCC) –reasonable understanding

• claim to enforce specific performance of an agreement by railway co. to sell certain land in BC – entitled to minerals which are in the land which was sold?
• AWARDED specific performance -- mistake was unreasonable on the part of the railway:
• Using obj. test: was not reasonable that anyone outside office would know that ’land’ didn’t just mean surface rights
• Common, reasonable understanding of land at the time included the mineral rights
• There may be no meeting of the minds here, but since seller was irresponsible they were bound to the contract and specific performance is reasonable

STAIMAN STEEL LTD. V. COMMERCIAL & HOME BUILDERS LTD. (1976-HCJ) – reasonable by-stander test

• D auctions construction equipment, confusion as to what steel was for sale – P things bought steel which was already sold to someone else
• NO CONTRACT: only in a case where the circumstances are so ambiguous that a reasonable bystander could not infer a common intention that the court will hold that no contract was created

• Indefiniteness and the Process of Contract Negotiation
• deal made when formal offer to the purchaser or vendor is accepted by the other
• problem of indefiniteness: have the parties done enough in making their agreement sufficiently precise that a court could reasonably be expected to enforce it?

• Agreements to Agree
• May or may not be binding; agreement on key terms may mean that an agreement will be held binding by court.
• Court will not make an agreement for the parties, but it will interpret and look for evidence of a contract.

Indefiniteness situations in contracts:

1) Parties may or may not have obligations before there is final execution of contract. Parties often don’t know when the obligations begin.

2) When not all terms are specified - disputes over interpretation can lead to lawsuits?

3) If one key aspect is undefined (often price) - not binding, unenforceable contract

4) Agreements to agree or (agreements in principle) – early stage in a complex or multi-stage agreement – set out what they intend the contract to be about, to the effect that parties will agree and make a contract. May leave 1 or all terms out.

• Where one element is not defined – i.e. price – courts may be able to imply or interpret a reasonable term
• Parties will agree on a particular term later – i.e. parties will negotiate a price – courts tend not to find this binding – can’t demonstrate that they’ve made a commitment – often with price

Ontario Sale of Goods Act – s.9 allows the price to be unspecified – some case law sets out that where the price is described as "to be agreed on from time to time", this is not sufficient under the Sale of Goods Act, not enforceable – case law is above Statute

FOLEY V. CLASSIQUE COACHES LTD. [1934-CA] – separate agreement to buy petrol – D breached (buyer)

• parties believed they had a contract, acted for 3 years as if they had – arbitration clause in contract applies to any failure to agree as to the price – EFFECTIVE AND ENFORCEABLE CONTRACT (appropriate to imply a term that the gas should be supplied at a reasonable price)

*NB: pressure to enforce a contract will be a function of the extent to which one party:

- relied on the K

- degree to which they are committed to each other

- problems disentangling their relationship

• ***COURTNEY AND FAIRBARN LTD. V. TOLAINI BROTHERS (HOTELS) LTD. [1975-CA] – Denning: agreement that would enter into contract if negotiate fair and reasonable prices – could not agree on price for construction – D used another contractor – P breach of contract?
• NO CONTRACT: law doesn’t recognize a contract to enter into a contract, therefore cannot recognize a contract to negotiate
• Rule: when there is a fundamental matter left undecided and to be the subject of negotiation there is no contract

**NB: commercial leases that the tenant may renew the lease at a rent to be agreed upon will generally make the agreement to renew unenforceable

EMPRESS TOWERS LTD. V. BANK OF NOVA SCOTIA (1990-BCCA) – landlord seeks to obtain writ of possession – lease expired asked for new rent amount and one time payment – renewal clause = agreement to agree?

• 3 CATEGORIES OF OPTION CONTRACTS:
• if rent is "to be agreed" – too vague to be enforceable
• where agreement says you must determine the price by a particular formula but details of formula are missing – courts will try to enforce – if they can find a reasonable way to do it
• formula set out for calculating the rent or price, but there is an error—court will try to apply the formula to produce the correct formula
• Rule: courts will generally try to uphold the intention of the parties, but they won’t make a contract for the parties
• Landlords: requirements to negotiate in good faith – not to withhold agreement unreasonably

*NB: Sale of Goods Act: assumes that the court can determine a reasonable price

WALFORD V. MILES [1992-AC] – agreements to agree – sale of business, entered into negotiations and agreed in principle to sell premises to them – requested "lock out agreement" – to terminate negotiations with any third party – sold to a third party – breach of ’lock out agreement’?

• NO CONTRACT: agreement to negotiate is unenforceable because lack necessary certainty
• Rule: while negotiations are in existence either party is entitled to withdraw from these negotiations at any time and for any reason

*NB: common law rule is that contract to negotiate are inherently uncertain and therefore incapable of creating binding and enforceable obligations

• Letters of Intent (Agreement in Principle)
• set out the fundamental terms that have been agreed to – basis for futher negotiations or for indicating the general nature of the deal, indicate that he parties are committed at least to the point of being prepared to acknowledge that the terms are the ’principles’ of the deal
• ***CANADA SQUARE CORP. LTD. V. VERSAFOOD SERVICES LTD. (1981-ONT.CA) – D set letter to P to "confirm our verbal understandings" – P signed bottom of letter and sent back to D – enforceable agreement?
• AGREEMENT BINDING: some uncertainty, but main part of the contract is clear – reasonable interpretation = contract
• Rule: just because there is uncertainty, doesn’t meat that it is not a binding contract

L.C.D.H. AUDIO VISUAL LTD. V. I.S.T.S. VERBATIM LTD. (1988-ONT.HCJ) - bidder; arrangement that D would alone bid on contract-signed agreement that city employees would recommend that D would get main contract – only given a 1 year sub-contract (was supposed to get 5 years) – agreement binding contract?

• NO BINDING SUBCONTRACT: agreement was for negotiations towards entering into a subcontract (relies on Courtney)
• agreement that lacks an essential or fundamental item is not a binding contract

PENZOIL V. TEXACO [1987-TEX.CA] – intention focused on – handshake created enforceable agreement?

• FACTORS ARTICULATED TO DETERMINE WHETHER PARTIES INTENDED TO BE BOUND BY ONLY A FORMAL SIGNED WRITING: (objective test for intent)
• Whether a party expressly reserved the right to be bound only when a written agreement was signed
• Whether there was any partial performance by one party that the party disclaiming the contract accepted
• Whether all essential terms of the alleged contract had been agreed upon
• Whether the complexity or magnitude of the transaction was such that a formal, executed writing would normally be expected

3. Protection of Expectations Arising from Negotiations

• ***MARTEL BUILDING LTD. V. CANADA [2000-SCC] – leased most of building – discussed renewal of lease – expectations = duty?
• NO DUTY: no duty in law to negotiate in good faith
• Rule: no duty of care should be extended to business negotiations – destroy competitive advantages

• *NB: notes on GOOD FAITH DUTY:
• Not recognized in law, but lawyers are bound by professional conduct rules
• Negative commercial impacts if not in g faith – huge transaction costs (economically inefficient)
• When is good faith appropriate? Empress Towers - when it is in the contract expressly (best efforts, bargain reasonably) (BC court of appeal; Martel SCC – says there is no good faith duty)
• Distinguish on law: Martel – looking at Tort, contract was incidental (talking about renewal but not the same thing as ET), Empress Towers – focuses on renewal clause

• Restitution and Reliance
• In some cases, courts may find a way to protect what looks like what Fuller and Perdue called the reliance and restitution interests

BREWER STREET INVESTMENTS LTD. V. BARCLAYS WOOLEN CO. [1954-CA] – negotiations for lease – T asks for renovations and then 2 fail to come to an agreement on the rent – L sued to recover costs for renovations – recover because of RELIANCE that would enter into contract with T? (Denning)

• YES: parties proceeded on a fundamental assumption that the lease would be granted – neither party was at fault – risk should fall on T and should pay for any costs which the landlord did not benefit from

• *BREWER V. CHRYSLER CANADA LTD. [1977-ALTA.SC] – P to open dealership – put up his own money – assured that would be granted dealership (time and money, quit his own job in pursuit of that end) – D refused to give him dealership – sued for breach of contract – EXPECTATION
• AWARDED: expenditures that made and salary lost, the D was at fault – made him believe that he was getting the dealership for sure

*NB: ordinary rule is that where a person expends resources in negotiation, or preparing a bid, or a work proposal that is not accepted, there is no right to recover – but if a person’s work goes beyond what is normally involved in preparations of a quotation or proposal, with a mutual understanding that the work is not being done gratuitously then recovery should be available

• Duty of Confidentiality
• some of these duties are statutory but MANY are based on well-established doctrines of the common law – obligations that may arise when a contractual relation is being negotiated
• ***LAC MINERALS LTD. V. INTENRATIONAL CORONA RESOURCES LTD. [1989-SCC] – small mining company shows findings to bigger company during negotiations, bigger buys property next door (based on info received from smaller) – improper taking advantage of information?
• FIDUCIARY DUTY: not precluded by fact that parties involved in pre-contractual negotiations – court has flexibility w.r.t. remedy
• Restitutionary remedy appropriate

VISAGIE V. TVX GOLD INC. (2000-ONT.CA) – junior partners entered into joint venture with senior company – confidentiality agreements signed

• BREACH of confidentiality agreement but NOT of fiduciary duty
• Court required senior company to transfer to the partners the minority interest that they would have had under the original agreement upon paying the agreed capital amount

SCC decision not limited to mining situations; fits with two trends:

(1) increasing recognition that some obligations arise in a pre-K setting, not fully contractual, but close to it.

(2) looking more to notions of what is fair & equitable. Not simply saying if there is no signed K, there is no liability. Legal obligations may arise out of implicit & understood relationships, even if no express statement.

4. The Battle of the Forms

• The "battle of forms" analysis ONLY applies between commercial entities sending unread standard forms with conflicting terms back and forth.
• Situations that arise when standardized forms are used in negotiations, parties may not read the fine print or boiler plate terms on contracts– may not anticipate the terms that are included
• Clear that the parties have come to some kind of agreement, unclear what the terms of the agreement are
• 2 approaches: traditional or Denning’s holistic approach – may produce the same or differing outcomes

BUTLER MACHINE TOOL CO. LTD. V. EX-CELL-O CORP. LTD. [1979-CA] – holistic v. traditional approach  P seller of machine, D bought machine – seller had price variation clause, buyer did not – D rejected extra charge – what terms was contract concluded on?

• NO EXTRA PRICE: looks at transactions of forms between the two – documents considered as a whole – acknowledgement on 5^th of June was decided to be the decisive document (makes clear that contract on buyer’s terms and not on the seller’s)
• Traditional analysis: examines offer/counter-offer – last offer = decisive one
• Hollistic analysis: look for material terms and conditions in entire set of communications, consider whether they have reached an agreement, usually these are reflected by the last set of communications

Applying Holistic Approach – may have to consider:

1) how great is the difference in terms- can the documents be "construed together"?

2) did one party make a greater effort to bring notice of its terms to the other?

3) What is "reasonable implication"? What are usual terms of trade in this industry?

4) is one party being "taken advantage of" because of difference in terms?

TYWOOD INDUSTRIES LTD. V. ST.ANNE-NACKAWIC PULP & PAPER CO. LTD. (1979-ONT.HCJ) – P action for price of goods sold – D stay action based on ground that agreement contained a clause for submission to arbitration – agreement for arbitration?

• NO ARBITRATION AGREEMENT: at no time P acknowledged supremacy of D’s terms – D tried to impose arbitration term in purchase orders, but drew no attention to that terms and did not complain when P failed to return the vendor’s copy of the purchase orders
• Arbitration clause not part of the contract
• Rule: high standard of proof required to enforce an arbitration clause – higher than other clauses – intent and agreement would have to be very clear

CHAPTER 4: EXCUSES FOR NON-PERFORMANCE

1. Express Conditions

• an explicity contractual provision which provides either:
• that a party to the contract is not obliged to perform one or more of its duties there under unless some state of events occurs or fails to occur
• conditions precedent
• conditions subsequent
• that, if some state of events occurs or fails to occur, the obligation of a party to perform one or more of its duties thereunder is suspended or terminated

• ***DYNAMIC TRANSPORT LTD. V. O.K. DETAILING LTD. [1978-SCC] – P buyer, D seller of land, - needed planning permission obtained before land could be subdivided – P failed to fulfill obligations – D suing for specific performance – who should be getting the permission?
• VENDOR TO SEEK PLANNING APPROVAL: the person who proposes to carry out a subdivision of land is the intending vendor – it is he who must divide his parcel of land which has hitherto been one unit for the purpose of sale
• Vendor under duty to act in good faith and to take all reasonable steps to complete sale

2. Implied Conditions

• if there is a breach by one party, the other party may want to argue that it is excused from performance by the breach – term of the contract should be interpreted to be a condition, or treated as an IMPLIED CONDITION

TROLLOPE & COLLS LTD. V.NORTH WEST METROPOLITAN REGIONAL HOSPITAL BOARD (1973-HL) – unexpressed term

• unexpressed term can be implied iff the court finds that the parties must have intended that term to form part of their contract
• must have been a terms that went without saying – a term necessary to give business efficacy to the contract a term which, although tacit, formed part of the contract which the parties made for themselves

• ***HONG KONG FIR SHIPPING CO. V. KAWASAKI KISEN KAISHA LTD. [1962-CA] – P bought ship and chartered to D – under K excused from payment for the time when ship in port for repairs – many problems – boat not seaworthy, D repudiated K - damages for breach of contract?
• found for plaintiff: D undertakes to continue to perform his obligations notwithstanding the occurrence of such events if they fall short of frustration of the contract and even deprives himself of any remedy in damages unless such events are the consequence of want of due diligence on the part of the shipowner
• although ship unfit – did not deprive charterers of all the benefits of the contract

JACOB V. YOUNGS V. KENT (NY.CA-1921)

• builder sued the owner for the balance owed on a contract for the construction of a house
• the builder had not complied with an obligation to install a particular brand of water pipe in the house
• the owner should get no damages for the breach sine he ahd suffered no economic loss from the breach
• Cardozo – breach did not offer an excuse

• ***SAIL LABRADOR LTD. V. "CHALLENGE ONE" [1999-SCC] – 5 yr agreement to charter vessel – option to buy vessel at end of 5 yr period subject to full performance of his obligations (payments, etc.) – error by bank employee, first payment on 5th year not on time – refused to execute bill of sale
• one late payment did not constitute a breach sufficient to allow the respondent to rely on the clause
• defect in performance must attain a certain minimum degree of seriousness to entitle the non-offending party to rescind the contract
• "time of essence" – clause needed – to show intention that timing is important
• conclusion: the words used in the clause are simply not precise enough to satisfy the court that these parties intended to make timely lease payments the essence of this contract (just call for regular payments)

3. The Right of the Party Who Has Not Performed to Sue

CORT V. THE AMBERGATE RAILWAY CO. (1851) – D building railway, P contracted with D to provide railway chairs (4000) after 1800 told P would not accept any more – defence: that P was not ’ready and willing’ to provide rest of chairs

• FOUND FOR PLAINTIFF: P does not have to produce any more if given notice that D breaching contract – and can still bring action against purchaser for breach of contract
• Rule: not required to be willing and able to be able to bring action against purchaser for breach of contract

***ANTICIPATORY REPUDIATION:

HOCHESTER V. DE LA TOUR (1853) – D agreed to employ P, D told P before time of employment was to commence that he had changed his mind and would not require his services – action brought too soon, - have to bring action after breach?

• FOR PLAINTIFF: can sue before the date of performance of contract
• Rule: anticipatory breach – P does not have to wait until the date of performance of contract – would give undue benefit to the person who is breaching the contract if make P wait

FROST V. KNIGHT (1872) – couple agrees to marry after D’s father dies – prior to death, D declared that would not marry P – P sued for breach of contract and damages

• BREACH AND ACTION ALLOWED: P has two basic options:

a) innocent party can refuse to accept repudiation; contract kept alive – P has to carry out obligations, has rights to damages which flow from breach

b) Plaintiff can accept defendant’s repudiation; contract treated as at an end – plaintiff can sue right away

• ***DOMICILE DEVELOPMENTS INC. V. MACTAVISH (1999-ONT.CA) – contract for manufacture, building and purchase of house – ’time of essence’ element- $5000 deposit paid, further $15000due upon notice of building permit – D repudiated – P rejected repudiation (sent notices of rejection) – P filed statement of claim when failed to pay further $15000 – but: house not substiantially complete by date agreed upon – neither party met obligations under contract by final date – eventually sold house at a loss of $85000
• FOUND FOR DEFENDANT – awarded return of $5000 deposit
• P rejected repudiation, therefore, contract kept alive- breached by not having house ready on time (no new closing date set)
• P breached contract and then prevented D from fulfilling obligations under contract (not given reasonable opportunity to fulfill obligations under the contract)

4. The Right of the Party in Breach to Claim Restitution

• TWO COMMON SITUATIONS:
• When a plaintiff has made an advance payment of the price and seeks to recover it (DEPOSIT/PARTIAL PAYMENT)
• Deposit: payment made that is intended to be foreited if that party breaches that contract – does not limit liability under the contract (may be sued for further damages)
• Partial Payment: not made with intention that it will be forfeited upon breach – does not limit liability – partial payment taken into account when calculating total damages for breach of contract
• When a plaintiff has partly performed and has supplied work or materials to the defendant, but has not completed the required performance (PARTIAL PERFORMANCE/MATERIALS)

NB: Liquidated damages: can write a contract that if breached, liquidated damages will be a certain amount – parties agree what the damages will be when the contract is breached – court cannot be asked to calculate damages – limits liability/damages that can be collected – innocent party’s damages are limited to the amount agreed upon

• Recovery of Money

• ***HOWE V. SMITH (1884) – basic rule set out ( D agreed to sell, P agreed to buy real estate – P paid (deposit and in part payment of the purchase) upon signing agreement – P failed to pay balance on set date – DEPOSIT or PARTIAL PAYMENT?
• DEPOSIT: not only payment toward purchase price but acts as insurance that the rest would be paid on time – purchaser lost all rights to recover – deposit forfeited at time of breach
• Rule: if breached when not completed = deposit (forfeited), if breached when completed = part payment of full contract price

DIES V. BRITISH AND INTERNATIONAL MINING AND FINANCE CORP. LTD. [1939] – P to purchase weapons, pays deposit (almost half of purchase price), P breaches contract by not accepting product and does not pay balance owing – DEPOSIT OR PARTIAL PAYMENT?

• PARTIAL PAYMENT: nothing indicated that the payment was intended to be believed by either party to be in nature of a guarantee or earnest for the due performance of the contract
• Rule: right for purchaser to recover money – to enable seller to keep it he must be able to point to some language in the contract from which the inference to be draw is that the parties intended and agreed that he should

*NB: assumption of court that unless specific language, then will always consider as partial payment?

• ***LOZCAL HOLDINGS LTD. V. BRASSOS DEVELOPMENT LTD. (1980-ALTA.CA) – purchase for sale of real property – if purchaser breaches – deposit to be forfeited as liquidated damages – DEPOSIT or LIQUIDATED DAMAGES?
• DEPOSIT: look to language of the contract – interpreted language of contract contrary to the party that drafted the contract (good faith clause=deposit)

STOCKLOSER V. JOHNSON [1954] – P to buy quarry, initial payment and installments – also stipulated that if P defaulted on installment then seller entitled to rescind the contract and keep all payments made, repossess quarry – defaulted after 18 months – initial payment = DEPOSIT or PARTIAL PAYMENT?

• DEPOSIT: court sets out 2 part rule:
• No forfeiture clause: so long as the seller keeps the contract open and available for performance, the buyer cannot recover the money; but once the seller rescinds the contract or treats it as at an end owing to the buyer’s default then the buyer is entitled to recover his money by action at law, subject to cross claim by the seller for damages
• There is a forfeiture clause: buyer who is in default cannot recover the money – may have a remedy in equity
• Equity when: -- (will not enforce a forfeiture clause) forfeiture must be of a penal nature (sum forfeited must be out of proportion to the damage) – and it must be unconscionable for the seller to retain the money

• Recovery of the Supply of Goods or Services

ENTIRE CONTRACT RULE: Cutter v. Powell: unless the contract is fully performed, one party is not obliged to pay the other (consistent with "Walking to York" –type cases)

BLAKE V. SHAW (1853) – P employed by D: P stopped working before year up – sought to recover unpaid wages

• Where employee departs without consent – forfeits wages and cannot recover for the part of the year that he has served

SUMPTER V. HEDGES (1898) – P builder contracted with D to build 2 buildings, did part of work and received part payment – P had no more money and could not go on with the work – D finished work on his own by using some of the materials left by the P – P owed value for materials used?

• NO EXTRA RECOVERY: unless the building owner does something from which a new contract can be inferred to pay for the work already done, the P in such a case cannot recover on a quantum meruit
• Must be evidence of a new contract

CHAPTER 5: CONTRACTUAL UNDERTAKINGS: THEIR DETERMINATION, RANGE AND REMEDIES FOR BREACH

1. Interpretation

FEDERAL COMMERCE & NAVIGATION CO. V. TRADAX EXPORT SA (THE "MARTHA ENVOY") [1978-HL] – hands off approach – contract for charter parties, many standard clauses – proper interpretation of clause in K: who will bear the risk?

• Court: would not intervene into standard terms agreed to by the parties – to do so would be to dictate the terms of the contract
• Policy view: value of standard contracts – lets parties contract easily and efficiently, commercially efficient

• ***SCOTT V. WAWANESA MUTUAL INSURANCE CO. [1989-SCC] – P holders of insurance policy with D, 15yr old son deliberately set fire to insured premises – claim denied – is son included within definition of ’insured’ so that loss is excluded from compensation by exception clause
• MAJORITY(4) (hands-off) – terms of the insurance policy are perfectly clear and unambiguous – such risk was specifically excluded
• Courts should not give it a meaning different from that which is expressed by its clear terms unless the contract is unreasonable or has an effect contrary to the intention of the parties
• MINORITY(DISSENT)(3): that insured were victims- insurance company more powerful – should make sure that insured know of all the exceptions and circumstances that they would not be insured for – language ambiguous=rule in favour of the insured (public policy important consideration when dealing with insurance contracts)
• The normal rules of interpretation lead a court to search for an interpretation of the whole k, to promote or advance the true intent of the parties at the time of entry into k'''.
• In construing an insurance policy – must be guided by the reasonable expectations and purpose of ordinary person entering the contract – language used must be given its ordinary meaning such as an ordinary policy holder with ordinary intelligent and insurer would understand it
• The ordinary insured would not buy insurance if they understood that they could be denied compensation or that it would be a joint contract b/c the possessions of another were covered

*NB: a) hands off-no ambiguity or b) public policy - ambiguity

• The Parol Evidence Rule

BASIC RULE: if the language of the written contract is clear and unambiguous, then no extrisnsic parol evidence may be admitted to alter, modify, vary, or interpret in any way the words used in the writing (*important if conflicts with main written contract)

• once the court determines that a written document is the final and complete expression of the parties’ agreement, then, and only then, can it be said that evidence of what the parties may have said during the negotiations or in other writings must be irrelevant

2 STEP APPROACH:

1) MAIN WRITTEN CONTRACT = CLEAR AND UNAMBIGUOUS?

2) EXTRINSIC EVIDENCE = CONSISTENT WITH MAIN CONTRACT?

BAUER V. BANK OF MONTREAL [1980-SCC] – strict approach to rule – D (Bauer) major shareholder, company borrowed money from bank, gave personal guarantee (and accounts receivable) -- Main contract: makes defendant liable for guarantee and debts also states that bank does not have to go through perfecting security procedure – Extrinsic Evidence: assurance that would relieve D from liability (but to do that would have to perfect security, which they did not)

• FOUND FOR BANK: main contract is clear and unambiguous, cannot consider extrinsic evidence
• to accept the extrinsic evidence would have effect of modifying or altering the written contract – extrinsic evidence NOT CONSISTENT with the main contract – inconsistent extrinsic evidence cannot alter the main contract

1) ***2 EXCEPTIONS RECOGNIZED IN BAUER:

2) COLLATERAL CONTRACT: consider whether there is a separate contract by considering extrinsic evidence – if that collateral contract does not vary or contradict the main contract

3) Parol evidence rule restriction ONLY APPLIES to interpreting the terms of the contract, DOES NOT apply to whether there was a misrepresentation in inducing the contract

GALLEN V. ALLSTATE GRAIN CO. (1984-BC.CA) – more generous application of PER (sets out exceptions) – P(farmer), D(dealer in grain) – contract to sell P seed and then to buy back crop – Main contract: P to buy seed, no warranty clause – Extrinsic Evidence: D told P that there would be no weed problem – P sues for profit

• even where contract seems complete, there are many exceptions to the rule – EXCEPTIONS (non-exhaustive list):
• show that contract was invalid (fraud, misrepresentation, mistake, incapacity, lack of consideration, lack of contracting intention)
• dispel ambiguities
• in support of a claim for rectification
• to establish a condition precedent to the agreement
• to establish a collateral agreement
• support of an allegation that the document itself was not intended by the parties to constitute the whole agreement
• support of a claim for an equitable remedy
• in support of a claim in tort that the oral statement was in breach of a duty of care

*NB: Court uses two approaches to admissibility of oral evidence:

1) ONE CONTRACT THEORY: oral representation is part of the contract – contract as a whole made up of written contract and oral representation

2) TWO CONTRACT THEORY: 1 contract = written agreement, 2^nd collateral contract, the oral representation is part of another contract, but can’t be a contract on its own (must be offer, acceptance and consideration)

Ontario Businesses Practices Act s.4(7)

• eliminates effect of PER where a consumer is dealing with a business
• relieves the negative effects of the rule
• protects consumer who has relied on a statement or representation of a business (oral evidence)

• ***PRINCIPAL AND AGENT RELATIONSHIPS
• only if there is REAL AGENCY can the third party seek to enforce the contract against the principal – risk falls on the third party
• Ostensible Agency: does it reasonably appear that the agent has the authority to act as the principal’s agent, if 3^rd party can establish OSTENSIBLE AGENCY then can enforce contract against principal
• To establish OA:
• Has P represented A as agent?
• Does usual practice show that A is agent of P (usual acceptance)?
• Has P held out that A can enter into that contract for P?

CARMAN CONSTRUCTION LTD. V. CANADIAN PACIFIC RAILWAY [1982-SCC] – P told that of rock volume so submitted bid using that amount – turned out that was a lot more rock that had to be removed – Main contract: P entered into K based on their own knowledge of the project and required that they be personally acquainted with the site – Extrinsic Evidence: oral representation about rock volume – P sought more money

• HELD: SCC took strict approach: NO COLLATERAL WARRANTY – no intention by the D to ensure accuracy of the statement
• Agency problem: no authority to bind the principal
• PER: extrinsic evidence contradicts the written contract and cannot stand

HI-TECH GROUP INC. V SEARS CANADA INC. (2001-ONT.CA) – D enters into contract with ambiguous term – renewal automatic for 1 year? Give 120 days notice before the end of the year, or can terminate any time in the year with 120 days notice?

• PER – not applicable because term is ambiguous – court relies on earlier drafts to help interpret the contract because words take their meaning from their context
• New trial ordered – to consider evidence of earlier drafts

2. Misinterpretations and Warranties

• The Classification of Contractual Statements

3 CATEGORIES (CAN BE ORAL OR WRITTEN):

1) Puff: an exaggerated claim – legally meaningless  no remedy

2) Misrepresentation (only equitable remedies available): representation – statement of fact that may give rise to liability if it is incorrect

• INNOCENT: remedy = rescission (only available if the contract has not been executed, if executed then there is no remedy at all)
• NEGLIGENT: made carelessly and in breach of duty to take reasonable care – rescission available before and after contract is performed – usually only reliance damages or sometimes punitive NOT expectation  form of tort – remedy is tort remedy (torts: parol evidence rule does not apply, no limits on economic loss)
• FRAUDULENT: knowingly without belief in truth, or recklessly, careless whether it be true or false – remedy = rescission & damages (reliance NOT expectation)

3) Warranty: contractual promise by seller that the subject of the sale has certain qualities or characteristics: collateral contract  can get expectancy damages (contractual remedy)

Differentiating b/w Warranties and Misrepresentation

Courts often take a results-based approach

Important Factors:

1) which party if any was relatively more able to prevent the loss, court is more likely to find this is a warranty.

2) Timing of statement. Court is more likely to find that statement is a misrepresentation than a warranty if at the time the claim is made the contract is almost or fully performed.

3) Warranty: statement of fact, collateral contract

4) Representations: not a contract, made to induce party to enter into contract, statements of opinion

REDGRAVE V. HURD (1881) – revenue of practice less than represented – refused to complete purchase (not fully executed K) – sued for specific performance

• INNOCENT MISREPRESENTATION: by the vendor, looked to contract and saw that there was no statement in contract that the statement was true – no contractual remedy – only available remedy = rescission (return of deposit)

HEILBUT SYMONS & CO. V. BUCKLETON [1913] – P interested in buying shares – telephone conversation – representations-price dropped, shares worthless – P sued: statement misrepresentation (fraudulent)or a warranty

• INNOCENT MISREPRESENTATION: not warranty – conservative view of what makes a warranty
• Test: intention based on the totality of the evidence – collateral warranty: must prove terms of collateral K, clearly prove party’s intention, another factor is the relative knowledge of the parties (not determinative)

• ***DICK BENTLEY PRODUCTIONS LTD. V. HAROLD SMITH MOTORS LTD. [1965] – [test for warranty] – 3rd party sold car to dealer who sold to P – D told that car had 1/5 the mileage that it really had – statement of how many miles car has = warranty?
• WARRANTY: TEST FOR WARRANTIES:
• Intelligent bystander: would he reasonably infer from conduct and words that it was meant to be a warranty (OBJ TEST)
• Circumstances of the statement: if representations made in course of negotiations for purposes for inducing person to enter into contract and does induce person to enter into contract then PRIMA FACIE WARRANTY  rebuttable if person making statement can show that he is innocent of fault in making that statement
• Relative knowledge of parties

• Misrepresentations

MURRAY V. SPERRY RAND CORP. (1979-ONT.HC) – P bought tree farming equipment from Dealer, who got machine from US Manufacturer, based on a brochure supplied by a Canadian Distributor – 3 Ds when machine did not perform up to expectations – INN.MISREP OR WARRANTY?

• Dealer: COLLATERAL WARRANTY
• Maufacturer: COLLATERAL WARRANTY – stand alone agreement between Manuf. And P that will harvest at a particular rate (consideration =purchase of machine)
• Distributor: liable AS AGENT of manufacturer, or liable through collateral warranty
• Rule: a party can be liable for breach of a warranty even though they do not have contractual relationship with the party to whom the warranty is given

• ***FRASER-REID V. DROUMSTEKAS [1980-SCC] – can warranty be implied? – can SGA inform implied warranty? – P bought new home from D builder – not properly constructed in basement (not discovered until after moved in) – P sought costs to fix problem
• EXPRESS WARRANTY: contract of purchase and sale of the home – there has been a municipal infraction (breach of express warranty)
• IMPLIED WARRANTY – NO: courts have not accepted any such implied warranty in situations where the house is fully built at the time of sale, will recognize warranty if the house is not complete at the time of sale [legislature made changes]

• Warranties and the Doctrine of Privity

Sale of Goods Act (applies only to goods, not to services or real property)

• ss. 13-14: implied warranties created by the act
• s.15 no implied warranties except the following (reasonably fit for purpose sold for, merchanteable quality, particular warranty weather have quality required for a particular use, express warranty doesn’t cancel out an implied warranty that arises out of the act unless they are inconsistent
• s.12.2 once accepted goods can’t reject goods on warranty basis

Consumer Proctection Act

• implied conditions: limits on ability to contract out of the protections in the Sale of Goods Act

Privity: limits use of warranty or condition, so that only parties to the relevant contract can use this warranty or condition (SGA and CPA)

MCMORRAN V. DOMINION STORES LTD. (1977-ONT.HC) – SGA – P bought crush which injured when exploded (not of merchantable quality – breach of implied condition) – against manufacturer and seller [vertical privity]

• claim in contract ONLY BETWEEN purchaser and retailer
• IN TORT for negligence if want to claim against manufacturer

SIGURDSON V. HILLCREST SERVICE LTD. (1977-SASK.QB) – P injured in car accident due to faulty defect (defect in manufacturing) – implied warranty of fitness breached? [horizontal privity]

• installer could not have been aware of the flaw in the part (because of the way constructed) – therefore not BREACH OF CONTRACT against the installer
• no privity of contract with the supplier – recovery in tort available

WINNIPEG CONDOMINIUM CORPORATION NO. 36 V. BIRD CONSTRUCTION CO. LTD. [1995-SCC] – secondary of owner of building can sue for implied warranty against the builder?

• CONTACT & TORT: tort = scope of contractor’s liability (standard of care)
• Duty to make sure that work completed correctly
• SCC makes clear that concurrent duties in tort and contract can exist

• ***BOW VALLEY HUSKY LTD. V. SAINT JOHN SHIPBUILDING LTD. [1997-SCC] – 2 companies combine to make one, and then contract with that new company to rent a rig to use, new company enters into contract with a company to build the rig, the builder enters into a contract with a subcontractor to provide heating system – faulty heating system – first 2 lost profits, had to continue to pay rent to new company – new company sues subcontractor and subcontractor in tort, first 2 want to sue contractor and subcontractor for economic loss for rent had to continue to pay while out of commission
• Contract 1  BVI + HOOL = BVHB
• Contract 2  BVHB + SJSL ( to build rig)
• Contract 3  SJSL + R (heating system)
• HELD: tort liability – SJSL+R to BVHB (duty to warn about dangers of using heating system
• FINISH THIS CASE!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

3. Negligent Misrepresentation

TO ESTABLISH NELIGENT REPRESENATATION (taken from Denning: Mardon)

1) statement (written or oral) that is substantially untrue

2) lack of truth arises from negligence

3) must be a duty of care (relationship between parties which gives rise to duty of care)

4) has to be reliance on the statement and that reliance has to have been foreseeable (tort foreseeability, not contractual forseeability)

ESSO PETROLEUM CO. V. MARDON [1976-CA] – P undertakes building of gas station, estimates good sales, municipality changes details, estimate would be different (less) but did not change, D entered into contract with P based on these estimates (3yr lease) – could not pay lease – P wants possession back – COLLATERAL WARRANTY, or NEGLIGENT MISREPRESENTATION?

• Denning finds – NEGLIGENT MISREPRESENTATION
• Rule: if a man who has or professes to have special knowledge or skill, makes a representation by virtue therof to another – with the intention of inducing him to enter into a contract, with him, he is under a duty to use reasonable care to see that the representation is correct,and that the advice information or opinion is reliable – if he negligently gives unsound advice or misleading information or expresses an erroneous opinion, and thereby induces the other side to enter into a contract with him, he is liable in damages
• Damages: because induced to enter into contract – should recover ALL losses (future losses included), put back in position if misrepresentation would not have happened and would not have entered into the contract (NB: only considerations would be remoteness and mitigation)

• ***V.K. MASON CONSTRUCTION LTD. V. BANK OF NOVA SCOTIA [1985-SCC] – cost of building > than money banks wants to give (bank knows this) – costs rise – C cannot fulfill obligations to builder, sells building (still not enough money to pay builder) – builder v. bank – Letter = WARRANTY, COLLATERAL CONTRACT or NEGL. MISREP.?
• NEGLIGENT MISREPRESENTATION: letter too vague to be a contract, elements of NM met a) knew that statement was false b) negligent for bank to make the statement c) special relationship between bank and builder does exist d) builder was relying, reliance reasonably foreseeable
• Damages: position if project was completed – compensation for loss and lost profits (expanded RELIANCE: losses and future profits)
• NB: case is about non-contractual misrepresentation

**NB: Coexistence of claims and remedies:

In Contract & Tort: (2 general circumstances where this has to be considered:

1) pre contract representation  induces contract

• contradicts (appears to) representation ('''Cognos''')

2) representation made during life of contract ('''Nunes''')

NUNES DIAMONDS LTD. V. DOMINION ELECTRIC PROTECTION CO. [1972-SCC] – insurance employee assured that alarm would be okay, but wasn’t – claim made during life of contract

• NO ACTION IN CONTRACT: when representation made during life of contract, it is too late to bring forth a claim
• NEGLIENT MISREPRESENTATION (TORT): has to be independent of the contract (may be in at least 2 ways)
• Representation may have been made to a party who was not a party to the contract
• Duty owed by the defendant may be unaffected by the contract

• ***QUEEN V. COGNOS INC. [1993-SCC] – representation made to employee during interview process (wrongful hiring)
• N. MISREPRESENTATION: duty arises between interviewer and interviewee (disparity in knowledge) – pre-contract representation not consistent with contract terms
• Remedy: loss of income, emotional distress, losses due to relocation

• *NB: New elements of tort of negligent misrep (first recognized in Hedley Byrne). Five requirements:
• duty of care based on a special relationship
• Representations must be untrue, inaccurate or misleading
• the representor must have acted negligently in making the misreps,
• the representee must have relied in a reasonable manner on the misrep and
• there must have been damage'''s

HERCULES MANAGEMENT LTD. V. ERNST & YOUNG [1997-SCC] – inaccurate financial statements – investors –n. misrepresentation?

• SCC: policy reasons: this type of liability is inappropriate
• It is reasonably foreseeable that investors would rely on the audited statements but concern of INDETERMINATE LIABILITY – undesireable from a policy perspective

4. Mistake

• TERMS: written terms don’t reflect the actual agreement reached (typo/written wrong)
• Equitable Remedy: RECTIFICATION: specific performance available – contract gets fixed so that it reflects correct wording – corrected contract is binding
• PAYMENT: one party has inadvertently overpaid another party
• ASSUMPTIONS: unilateral or mutual – unilateral: one party makes the error, mutual: both make an error about the underlying reasons of one or both parties for entering into the transaction
• OFFER: mistake/misunderstanding about terms of contract/offer
• FUTURE: mistake about the future (frustration – later)

• Rectification: Correcting the Written Contract

• ***PERFORMANCE INDUSTRIES LTD. V. SYLVAN LAKE GOLF & TENNIS CLUB LTD. [2002-SCC] – land transaction written as 110ft instead of 110yards (D insisted on the written terms despite knew that had orally agreed to something else)
• HELD: contract recitified to reflect original agreement – no punitive damages
• 4 PRECONDITIONS TO BE MET FOR RECTIFICATION:
• P must show existence and content of the inconsistent prior oral agreement
• P must show that the written document does correspond with the prior oral agreement , but that D knew or ought to have known of the mistake – fraud or conduct equivalent to fraud
• P must show precise form in which the written instrument can be made to express prior intention
• All of the foregoing must be established by proof beyond a reasonable doubt – convincing proof (balance of probabilities)
• Damages: compensatory, should include losses flowing from the special circumstances known to the parties at the time they made their contract

*NB: rectification = discretionary remedy ( court may conclude that it would be unjust to impose it if the problem was more caused by P’s negligence

JULIAR V. CANADA (AG) (2000-ONT.CA) – mistaken belief that restructuring business would be tax neutral

• RECTIFICATION AVAILABLE: intention of the parties had always been to achieve the restructuring without tax liability

ONTARIO INC. V. BRANCO HOLDINGS CO. (1995-ONT.CA) – sale of land to reduce land transfer tax

• RECTIVICATION REFUSED: court did not want to usurp the discretion given by the legislation to the minister to remit the tax and would be inappropriate for the court to rewrite history for the sole purpose of reducing the tax payable by a taxpayer

• Mistaken Payments

• LIMITATION: on right to recover for mistaken payment is that the right to recover will be lost if the recipient has, in reliance on the receipt of the money, changed its position
• NB: no distinction between mistake of law and mistake of fact

BUDAI V. ONTARIO LOTTERY CORP. (1983-ONT.GEN.DIV) – told that won $400, but really won $5 – threw a party for his friends based on mistaken belief

• LIMITATION APPLIED: court protected P’s reliance and awarded him $400 – reliance might be the kind of reliance that would be protected

AIR CANADA V. BC [1989] SCC (change in position/reliance)

• "A change of position" defence does not arise from simply spending the $, but from the doing of some act (the discharge of indebtedness, possibly the making of a gift) that would make it unfair to require that the money be repaid."

• Mistaken Assumptions

SHERWOOD V. WALKER (1887-MICH.SC) – P wants to buy cow, both believe that cow is barren – D refuse to sell cow when learn that it is ’in calf’ – mutual mistake

• MISTAKE: went to the very nature of the thing – affected the substance of the whole consideration and it must be considered that there was no contract to sell or sale of the cow as she actually was

***BELL V. LEVER BROS [1932-HL] – P hired to manage company, half way through contract – were let go (merged and services no longer needed) – given generous severance – D realized P were insider trading and tried to recover the severance paid out – severance agreement = mutual mistake and void?

- NO MISTAKE: mistake negative or nullifies consent – mistake to indentity, existence of subject matter, or quality of the subject matter  would get relief only if mistake went to the substance of the contract

- Test: ’difference in substance’ – not enough that error as to a ’motive’ operating upon one party, not enough that there was an error about a ’fundamental reason’ for making the contract

MCGEE V. PENNINE INSURANCE [1969-CA] – P signed insurance that car for his own use, car was for son – son had accident – insurance offered some money – insurance co found out about mistake and refused to pay

- MISTAKE FUNDAMENTAL: P more at fault

TD BANK V. FORTIN (NO.2) (1979-BC.SC) – sale of the company was subject to court approval-P tendered offer, D accepted offer – P wanted to get out of contract – settlement P paid $10000-turned out that D had no authority to seek tenders (court never considered any tenders) – P wants $10 000 back

- General Rule: compromise agreement cannot be set aside because mistake was made in good faith

- Test for exception: mistake has to be by both parties of a fundamental contractual assumption – one of the parties has responsibility for this(which party has more information)

- Here: more in D’s power to find out whether had right to call for tenders or not

• **HOLMES V. WALKER (1997-ONT.CA) – D vendor family cottage, no survey ever done: P relied on this and did not insist on survey – later on turned out that cottage was not on land owned by the P-P : recission b/c of mistake?
• RESCISSION REFUSED: for rescission to be a property remedy have to consider – size of mistake, relative fault, delay in seeking relief
• Neither party had more information than the other, risk allocation is more appropriately put on the purchaser rather than vendor
• Nothing stopping P to put survey as part of contract requirement, or had done it herself (equitable result = against rescission)

AMALGAMATED INVESTMENT PROPERTY CO. V. JOHN WALKER & SONS LTD. [1976-ENG.CA] – P buying warehouse for specific purchase – day after K signed, notified that property historical (negative effect on value of property) – MISTAKE as to what property could be used for?

• RESCISSION REFUSED: big mistake but court focuses on the proper allocation of risk in property that it might be rezoned
• This is a risk that the purchaser knew or should have known about – if wanted to make sure, would have put that as a condition or requirement in the contract of sale

• Mistakes in the Formation of Contracts

RON ENGINEERING & CONSTRUCTION (EASTERN) LTD. V. ONTARIO [1981-SCC] – tender: submitted at deadline, owner opened bid and found lowest – contractor discovers that made mistake – owner says that forfeit deposit – P wants return of deposit – mistake

• SCC: Contract A, Contract B analysis
• Mistake: Contract A may not come into existence – but when offers submitted  contract A COMES INTO EXISTENCE
• Contract B would fail because parties fail to come to a meeting of the minds

5. Frustration

• after contract entered into – UNEXPECTED EVENT – makes it difficult to perform the contract – parties are relieved of their obligations under the contract
• Mistake: about existing facts/circumstances
• FRUSTRATION: mistake about future facts or circumstances

STEP 1: Determine whether there has been frustration (apply '''Krell '3 part test)

STEP 2: To determine conclusion: a) look at Statute and b) '''Fibrosa

a) '''Frustrated Contracts Act RSO 1990 '– (alters c/l that oblitations end when contract frustrated) p. 760

PARADINE V. JANE (1647-CP)

• historical approach – narrow: contractual obligations are absolute even if there is an external frustrating event

TAYLOR V. CALDWELL (1863-QB) – overruled Paradine

• notion of IMPLIED TERM introduced
• Rule: if no express term in contract, dealing with external event, and the event is not due to the fault of any party, and event makes performance of the contract impossible, then implied term will be introduced into the contract (and imposed on the parties)

• ***KRELL V. HENRY [1903-CA] – P rented apartment to view coronation parade which was cancelled – frustrating event?
• Test for Frustration:

1) Look at all circumstances – what was the foundation of the contract?

2) Was the performance of the contract prevented?

3) Even which prevented performance, of such character that it cannot reasonably be said to have been in the contemplation of the parties at the date of the contract?

4) If all YES: both parties are further discharged from further performance of the contract

HERNE BAY STEAMBOAT CO. HUTTON [1903] – same coronation situation except that rental of boat

• NO FRUSTRATION: foundation of contract was not just to see coronation, was able to use boat to cruise around the fleet

EASETERN AIR LINES V. GULF OIL (1975) – contract for supply of fuel – new pricing policy – prices frozen – frustration?

• NO FRUSTRATION: change in price is something that would be reasonably considered by both parties when entering into the contract

RE WESTINGHOUSE ELECTRICITY CORP. (1981) – K to supply Uranium at set price – prices rose, stood to loose $1billion, tried to get out

• NO FRUSTRATION: price changes, would be in contemplation of both parties at the formation of the contract – inherent risk in what doing that something like this would happen

Methods of Dealing with Risk:

(i) Force Majeur Clause- identifies types of events that will terminate obligations of both parties and consequences. If event not on list, likely that court will not treat it as frustrating event. (Common in modern commercial contracts.)

(ii) Escalator Clause – allows seller to increase price and typically references the increase to an external benchmark. (e.g. oil and CPI).

Under c/l, lets the loss lie where it falls

• ***KBK NO.138 VENTURES LTD. V. CANADA SAFEWAY LTD. [2000-BC.CA] – land bought for commercial and residential – both parties know that city approval needed – initial payment paid in expectation that deal is approved – city rezones land (lower density), value decreases, Purchaser refuses to close deal - frustration? Deposit back
• Krell applied
• Court considers the foundation of the contract—clear that not just purchase and sale of a piece of land – sale of land for a specific development (commercial and residential)
• Performance prevented, event not in reasonable contemplation = CONTRACT FRUSTRATED

H.R. & S SAINSBURY LTD. V. STREET [1972-QB] – sale of crop K, for a certain price, bad year, sells to someone else for higher price – can because contract frustrated? (crop failure)

- NO FRUSTRATION: not frustrating event, events could reasonably have been contemplated by the parties

- court applied implied condition into the contract, that if crop fails the farmer would not be liable for portion which he could not grow – but still obligated to provide what was grown

• ***FIBROSA SPOLKA AKCYJNA V. FAIRBARN LAWSON COMBE BARBOUR LTD. [1943-HL] – K for sale of machinery, deposit paid, prevented from delivery because of outbreak of war – P seeks return of deposit
• FRUSTRATION= RESTITUTION of payment made before frustration
• Obligation arises to repay the money – party has no right to retain the money (unjust enrichment)
• FRUSTRATION: 1) dissolves contract, resolves future obligations 2) dissolves right to retain money paid on basis that contract will be performed

Frustrated Contracts Act – RSO 1990: (p. 769)

• used when one party had incurred significant costs in performing frustrated K
• S 2(1) – sets out the scope of application; 2(2) sets out exclusions
• 3(1) – can recover money paid and payable before parties were discharged (applies to deposits).
• 3(2) – Any expenses incurred up to the limit of the deposit, unless it was a valuable benefit
• 3(3) one party has gained a valuable benefit that’s not pymt of money, allows court to order remedy for that

6. Third Parties and Mistakes

• rogue induces two parties to enter into contract by mistake
• 2 SITUATIONS WHERE THIS ARISES

1) Rogue sells A’s property (personal) to B (B purports to be owner of property, A is actual owner)

• B operating under mistake

2) Rogue induces (through misrepresentation) A/B to sign a document

• Creates a relationship between A and B

• ***MARVCO COLOR RESEARCH LTD. V. HARRIS [1982-SCC] – P and D induced to enter into contractual obligations by J – D claiming "non est factum"
• court looks at whether one party is more to blame than the other for the situation
• NEGLIGENCE = (in this case) is CARELESSNESS
• Rule: where party is executing a written document, are estopped against another innocent party from being relieved from obligations under document
• 2 innocent parties, one claiming non est factum – will be prevented from using the defence where CARELESS
• carelessness has caused the other party to be exposed to loss; appropriate for D to bear the loss
• Rule: simple justice requires that the party who by the application of reasonable care was in a position to avoid a loss to any of the parties, should bear any loss to any of the parties, that results when the only alternative available to the courts would be to place the loss upon the innocent appellant

CHAPTER 6: THE CONTROL OF CONTRACT POWER

1) ***THE TICKET CASES (when is a party bound by a contract they did not (read) sign?

2) reasonable notice required (Parker, Heffron)

3) Course of dealings instead of notice (Spurling)

4) Draw attention to unusual clauses (Thornton)

5) Time for communication (Thornton)

PARKER V. SOUTH EASTERN RAILWAY CO. (1877) – checking bag, given ticket which had liability exclusion clause on the back (sign posted), bag lost

• Rule: party has to take reasonable steps to give notice of the exclusion clause for it to be binding: objective test

SPURLING LTD. V. BRADSHAW [1956-CA] – history of dealing

• Rule: when have history of dealings and always using the same clause, then notice is understood to be given ( no need to determine whether P had actually read the exclusion clause this time)

HEFFRON V. IMPERIAL PARKING CO. LTD (1973-CA) – parking lot, leaves keys – exclusion clause on ticket – car gone – bailment v. licence

• no reasonable notice given; court considers true nature of the contract
• Rule: reasonable notice may not be enough if there is a fundamental breach (developed later)
• NB: Introduction to Fundamental Breach: all terms are rendered unenforceable/void if there is fundamental breach

THORNTON V. SHOE LAND PARKING LTD. [1971-CA] – parking lot with ticket dispenser – parking at own risk, ’subject to conditions displayed’, does not read any of the conditions, conditions displayed inside, which don’t see until get ticket (after enter into contract learn of terms) – P injured

• TIMING: terms of contract not known until after contract made (when get ticket)
• EXCLUSION CLAUSE BROAD: broader than reasonable person would expect – not appropriate to bind party unless given EXPRESS NOTICE of this broad/unusual clause
• Rule: draw attention to unusual clauses, time of communication of clause important

• ***SIGNED CONTRACTS
• Basic rule for all signed contracts – all terms are enforceable
• Exceptions:
• Misrepresentation/fraud
• Non est factum

Doctrine of Fundamental Breach:

• once established that all written terms cannot be enforced
• NB: doctrine only triggered if there is an exclusion clause in the contract
• Old approach: ’doctrine of fundamental breach’
• New approach: fairness (Hunter)
• Notice must be given for unusual terms (Tilden)

PHOTO PRODUCTION LTD. V. SECURICOR TRANSPORT LTD. [1980-HL] – rejects doctrine- does not apply, is not law-only question is whether exclusion clause applies to particular circumstance – employee intentionally sets fire to P’s factory

• the only question in particular circumstances is if clause applies or not
• FUNDAMENTAL BREACH:
• Primary obligations cease (when innocent party decides to put end to contarct) – contract as a whole does not end
• Secondary obligations persist (exclusion of liability clauses)

• ***HUNTER ENGINEERING CO. INC. V. SYNCRUDE CANADA LTD. [1989-SCC] – Contract 1: P and D1, Contract 2: P and D2, for machinery that turned out to be defective, both contracts have warranty clause-court found implied warranty (SGA) – exclusion clauses in warranties applicable – fundamental breach?
• Dickson/LaForest: even if fundamental breach, exclusion clauses should be enforceable unless they are UNCONSCIONABLE
• Wilson/L’Heureux-Dube: even if fundamental breach, exclusion clauses should be implied unless UNFAIR OR UNREASONABLE to do so

MCCUTCHEON V. DAVID MACBRAYNE LTD. [1964-HL] – ancillary document not signed; contract was based on document that was signed – exclusion clause in separate document

• Rule: not signed, then not bound by it

• ***TILDEN RENT-A-CAR CO. V. CLENDENNING [1978-ONT.CA] – car rental, clause at back that would not be insured if breaks the law, if operated by anyone who consumes alcohol – D did not read – bound by clause?
• GENERAL RULE SHOULD NOT APPLY: provisions are onerous, transaction was intended to be hurried (customers will not read contract)
• Obligation on rental company to give notice of the particularily onerous terms and only if make effort to bring it to the customer’s attention will they be bound
• Rule: party seeking to rely on such terms should not be able to do so in the absence of first having taken reasonable measures to draw such terms to the attention of the other party, and in the absence of such reasonable measures, it is not necessary for the party denying knowledge of such terms to prove either fraud, misrepresentation or non est factum