*Second Term*Chapter 3: Formation of the Agreement: Certainty of Terms

Certainty is another element just like Offer, Acceptance and consideration Per Treitel: “an agreement is not a binding contract if it lacks certainty, either because it is too vague or because it is

obviously incomplete.” Agreements must be sufficiently certain to constitute binding contracts Justification: Parties must actually reach a meeting of the minds: so we must be able to determine their obligations with

certainty, or else it is hard to say their minds have met. Determination of parties’ intentions regarding their obligations is approached objectively. Tension: courts are torn between two important guiding principles:

1. Courts should not impose an agreement on the parties 2. If something can be made certain, it should be interpreted so that it is.

Courts are striving to balance fulfilling parties’ reasonable expectations by giving their agreement a reading that makes it binding, while not going too far and defeating their expectations by imposing something that goes beyond what they agreed.

Two types of uncertainty: Vagueness of terms vs. Mere agreement to agree1. Vagueness (fuzzy and unclear)- where courts cannot determine on what terms the parties have purportedly

contracted, due to vagueness, the agreement is unenforceable. That said, per Treitel, “courts do not expect commercial documents to be drafted with strict precision, and will, particularly if the parties have acted on an agreement, do their best to avoid striking it down on the ground that it is too vague

R v CAE Industries Ltd (1985) Canada – courts strive for certainty (loose language + definitions)

F Gov of Canada – appellantCAE – respondentTo incentivize CAE to purchase and run an aircraft maintenance base, the Minister of Transport sent a letter to CAE dated March 26, 1969.  The letter stated the following in relation to giving CAE aircraft maintenance work contracts: “agrees that 700,000 manhours of direct labour per annum is a realistic target” “can guarantee no more than 40,000 to 50,000 direct labour manhours per year…as “set-aside” repair and overhaul work, but…will employ its best efforts to secure the additional work required from other government departments and crown corporations to meet the target level of 700,000 direct labour manhours” [emphasis added]CAE then purchased the base but within two years, maintenance base workload fell. CAE sued for breach of contract.

I 1. Is there an intention to create legal relations?2. Is the contract vague and uncertain or incomplete?

Re Question 1: Intention to create legal relations. The court finds that there was. (We don’t need to get into the reasons for this decision for now; we take it up in Chapter 4.)

A Incompleteness: Court says it is not so incomplete as to be unenforceable. The need for further contracts to be made subsequent to this

one doesn’t make it incomplete. “It is in itself an entire contract capable of standing on its own feet”

Vagueness is the main issue: There is a “certain looseness of language”:

o Assurances – but they clearly view this as a binding commitment as stated elsewhere in the document. Looks at the contract as a whole.

o Guarantee – should be viewed in the same way: it is “a binding commitment guaranteeing provision of “set aside” work”. But as a guarantee it has to be definite. Language indicated min 40,000 direct labour manhours. Any more would not fall within the guarantee

o Set-aside – this was subject of evidence at trial, and it was found to be “work to be directed to the respondent without competition to be performed at full in-plant overhead rates”

o Best efforts – appellant argues that it is “so lacking in precision as to render it incapable of creating legal rights and obligations”. The court disagrees and says it is equivalent to “leave no stone unturned” as per Shefield case. Judge says it must be interpreted “in light of the contract itself, the parties to it and its overall purpose as reflected in the language it contains”. But it doesn’t require government to neglect public interest (the government should not undermine public interest to satisfy terms with CAE), and it is sufficiently certain.

H Court found that the agreement was not vague and uncertain or incomplete. “I am of the view that we should make every effort to find a meaning in the words actually used by the parties in deciding

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whether an enforceable contract exists.” CB 118 (Referring to Marquest Industries v Willows Poultry Farms and Gwyn v Neath Canal Navigation Co as support for this principle).

R 1.If parties have expressed themselves in language sufficiently clear so as to have created rights and obligations (contract is analyzed as a whole), the court will enforce the contract especially where the contract has been partly performed. 2.Courts will struggle against vagueness, providing the contract is complete. 3.Here, everything has been settled between the parties [no missing terms] and words such as “best efforts” can be given meaning. The courts look at the previous cases for similar definitions. Takes a close look at the language interpretation - looks at the context  Look at the document as a whole and parties intention to see if you can make the term certain.

2. Incomplete Terms (something is missing)– where some term is left unspecified and the agreement is thus incomplete. However, parties may have good reason to leave terms open: they may be reluctant to commit themselves to a rigid long-term arrangement, particularly when prices and other factors affecting performance are likely to fluctuate. They therefore attempt sometimes to introduce an element of flexibility into the agreement. Is the contract so uncomplete that it does not amount to an agreement OR is it incomplete to account for uncertainty?

May & Butcher Ltd v R – a mere agreement to agree is not a contractF May & Butcher Ltd (Plaintiff) - wants to buy the equipment - surplus tantage

R. (aka: the Disposals Board/the Commission - gets rid of access stuff after wwI - they sell the equipment to make money for the govt)(Defendant) Agreement between parties for plaintiff to buy surplus tentage from defendant up to December 1921 (incomplete term because there is no certain amount indicated)This agreement was evidenced by letter dated June 1921Jan. 1922:  Agreement above renewed to March 1923, on same termsLater in the month, there was a dispute as to price.(1.) The Commission agrees to sell and [May & Butcher Ltd.] agree to purchase the total stock of old tentage… (we do not know the amount)(3.) The price or prices to be paid, and the date or dates on which payment is to be made by the purchasers to the Commission for such old tentage shall be agreed upon from time to time between the Commission and the purchasers as the quantities of the said old tentage become available for disposal, and are offered to the purchasers by the Commission.'….

the price is not indicated.  the intention here is to allow the parties to make individual arrangement when a new batch of tentage become

available May does not know to how much  and for how much they agreed to. 

(10.) It is understood that all disputes with reference to or arising out of this agreement will be submitted to arbitration…I More precisely, have the terms been left too incomplete to amount to a binding contract?

A The previous case (CAE Industries) - did the terms did not express well what was agreed to (vagueness)Here - the terms are not complete - the terms will be filled in at the later date - is it too incomplete to be a contract to begin with.  PL’s argument:

1. That the parties have agreed that a reasonable price would be paid, per the Sale of Goods Act (U.K.)2. And/or that the arbitration clause can be used to fix the price.

There is no binding agreement. Appellants (May & Butcher) fail.Lord Buckmaster:  “In my opinion there never was a concluded contract between the parties. It has long been a well recognized principle of contract law that an agreement between two parties to enter into an agreement in which some critical part of the contract matter is left undetermined is no contract at all.” (CB 123)i.e. A mere agreement to agree is not a contract.

in CAE - those future contract are different from the 1st contract between gov and CAE  we are looking at the 1st contract and its certainty.  In this case, there is no strong base contract. so in the exam we contrast: mere agreement to agree vs. vagueness of terms

On the point about ‘reasonable price’: judge says that according to the statute, if a price is to be fixed by a third party, and that third party doesn’t provide the valuation, then the agreement is avoided. (CB 124)Judge says that having a third party fix the price is no different to having the two parties fix it; here, that’s the case, and they failed to set a price, so no contract.

basically failed to fixate the price, they describe the way to set a price they did not get to set the price via mechanism the contract indicated - so failed to set the price completely. 

The real question: do the terms of the contract have a complete meaning to amount to an agreement → no. The terms cannot be filled in the way the parties thought they could be - because price and amount of tentage are the key

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terms that needed to be specified because they core elements of the contract.  On the arbitration clause point: that clause is for settling disputes after an agreement has been made. It cannot be used to set the terms of the original bargain. (CB 124)

this clause is too late to save the contract.H There is no binding agreement. Appellants (May & Butcher) fail.

R A mere agreement to agree is not a contract It has long been a well recognized principle of contract law that an agreement between two parties to enter into an agreement in which some critical part of the contract matter is left undetermined is no contract at all.In the exam we contrast: mere agreement to agree vs. vagueness of terms

Hillas v Acros –Definition within industry; construe clauses as part of a whole K and not look for defectsF Hillas (Plaintiff; English Co; buyers.)

Arcos (Defendant; representative of the Russian government; sellers)Alleged breach of contract by defendant Arcos to supply plaintiff with 100,000 standards of Russian timberHillas had an option to enter a contract to purchase wood (Clause 9 in their agreement).Per clause 9 of the agreement:  “Buyers [the plaintiff Hillas] shall also have the option of entering into a contract with the sellers for the purchase of 100,000 standards for delivery during 1931.  Such contract to stipulate that, whatever the conditions are, buyers shall obtain the goods on conditions and at prices which show to them a reduction of 5 per cent on the f.o.b. value of the official price list at any time ruling during 1931.  Such option to be declared before the 1st Jan. 1931.”They were to be provided the wood at 5% less (is this a price?)than what the general public was entitled to/what Arcos’s official 1931 price list stated. The timber was to be “of fair (what is fair?) specification”.Arcos enters a contract with Central Softwood Buying Corp to sell all of its timber for the 1931 season to them (i.e. not to Hillas).Hillas tried to exercise this option from Clause 9.Arcos claimed this agreement was cancelled (they actually meaning that there we no contract to begin with) and refused to deliver.Hillas sues. Arcos argues there is no contract as clause 9 is too uncertain.

I Is clause 9 enforceable or is it too uncertain?Per House of Lords, there are potential certainty issues going to: 

Price  Quality of timber Timing in relation to shipping dates and ports of delivery

A “In my judgment, the parties here did intend to enter into, and did enter into, a complete and binding agreement, not dependent on any future agreement for its validity.” CB 129

In many cases, parties intent to enter into contract, but have uncertain terms that fail to create a binding agreement1. Price:

This is fixed by the clauses that refer to Arcos’s price list and the beneficial arrangement that refers to that list. Issue relating to phrase: “whatever the conditions are”: defendant argues that this means ‘whatever the conditions of

the contract are’ – and that means the parties are just in the preparation stages of entering a contract and can’t have agreed yet.

Court says no: ‘conditions’ refers to conditions of the trade generally. The aim was to secure a 5% advantage over other buyers for the whole season. “On a fair reading of the words, I think the contract is clear and complete in its stipulations as to price.” (CB 127)

A further contention: no official price list might be issued? Practically speaking they were bound to create one so this argument fails.

2. Quality of Timber ‘of fair specification’ – too vague? The parties managed to apply it last season. It was a common phrase within the

industry.  “100,000 standards”: divorced from the rest of the agreement might be uncertain. But we can get the definition from

the context. Look to other clauses in the agreement. Then we see it is referring to Russian softwood. Parties can come to a reasonable agreement on the basis of availability, etc. But if they fail, the law can apply to tell

us what is a reasonable specification. If necessary the specifications to be worked out can be done by the right expert tribunal. 3. Timing for shipping/delivery Nature of this contract means it makes sense to leave some things to be determined later. It is an instalment contract

and they will have to wait and see what the dates/weights/etc might turn out to be when shipment is ready. it is an installment contract - timber is shipped in batches, so they do not know

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the exact dates of shipment. If differences between the parties arise, reasonableness standard can ultimately be applied to make certain what was

left undefined. Again we can look to other clauses to help with construction. 

read the contract as a whole Alternatively, law would imply terms from the Sale of Goods Act (UK leg. so does not apply to us) – that the

deliveries are to be at reasonable times. 4. Option Issue?

Is the option structure too uncertain – i.e. does it just represent an agreement to agree?No: Words of clause 9 “mean that the appellants had the option of accepting an offer in the terms of cl. 9 so that when it was exercised a contract at once came into existence” CB 127 Different from the situation where they just agree to negotiate in the hopes of completing a contract.

H The court decided in favour of Hillas: there is a contract here. I.e. it is not too uncertain.

R The court should intervene to determine the terms of an agreement though context and intentionality of the parties. Language can be a little imprecise but we dont want to rush to discount the contract.Court’s duty is to construe documents ‘fairly and broadly’ and not look too hard for defects.

They should apply the maxim ‘verba ita sunt intelligenda ut res magis valeat quam pereat’. This basically means that words should be understood such that the aim can actually be carried out and not frustrated.

Words should be functional and useful - interpret the words in the way that carries out the contracts aim. Courts must, on the other hand, not “make a contract for the parties, or go outside the words they have used”. Courts should not construe clauses alone but courts must examine them in light of the whole agreement‘id certum est quod certum reddi potest’: that is certain which can be made certain.Parties often desire to leave some things to be worked out later. Courts must leave scope for this. 

courts think about fairness and justice as well as business practices and industry standards while considering these cases, like seasonal availability etc...

Foley v Classique Coaches – more certainty – can use arbitration clause (unlike Butcher case)F Foley (Plaintiff; vendor of land; also owns a gas station)

Classique Coaches (Defendant; purchaser of land; also operates a fleet of cars) Foley wanted to sell their land to Classique Coaches, and they had an adjacent piece of land with a gas station. Made the sale of the land subject to a supplemental agreement whereby Classique Coaches had to purchase all gas needed for their business from Foley.

the land was sold cheaper because of the gas agreement - so the gas was not just a promise as it was accounted in the value of the land. 

Price of the gas was left unspecified – to be agreed by the parties from time to time.   prices of gas fluctuate, so it is normal to leave the price uncertain.

There was also an arbitration clause (clause 8)Classique bought their gas from Foley for three years, but subsequently attempted to get out of the deal.Foley is suing – claiming the agreement is binding (seeking injunction to stop Classique getting gas elsewhere).

I Does the agreement fail for uncertainty?Relatedly: how do we apply May & Butcher and Hillas v Arcos here?

A PL Argument (in favour of enforceability)1. The arbitration clause applies to remove uncertainty re: price.

Per Scrutton LJ:  “this arbitration clause applies to any failure to agree to the price.” Did not really apply May v Butcher case.  There the court said arbitration cannot be used because there is no contract

(the price is too uncertain), so no arbitration inclusion of the price in the subject matter of the arbitration clause- so more certain - so arbitration clause will apply2. The parties intended that a reasonable price be paid for the gas.  reasonable price language protects both parties- so one does not set the price too high and the other one does not buy

the price for too low price.  there is a fundamental agreement to buy gas for a reasonable price. This is done in other industries.  here unlike in May v Butcher, this is an ongoing relationship and is repeatable. May v Butcher - not ongoing. Once

bought everything, no need to refill. Per Scrutton LJ:  “By analogy to the case of a tied house there is to be implied in this contract a term that the petrol shall be supplied at a reasonable price and shall be of reasonable quality.”The judge notes that they do not intend to give back the land. So they are really trying to void just one part of the agreement which doesn’t suit them. But the agreement re: gas supplies factored into the price they got. 

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acting in bad faith. They cannot chooses the most benefitial term and ignore the least convinient terms. Hillas v Arcos: the parties believed they had a contract. Scrutton LJ points out that that is certainly the case here. They acted like they had one for three years. 

H Scrutton LJ agrees with the plaintiff/respondent, Foley. The agreement is enforceable.

R There is more certainty here- reasonable price. When there is more certainly (unlike May v Butcher), the arbitration clause can be used. If you follow the contract for years without uncertainty, the contract is not uncertain.Past performance indicates reliance on the contract, making it binding

How to make sense of the Trilogy? (May, Hillas, Foley re Incompleteness)

See notes in CB: pp 131-133 Agreements to agree are not contracts (May & Butcher). BUT, sometimes things can be determined in the future because of

business/industry requirement such as prices might fluctuate (Hillas v Acros) AND where there was a contract even though some elements were yet to be determined (Foley v Classique Coaches).

o Courts are always trying to balance need for certainty with recognition of parties’ need to leave some things to be settle in the future

We might think of the issue partly as one of ‘shifting legal sands’ (CB 131) However, rather than saying that a case has been overruled (May & Butcher has never been said to be overturned) can they

be reconciled? We might think May & Butcher puts forward a very general principle: “agreement to agree where some critical part of the

bargain remains undetermined is no contract”. But: we can do a lot of jurisprudential work with the idea of what counts as a critical part of the bargain, and what it means

for something to be ‘undetermined’.  (Hillas - business practices; Foley - arbitration clause → so these cases make more sense of what undetermined means)

So, for example, McCamus says that what counts as an essential term will depend on the commercial context. In some contexts, having particular matters settled is routine; in other contexts leaving them open is standard.

We can also look to whether they’ve made similar agreements in the past that they treated as contracts – like in Hillas. McCamus suggests that while the facts in May and Hillas look similar, the commercial setting is different. In Hillas, not

upholding the contract would undermine a common commercial arrangement. In May, we are looking at the conferral of a private monopoly. Less reason to protect the agreement in this context?

A further factor that might have a bearing is a background worry about fairness, with regards to how each party has acted and whether a party has detrimentally relied on the agreement. See note 4 in the CB: p 132. 

Part performance: Hillas and Foley had both partly performed. In May & Butcher they had agreed on one shipment of tentage but what is now at stake is a new shipment.

We might think that May & Butcher are not harmed by declaring the agreement non-binding – rather, they are simply not benefitted any further. Whereas Hillas and Foley are both disadvantaged by the contract not being enforced.

If there are criteria or a mechanism to determine the price, this can prevent the agreement from failing for incompleteness.  For example, in Hillas…where the price could be calculated by reference to an official price list. Treitel: “Alternatively [or additionally], the agreement may provide machinery for resolving matters originally left

open.” o Mechanism is a process of determining priceo Criteria says what mechanism/process is going to be used to determine a price

For example, Sudbrook Trading v Eggleton [1983] (H.L.) (not in CB.): Lease gave tenant option to purchase the property “at such price as may be agreed upon by two Valuers, one to be nominated by each party” (a mechanism – no formula/criteria like the reasonable price). Mechanism failed - lessor refused to appoint a valuer.o the court held that what the parties fundamentally agreed to was the establishing of a reasonable price. The

mechanism itself wasn’t essential. If the basic agreement was for a reasonable price and the mechanism was just one way to get there, court can set a price. The agreement of a fair and reasonable price is more important than the machinery to get there.

Similar to Foley (gas station case), the parties agreed to something (a reasonable price of gas at the time) – many mechanisms can be used to reach reasonable price

They distinguished May and Butcher in this way: they held that in M&B the price setting mechanism (agreement between the parties) was essential: no underlying agreement on a reasonable price. So when that failed, the whole agreement failed. May & Butcher does not have criteria, no mechanism – the court could not do anything to fix this as there is no legal obligation (agreement to agree)

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Past performance: Hillas and Foley had both partly performed. In May they had agreed on one shipment on tentage not what is now at stake is a new shipment.

(1) Hillas v Arcos: silent on specifications but references to earlier contract, no agreement to agree and no arbitration clause, contract recognized and enforced. Detrimental reliance. Bad Faith.

(2) May & Butcher v R: agreement to agree and arbitration clause, contract not recognized and not enforced. No detrimental reliance. No bad faith.

(3) Foley v Classique Coaches: no agreement to agree and arbitration clause, contract recognized and enforced. Detrimental reliance. Bad faith.

Agreements to Negotiate

Agreements to agree in the future on essential aspects of a bargain are not contracts.

Agreements to agree in the future on essential aspects of a bargain are not contracts But agreements of this sort must be supposed to have some result. Parties might expect that even if they aren’t bound to sell

or buy at an established price, they are committed to seriously engaging in negotiation with the aim of reaching agreement. Distinguish: agreement to perform where some terms are unspecified vs agreement to negotiate with aim of establishing

terms. Agreement to negotiate is a ‘process’ agreement as opposed to ‘substantive’. May & Butcher is substantive agreement were some substance is missing

Empress Towers Ltd. v Bank of Nova Scotia – negotiation in good faithF Empress (Petitioner; Landlord); Bank of NS (Respondent; Tenant).

Empress lease agreement contains an expectation to negotiate and reach a renewalScotiabank rented its premises from Empress Towers. There was a lease renewal clause.May 25: Bank wants to use renewal clause to renew lease for 5 more years.June 23: Bank proposes a rental rate of $5400/month (increase from $3097). Bank makes generous proposition.July 26 & Aug 23: Bank follows up; Empress says they are still thinking. Aug 31: Deadline for the old term to expire: Empress replies proposing month-to-month tenancy, at $5400 PLUS $15,000 (not good behavior)Bank argues that he Empress did not negotiate well and fairly. Empress says that they did not have to negotiate in a particular way because it is not binding legal duty as it void on basis of uncertainty.

I Is the renewal clause void for uncertainty? If not, what does it mean? A Judge cites Hillas to say that courts should try to give effect to the agreement, as long as they are not constructing a

contract. But if it’s just an agreement to enter a lease at a rate to be agreed, that is no contract (May & Butcher). It may be an agreement to negotiate, however.Referring to Brown v Gould, court recognizes three options:

1. Where rent is ‘to be agreed’, clause is normally not enforceable2. Where rent is to be established by a formula [example: market value] but no machinery for application of the

formula is provided [ie: who determines market value?], courts will often supply the machinery [ie: the court will determine what market value is]

3. Where formula is set out but defective [example: formula provides for a market value price but there is no market activity] and machinery is provided for application of the formula, machinery may be used to cure defect in the formula.

Upshot of all three: courts will try to give effect to clauses that parties intended to have legal effect.

Here, the parties set market value as the formula. If that was all they said, court could calculate market rate (as per option 2 - from previous slide).However, they go on to add that the renewal rate will be prevailing market rate as mutually agreed between the landlord and the tenant.Effect is that “landlord cannot be compelled to enter into a renewal tenancy at a rent which it has not accepted as the market rental.” (CB 138) IMPORTANT: But this would give landlord a lot of power over something parties seemed to treat as objective! So

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court says there is an implied term here that (1) the landlord has an obligation to negotiate in good faith with the aim of reaching agreement; and (2) an implied term that agreement will not be unreasonably withheld.  (Implied under the officious bystander and business efficacy principles.)

lease renewal clause to have meaning needs to have power - otherwise if you not going to follow the obligation to follow it - why put it at all 

for agreements to negotiate to be enforceable, the court might find implied term like negotiate in good faith, not just negotiate

This prevents clause from being struck down as uncertain.Requirements to negotiate in good faith and not withhold agreement unreasonably “carry the same degree of diligence as “best efforts”.” CB 138e.g. of what might be required: couldn’t rent to someone else at a price Scotiabank would be willing to pay.Excerpt doesn’t discuss why the negotiations weren’t in good faith – why do you think?

o Waiting until the deadline to negotiate o Asking or an additional unrelated $15,000 o ET failed to respond to BNS’s numerous requesto Moving it to month-to-month

H Landlord did not negotiate in good faith. Therefore: petition dismissed. 

Mannpar Enterprises Ltd v Canada – (Good Faith/distinguish Empress)F Mannpar (Plaintiff/Appellant) Wants to exercise a renewal clause in its contract to remove sand and gravel.

Canada (Defendant/Respondent) Acting through (what is now called) the Department of Indigenous and Northern Affairs.Shxwhá:y (or Skway) (Not Skyway!) First Nation (Not a party to the suit – their land was the location for the sand/gravel excavation.)Mannpar had been granted a permit by the Crown/Department of Indigenous and Northern Affairs, to remove and sell sand and gravel on the Skway First Nation’s Reserve No. 5, located near Chilliwack, BC.Permit included Clause 7:‘The Permittee shall have the right to renew this Permit for a further five (5) year period subject to satisfactory performance and renegotiation of the royalty rate and annual surface rental.  Under no circumstances shall the royalty rate or surface rental be less than the rates received in the preceding term.’

not like May & Butcher - more detailed.Mannpar tried to renegotiate the royalty rate and renew, but the Department and the Skway representatives were unwilling to renew. Mannpar argues that the Department has repudiated the contract by refusing to negotiate the renewal.Department was required to act in the best interests of the residents on the Reserve.

I Is clause 7 uncertain? Should there be an implied term requiring the Department to negotiate in food faith for the renewal?A “In my judgment, the terminology of the permit should not lead to the conclusion that a term or terms ought to be implied as

argued for by Mannpar.” CB 142 unlike in Empress  - the court does not want to recognize an implied term

Where a renewal clause is too broadly worded, it fails because there is no objective measure. All we have is an agreement to agree which is void. So: no implied term here. Renewal clause is too uncertain. Mannpar does not succeed in its claim.Why? (looks similar to Empress)Mannpar relied heavily on Empress in its arguments. But Empress is to be distinguished here. How?

In Empress there was “a benchmark that could have been capable of objective assessment, namely “market rental”. We don’t have that here.

Continuing leases are different from an ‘anticipation’ that an arrangement may continue for a certain period (not a very good argument - but the court raises it).

We should be attentive to the context: here we are dealing with a party (the Crown) negotiating on behalf of another party (Skway First Nation). It therefore has fiduciary obligations that affect how it conducts negotiations. (This is the most decisive argument in this case).

Crown is in conflicting obligations between two parties. Court sides with Crowns obligations to FIrst Nations is primary as it their land.

Crown wanted to authorize the renewal only if it is acceptable to the Skway people. (And it wasn’t. See extra excerpt from trial level on TWEN.) Law must leave scope for that to be the case.

Mannpar (agreement to agree) summary: Mannpar interprets Empress to say that there is a duty to negotiate in good faith if:

1. There is a contract between the parties2. A duty to negotiate in good faith is consistent with the parties’ intent 

Mannpar is different - because Crowns intent was to respect the First N wishes and not

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intent to act in the best wishes of the gravel company. 3. There is an objective benchmark against which the court can assess whether the party in question is in breach or

not. Mannpar is also lacking this point - no objective benchmark set in the contract. 

H No implied term here. Renewal clause is too uncertain. Mannpar does not succeed in its claim.R there is no common law obligation to negotiate in good faith it must be in the contract either impliedly or explicitly.

Summary and Connection to Certainty: Empress and Mannpar helps us to get clear on the conditions under which we can have agreements to negotiate as opposed to

situations where it will look like a bare ‘agreement to agree’ which is unenforceable. Bhasin is a recent case that clarifies and strengthens this reading of Mannpar and Empress. These cases “suggest that an agreement to negotiate in good faith is contractually enforceable if it refers to an objective

standard guiding the conduct of negotiations and consistent with parties intent, but not otherwise.” CB 143Duty of Good Faith:

Bhasin v Hrynew, the court held that there is a general duty of good faith that underpins contract law as a whole.  The good faith principle is a standard which underpins, organizes, and unites those aspects of contract law that require

“honest, candid, forthright or reasonable contract performance” Bhasin, at para 66. Parties must interact with each other honestly, reasonably etc.

Bhasin related to good faith in the performance of contractual obligations. But we are concerned with good faith in contractual negotiations. Does it tell us anything about this?

Bhasin bolsters Mannpar’s analysis of Empress Towers in part because it concludes that the good faith standard is capable of definition.  (Good faith includes the idea of “best efforts,” per Empress Towers.)

Courts are giving good faith more context, to make knowable and more enforceable  We can understand GF as a broad organizing principle that underpins contract law. This is a relatively new development in the law, so there are differing interpretations of the role of good faith. The SCC has established the foundational place of GF in the system, and that it has multiple manifestations (which we will

examine later). For our current purposes, the key idea is that GF operates to make some agreements to negotiate enforceable. It is certain

enough to give content to some agreements. “In other words, it is possible to know what good faith means in a given set of facts, taking into account the words of the

agreement and the context in which it is made. On this view, an agreement to negotiate in good faith is not too uncertain to be a contract.” CB145

o good faith operates as an implied term in some agreements to negotiate which make those an enforceable contract.

Anticipation of Formalization This arises when an agreement is reached which envisages a further formal document.

o can be an oral agreement - is it a complete contract or do we have to wait for a written contract to be legally bound. 

Key issue: distinguish between the situations where the parties intend to be bound at once, and where they do not anticipate being bound until the document is executed. Both situations can be reasonable contracts - we need to know which situation we are in. 

Per Treitel: “The effect of a stipulation that an agreement is to be embodied in a formal written document depends on its purpose. Is the document incomplete and not binding until terms of document are agreed and document is executed OR is such a document intended only as a solemn record of an already complete and binding agreement?” 

Bawitko Investments Ltd v Kernel Popcorn Ltd – written contract is needed especially when some terms are uncertain

F Bawitko Investments Ltd (Plaintiff; Respondent; purported Franchisee - wanted to obtain a franchise)Passander: real estate broker → Acted as representative of BawitkoKernels Popcorn Ltd (Defendant; Appellant; Franchisor)Early 1984: Kernels wanted to open two new locations. March 23rd, 1984: Passander (on behalf of Bawitko) approached them wanting to become the franchisee for one of the locations.Kernels gave Passander an information package including the ‘draft’ or ‘standard’ franchise agreement.

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April 18th, 1984: Passander (asked a lot changes in the document that favour Bawitko) met the Kernels representative and reached agreement on a number of alterations to the draft agreement. Meeting ends with the Kernels rep saying: “You’ve got a deal.” → IS THIS A VERBAL CONTRACT?

it sounds like Kernels representative negotiated beyond what head office allows, So are Kernels bound by those negotiated terms?

I What is the legal effect of the oral contract? Does it constitute “a complete and legally enforceable contract” or was its enforceability “subject to and dependent upon a formal written franchise document being settled, approved and executed by the parties”? (CB 151)

A There are two complex and related issues in Bawitko which are easily entangled (is there an actual contract). The first is certainty in the sense we have seen already: were the terms settled yet or not?  The second is whether, even if the terms were certain, we might think the parties considered their legal obligations deferred until the creation of the written contract. That second issue is the concern about ‘anticipation of formalization’, and it is important to keep these two issues apart while recognizing that they are interconnected.

1. Certainty Issue: Franchise agreement governs a long-term relationship, is highly complex. Terms of this relationship have to be

certain. Judge does not find that they have settled all the essential terms. Some terms were settled

on the 18th but other essential terms remained open for negotiation. (CB 154) Parties’ conduct after the meeting suggests no agreement: comments on the draft were requested. It seems that

there was an agreement made as does not feel that they 100% on terms - not certain and settled terms.  Bawitko therefore seem to fail on the certainty dimension (the terms do not seem certain enough), which is

connected to the anticipation of formalization point…2. Anticipation of Formalization Issue:

CB 153: A contract can be incomplete “because essential provisions intended to govern the contractual relationship have not been settled or agreed upon; or the contract is too general or uncertain to be valid in itself and is dependent on the making of a formal contract; or the understanding or intention of the parties, even if there is no uncertainty as to the terms of their agreement, is that their legal obligations are to be deferred until a formal contract has been approved and executed”. → the underlined part is the anticipation of formalization  because ppl are anticipating the formal written contract. 

This case failed on both counts.  So, even if Bawitko succeeded in proving that a certain and complete agreement had been entered on April 18th, we might still argue that it was not expected to be treated as complete and binding until reduced to writing.In some cases, the oral contract is found to be complete and to take effect immediately. But here, the uncertainty of some of the terms implies that we cannot think it was complete enough to take immediate effect (so uncertain because they are waiting for the written document - we are waiting for a written document to have complete and binding agreement)Therefore it cannot be a case in which the formal document is just a record of what’s already agreed. Instead it is an essential step in formation which has not occurred.

But it is worth reflecting on some specifics of this case: does the “you’ve got a deal” comment mean anything? Often we will see wording like “subject to contract” if the parties did not intend to be bound until they execute a

formal document. This is clear evidence of intention. Intention is more murky in Bawitko because both parties do not exactly seem to believe that that was a finalized contract - B asked for the notes. 

H Trial judge found that the meeting of April 18th did constitute an oral contract. But there was an expectation that the creation of a formal written document would follow. SO The parties are not bound by virtue of the April 18th meeting (The Trial Judge’s determination is overturned)

R Sometimes a contract will go into effect immediately and that at other times it will await formalization.Formal Contract is needed with Uncertainty, sometime even with certainty-

Chapter 4: THE ENFORCEMENT OF PROMISES We don’t enforce all promises. We choose as a society which promises attract the law’s enforcement machinery, and which

are supported only by moral pressure, or by none at all.  The first element of this that we will look at is Consideration. Something cannot be legally binding without consideration. It

is a core element of contract.

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Consideration Consideration is the term for the idea that a contract is a bargain or exchange: we look for reciprocal promises. Something is

given “in consideration of” the promise. Consideration is the price of the other’s promise. Consideration is the promise of value - the contract must an exchange of value (reciprocity must be there for consideration)

Not all promises are enforceable. We want to distinguish legally enforceable contracts from what we call ‘gratuitous’ (free) promises – just promises that aren’t exchanged for anything. Such bare promises are not enforceable. (For example, if I promise to drive my friend to the airport).

"A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other." (Currie v Misa (1875) - approved in Canadian courts)

o it covers cases where ppl suffer loses ex. Carbolic case. Per Treitel:

1. Consideration is mainly about reciprocity: "something of value in the eyes of the law" must be given for a promise in order to make it enforceable as a contract.2. “Consideration is either some detriment to the promisee (in that he may give value) or a benefit to the promisor (in that he may receive value). Usually, this detriment and benefit are merely the same thing looked at from different points of view. Thus payment by a buyer is consideration for the seller’s promise to deliver and can be described as a detriment to the buyer or as a benefit to the seller; and conversely delivery by a seller is consideration for the buyer’s promise to pay and can be described either as a detriment to the seller or as a benefit to the buyer.”

Nudum pactum (lack of consideration, bare agreement)= there was no consideration. An agreement is not enforceable absent consideration because it is lacking an exchange of value between the parties

o This means that the promisee (the person to whom the promise is made) must ‘purchase’ the promise from the promisor (the person making the promise.)

o If the promise isn’t ‘purchased,’ it is gratuitous and therefore not legally enforceable.

1. Exchange and Bargains

The Governors of Dalhousie College at Halifax v the Estate of Arthur Boutilier Deceased – gratuitous promise vs. promise with consideration flowing from promisee

F Dalhousie (plaintiff; appellant; promisee - received a promise)Estate of Boutilier (defendant; respondent; promisor - made the promise before his death)

In 1920, Boutilier signed a subscription card (like a pledge): It said:“For the purpose of enabling Dalhousie College to maintain and improve the efficiency of its teaching, to construct new buildings and otherwise to keep pace with the growing need of its constituency and in consideration of the subscription of others, I promise to pay the Treasurer of Dalhousie College the sum of Five Thousand Dollars….”He then fell on hard times and wasn’t able to pay it. He died on October 29th, 1928. Dalhousie then tried to sue his estate to get the money.If it is outstanding debt - the estate would have to pay at least some of the money

I Is Boutilier’s promise to pay a legally binding contract or not? Core problem here: It will only be a contract if there is valid consideration. Contract can fail on other terms, but we are considering consideration here separately

A The Registrar of Probate thought that there was good consideration.Appeal to Judge of the County Court was dismissed (they agreed with the Registrar).Then, on appeal to the Supreme Court of Nova Scotia, they held that this was a nudum pactum (lack of consideration, bare agreement)= there was no consideration. SCC agrees.

What is argued to be consideration here? by the Dalhousie1. The subscription paper itself states that it was given in consideration of the subscription of others.

Response? Judge says that the fact that others signed subscription papers for the same purpose can’t count as consideration. This is because there is no privity of contract between the other people and Boutilier.  The promises must be exchanged between the two parties involved, does not matter if the 3rd party benefits. So consideration cannot come from the 3rd party. Donating together with other ppl does not make it a consideration - Dalhousie needs to make consideration, needs to make a promise. 

Privity of Contract is the idea that contracts are only between the parties involved, and cannot confer rights or obligations on third parties. So even if A makes a contract with B to benefit C, C has no rights under it to sue.

Relatedly, with respect to consideration, the idea is that it must come from the promisee: it can’t come from a

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third party. Here we are looking for consideration coming from Dalhousie.2. Mutual Promises: the statement in Boutilier’s subscription about the purposes for which the money is to be

used was interpreted as a ‘request’ for Dalhousie to use the money that way. On this view consideration for B’s promise to pay is D’s promise to apply the money to the named purpose.

Response? Judges says there is no express request and no agreement to do the action. Express agreement to do the act would have been consideration. But there is no basis for implying such a promise from the mere acceptance of the subscription paper.

Further, they say it seems implausible that (had he paid the money) Boutilier could have sued Dalhousie if they hadn’t used the money in that way. This suggests that there is no contract.

3. Dalhousie made increased expenditures on the strength of the subscriptions (reliance). Can this increased spending in reliance on the promise be consideration?

Court discusses various precedents and seems to suggest that the law on this is mixed, but that there is at least as much support for the view that this is not consideration as there is for the view that it is. Further, the view that it is consideration has been criticized.

They conclude that it is not consideration: “To hold otherwise would be to hold that a naked, voluntary promise may be converted into a binding legal contract by the subsequent action of the promisee alone without the consent, express or implied, of the promisor.” CB 165

if it is not clear that it is a legal promise - you can go and spend money and claim that it was legal promise and put the promisor under legal consequence - consideration and contract obligations should be clear to be legally binding when they made a promise.

H SCC dismiss the appeal: agreeing with the SC of NS, they say there is no consideration. Because there were no specific promise towards the donner like to build a specific building

R Consideration must flow from the promisee (privity of contract). Third party consideration is no consideration. No consideration from an implied promise. Reliance by the promisee can’t turn a gratuitous promise into a binding one. Mere reliance without consideration does

not make a promise binding The courts do not give legal effect to this intention because of a lack of consideration. Underlying idea is that a contract is the relationship between the two parties

Branford General Hospital Foundation v Marquis Estate - gratuitous promise vs. promise with consideration flowing from promisee

F Brantford General Hospital Foundation (Plaintiff; promisee - recipients of the promise)Estate of Mrs. Helmi Marquis (Defendant; promisor)In 1998, Helmi Marquis made a pledge of $1,000,000 to the hospital in response to their fundraising campaign, and after several conversations with the hospital CEO, Woodcock. (These conversations included discussions of retaining her late husband’s name on the new wing, and adding hers.)She further left the hospital 1/5 of the residue of her estate, but died before she could pay the full million dollars she had pledged. ($800,000 was outstanding).

I Is the pledge document signed on November 20th, 1998, a legal and binding contract? Speciffically, we area skigng: was there consideration for her promise to give one million dollars to the hospital? Or was it a bare/gratuitous promise, therefore $800 thousands were just a gratuitous promise?In other words: what did the foundation give in consideration of her promise?

A Hospital argument: consideration was the commitment to name the new unit after Mr & Mrs Marquis. (this could be consideration (if it was the case) because there is an exchange of value)The court does not agree with this argument.

1. Board approval was still needed for the naming of the unit (so they cannot actually guarantee the promise because they are not the ones who give it out), so it can’t be a complete contract at the moment of signing the pledge.

The naming of the hospital is a separate thing that may and may not happen - it seems to be a separate process from pledge signing

2. Mrs. Marquis was so “humble and modest,” it didn’t appear that she sought the naming of the hospital wing. This wasn’t her reason for making the pledge, or a condition of it. 

it seems this is a gratuitous promise because naming is not discussed when the pledge is signed; signing was not conditional to naming

the promise did not seem reciprocal The court relies on Dalhousie and says that as much as it seems to be Mrs. Marquis’s intention to donate the money, it cannot treat it as a binding contract in the absence of consideration.

H Hospital cannot claim the money. Hospital lost.

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R A one -way gift is not contractually enforceable because a contract needs reciprocity or exchange. The courts do not give legal effect to this intention because of a lack of consideration.

Gift Cases (Dalhousie & Brantford)

In both of these cases it was undisputed that the deceased’s intention was to give the money to the institution in question. However, the courts do not give legal effect to this intention because of a lack of consideration. A one-way gift is not contractually enforceable. We need reciprocity or exchange.

Wood v Lucy, Lady Duff-Gordon - implied promise (more specific here) can be consideration (opposite of Dalhousie)

F Plaintiff: Otis F. Wood, Advertising AgentDefendant: Lucy, Lady Duff-Gordon, Fashion DesignerLady Lucy promises Wood that he shall have exclusive rights to place her product endorsements, subject to her approval. This exclusive right was to last a year and then to run year-to-year with the possibility of termination.In return, Lady Lucy is entitled to half of ‘all profits and revenues’ derived from the contracts Wood might make. (so Lucy is not allowed to market her own designers or come to her own agreements)Lady Lucy placed an endorsement on some products without his knowledge. Wood is now suing her for breach of contract because he had an exclusive right of marketing for her products and endorsement of other products

I Is there a contract? Is there valid consideration from Wood to Lucy?We can see what Lucy has promised Wood: she promises him exclusive rights to license her designs and endorse others’ designs in her name. But has Wood promised Lucy anything? Does it bind him to do anything?It seems like he has agreed to give her ½ of the profits in the event of any contract he makes. But that is only contingent: ‘IF he makes a contract, she gets a cut’. Is there any actual promise to take an affirmative action?Is contingent/conditional consideration is sufficient to make it this promise into a contract? He could have done nothing, so … it is hard to know if this is good consideration because he does not have a real commitment or obligation

A Justice Cardozo implies a promise on his part. (implied promises are fact dependent on the circumstances of a specific case and specific parties - there is no general rule)Wood’s implied promise → The implied promise is to “use reasonable efforts to place the defendant’s indorsements and market her designs.” (CB 169) “A promise may be lacking, and yet the whole writing may be ‘instinct with an obligation’” (similarly was argued in Dawson case)(CB 169). In such a case there is a contract.Wood’s “promise to pay the defendant one-half of the profits and revenues resulting from the exclusive agency and to render accounts monthly, was a promise to use reasonable efforts to bring profits and revenues into existence.” (CB 170)

Why is it appropriate to imply a promise here? (here are the court relies on business efficacy analysis of implied terms) His right to market her designs was exclusive. That means she would be at his mercy if he doesn’t promise to make

substantial efforts to market them. The purpose of his business is for placing endorsements of this sort. We have to assume it will be used for the relevant

purpose. Wood’s business is suited for this kind of arrangement - there is an implied promise that he

will use his business to do the marketing The terms of Lady Lucy’s compensation are ½ of the profits of his efforts. So unless he invests some efforts, she

won’t be able to get anything. We need an implied promise here to give the transaction ‘business efficacy’.  In Dalhousie, business efficacy argument would not lead us anywhere - the transaction there as a pledge or donation

already makes sense. But here, there is a business arrangement - so there are implied promises here. There is underlying intended obligation for Wood to market the designs

The court finds that there is an implied promise to “use reasonable efforts to place the defendant’s endorsements and market her designs.” (CB 169)When we add the implied the promise, this makes the agreement reciprocal: there are promises on both sides. Consideration on both sides (promise to give exclusivity in marketing and promise to actually market the product for profit)“The law has outgrown its primitive stage of formalism when the precise word was the sovereign talisman, and every slip was fatal. It takes a broader view to-day. A promise may be lacking, and yet the whole writing may be ‘instinct with an obligation’” (CB 169). In such a case there is a contract.

H Wood wins12

R Implied promises (in this case it was a conditional consideration) are fact dependent on the circumstances of a specific case and specific parties - there is no general ruleWhen we add the implied the promise, this makes the agreement reciprocal: there are promises on both sides. Consideration on both sides (promise to give exclusivity in marketing and promise to actually market the product for profit) are established via business efficacy test.

Note: is there is a consideration, including implied promise (Dalhousie vs Wood)1. Starting point: what are the words used? Dalhousie – less concrete. Wood – specific clear arrangement2. Then, what is the context here - is the situation instinct with obligation? Can we use officious bystander or business efficacy

test?

2. Past Consideration Promise given in recognition of, or in return for, benefit acquired by promisor in past is unenforceable. As a general rule, past consideration is not consideration (Lampleigh). If the act was done in the past and the promise comes later, then it is not really part of a bargain or exchange. “Mere existence of prior request is not sufficient in itself to convert what is prima facie past consideration into sufficient consideration to support a promise.” 3 PRONGED TEST: Pao On v Lau Yiu Long

o 1- The act must be done at the promisors requesto 2- The parties must have had an understanding that payment or some other benefit in exchange was expectedo 3- Payment must have been legally enforceable if it had been promised in advance.

If the three-pronged test is met, the court will find an implied obligation to pay a reasonable amount for the work done (quantum meriut). Definition of contractual quantum meruit per Black’s:

o Latin for “as much as deserved”o “founded on an implied assumpsit or promise on the part of the defendant to pay the plaintiff as much as he reasonably

deserved to have for his labor.”This approach has been criticized as well, however. It cannot account for situations where there is no request, but there is still unjust enrichment.

Lampleigh v Brathwait - exception to the general rule re past considerationF Lampleigh (plaintiff lawyer suing for payment for services rendered; the promisee)

Brathwait (defendant; disgruntled felon; the promisor)1. Brathwait killed one Patrick Mahume2. Brathwait, a felon, now wants a pardon from the king3. Brathwait asks Lampleigh, a lawyer, to ride to Roiston and seek a pardon for Brathwait from the King4. Lampleigh rides off to Roiston to try to secure the pardon5. Upon Lampleigh’s return, Brathwait agreed to pay Lampleigh 100 pounds but now refuses to pay. (Pleads ‘non assumpsit’; i.e., no promise/no consideration.)

I Is there consideration supporting Brathwait’s promise to pay? Or does the consideration not count because it was in the past?A Past consideration is not good consideration. 

Remember that the idea of consideration is about bargains. If the act was done in the past and the promise comes later, then it is not really part of a bargain or exchange. 

At the moment the act is done (get parodn), it is not said to be in exchange for anything.🡪 when the felon asked lawyer to seek pardon - they did not discuss price  now it is unfair to ask for money because it was not the original arrangement at that time 

And at the moment the subsequent promise (to pay money after lawyer came back) is made, it is a bare or gratuitous 🡪promise.

there is no exchange of anythingIt seems that we have two bare gratuitous promises at different point of timeLampleigh v Brathwait presents an exception to this general rule that past consideration is no consideration. The court connected two promises in this case as reciprocal and in relation to each other. “First, it was agreed, that a mere voluntary courtesy will not have a consideration to uphold an assumpsit (a promise). But if that courtesy were moved by a suit or request of the party that gives the assumpsit, it will bind, for the promise, though it follows, yet it is not naked, but couples it self with the suit before, and the merits of the party procured by that suit, which is the difference.”Translating the passage from Lampleigh v Brathwait, the basic idea is this:“The past consideration principle does not apply if the initial benefit had been requested by the promisor.” (McCamus, 238) -

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the state if current law mentioned here “though it follows, yet it is not naked, but couples itself with the suit (act) before”

i.e.: even though the promise comes later, it is not a bare promise, because it attaches to the earlier act, done at the promisor’s request.

Lawyers’ job to do this - there is an assumption that what he does would be paid. Many have said that this explanation is not very helpful.A more modern approach is to say that: “where a service is provided in circumstances where there is a reasonable expectation of compensation, a binding obligation to provide compensation, enforceable in a claim for restitution, arises. A subsequent promise to provide such compensation is enforceable on the basis that it gives expression or precision to an existing and enforceable legal obligation.” (McCamus, 238)

H The agreement is enforceable; there is consideration.R Lampleigh v Brathwait presents an exception to this general rule that past consideration is no consideration. A promise made

after performance can be enforced, only if it was understood to by the parties that there would be some kind of reward. Past consideration principle does not apply if initial benefit had been requested by promisor. Even though the promise comes later, it is not a bare promise, because it attaches to the earlier act, done at the promisor’s request.If the benefit was given with the intention that it be a gift, the later promise is not binding.A “mere volunteer curtesie will not have a consideration to uphold an assumpsit”.

Pao On v. Lau Yiu Long (1980) – 3 pronged test

This later case (1980) sets out a kind of three-pronged test for when past consideration will count: (issue regaring timing)

The case sets out a kind of three-pronged test for when past consideration will count: (issue regarding timing)1) The act must have been done at the promisor’s request. (this follows Lampleigh)2) The parties must have had an understanding that payment or some other benefit in exchange was expected.3) Payment must have been legally enforceable if it had been promised in advance (for example, murdering is not legal and

not enforceable at that time)

3. Consideration Must be of Value in the Eyes of the Law

Consideration has to be of value. But what does this mean? It must have some value, but even a penny has some value. Consideration has to be of value. But what does this mean? It must have some value, but even a penny has some value.  This principle does not require that consideration be of a certain value, or be ‘adequate’. “Courts generally do not inquire into the adequacy of consideration” (Styles v. Alberta Investment Management Corp., 2017

ABCA 1 (Alta. C.A.)) Peppercorn Principle: “In theory at least, in a bargain in which something of value is exchanged for something of even trivial

value, such as a peppercorn, the exchange is enforceable.” (McCamus, 226) As long as something has value, it does not matter how much value it has. The value does not have to match.

o Justification: 1. Autonomy of the parties

Imagine you collect something that doesn’t have much ‘objective’ value, but you may be willing to pay me a great deal for one your collection lacks. The court is not interested in trying to second guess the value you place on the item. They just want to uphold parties’ genuine intentions.

It enables people to reliably use the legal device of contract.

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If we treat consideration somewhat formalistically, and don’t inquire into the value of the consideration exchanged, then this frees people to use consideration more like a seal. It is a way to signal that they have an intention to be legally bound.

o Exceptions and complexities: While the general rule is that courts will not try to inquire into the value exchanged, a serious discrepancy

might be a red flag.  See note 3 in CB, p 175: “However, where ‘‘the disparity in price is so great as to shock the conscience and

constitute in itself a badge of fraud” then a court may (in its equitable jurisdiction) refuse to specifically enforce a contract: Baxter v. Rollo (1912), 18 B.C.R. 369 at 370 (B.C. S.C.), affirmed (1913), 1913 CarswellBC 246 (B.C. C.A.).”

We will discuss this further when we get to equitable jurisdiction and remedies. 

4. Bona Fide Compromises of Disputed Claims The general principle is that forbearance to sue (giving up a right to sue) DOES count as consideration

o You are giving up something in value: your right to sue. o Exception: “A promise is not binding if the sole consideration for it is a forbearance to enforce (or a promise to

forbear from enforcing) a claim which is invalid and which is either known by the party forbearing to be invalid or not believed by him to be valid.” (B(DC) v Arkin)

o Doubtful claims are OK. Per Treitel: “Where the claim is doubtful in law, a promise to abandon it involves the possibility of detriment to the potential claimant and of benefit to the other party. Such a promise is therefore good consideration for a counterpromise given by the latter party: e.g. for one to pay a sum of money to the party promising to abandon the claim.”

o Claims that are wrongly believed to be valid are OK (TEST):o Per Chitty: This same rule (i.e. that there is good consideration) "applies even if the claim is clearly invalid in law,

so long as it was a 'reasonable claim'…which was in good faith believed by the party forbearing to have … a fair chance of success." (quoted in CB p 178). SO in a way, it has value to them, so they feel like they give something up. There are two further conditions for the application of this rule:1) Cannot deliberately hide facts that would allow the other party to defeat the claim.2) Must show serious intention to pursue the claim (not like B(DC) case - where they were not even thinking of

pursuing the claim in court)

B(DC) V Arkin – exception to forbearance rule (VALID claim)F Plaintiff: D.C.B. (The mother of son J.B. (age 14) who shoplifted some items from Zellers.)

Defendant: Zellers Arkin: another defendant [no longer a party] - he does not matter hereAfter the shoplifting incident, the items were recovered and returned to the store. The store did not suffer any loss.Nevertheless, Zellers threatens to sue D.C.B. (the mom) for $225.00 as compensation for damages Zellers says is sustained due to the son's shoplifting.The mom responds to this letter by paying the money.The alleged consideration from Zellers supporting the mom's payment is forbearance to sue. Zellers will not sue her in exchange for the payment. Consideration from Zellers is not to sue. Consideration from mom - money paid to Zellers Subsequently, the mom realized she may not have been legally required to pay, leading to the action that is the subject matter of this case.

D.C.B. (plaintiff; the mom) seeks to recover the $225.00 she paid to Zellers discussed above. Zellers (defendant) resists action on basis that it provided consideration to the mom via forbearance.

I The actual question is:  Is Zellers consideration good consideration? Ordinarily, yes, forbearance to sue is good consideration. BUT in this case the decision  was different

A Per Treitel: Promise to release (release implies a relinquishment or surrender of some claim) a valid claim is good consideration. But there are exceptions to this.Court relies on Chitty (a secondary source, not a case) to say that there are some exceptions:“Claims known to be invalid. A promise is not binding if the sole consideration for it is a forbearance to enforce (or a promise to forbear from enforcing) a claim which is invalid and which is either known by the party forbearing to be invalid or not believed by him to be valid.” CB 178

You need to give something up of value - but if Zellers know that what they are giving something that does not have a value, so it not going to count as forbearance. Essentially, their claim is invalid and they are behaving fraudulently. So technically they are not giving up anything at all. 

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Party forbearing here is Zellers. In these theft cases, the losses are recovered, so stores are not likely to have good claimsAlso, need to prove the mother actually acted negligently. But mother was not acted negligently. This case would not be successful in court because there is no damage. Zellers’ claim was an invalid one (not merely doubtful)“I cannot believe that [Zellers] seriously thought that this claim could succeed or that they seriously intended to pursue it to court if it was not paid.” CB p 178Even if we can’t say they knew their claim was invalid, they have issues under the test for claims wrongly believed to be valid:

Was it honestly believed to have a fair chance of success? Did they seriously intend to enforce it?

H Mom is entitled to a refundR Promise to release a valid claim (to sue) is good consideration. Exception: Claims known to be invalid- a promise is not

binding if the sole consideration for it is a forbearance to enforce a claim which is invalid and which is either known to be invalid or not believed by him to be valid. Doubtful claims are good consideration- a promise to abandon it involves the possibility of detriment to the potential claimant and of benefit to the other party. Claims wrongly believed to be valid- it is good consideration even if the claim is clearly invalid in law but there is a genuine belief that it will have potential of success. 1- You cannot deliberately hide facts that would allow the other party to defeat the claim. AND 2- must show serious intention to pursue the claim.

5. Pre-Existing Legal Duty (in relation of consideration) The problem arises because sometimes people promise to do what they are already legally required to do. In that case, we

have to ask whether that promise can count as consideration. If the person is already bound to do it, then they give up nothing in exchange for the other person’s promise. You paying me

for nothing because that obligation already existed. There is nothing that is being given up. Hence, the problem for consideration: it no longer looks like an exchange.

Category#1: Public Duty Fulfillment of a pre-existing public duty by the promisee at the request of the promisor is generally not good

consideration for the (promisor’s) promise since the promisee is only doing what she is already otherwise required to do.  ex. police officer cannot get extra payed to stop a crime – bc of corruption. It is already hers pre-existing public duty (this

duty existed before the promise).  What is a ‘public duty’?

o Anything you are obligated to do by operation of law. o Since the person was already obligated, they don’t really give anything up.o For example, mother paying son not to do drugs, there is no good consideration because son is not supposed do

drugs legally anyway. Exception: Where promisee obligates herself to do more than what is already required, there can be consideration.

Ward v Byham, [1956] 2 All ER 318 (CA) - pre-existing PUBLIC duty DOES NOT counts as good consideration

This relates to a statutory duty: she was obligated to bear the costs of caring for her child as per statute - she has a public duty (pre-existing duty). The father promised to pay money for her looking after the child. He essentially paying her for something that she was statutory was required to do. Father stopped paying once she got married. She sues him for the promised monthly money. Two approaches: 

1. one judge says there is consideration because the mother had an additional obligation: prove the child was well looked after and happy.

2. Denning, on the other hand, is motivated to find consideration and argues that even if there was no obligation above and beyond the legal duty, there could be consideration.

By promising to ensure the child was well looked after and happy she had gone beyond her existing legal duty and therefore had provided consideration. She was entitled to the payment.It is not applied to many situations. This normally would not be good consideration. 

Category #2: Duty Owed to a Third Party – self appointed duty Fulfilment by the promise (snow-shoveller) of a pre-existing legal duty (shovel snow for A) to a third party at the request of

the promisor (B asking to shovel for A) is good consideration for the promisor’s promise.  That is, consideration must flow from the promisee but it need not flow to the promisor.

o A - property owner - pay B to shovel snow 

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o B- neighbouro A and B have a contract - have a legal obligationo C - another neighbouro C can pay B to get A’s sidewalk as well. B already has an obligation. C then almost paying for nothing to B because

B already has to do it. C wants his personal assurance and enforceable right to make sure you are suing.Shadwell v Shadwell - pre-existing duty counts as good consideration

Nephew was engaged (has legal obligation - he owes duty to the girl and not the uncle). This meant he had a legal obligation to marry the fiancée.Uncle promised $150 per year upon the marriage. Court found that the promise was enforceable even though he already had a legal obligation to the fiancée.There is a suggestion that the uncle gains a benefit because he now has a direct obligation. The nephew argued that his going through with the marriage was consideration.However, it is not clear why we can’t say the same thing in the context of public duty (more possibility of corruption) – here pre-existing duty counts as good consideration. Nevertheless, this is the rule.

Category #3: Duty Owed to the Promisor Here we are dealing with the very same contracting parties. The parties are already in a contractual relationship. A does not offer corresponding consideration to B.Two types:

1. Promises to Pay or Provide More: Promise to vary an existing contract by adding to the duties owed by promisor to the promisee.

a. I know that I promised to build this house but now I also can paint it. Promissee is not paying for the additional promise

2. Promises to Accept Less: Promise to vary an existing contract by subtracting from the duties owed by the promisee to the promisor.

a. Common in debt forgiveness, pay me less debt and we are clear. Technically subtraction of duties, but the promisee does not pay anything in return for subtraction of those duties.

Traditional position: both are unenforceable. All promises need to bought and payed for.  The upshot is that the rule is that “all agreements involving one-sided variations of existing contracts fail on the basis of the

pre-existing duty rule.” This result works in cases where there is some sort of exploitation of a vulnerability. However, it can be overinclusive when

the parties are of equal bargaining power

(i) Promises to Pay or Provide MoreStilk v Myrick - need fresh consideration for a new promise (still good law)

F Stilk, the plaintiff: a sailor, contracted to work a voyage. Myrick, the defendant: captain of the ship.When two of the crew deserted at port, the captain (M) promised the wages of the deserters to the remaining crew members.  

I Is this promise enforceable? Is there consideration supporting the captain’s promise to pay more?A Court: As the mariners had contractually committed to do “all that they could under all the emergencies of the voyage”, they

were not entitled to enforce the captain’s promise to pay more. There is also a public policy argument raised: “agreements struck in circumstances where the crew might take advantage of the vulnerability of the captain ought not to be enforced.” McCamus, p249Performance of or a promise to perform a pre-existing contractual obligation is not consideration for a new promise made by the other party (i.e. the promisor).

H Stilk cannot recover the extra amount promised.R Public policy: “agreements struck in circumstances where the crew might take advantage of the vulnerability of the captain

ought not to be enforced.”Performance of or a promise to perform a pre-existing contractual obligation is not consideration for a new promise made by the other party (i.e. the promisor). In other words: you cannot enforce a new promise if you are doing the same job as previously agreed to because you have not given new consideration for the new promise

Gilbert Steel Ltd v University Const Ltd - Further promises must have fresh consideration (leading case on post-contractual modifications/variations)

F Gilbert Steel (Plaintiff) & University Construction Ltd. (Defendant)September 4/68:  Contract whereby Gilbert was to supply steel to defendant for three projects in total. Plaintiff supplies steel

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to two of the projects at the agreed contract price.October 22/69:  In response to increased price of steel, GS approached defendant for a new contract with an increased price.  A new contract on this date was entered into. March 1/70: Another price increase for steel is announced by mill owner and then GS seeks additional concessions from the defendant.The parties engage in a discussion and GS argues that as a result of this discussion, there is a binding oral agreement to alter the price. (Judge finds there was oral agreement to the new price.)GS wrote up a new contract but it was never signed.GS subsequently billed the defendant according to the new price agreement.Defendant continued to accept deliveries of steel, which came with invoices listing the higher price, but did not pay that higher price.

I There is an oral agreement to pay the increased prices. Is that agreement legally binding or does it fail for absence of consideration? Did Gilbert Steel give consideration in exchange for the promise to pay more? Past consideration (to deliver the steel) won’t count.

A Per plaintiff, there is consideration in:1. Gilbert’s promise to give the University a “good price” on steel in the future.2. The mutual abandonment of the first contract and a new agreement being put in its place.3. The increased access to credit which University receives as a result of the price hike.

Re: the three arguments:1) Reference to ‘a good price’ was too vague. Plaintiff never made a commitment. 2) Mutual abandonment of the contract? The only change was the price, and on the facts it does not look like the parties

intended to rescind the contract. (They refer to price variation, not new contract).3) Increased credit is not a real, substantial benefit (as distinguished from previous cases.)

H Therefore: Gilbert Steel does not succeed. The agreement was a variation on the contract and there was no fresh consideration for the variation.

R Further promises must have fresh consideration.

(ii) Promises to Accept Less

Hypothetical: o Debtor owes creditor $100.00o Creditor agrees to accept $80.00 in full satisfaction of the debt (i.e. agreeing to accept a lesser sum in full

satisfaction of the whole)o Does this agreement fail for want of consideration?o there is a pre-existing obligation -duty to pay 100. The promise to pay less is not supported by consideration. 

Accepting Less for More:o Traditional view is that if one is to accept less for more in a way that is legally binding one will need Accord

and Satisfaction.o Per Talbot v. Associated Newspapers Ltd: “Accord and satisfaction is the purchase of a release from an obligation …

by means of any valuable consideration, not being the actual performance of the obligation itself. The accord is the agreement by which the obligation is discharged. The satisfaction is the consideration which makes the agreement operative.”

Accord = agreement Satisfaction = consideration for the agreement

o This is not an exception to consideration.  Example: Instead of repaying 100 you give in a form of a TV - but you cannot exchange for the same thing

that is of the lesser value ($100 for $80) but it is okay to give $80 of worth of boats or whatever of less or more value.

Ex. you hired someone to reno your house. They did poor job. You want to pay them less. You can agree with the company to give up the right to sue - they do not receive the payment - you giving up the right to receive the full payment for the reno.

Foakes v Beer – “less for more agreements are generally not enforceable” – still a valid law (but look at Robichaud case)

F Foakes (appellant; judgment debtor)

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Beer (respondent; judgment creditor)Beer secured judgment against Foakes in the amount of £2,090 plus interest and is now the judgment creditor. Foakes is the judgment debtor of Beer.Foakes asks for time to pay and they enter into a written agreement whereby Beer agreed to take a lesser sum in full satisfaction of the whole – i.e. she forgave interest on the judgment. She agreed not to take any further proceedings to collect on the judgment if Foakes made a down payment plus a series of installments until the amount of the debt was reached.Foakes paid the down payment and made ALL the installments. Beer claims £300, the interest she was awarded under the judgment. She says the agreement is unenforceable for want of consideration; now seeks interest even though Foakes fully performed his side of the agreement.Foakes did not provide consideration for Beer’s promise - so it looks like it is not enforceable contract

I Can Beer claim interest at this point or is she bound?In other words, is the agreement not to seek interest enforceable?Or is it unenforceable due to lack of consideration?

A Court applies the rule in Pinnel’s case: “that payment of a lesser sum on the day…in satisfaction of a greater, cannot be any satisfaction for the whole, because it appears to the Judges, that by no possibility a lesser sum can be satisfaction to the plaintiff for a greater sum.” → ‘Less for more’ agreements are not enforceable.The judge says that even if the doctrine has been criticized, “it has never been judicially overruled”. It is the established law and must be applied.

Foakes had essentially argued that the agreement was an accord and the payments constituted satisfaction. A&S is used as to buy yourself out of obligation - so you need to provide consideration for that. 

does not apply to cases where the pure reduction of debt is happening. The court did not accept this argument: “the doctrine of accord and satisfaction does not create an exception to the normal requirement of consideration.” The ‘satisfaction’ has to come in a different form, because less money cannot be exchanged for more money.

H Appeal dismissed; Foakes (appellant) loses, and Beer (the creditor) succeeds. The agreement is not enforceable; she can obtain the interest.

R Pinnel’s case: “that payment of a lesser sum on the day…in satisfaction of a greater, cannot be any satisfaction for the whole, because it appears to the Judges, that by no possibility a lesser sum can be satisfaction to the plaintiff for a greater sum.”

A&S is used as to buy yourself out of obligation - so you need to provide consideration for that.  A&S does not apply to cases where the pure reduction of debt is happening (such as in this case) “the doctrine of accord and satisfaction does not create an exception to the normal requirement of consideration.”

Robichaud c. Caisse Populaire de Pokemouche (1990) (Practical benefit can be consideration) (not binding law but persuasive)

F Robichaud owed money to Caisse Populaire (bank)Caisse secures judgment against Robichaud for $3,787 and registers it.Robichaud decides to consolidate his debts with Avco.Subsequently, as part of an Avco debt consolidation plan, Caisse agrees to remove its judgment against Robichaud from the registry in return for a $1,000 (but Caisse is looking for $3, 787) payment by Robichaud in full satisfaction. So there is nothing that Robichaud is giving up, he is just benefiting.Caisse received its cheque from Avco but the Board refused to approve the compromise agreement. The cheque was not cashed and the judgment was not removed.

I Robichaud: brings action to have his agreement with Caisse enforced and Caisse’s judgment against him removed from registry. Caisse Populaire: resists action on the basis that the agreement is unenforceable for want of consideration. Caisse only made a gratuitous promise → Is Caisse bound by its agreement with Robichaud?

A Angers J.A.: It is easy for the court to conclude that there was or was no consideration or to invent some way, as several courts have done, to uphold an agreement such as this one. However, there is still one undeniable fact: a financial institution, of its own accord, and knowing all the consequences of its actions entered into an agreement in which it accepted to forego the ranking of its judgment for part payment of the debt owing to it. This agreement constituted full satisfaction. The consideration received by the Caisse was in the immediate payment which resulted in a saving of time, effort and expense. In my opinion, it is not up to the court to judge the merits of such an agreement but rather to satisfy itself that the agreement was entered into with full knowledge and agreement. It must therefore uphold the agreement. (See CB 193, Note 2)

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Foakes v Beer is an old fashioned outdated rule - courts are trying to change because so far they were trying to find consideration. 

H Trial judge applied Foakes v. Beer, concluding that the agreement was unenforceable (reduction of debt being exchanged for nothing).But the NB Court of Appeal reached a different result. Decision was decided based on promissory estoppel (which we will explore shortly). But Angers JA would have favoured overruling Foakes v Beer. He drew on the practical benefits to the financial institution, and the full knowledge the institution had of the agreement in question.

Bank is a sophisticated actor that knew that it was doing - they should held to their agreement.  This hints at a shift in this area of law.

R A financial institution, of its own accord, and knowing all the consequences of its actions entered into an agreement in which it accepted to forego the ranking of its judgment for part payment of the debt owing. The financial institute gain some benefit (aka consideration) from the new contract so there is a practical benefit. The consideration is the result of saving time, effort and expense.

Practical benefit= more than just getting some money back, look to other things like not chasing someone down, paying lawyers/investigators, etc

Foot v Rawlings - (Cheques aren’t money, can be consideration for a lesser sum/Criticized Often)

F Foot (debtor/promisee)Rawlings (creditor/promisor)

Rawlings (Creditor) suggested he would accept a lower than negotiated interest rate on an existing loan and lower monthly installments provided debtor gave a regular series of posted-dated cheques and fulfilled the agreement faithfully.

Foot (Debtor) substantially complied with these new terms but the creditor changed his mind and sued for what is owed under the first agreement.

Rawlings is trying to go back on the promise to change the terms aka post dated checks for lower interest rate

Foot says Rawlings is bound by the agreement to accept a smaller sum. Rawlings says the agreement is unenforceable for want of consideration. He says it is a gratuitous promise.

I The fact - the agreement existed - everybody agrees to that. Debtor complied with the new agreement. The only way for Rawlings to sue is on the agreement not being enforceable. 

Can Rawlings bring this action? The agreement existed and appellant was not in default under its terms. So is it premature for Rawlings to sue?He can bring the action if the agreement isn’t enforceable.So: is the agreement enforceable?More specifically:  Is there consideration for the creditor’s agreement to accept less in full satisfaction?

A The agreement is enforceable.Court concludes that giving the post dated cheques was consideration for the promise of release of the debt at a lower interest rate.They argue that even though you cannot pay a lesser amount of cash in satisfaction of a debt of a greater amount, you can exchange something else for that debt.“A [person] may give  in satisfaction of a debt of £100, a horse of the value of five pounds, but not five pounds.” CB 195, quoting Sibree v Tripp.

it is your choice to make to value the horse for 100 instead of 5 pounds.  the cheque is more like a horse rather than cash. 

“[T]he acceptance of a negotiable instrument may be in law a satisfaction of a debt of a greater amount.”H The agreement is enforceable. Foot (debtor) wins and does not have to pay more.R Court concludes that giving the post dated cheques was consideration for the promise of release of the debt at a lower interest

rate. Cheques (any non money thing – horse etc) are a different thing than money and so they can exchange for a lesser sum, even if cash could not.They argue that even though you cannot pay a lesser amount of cash in satisfaction of a debt of a greater amount, you can exchange something else for that debt.“[T]he acceptance of a negotiable instrument may be in law a satisfaction of a debt of a greater amount.”

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Foakes v Beer & Foot v Rawlings: how to reconcile Foot v Rawlings case distinguishes Foakes v Beer without overruling it. The court manages to say that

cheques are a different thing than money and so they can be exchanged for a lesser sum, even if cash could not.

McCamus: “The resilience of this line of authority…strongly suggests that judges appreciate that the rule in Foakes v. Beer is an unsatisfactory one and ought to be distinguished whenever possible.”

o construe consideration broadly o find it when you can

Analysis for Consideration for post-contractual variation: on the exam you need to consider all these pathwaysNote 1: Exam: 3 path to enforce the promise – find consideration where possible. If not, well is there is practical benefit. If not, we can do without consideration all together (Rosas (general – like Judicare Act) & Nav Canada (promise to pay more)). If Judicare Act does not help, Rosas might!Note 2: The variation CAN ONLY BE MADE by the person who has the power to make the variation. Variation can be raised by someone, but only a certain party can make variation of the contract. Exam: identify who made the promise? who received the promise?

(1) Common Law Classic: Foakes v Beer states the traditional position that promises to accept less

are not binding without consideration…o Less money are not okay (Foakes v Beer)

(2) Consider Judicare Act (overrules common law Foakes v Beer) Consider situations not covered by Judicare Act

o (1) Provision would have problems with agreements where creditor forgives a debt completely. (only applies to cases where there has been part performance)

part payment must have been made for the statute to apply. Full debt cannot be forgiven (this statue would not apply)

o (2) Not totally clear if the provision would treat an agreement to accept less as binding if it has been partially performed, or whether the creditor could renege on the deal partway through the new payment scheme.

worry is new agreement was agreed on - some payments were done in accordance with new agreement - the past tense of the statue → the agreement has to have been accepted in the past- the payment needed to be fully performed (rendered in satisfaction) - if you are in the process of rendering - the statute might not cover your case. 

(3) Modification/ Unique scenarios in common law: Cheques are okay for less money (Foot v Rawlings)

o Courts will search for consideration where they cano BUT D&C Builders: the cheque was not in consideration of the smaller

amount – it was an ‘incidental arrangement (+ facts are different from Rawlings case)

o Which situation are we in and why? Robichaud (accept less - sophisticated actor involved & practical benefit– can be

argued that no classic consideration needed – practical benefit is consideration) (4) If we are talking about promises to pay more, the rule in Stilk v Myrick has not

formally been overturned. That rule says that promises to pay more cannot be binding in the absence of fresh consideration…

…however! Appeal courts throughout the country have been chipping away at this rule: Rosas (BC) & Nav Canada (NB) indicate a willingness to see post-contractual variations unsupported by consideration as binding in the absence of duress or unconscionability.

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(1) Nav Canada (authority promise to pay more – Nav no consideration) - “a variation to an existing contract, unsupported by fresh consideration, may be enforceable provided that it was not procured under economic duress”. Consideration must move from the promisee (NAV) to the promisor (Authority).

Contradicts Gilbert Steal & Foakes v Beero Policy reasons:

The rule in Stilk v Myrick is under- and overinclusive. Courts rely on legal fictions (cheques are not money) and trying to find

consideration As a practical matter, variations of this sort are common, and we should protect

the legitimate expectations that such variations are enforceable. The rule creates hardship for those who assume a promise is enforceable and

detrimentally rely on it. We shouldn’t be searching for or trying to make up consideration. The consideration doctrine arose for certain reasons, and we now have duress as

a better way to deal with the same problems. The only thing that Nav Canada does - if we already have a contract and we

try to vary without consideration → then may be it would be okay. Only in the context of variation of contract.

(2) Rosas: “When parties to a contract agree to vary its terms, the variation should be enforceable without fresh consideration, absent duress (voluntary), unconscionability, or other public policy concerns, which would render an otherwise valid term unenforceable.” **ON THE EXAM: analyse duress etc..

(5) See also developments outside Canada, such as Williams v Roffey Bros. (3rd party consideration) → other courts are moving in this direction from classic conception of consideration → may be we should do the same as well.

o Williams v Roffey Bros (promise to pay more is okay as long as there is a practical benefit) As long as there is a benefit that you are getting, it does not have to flow from promisor (3rd party is okay)

(6) Equity – Promissory Estoppel (variation of contract without consideration) High Trees (promise to accept less for the same contract):

o A promise intended to be binding, intended to be acted on and is acted on, is binding so far as its terms properly apply (no consideration needed)

See formula for Promissory Estoppel

What would you tell a client? If they asked for advice in advance?

o Get the promise under seal; oro Provide clear consideration

If they asked after the fact?o We could rely on the BC (Rosas) and NB (Nav) and Practical benefit (Robichaud & Roffey

Bros) cases to try to argue for our client that a similar relaxation in the doctrine of consideration is applicable here.

o Under certain circumstances, you might be able to make a promissory estoppel argument, which is what we turn to now. 

***Remember that all of this is only with respect to consideration for post-contractual variations. The rule that consideration is required in the first place still stands!***

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Legislative Response to Foakes v Beer Judicature Act, R.S.A. 2000 c. J-2 (AB) - only for settling debt/ debt forgivenessPart performance13(1) Part performance of an obligation either before or after a breach thereof shall be held to extinguish the obligation

(a) when expressly accepted by a creditor in satisfaction, or(b) when rendered pursuant to an agreement for that purpose though without any new consideration.Meaning:(a)You can accept less for more as long as creditor accepts in satisfaction. (b)The creditor cannot go back on the previous promise to accept less. 

Commentary: IMPORTANT re Judicare Act effectiveness Per McCamus: “Although this provision appears to overrule successfully the very decision in Foakes v. Beer, the statute is

vulnerable to interpretive difficulties in fact situations that stray from that pattern.”  Two worries:

(1) Provision would have problems with agreements where creditor forgives a debt completely. (only applies to cases where there has been part performance)

o part payment must have been made for the statute to apply. Full debt cannot be forgiven (this statue would not apply)

(2) Not totally clear if the provision would treat an agreement to accept less as binding if it has been partially performed, or whether the creditor could renege on the deal partway through the new payment scheme.

o worry is new agreement was agreed on - some payments were done in accordance with new agreement - the past tense of the statue → the agreement has to have been accepted in the past- the payment needed to be fully performed (rendered in satisfiction) - if you are in the process of renderring - the statute might not cover your case. 

Duty Owed to the Promisor – Judicial Reform – next 2 cases are moving in that direction

NAV Canada v Greater Fredericton Airport Authority Inc - (might be enforceable w out fresh consideration) + duress – only law in NB

F Greater Fredericton Airport Authority Inc. (Promisor)Nav Canada (Promisee)

Federal Government entered into an Aviation and Services Facilities (ASF) Agreement with Nav Canada. GFAA was the assignee of the federal government’s duties and rights under the ASF.  Nav Canada was responsible for air navigation services and equipment, on a monopoly basis, at Canadian airports,

pursuant to the ASF.The Airport requested that NAV relocate an instrument landing system (ILS) because one of the runways was being extended.  NAV suggested an alternative which would include purchasing new distance measuring equipment called a DME. The cost of the DME was $223,000 and under the ASF, NAV was responsible for this cost.However, NAV did not want to be bound by the ASF and insisted that the airport pay for the DME.   Otherwise, NAV said, it would not relocate the ILS. The Airport signed a letter “under protest” agreeing to pay for the equipment.  NAV relied on the letter, acquired and installed the necessary equipment.The Airport now refuses to pay.

I Was the Airport’s promise to pay for the DME legally binding?The issue was “whether the party seeking to enforce the post-contractual modification (Nav Canada) had agreed to do more than originally promised (in the ASF agreement) in return for the agreement to modify the contract.” CB 199Consideration must move from promisee (Nav Canada) to promisor (the Authority)Under the existing contract, Nav Canada was required “to provide navigational services at a level it determined appropriate”. McCamus p255So that duty was pre-existing, and the Authority’s promise to pay more looks to be in return for nothing.

A Duress: The law will not enforce contracts made as a result of one party being threatened with physical harm or actually harmed, for

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example. The innocent party has been coerced. Duress is now a broader concept and includes economic duress.Economic duress often takes the form of one party placing financial pressure on the other.  For example, a company might threaten to break a contract that it knows is important to the other side unless the other side gives financial concessions or payments in return. Under the traditional test these concessions will be unenforceable if the coercion went beyond ordinary commercial pressure to a “a coercion of will so as to vitiate consent.” Ordinary commercial pressure is acceptable but going beyond ordinary commercial pressure is not.So – in Nav Canada it was decided that “a variation to an existing contract, unsupported by fresh consideration, may be enforceable provided that it was not procured under economic duress”. (CB 203)Here there was economic duress, so that settled the case.But they still went into an extended discussion of consideration, which will be our focus now…

Consideration:

Nav Canada already had an obligation to pay for the DME. So it has promised nothing new in return for the Authority’s promise to pay for the new equipment.Gilbert Steel is referred to as the leading Canadian authority on post-contractual modifications. We saw in that case that gratuitous promises in that context are unenforceable.This is the classical approach. But in the judgment they consider whether it should remain the legal standard.

They mention that courts have already developed a number of ‘legal fictions’ that enable them to avoid this classical positionFor example, the courts find consideration in impossible cases (legal fiction) like Foot v Rawlings (cheques are not money so good consideration)

They then consider an English case that moves away from the traditional view: Williams v Roffey Bros.

Williams v Roffey Bros In this case, there was a carpenter hired by a general contractor. The carpenter was going too slowly in part

because the agreed price was too low. The contractor was worried about getting a penalty if the job was finished late. So they offered a price increase to

the carpenter in return for the carpenter completing the job already agreed to (so – no fresh consideration from the carpenter).

The court held that as long as the promise wasn’t made under duress, and if the contractor obtains some practical benefit, it can be enforceable. The benefit was avoiding the late penalty (which has to do with their relationship with a third party, not the carpenter).

It is sensible because both parties are happy with the arrangement RATIO: this is an alteration to the idea of consideration  -change of the law. As long as there is a benefit

that you are getting, it does not have to flow from promisor  The benefit was avoiding the late penalty (which has to do with their relationship with a third party, not the

carpenter).

The court in Nav Canada considers Roffey Bros. Should they go down the same road, and move away from the traditional rule in Stilk v Myrick? They say yes, for a number of policy reasons:

The rule in Stilk v Myrick is under- and overinclusive. As a practical matter, variations of this sort are common, and we should protect the legitimate expectations that such

variations are enforceable. The rule creates hardship for those who assume a promise is enforceable and detrimentally rely on it. We shouldn’t be searching for or trying to make up consideration. The consideration doctrine arose for certain reasons, and we now have duress as a better way to deal with the same

problems.

So, the court concludes that post-contractual variations unsupported by consideration can be enforceable if not procured under economic duress. 

It is not about an exchange of the peppercorn – which bargains do we truly want to enforce – the ones that are not under duress – everything else is mutually agreed and enforceable.

They call this an incremental change and say that they are not overruling Stilk v Myrick but rather saying that the rule should not be determinative of whether a gratuitous promise is enforceable.

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H The result was in fact reached on a separate basis from the Consideration point.It was found that the promise was obtained under economic duress, and this made it unenforceable. (CB 203)

R Consideration must move from the promisee (NAV) to the promisor (Authority).“a variation to an existing contract, unsupported by fresh consideration, may be enforceable provided that it was not procured under economic duress”. THe only thing that Nav canada do - if we already have a contract and we try to vary without consideration → then may be it would be okay. Only in the context of variation of contract. So, the court concludes that post-contractual variations unsupported by consideration can be enforceable if not procured under economic duress. They call this an incremental change and say that they are not overruling Stilk v Myrick but rather saying that the rule should not be determinative of whether a gratuitous promise is enforceable.

Rosas v Toca - (consideration signals intention which is important/consideration may not be required for a subsequent promise to be binding (no fresh consideration)) – only persuasive

F Rosas: Plaintiff, Creditor, winner of the lotteryToca: Defendant, Debtor, friend of RosasSoon after winning the lottery, Rosas lent $600,000 to her friend, Toca, the defendant, so that the latter could buy a home.The loan was to be repaid in one year but the plaintiff granted numerous extensions at the defendant’s request.TRIAL:Eventually, the plaintiff sued on the debt but lost at the trial due to the defendant’s successful limitations defense. According to BC law in effect at the time, the plaintiff’s action had to be commenced within 6 years of the debt being due The court starting counting time from January 10, 2008 when the debt was originally due. - she 6 years after that to sue. By this measure, the plaintiff’s action was commenced 6 months too late.  According to the trial judge, the plaintiff’s extensions for repayment did not move the due date (and so the limitations period) forward because they were gratuitous and of no contractual effect. That is, the defendant gave nothing back to the plaintiff in exchange for the contractual variation regarding the loan’s due date.D did not give anything back to P for promise to extend the deadline for payment - so we know for sure that the original contract in 2008 is valid. However, are the extension contractually enforceable to battle the limitations defence?

I Has the contract between the parties been varied in a binding way or does the limitation defence provide a full answer to the plaintiff’s claim?Or, as the judge puts it:“Is it the law that Ms. Rosas cannot rely on Ms. Toca’s various promises to pay “next year” because Ms. Toca gave no consideration for Ms. Rosas’s forbearance to sue?” (CB 204)

A Criticism of common law rule“In my view that is not the law, or at least not what the law should be for variations of existing contracts. The time has come to reform the doctrine of consideration as it applies in this context, and modify the pre-existing duty rule”. (CB 204, emphasis added)They refer to evolution in this area, including Williams v Roffey Bros, Robichaud, Foakes v Beer (the case was altered by legislation - maybe common law should catch up)and the legislative response to it, and Nav Canada.They further note that the Ontario Law Reform Commission has criticized the pre-existing duty rule, and cite academic criticism of it.The rule seems to be not fully enforceable & courts work around it in many cases - it seems to be unsatisfactory

Expansion of Consideration in Rosas:The “central theoretical debate in this case [is]: on what theory should contracts be enforced and does that theory support more expansive enforcement?” (211 CB)In cases where there have been reforms, two issues have been central:

1. Seriousness of the parties’ intentions2. Legitimate expectations of business parties

what is business practice in the industry. What are the expectationsWe could keep searching for consideration, and we could probably find it (like in Foot v Rawlings): in the help provided by Toca to Rosas (driving her, helping in her shop). Or in the benefit to their ongoing friendship.  To look for fictional consideration based on facts - it was not the actual bargain when discussing extension. But the court says: why go through this pretense??

Upshot:

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“[C]ircumstances change and contractual modifications may be desirable and beneficial to both parties.” CB 212Consideration is a signal of intention to be bound. It doesn’t need to be a central concern beyond that evidentiary role (other way of seeing that the parties were intending to be bound)The new RULE:“When parties to a contract agree to vary its terms, the variation should be enforceable without fresh consideration, absent duress (voluntary), unconscionability, or other public policy concerns, which would render an otherwise valid term unenforceable.” (CB 212-213)

almost indistinguishable from Nav  but both cases are not valid in AB - it is only persuasive

H The modifications are enforceable. Therefore the limitations period runs from the last extension, in 2013.Since the claim was filed in 2014, it is within the limitations period.This means Ms. Rosas can collect on the debt.

R The new RULE:“When parties to a contract agree to vary its terms, the variation should be enforceable without fresh consideration, absent duress (voluntary), unconscionability, or other public policy concerns, which would render an otherwise valid term unenforceable.” (CB 212-213).” In cases where there have been reforms, two issues have been central: 1) Seriousness of the party’s intentions. 2) Legitimate expectations of business parties.

6. Protection of Weaker PartiesThese doctrines analyze whether the parties entered into the contract voluntary/freely. The parties genuinely choosing entering into contract. 

1. Duress2. Undue Influence3. Unconscionability

(a) Law of Duress (about application of pressure) The law will not enforce contracts made as a result of one party being threatened with physical harm or actually harmed, for

example. The innocent party has been coerced.  Duress is now a broader concept and includes economic duress. Common law doctrine Economic duress often takes the form of one party placing financial pressure on the other.  For example, a company might

threaten to break a contract that it knows is tremendously important to the other side unless the other side gives certain financial concessions or payments in return. Under the traditional test offered by the HL in Pao On, these concessions will be unenforceable if it is shown that the coercion went beyond ordinary commercial pressure to a force or “a coercion of will so as to vitiate consent.” 

o If coercion is so strong that the question sometimes if the parties entered the contract Ordinary commercial pressure is acceptable but going beyond ordinary commercial pressure is not. Duress: threat/physical violence/economic pressure

Duress Test: New (moving away from Pao On test) McCamus notes that the House of Lords revamped the very strict Pao On test in Universe Tankships (1983), stating that

duress requires showing:o (1) pressure amounting to compulsion of will of the victim [no practical alternative] AND

According to McCamus, this should be easy to determine. There is no one else who could supply the same product. Did they have a choice of doing something else. 

oo (2) the illegitimacy of the pressure exerted.

This can be harder to determine (sometimes is a grey area). Here we have to distinguish legitimate commercial pressure from illegitimate coercion. 

If the conduct would amount to a crime or tort, clearly illegitimate. If there is a threat of committing a crime then it is clearly illegitimate

If the breach is unavoidable for one party (ex. unavailability of resource), then it will not count as duress. 

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ex. Gilbert Steal - prices increases - they warn the university about the price fluctuation - not duress. If there is no price rise, but they are saying that they are going to charge them more - clearly trying to get a benefit out of the other party  is problematic - duress

Example, threaten to tarnish employee’s reputation etc.  it is usually a judgement call for courts based on the facts of the case. 

Per McCamus, most Canadian courts seem to be following the HL’s decision in Universe Tankships. That is, at least in the context of threatened breach of contract, there is an apparent shift away from the “overborne will theory of Pao On” to the “no practical alternative coupled with illegitimate pressure test set forth in Universe Tankships.”  

Attila Dogan Construction and Installation Co. v AMEC Americas Ltd (ABCA): Duress TEST

1. Did a party apply economic pressure that can be characterised as illegitimate …. ? Economic pressure can amount to duress, provided it may be characterised as illegitimate ….

2. Threats to break a contract will be illegitimate when the defendant knows that it would be a breach of contract … (this point is basically an elaboration on point 1)

exception when parties are trying to warn re breach based on legitimate circumstances. 3. it is relevant to consider whether the claimant had a “real choice” or “realistic alternative” and could, if it had

wished, equally well have resisted the pressure and, for example, pursued practical and effective legal redress. If there was no reasonable alternative, that may be very strong evidence in support of a conclusion that the victim of the duress was in fact influenced by the threat.

we are considering the will whether the parties wanted to contract.  having options available could be relevant bc it would be harder to argue because you

could have taken the other options4. the presence, or absence, of protest, may be of some relevance when considering whether the threat had coercive

effect. But, even the total absence of protest does not mean that the payment was voluntary. not decisive, but provides indications. 

ADDITIONAL: Indicia of Duress (from Attila) - this is supplementing the analysis after the test is doneThe presence of duress is often tested by looking for certain indicia or “badges” of duress.(a) Whether the party protested at the time the agreement was entered into;(b) Whether the party had a realistic alternative to entering into the agreement;(c) Whether the party had the opportunity to speak with independent legal counsel;(d) Whether, after entering into the agreement, the party took steps to avoid it within a reasonable period of time; and(e) If a party can show that points (a) to (d) are met, whether the pressure exerted was illegitimate. We are looking for other red flags of duress that might indicate the duress that might trigger the Attila test of duress These indicia are not decisive on its own regarding establishing duress - behavior that might indicate that a party was not engaged in the contract - red flag for duress.

Attila Test Applied to NAV

1) Did Nav Canada apply economic pressure that can be characterised as illegitimate …. ? the airport invested money into the runway - they do not have choice - airport needs to function

2) Threats to break a contract will be illegitimate when the defendant knows that it would be a breach of contract … (this point is basically an elaboration on point 1)

Nav is trying to breach purely bc they dont want to pay for the equipment (unlike Gilbert Steal where the price increased for the whole industry)

3) Was there a real choice or realistic alternative for the Airport? bound by contract  Nav Canada is a monopoly

4) Did the airport protest … ? this is not definitive element. The airport contact had “under protest” - it is further evidnce in the

future dispute, on its own it is not legally binding. It is just indication of your belief that it is not something you legally required to do. 

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(b) Undue Influence (about power and categories of relationship) (equitable doctrine)

Undue Influence exists when “there is an ability to exercise exceptional power in relation to another person’s choices.  It is a power of persuasion that is objectionable usually because it arises out of a confidential or other special relationship between the parties.”

Undue influence is an equitable doctrine, used when you exhausted common law remedies.  It is engaged when one person has used their power over another to induce them to enter a transaction. 

PRE-EXISTING RELATIONSHIP REQUIRED to find undue influence If yes to undue influence, the contract would not be liable. Two types: to have undue influence claim it must fit into one of the categories

(1) Actual undue influence: plaintiff must demonstrate the actual use of the power in this situation.(2) Presumptive undue influence: plaintiff must prove that the parties have a relationship of such a nature that the

court may presume that power was exercised in this case.i. 2(a) Recognized relationships such as solicitor/client; doctor/patient

1. Spousal relationship is not recognized category (Bank of Montreal v Duguid)ii. 2(b) Trust is this particular relationship. Relationship not falling into such 2(a) category, but the particular

nature of the relationship here gives rise to the presumption of power1. Spousal might be if show clear dominance and lack of knowledge (Bank of Montreal v Duguid)

How to establish undue influence: (1) the complainant has to show that the relationship was of trust and confidence in its nature - then the person abused the

power.  (2) Once that relationship is proven, switch of burden of proof: The wrongdoer needs to prove that the PL entered into

contract freely (disapprove the undue influence)

Bank of Montreal v. Duguid - spousal relationship is not recognized category, might not raise undue influence as is the case here

F Mr. Duguid and his business partner applied for a loan from the Bank of Montreal.Bank asked for Mrs. Duguid to cosign the loan. Mr. Duguid asked his wife to do so, and she did. The bank ordinarily had a policy of recommending independent legal advice to the cosignor, but did not do so in this case. Cosginer will liable for loan default - that is why bank recommends to obtain legal advice.Loan went into default, Mr. Duguid declared bankruptcy, and BMO sued Mrs. Duguid for the outstanding amount ($87,000). 

I Did Mrs. Duguid cosign the loan as a result of her husbands’ undue influence? If yes to undue influence, the contract would not be liable, Mrs Duguid would not be owing the money because that co-signing contract would be set aside (because the bank did not ask whether they had independent legal advice)

A HELD: No undue influence.Husband and wife is not a category of undue influence like doctor/patient, solicitor/client. (this is not a pre-established category  - so the contracts between husband and wife will not always raise undue influence concern)To make out the claim, they would instead have to fit under category 2B.But they failed to make this claim. As a real estate agent, she knew the risks and was not dominated by her husband’s influence. So we cannot presume undue influence. 

Dissent: one factor in this relationship - there was a rough patch in their marriage so she felt compelled to sign the loan to preserve the relationship. So in equity, you can raise these concenrs and see if they work. In this case, the majority decided to not goes this way.

H No undue influence.R Husband and wife is not a category of undue influence like doctor/patient, solicitor/client. (this is not a pre-established

category  - so the contracts between husband and wife will not always raise undue influence concern)

(c) Unconscionability (inequality of bargaining power) (equitable doctrine)

Unconscionability is similar to Undue Influence. It is also an equitable doctrine. This could be between complete strangers (unlike in undue influence where there is a pre-existing relationship)

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It can also apply in situations where there is a pre-existing relationship, but it is nor required as in undue influence However, it permits courts “to set aside agreements where, even in the context of bargaining by complete strangers,

unfair agreements resulted from an inequality of bargaining power.”

** Apply both test – choose one and say why (Downer – lower threshold)The test in Alberta comes from Cain v. Clarica Life Insurance, and requires:

1. a grossly unfair and improvident transaction; o Pretty high standard, should be extreme situation o Ex. Bargains that go too far – exchange peppercorn for a house

2. victim’s lack of independent legal advice or other suitable advice; o does not make it or break the case - depends on the facts of the case whether it goes towards unconscionability or

not. 3. overwhelming imbalance in bargaining power caused by victim’s ignorance of business, illiteracy, ignorance of the

language of the bargain, blindness, deafness, illness, senility, or similar disability; (ignorance of business) and o we are not looking just for unequal bargaining power - it is likely that one party is more powerful than the other. The

disadvantage has to be significant or extreme. 4. other party’s knowingly taking advantage of this vulnerability (contract that favours one side too much)

o it is not clear whether the party needs to be aware of the vulnerability. o mental illness - the farmer is selling the farm 5 dollars - the buyer should be on notice and inquire if there is some

vulnerability here that they are about to take advantage of.

It is not exact checklist where all 4 are required. Apply all 4 but 2 might not be required

Criticism Downer v Pitcher.  As it is an equitable doctrine, fairness is always a core touchstone. We could see courts moving closer to the analysis from

Downer v. Pitcher where we are less concerned with specific linguistic touchstones such as ‘grossly unfair’.o equitable remedies should not be as harsh and ruled bind as the common law.o pull back from linguistics and find out whether it was an unfair transaction. o inadvertently favours 2 step test because we cannot confine analysis in detailed steps - we need to have a general

framework that will allow us to look at the facts with some flexibility. Equitable doctrines of this sort are always highly fact-dependent. We want to have scope to make a fair assessment.

Justice Abella in Douez suggests a 2-Step Test (at para 115):“Two elements are required for the doctrine of unconscionability to apply: inequality of bargaining powers and unfairness. Prof. McCamus describes them as follows:. . . one must establish both inequality of bargaining power in the sense that one party is incapable of adequately protecting his or her interests and undue advantage or benefit secured as a result of that inequality by the stronger party. there is a lot of overlap with Titus on all 3 elements: unfairness (element #1) and inequality of bargaining powers (element #3 and 4)

How is it related to contractual variation? To conclude, and connect this back to contractual variations, under the Rosas test, such variations will be enforceable absent duress, unconscionability, or public policy concerns. As we’ve seen, these are a high bar to meet. 

Heller v. Uber Technologies Inc – unconscionability tests – Arbitration clause unenforceable bc unconscionable

F Heller is a case from the Ontario Court of Appeal, leave to appeal to the SCC granted.Heller: Appellant; licenced Uber Eats DriverUber: Respondent; Company providing platform through which customers can access rideshare and food deliveryHeller brings a class action arguing that Uber drivers are properly seen as employees (we aren’t looking at the employment law aspect).Service agreement between Heller and Uber stated that the law of the Netherlands would govern any disputes and such disputes had to be brought in the Netherlands.That process would cost approx $14,500 USD, when an Uber EATS driver like our plaintiff typically earns between $20k and $30k/year→ looks pretty prohibitive for the plaintiff to pursue the action

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→ this clause is taking away the right from HellerI Is the agreement enforceable, or can Heller successfully argue unconscionability in order to avoid the application of the

arbitration agreement?A The test in Alberta comes from Cain v. Clarica Life Insurance, and requires:

1. a grossly unfair and improvident transaction; 2. victim’s lack of independent legal advice or other suitable advice; 3. overwhelming imbalance in bargaining power caused by victim’s ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; (ignorance of business) and 4. other party’s knowingly taking advantage of this vulnerability.

OR/ AND

Justice Abella in Douez suggests a 2-Step Test (at para 115):“Two elements are required for the doctrine of unconscionability to apply: inequality of bargaining powers and unfairness. Prof. McCamus describes them as follows:. . . one must establish both inequality of bargaining power in the sense that one party is incapable of adequately protecting his or her interests and undue advantage or benefit secured as a result of that inequality by the stronger party. [Emphasis added; pp. 426-27.]”

Which Test?The court in Heller says there is no need to resolve the question of which test applies, because “under either test, I find that the Arbitration Clause is unconscionable.” (para 62)Of course, there may be circumstances where it will make a difference.The court finds that the Arbitration Clause does fail to be enforceable on grounds of unconscionability. It applies the test from Titus (which, as we saw, is the test from Cain)

Application: 1. “a substantially improvident or unfair bargain”. (Note that this is not quite the wording from Titus).

- they failed to apply exact wording from Titus - either way gets to the same end result. 2. Lack of legal advice. No evidence here of any legal advice.3. Significant inequality of bargaining power here. (Uber acknowledges this).

- Uber para 68 conceeded this point4. Other party knowingly took advantage of the vulnerability.

- uber is advantaging itself and took advantage of drivers.  It is a reasonable inference that Uber did this knowingly.

Therefore, all four elements are met, and the two elements from Douez would also be met. H The court finds that the Arbitration Clause does fail to be enforceable on grounds of unconscionability. It applies the test from

Titus (which, as we saw, is the test from Cain)

7. Promissory Estoppel and Waiver (equitable doctrine)Equity and Common Law:

The English legal system had common law courts, as well as a separate system: the Court of Chancery, which evolved ‘equity jurisprudence’.

These courts were meant to do justice and mitigate the harshness of the common law. The courts were eventually merged, but the conceptual distinction remains: we have equitable doctrines that courts can still

apply.

Estoppel There are many kinds of estoppel. The basic idea is that a person is ‘estopped’ (stopped), or prevented from doing or claiming a certain

thing, because of their own prior actions. Promissory estoppel is just one kind of estoppel (someone is estopped from going back on that

promise) As we will see, it depends on a person having made a representation, which they are estopped from

going back on.

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The Doctrine of Waiver: A party can waive their right by conduct (Hughes v Metropolitan Railway)

o If parties who have entered into a definite contract and afterwards by their own act or with their own consent enter into a course of negotiations which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties.”

Estoppel by Representation (this doctrine refers to representations as to present or past facts NOT future act/fact)

It holds that “one who has induced another party to act to his detriment on the faith of a statement of fact will not be allowed in subsequent litigation to deny the truth of the fact in question.”

o if you claimed something and some else relied on that statement as truth - you cannot go back on that statement. 

o ex. different representation from future- I will sell you something in the future - not representation - contract law lawsuit.

o ex. you sell puppies - the puppy is trained  but in fact it wasn’t - representation is wrong (representation is about existing facts)

Representations about the future are different: they are promises and need to be in the proper form of contracts. (i.e. they need consideration).

→ The landlord made a representation that he will accept less money - this is NOT estoppel by representation because it is about a future act of the landlord. 

Promissory Estoppel

It depends on a person having made a representation, which they are estopped from going back on. Promise intended for the other party to act on and the other party act on it.

o “a promise was made which was intended to create legal relation, and which, to the knowledge of the person making the promise, was going to and was acted on by the promisee. In such cases the courts have said that the promise must be honored.” (High Trees)

Elements to establish a claim of promissory estoppel:(1) The first element is that there must be a legal relationship between the parties (pre-existing relationship) (Co-

Operative Trust Co of Canada v. Atlantic Steel Buildings Ltd) i. This is not usually too controversial – we are looking at situations where there is an attempt to vary an

already existing contract, so there is a legal relationship.(2) There is a clear promise, assurance or representation by the representor.

i. The core element of the doctrineii. Per MacDougall, supra at 338, what is required are “words or conduct by the promisor clearly constituting

a promise or an assurance to the promisee that the use of the promisor’s rights or some other legal stipulation will be altered in some way.”

iii. We need to establish that the party who varies terms made a promise (through conduct or words) which was intended to affect the legal relationship or the parties, and intended to be acted on.

iv. “[T]his type (promissory estoppel ) of equitable defence cannot be invoked unless there is some evidence that one of the parties entered into a course of negotiation which had the effect of leading the other to suppose that the strict rights under the contract would not be enforced.”

v. Ex. High Tress – promise to reduce rent (court enforces for the indented portion of time)vi. By conduct Huhes vs Burrows

1. Hughes v Railway (and WJ Alan coffee case): representation by conduct is binding in this case – the process itself and the conduct of owner signalled that the notice effectiveness is postponed (formal process, business relationship)

2. John Burrows v Subsurface Surveys: by conduct “granted friendly indulgences…while retaining his right to insist on the letter of the obligation”

3.vii. we need an indication of clear intention not to enforce the right in the future. 

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viii. On the exam analyze: Burrow (firendly indulgence) vs. Hughes (promise about the future behavior) & Hightrees (the promise to reduce rent)

(3) The representee acts on/ relies on the promise, assurance or representation of intention by the representor i. So, the person needs to actually act or rely on the promise

ii. Detriment?: Exam: consider both arguments for requirement of detriment and no requirment of detrimenet (Denning) - this is a non decided area of law.  (1) Court may require detriment: WJ Alan are the evidence of detriment. (2) If court is does not require detriment, we can show reliance (on the benefit for example) instead of detriment. YES Requires Detriment:

o Wilson JA in Gilbert (CB 188) (re: customer’s gratuitous promise to pay more for steel) requires detriment in her definition of PE.

o Robertson JA in Nav Canada at para. 23 also recites the detriment requirement, stating: Regrettably, the fact that the plaintiff [Nav Canada] may have relied on the agreement [by the Airport to pay for the equipment] to his or her detriment  is of no consequence as promissory estoppel may be invoked only as a sword and not as a shield [sic]...

o Goff J in Post Chaser (CB 228): We didn’t look at this case but detrimental reliance is required here as well.

NO – Detriment is NOT Required:o Lord Denning in WJ Alan (CB 224) says detriment is not required, focusing instead on the

equities. Question here was whether it is inequitable for the representor to go back on the

promise. For it to be inequitable, all that is needed is that the representee conducted his affairs in reliance on the representation, even if no detriment was suffered.

o Maracle defined promissory estoppel with no express reference to a possible detriment requirement: “The principles of promissory estoppel are well settled. The party relying on the doctrine must establish that the other party has, by words or conduct, made a promise or assurance which was intended to affect their legal relationship and to be acted on. Furthermore, the representee must establish that, in reliance on the representation, he acted on it or in some way changed his position.”

What is detriment1. Should be considered in a broad and flexible manner. It goes to the idea that the promisee will

be worse off if the promisor goes back on the promise (McDougall)a. It could be that there is some cost incurred in reliance.

2. Look at factors such as prejudice, wasted expenditure (not just a loss of the benefit they gained). Promissor taking back its promise might create prejudice. it is also about detrimental reliance - it is not only taking away the promise that disadvantaged someone but it also has to show that reliance on that promise .

a. Roubichaud: detrimental reliance: mortgaging your matrimonial home and arranging financial offers. Here there is a detriments: selling your home and did not result in bank fulfilling its promise

(4) Promissory estoppel is an equitable doctrine such that : i. a) the representee must have acted equitably in order to raise the defense of Promissory Estoppel AND

1. Person who makes estoppel claim needs to act equitably2. Here we are concerned with the recipient of the promise as opposed to other 2 elements. 3. the idea of clean hands: you cannot ask the court to do equity on your behalf if you have not

acted equitably yourself.4. D & C: women knowingly applying undue pressure on the company (no clean hands)

ii. b) it must be inequitable to allow the representor to resile/change. (not inequitable going forward/might be going backward)

1. MacDougall at 312: If there is established a promissory estoppel the effect is to hold the promisor to the promise or assurance if and as long as it is equitable to do so.  Even if the usual basic prerequisites of promissory estoppel are established, the circumstances may make it unfair to find or give effect to the promissory estoppel.  Furthermore, the effect is suspensory in nature in most cases unless the equitable considerations make it necessary to give the promise permanent effect. In most cases, therefore the promisor can terminate the effect of the estoppel on giving reasonable notice to the promise.

2. HightTrees (wartime case) - owner needs to give notice to the lender the rates will change. 

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3. D & C: Promissory estoppel will not apply when it is not inequitable for the promisor to go back on the promise. If the promisee did not act equitably, then it may be permissible for the promisor to go back on the promise.

(5) Shield not Sword: i. There is no pre-existing contract in the first - you cannot turn promise into enforceable one via promissory

estoppel as it is used for variation of contracts (Combe)ii. MacDougall: The greatest constraint of promissory estoppel is that it cannot be used to found a cause of

action. iii. If the other party has a claim against you though, you can use this to block it; use it as a defense (Combe)

1. So, it doesn’t work in Combe v Combe because the wife is trying to use it as a new cause of action.

2. But it works in, e.g., High Trees, because the landlord is suing, and the tenant is using promissory estoppel to defeat that lawsuit.

3. BUT Robichaud is pushing that boundary. The doctrine is weakening, but it might be limited to situations like Robichaud (this is unlike the Combe case – where husband would not sue)

a. It could be raised as a defense in this case (different from wife case - she could not do the same - because it is available to Robichaud as a defense depending on the side of the argument)

b. Robichaud could wait until the bank seizes his goods, and then he could object to that, the bank would sue him, and then he could use it as a shield. 

Hughes v Metropolitan Railway Company -(representation by conduct can be binding) -precursor case for promissory estoppel

F This is the precursor case for promissory estoppel.Metropolitan Railway Co:(Respondent; Tenant)Hughes: (Appellant; Landlord)Under its lease, the Railway company had an obligation to repair the property within six months of the landlord’s written notice. OCTOBER 22, 1874: landlord serves notice to repair.NOVEMBER 28, 1874: Tenant offers to sell leasehold back to landlord and proposes to defer repairs pending the landlord’s decisionLandlord never responded to T’s proposal to defer repairs.Parties negotiate re selling lease until the end of December, 1874 at which point negotiations break down.APRIL 19, 1875: three days before notice to repair would expire, tenant said it was now undertaking repairs.APRIL 28, 1875: Landlord serves tenant with writ of ejectment (eviction of the tenant).JUNE, 1875: Tenant completes repairs.Landlord wants the writ enforced notwithstanding.

I When does time run against the tenant? 6 months from October or from the negotiation period. Based on the lease it should be from October - but there is some flexibility

A Waiver:The idea here is that the negotiations of the parties led the tenant to believe that the landlord was not going to enforce the time limit. 

the tenant was led to believe that the time was suspended - because landlord engaged in conversation re sale. “The landlord had waived his right to insist on strict performance of the agreement and could not now insist on doing so.” (McCamus 285)

This is the doctrine of waiver. You cannot, e.g., waive a delivery date and then insist on goods being delivered on that date.

Held: The time limit imposed for carrying out the repairs was suspended during the negotiations.

Lord Cairns CJ:-"It is the first principle upon which all Courts of Equity proceed, that if parties who have entered into definite and distinct terms involving certain legal results - certain penalties or legal forfeiture - afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties."

What was waived here was the right to insist on the terms of the notice to repair. In other words, the landlord can no 33

longer insist that the repair has to be completed within six months of the notice being issued.Instead, since the negotiations broke down on December 31, the time to complete the repairs would run from that date instead. If we count the time from that date, the repairs were completed in time. It is because of the landlord’s own actions that they find he has waived his rights. That is, by entering into the course of negotiations, he implicitly promised that the notice to repair would be suspended while negotiating.There is an implicit promise to suspend the repairs because there is an opportunity to sell the lease. From break down, the party undertook the repairs within the right time frame. Landlord behavior led the party to believe that he suspends the repair  because he did not say that the repairs are still in force.

H Appeal dismissed. Landlord cannot evict the Railway Company. The time limit imposed for carrying out the repairs was suspended during the negotiations.

R If parties who have entered into a definite contract and afterwards by their own act or with their own consent enter into a course of negotiations which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties.”

Essentially, the negotiation of the parties led the tenant to believe that the landlord was not going to enforce the time limit. The landlord has waived his right to insist on strict performance of the agreement and could not now insist on doing so.

Central London Property Trust Ltd v High Trees House Ltd (sometimes promises are enforceable without consideration- Introduces promissory estoppel) Developed Promissory Estoppel

F Railway case - waiver is precursor to promisory estoppel & High Trees - develops promissory estoppel.Central London Property Trust Ltd: Plaintiff/Landlord/Parent company to DefendantHigh Trees House Ltd: Defendant/Tenant/Subsidiary

SEPTEMBER 24, 1937: Landlord (L) and Tenant (T) enter into a 99 year lease at £2,500 a year. JANUARY 3, 1940: L volunteers to reduce rent to £1,250. This was in response to flats not being fully occupied due to war time conditions in London. 

promise to accept less for no consideration. MARCH 20, 1941: One of L’s creditors put L into receivership.JANUARY 1945: flats were fully let (more occupancy). (T paid reduced rent from 1941 to beginning of 1945 when all the flats were fully let and continued to pay a lower rent even after that.)SEPTEMBER, 1945, the receiver discovered this and presumably wanted to recover more for the creditors of the L. SEPTEMBER 21, 1945: receiver demanded full rent from T going forward plus arrears of £7,916.end arrangement from now on and give us money back for the last years. (In these proceedings, receiver is testing the legal position and only seeks arrears of the full rate for two periods: for the quarter ending September, 1945 and for the quarter ending December, 1945.) If you can claim that amount, he wants claim the full amount later. → Common law: L can claim the money back - no consideration

I Is the receiver/landlord prevented from seeking arrears (money that is owed and should have been paid earlier)? A Defendant Argument:

That the letter of January 3, 1940, constituted an agreement that the rent should be £1250 only. BUT: there is no consideration, so there is no actual agreement

That the plaintiff is estopped (stopped from going back on representation that the rent is $1250)from alleging that the rent is more than £1250.

That by failing to demand more than the £1250, the plaintiff waived their right to any extra rent.  comes from Hughes v Railway case - they have been accepting the lesser amount for

months - so your behavior indicates that is all you wanted and you waived your right to demand more. 

Denning:I prefer to apply the principle that a promise intended to be binding, intended to be acted on and in fact acted on, is binding so far as its terms properly apply. The rent reduction was done to accommodate wartime hardship of finding renters. So that is why only partial amounts are being recovered.

Promise (promissory estoppel): intended to be binding

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it was intended to be binding for the duration of the war  intended to be acted on  and was acted on 

Traditional position does entitle plaintiffs to recover rent for the full amount for the full term.  This is a variation without consideration. Promise to reduce the rent for no promise in return, it was gratuitous

promise He discusses estoppel by representation, but says it will not apply, because that doctrine refers to

representations as to a present or past facts. Representations about the future are different: they are promises and need to be in the proper form of contracts.

But there have been developments since this traditional position developed. He discusses a number of cases which have been called cases of estoppel but are not traditional instances of the

doctrine.  “They are cases in which a promise was made which was intended to create legal relations, and which, to the

knowledge of the person making the promise, was going to be acted on by the person to whom it was made, and which was in fact so acted upon. In such cases the courts have said that the promise must be honoured.”

Denning refers to the fusion of law and equity, and says that Hughes and other cases give us “a sufficient basis for saying that a party would not be allowed in equity to go back on such a promise. In my opinion, the time has now come for the validity of such a promise to be recognized.” CB 217

In other words, he is widening the scope of waiver in Hughes. In so doing, he essentially creates the doctrine of promissory estoppel (covers cases when the breach has not occured - covers other cases that are not covered by waiver). The promissory estoppel covers the gaps that left by waiver.

Under this doctrine, the undertaking made by the landlord results in him being estopped from claiming for the full original contractual amount.

H The facts here go beyond the know waiver doctrine → so Denning invents promissory estoppelDenning decides in favour of the plaintiff company for the amount claimed: i.e., just for the final two quarters, during the time when the flats were rented. Full rent was payable for that period. But for the earlier period: no back payment.

R A promise intended to be binding, intended to be acted on and is acted on, is binding so far as its terms properly apply. Denning widened the scope of waiver and essentially create the doctrine of promissory estoppel.

(a) The Nature of the Representation (element #2 of the promissory estoppel claim)

John Burrows Ltd v Subsurface Surveys Ltd -(Nature of conduct/behavior can indicate a promise made) - #2 element

F John Burrows Ltd. (plaintiff; owns business)Subsurface Surveys Ltd. (defendant, buyer)• Defendant purchased plaintiff’s business for over $127,000 • $42,000 of that sum was secured by a promissory note whereby the defendant promised to make regular monthly payments to the plaintiff • The acceleration clause permitted the plaintiff to claim the entire balance at once if there was a default of more than 10 days on any given monthly payment • Over 18 months, defendant was always more than 10 days late with each payment (!!) but the plaintiff never complained nor invoked the acceleration clause• The parties then had a falling out and when the defendant was late with the next payment, the plaintiff invoked the acceleration clause and sued for the whole amount owing.

I Does the defense of promissory estoppel apply? 

Defendant argues that the PL given the representation (diff from estoppel by representation) by conduct that he will not use the acceleration clause (a promise). Theoretically it is possible for conduct to amount to representation of a promise.  So Burrows behavior amounts to something like a promise that they will not use that clause in the future?

A NO: Subsurface Surveys cannot use Promissory Estoppel to prevent Burrows from insisting on his legal rights. He can sue for the entire amount.In Hughes (the railway case) we saw that behavior was enough. . . but not here why?“[T]his type (promissory estoppel ) of equitable defence cannot be invoked unless there is some evidence that one of the parties

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entered into a course of negotiation which had the effect of leading the other to suppose that the strict rights under the contract would not be enforced.” (CB 219)

here, Burrows had just “granted friendly indulgences…while retaining his right to insist on the letter of the obligation” (CB 220)

this  is arguable dependent on the facts: by looking at words and action  or situation (Hughes - it would be not very logical to fix and negotiate a sale) unless you have a clear explicit representation. 

 Courts dont want ppl giving up contractual rights based on letting “friendly indulgene” happen.

So: we are looking for a representation that indicates an intention to change rights going forward. It does not have to be an explicit verbal statement, but it needs to be more than this kind of ‘friendly indulgence’.  we need an idnication of clear intention not to enforce the right in the future. 

H NO: Subsurface Surveys cannot use Promissory Estoppel to prevent Burrows from insisting on his legal rights. He can sue for the entire amount.

R This type of equitable defense cannot be invoked unless one of the parties entered into a course of negations which had the effect of leading the other to suppose that the strict right under the contract would not be enforced.

Here burrows had just granted friendly indulgences while retaining his right to insist on the letter of the obligation. Promissory estoppel cannot be used to prevent Burrows from insisting on his legal rights. He can sue for the entire amount

(b) The Equities (Element #3)

D & C Builders Ltd v Rees - (You need clean hands to get equity, as equity stops unjust results) element #3

F D. & C. Builders: plaintiff; a ‘little company’ engaged in small construction jobs.Rees: defendant; had had work done by D&C.

Defendant, Rees, employed plaintiffs to do work on his house. Plaintiffs did the work and rendered accounts. Part of the amount was paid, and no dispute about the quality of the work was made at the time of the partial payment. £482 was still owing.D & C started to press for payment several times, and only then did Rees start to complain about the quality of the work. Mrs. Rees offered £300 pounds on a £480 pound account. In her view: “300 pounds is better than nothing.”

not raising complaint before - raises the issue of genuine concern.Donaldson and Casey talked it over and decided to accept the £300 and see what they could get later. They were facing bankruptcy and needed the money immediately.On November 14, 1964, Mrs. Rees gave Casey a cheque and insisted on a receipt stating that the tendered sum was “in completion of the account.” Casey felt he had no choice: “if I did not have the 300 pounds the company would have gone bankrupt. The only reason we took it was to save the company. She knew the position we were in.” CB 222On November 23, 1964: the plaintiffs went to see their lawyer for help. Lawyers wrote to the debtor saying the whole amount was owed. The defendants replied alleging bad workmanship plus a binding settlement.

I (a) is there consideration supporting the creditor’s promise to accept the lesser amount in full satisfaction of the whole? (common law) - there is no consideration (b) is the creditor estopped from seeking the balance? (equity law)⇒ common law and equity run parallel to each other after common law issue, you can request equity issue

A Remember that accord and satisfaction requires an ‘accord’—the agreement—and ‘satisfaction’—i.e., something that is not monetary in satisfaction of accepting less money (earlier payment, or giving a peppercorn, or…).Trial judge said no, there was no accord and satisfaction here.Defendant appeals: says there is accord in agreeing to accept 300; and satisfaction in the accepting of a cheque instead of cash. (remember Foot v Rawlings…)But trial judge said the cheque was not in consideration of the smaller amount – it was an ‘incidental arrangement’. Bear in mind that this case (like many others and like academic commentators) is critical of Foot’s ‘cheque’ argument.the facts are also different from Foot Rawlings - this case is highly criticized - many courts look for ways around it. 

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In point of law, creditor is not bound by a promise to accept less. He can sue for the balance. This is the rule from Pinnel’s Case, accepted in Foakes v Beer.This common law doctrine has been much criticized. But “Equity has stretched out a merciful hand to help the debtor.”Relying on High Trees, the court says:“[W]hen a creditor and a debtor  enter on a course of negotiation, which leads the debtor to suppose that, on payment of the lesser sum, the creditor will not enforce payment of the balance, and on the faith thereof the debtor pays the lesser sum and the creditor accepts it as satisfaction: then the creditor will not be allowed to enforce payment of the balance when it would be inequitable to do so.” (CB 223)can use promisory estoppel for these case only when it would be equitable to do that. 

Here there was no true accord. Mrs. Rees held the creditor to ransom. Her threat to break the contract (by paying nothing if they didn’t take 300) was undue pressure.“There is also no equity in the defendant to warrant any departure from the due course of law (common law treated first and when the remedies are not succeeded then you can use equity to depart from common law). No person can insist on a settlement procured by intimidation.” CB 223-4Promissory estoppel will not apply here because it is not inequitable for the plaintiff to go back on the promise.

H Appeal dismissed: “there is no reason in law or equity why the creditor should not enforce the full amount of the debt due to him.”Held: D&C builders can enforce the full amount

R Foot is widely critiqued. Creditor is not bound by a promise to accept less under intimidation.

(d)The Reliance

WJ Alan & Co. v El Nasr Export & Import Co - (if a variation is endorsed by conduct, there is reliance and a future focused intention, it cannot be changed later)

F El Nasr Export & Import Co. (Egyptian Buyer of coffee)W.J. Alan & Co. (Kenyan coffee producers; sellers)Parties were in two separate contracts for the purchase and sale of coffee. Contracts recite that purchase price is in Kenyan shillings (the vendor’s currency).Purchase price is to be paid pursuant to confirmed letter of credit. Contract calls for KENYAN SHILLINGS but the letter of credit was opened in BRITISH STERLING.Sellers did not object as the two currencies were largely on par.SEPTEMBER/67: sellers ship the product due under the first contract and some of the product for the second contract. Sellers invoiced the bank in sterling and accepted payment from the bank in sterling.NOVEMBER 16/67:  sellers ship balance of product due under the second contractNOVEMBER 18th, sellers prepared an invoice in sterling but before presenting it to the bank, learned that sterling would be devalued though it was not clear if the Kenyan shilling would move down as well. → this is some uncertaintySellers nonetheless accepted payment in sterling.NOVEMBER 21/67: Sellers learned that the Kenyan shilling would not be devalued. Sellers have now invoiced the buyers for an extra 165,000 Kenyan shillings to offset the devaluation.Buyers refuse to pay the extra.

I Can the sellers insist on the terms of the contract? Has there been an enforceable variation? (i.e. was the currency of the contract varied when the letter of credit was opened in sterling?) Who made the variation? → sellers made a representation via conduct to accept British sterling.Are the sellers estopped from reverting back to their strict contractual rights? (i.e. from insisting on the full contract price in Kenyan shillings)

A Common law arguments is done 1st- there is a variation by good consideration. Therefore, Megaw does not move to equity consideration.

Megaw J: the contract has been varied.Why? How?Contract was varied by conduct and its valid variation because there is a variation. There is no one-sided variation. Here, because the currency could have gone either way - it is two sided variation. Because parties do not know which way the currency goes, so potentially both parties can benefit.

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Offer and acceptance argument: See p 225.Treitel on consideration:The parties may agree to vary their contract in a way that can benefit either party.  Such a variation again normally generates its own consideration. This is the position if…[there is a variation to] the currency in which payment is to be made [citing WJ Alan].  In the latter case, it would make no difference that the currency was later devalued in relation to the old, for at the time of the variation it could not be certain how the two currencies would move in relation to each other; hence either party might benefit from the variation.  

Denning Judgment: the most important judgement Denning does not agree with Megaw common law assessment, so he moves on to equity. Denning: This is an instance of the principle we saw in Hughes and in High Trees.We know that we need reliance to establish promissory estoppel. Does reliance need to be detrimental?Denning: There may be no detriment. “Nevertheless, [the party who acts on the belief] has conducted his affairs on the basis that he has that benefit and it would not be equitable now to deprive him of it.” CB 227

What would be inequitable about the depriving of the benefit in this case?🡪 Did they (coffee buyer) enter into another contract on the basis of the previous promise by the seller. 

Note: Denning also says that in some instances it is possible to go back to the strict legal rights by giving reasonable notice (this way it will not be inequitable to do this - ppl can prepare to adjust their business and previous reliance)

Stephenson Judgment: not as important“In this case the buyers did, I think, contrary to the judge’s view, act to their detriment on the sellers’ waiver, if that is what it was, and the contract was varied for good consideration…” 227-8 CB

So: he says he does not need to settle the question of whether detriment is required.🡪⇒ So all of the judges agree that Buyer is successful and the seller cannot go back on their contractual variation. H the contract has been varied.R The parties may agree to vary their contract in a way that can benefit either party which normally generates its own

consideration. If there is a variation to the currency in which payment is to be made, it would make no difference that the currency was later devalued in relation to the old currency as it could not be expected (either party could benefit). Denning: you don’t need detriment. You need reliance. Stephenson: there is detriment and the contract was varied for good consideration.

(e)Sword or Shield

Combe v Combe (Shield not a sword) – can bring a cause of action via promissory estoppel

F Mr. Combe (appellant)Mrs. Combe (respondent)There was an agreement, negotiated with the assistance of lawyers, that husband would pay wife 100 pounds a year as permanent maintenance.AUG. 26, 1943: The now ex-wife’s solicitor wrote to the husband for the first instalment but the ex-husband never paid anything under the agreement.The ex-wife pressed for payment privately but never instituted a legal action.THERE IS NO VARIATION - original contract is the problem - not clear if there considerationJULY 28, 1950: The ex-wife brought an action for arrears in the amount of £675. The wife is truing to sue on gratuitous promise by using promissory estoppel

TRIAL:At common law, the husband’s promise was not enforceable because there is no consideration. She successfully relied on promissory estoppel: even though there was no consideration, the promise was enforceable “because it was an unequivocal acceptance of liability, intended to be binding, intended to be acted on and, in fact, acted on.” (CB 233)She received judgment in the amount of £600 due to a partially successful limitations defence.

I 1. Is there consideration supporting the husband’s promise to pay £100 a year as permanent maintenance?2. Is the husband bound by his representation that he would pay £100 a year as permanent maintenance via promissory estoppel?

A Denning: “Much as I am inclined to favour the principle stated in the High Trees case…[Which he invented!!!]…it is important that it should not be stretched too far, lest it should be endangered.” CB 233

Denning overturns trial judges decision because promissory estoppel is stretched too far.

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Promissory estoppel is a shield not sword

Shield not Sword Promissory Estoppel does not create a new cause of action.It simply prevents parties from relying on their strict legal rights when to do so would be unjust in light of the parties’ previous interactions.“The doctrine of consideration is too firmly fixed to be overthrown by a side-wind.” CB 234 If PE became a cause of action there would not be consideration doctrine. “[The trial judge] held that the wife could sue on the husband’s promise as a separate and independent cause of action by itself, although, as he held, there was no consideration for it. That is not correct.”In short, this means that you cannot commence a new cause of action using promissory estoppel.But if someone else sues you, then you can use it as a defense. 

Here the wife is suing in promissory estoppel on a variation- she is initiating the action.So, it doesn’t work in Combe v Combe because the wife is trying to use it as a new cause of action.But it works in, e.g., High Trees, because the landlord is suing, and the tenant is using promissory estoppel to defeat that lawsuit.

H Wife cannot sure, cannot use promissory estoppel as a swordR Promissory estoppel prevents parties from relying on strict legal rights when it would end in unjust results. It is a shield and not

a sword

Robichaud c Caisse Populaire De Pokemouche Ltée - (for limited purposes promissory estoppel can be used as a sword- NOT PRECEDENT TO FOLLOW)

F Robichaud: Customer/Debtor/AppellantCaisse Populaire: Financial institution/Creditor/Respondent Robichaud owed money to Caisse PopulaireCaisse secured judgment against Robichaud for $3,787 and registers it.Robichaud decides to consolidate his debts with AvcoAvco negotiates with Robichaud’s creditors and commits to lend money to Robichaud to pay his judgment creditorsSubsequently, as part of an Avco debt consolidation plan, Caisse agrees to remove its judgment against Robichaud from the registry in return for a $1,000 payment by Robichaud in full satisfaction.Caisse received its cheque from Avco but the Board refused to approve the compromise agreement. The cheque was not cashed and the judgment was not removed.So, Robichaud brings action to have his agreement with Caisse enforced and Caisse’s judgment against him removed from registry.Robichaud is sueing on the basis of promissory estoppel, so the bank does not go back on their promise. Caisse Populaire resists action on the basis that the agreement is unenforceable – inter alia, promissory estoppel is a shield, not a sword.

I Can Robichaud rely on promissory estoppel to enforce Caisse’s promise?A both agree that the bank must remove its judgement

Angers:Common law: Recall from our previous discussions of the common law problem of consideration that Angers J held that practical benefits can be good consideration: the bank saves time effort and expense in not having to pursue the debtor.Angers also indicated that perhaps consideration is less important than recognizing that Caisse was a sophisticated financial actor and willingly entered into the agreement with full knowledge.*****Rice:We now look at the concurring judgment from Rice J, agreeing in result but coming from the perspective of Promissory Estoppel.Even if we don’t find consideration, have to go on to ask if Caisse is estopped from acting.Paras 47-48: a representation was made in the course of negotiations.Para 49: “The appellant relied on the promises of the Caisse Populaire and his other creditors. Then, in order to resolve his financial difficulties, he undertook to hire lawyers and to mortgage his matrimonial home. In my opinion, in so doing, he suffered the detriment referred to in the doctrine of promissory estoppel.”However… as we know, PE can be used only as a shield and not a sword.“A right of action cannot be founded on the principle of estoppel” (para 50)Is Robichaud using it as a sword here? yes“it seems irrational to make enforceability depend on the chance of whether the promisee is plaintiff or defendant (correction

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by Nye: technically who raises the doctrine to found a new issue or in the defense regardless of them being plaintiff or defendant)” (para 52) “While it is true that in that case [Combe v. Combe] the party seeking to apply the principle was the plaintiff in the action, in my opinion its application is not dependent upon which party sues the other.” (para 53)

it is an equitable doctrine - we must be flexible to enforce it. 

At para 54, they argue that it is against the basic principles of equity that are the foundation of the doctrine to refuse to apply PE here just because it is not being raised as a defense.It could be raised as a defense in this case (different from wife case - she could not do the same - because it is available to Robichaud as a defense depending on the side of the argument)Robichaud could wait until the bank seizes his goods, and then he could object to that, the bank would sue him, and then he could use it as a shield. So, the thinking here seems to be: why make him go through all that? If the defense is ultimately available to him, let’s just allow him to use it.

H Appeal allowed. Caisse Populaire must cancel its judgment against Robichaud.(Remember that in NB there was no statute analogous to our Judicature Act, which would settle the matter here because it captures debt consolidation.)

R Application of promissory estoppel does not need to be determined on who sues who (then one party would have to just wait until the other sues him).

8. Intention to Create Legal Relations This element is expressly to protect the autonomy of parties and their voluntary will Set of Presumptions

a. In commercial contexts, where there is offer, acceptance, and consideration, there is a presumption that the parties intended to create legal relations

i. It falls to the person disputing intention to dislodge the presumption and show that no intention to create legal relations

b. In the domestic sphere there is a presumption that the parties did not intend to create legal relationsi. It falls to the person alleging contract to prove that such an intent exists

ii. Before Balfour, there was no presumption of lack of intent of legal relationship between husband and wife. NOW: there is a presumption of lack of intent. Belfour: similar to agreement to take a walk (no lawsuit) *** see more reasons for this rule in Belfour case

c. Moral promises: Not intended to be a legally binding promise (offer to drive friend to the airport)

Exam: raise both presumptions when analyzing the relationship between the parties (especially in domestic sphere) and talk about rebutting the presumption.

o serious intento is it in writingo are there are negotiationso imp: is there detrimental reliance

(b) Family Arrangements

Balfour v Balfour(marriage (close familial relations) assumes no binding promise, you can rebut this)

F Mrs. Balfour: sues on Mr. Balfour’s promise to pay a monthly allowance of 30 pounds.Mr. Balfour:  resists action on basis that there was no contract between them. 

Mr. and Mrs. B married in 1900; lived in what was then Ceylon (now Sri Lanka) until 1915; husband went on leave and they returned to England.  When Mr. B’s leave was up, Mrs. B decided to stay behind, on doctor’s advice, as she suffered from rheumatoid arthritis.Prior to setting sail in Aug. 1916, Mr. B orally promised to pay her 30 pounds a month. [at this point, couple was in amity aka on good terms & are married, per court → so not divorce settlement].A few months later, Mr. B suggests that they remain apart.  The parties ultimately divorce, with Mrs. B securing an order for alimony on Dec. 16, 1918. This means that for about 14 months, Mrs. B was without any financial support from her husband. [between September 1916

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and Dec 1918.] Initially he payed 30 pounds then stopped for 14 months and then alimony came in. 

I Can Mrs. B enforce Mr. B’s promise?A TRIAL:

The trial judge decided in Mrs. Balfour’s favour. He said there was a binding contract between them.He found that the wife’s consent was sufficient consideration. (CB 245) There is a common law right that she giving up. So the trial judge is considering the potential for legal arrangement here. That might sound insufficient – if consent to the arrangement is enough, we would never really have consideration problems. To explain, the ‘consent’ is not just consent to receive the agreed amount, but it is also an implicit promise not to pledge her husband’s credit for necessaries, which is a common law remedy at the time. She would have been entitled to do that and was agreeing to give up that right.

Judgement: There are some agreements that the law does not treat as enforceable. “one of the most usual forms of agreement which does not constitute a contract appears to me to be the arrangements

which are made by husband and wife.” CB 245 example: arranging household affairs. 

“They are not contracts because the parties did not intend that they should be attended by legal consequences.” CB 246 

Onus was on the plaintiff to establish that there was intention to be legally bound, and the Judge concludes she has not. Appeal allowed: she cannot enforce the agreement.

Courts Reasoning:We should take a critical perspective and ask ourselves why this rule was created.1. Court draws an analogy between the agreement in this case and an agreement to take a walk (CB 245)

the court says no one will sue each other over walk - so same here in the same case. Is this an appropriate analogy?  - not that good. 

2. Court argues that treating agreements of this sort as contractual would lead to disastrous outcomes/would set a bad precedent.  (CB 246)It would imply that not only could the wife sue the husband for the support, but also “he could sue her for non-performance of the obligation, express or implied, which she had undertaken upon her part.” (246)

3. The court argues that holding these agreements to be enforceable would result in so much litigation that the courts would be overwhelmed. (CB 246)What do you think of this floodgates argument? Is it a realistic worry? Even if it is, is that a good reason to deny a remedy to a party otherwise entitled to it?

4. The judge argues that there was no real intention to be bound here. But what is that based on? Is that an assessment of what these actual parties intended, or a statement of what he thinks married parties should intend? (See here again Hedley’s law review article).If he is imposing his own view of what should be intended between spouses, we may object to that.

5. “The common law does not regulate the form of agreement between spouses.  Their promises are not sealed with seals and sealing wax. The consideration that really obtains for them is that natural love and affection which counts for so little in these cold Courts. The terms may be repudiated, varied or renewed as performance proceeds or as disagreements develop, and the principles of the common law as to exoneration and discharge and accord and satisfaction are such as find no place in the domestic code. The parties themselves are advocates, judges, Courts, sheriff’s officer and reporter. In respect of these promises each house is a domain into which the King’s writ does not seek to run.”

The bottom line is that this is still the law. The presumption is that in the domestic sphere legal relations are not intended. That presumption can be displaced, but it is the baseline. But this requirement is not all that longstanding—it was invented in Balfour. It has potentially problematic effects, and might be a weak precedent that could be argued against going forward.And of course the presumption is just a presumption – it can be displaced, in particular when there has been detrimental reliance.

H Onus was on the plaintiff to establish that there was intention to be legally bound, and the Judge concludes she has not. Appeal allowed: she cannot enforce the agreement.

R the presumption is that in the domestic sphere legal relation are not intended.NEW RULE from Balfour

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“while the courts had previously refused to enforce agreements where the parties had deliberately excluded legal sanctions, this was the first time they had denied liability simply because the plaintiff could not prove that legal sanctions were intended. Balfour v. Balfour introduced a new obstacle for plaintiffs, which had not been there before.”

Before Balfour, there was no presumption of lack of intent of legal relationship between husband and wife.

9. Formality: Promises under Seal Promises made under seal are enforceable (removes the requirement of consideration). In the past that was done with

actual wax and a ring to make an impression in the wax. It is common for a sticker to be affixed to the document to symbolize the seal.

o The word ‘seal’, printed on the document, is not enough to constitute a seal. It is rather an instruction to affix a seal (Kiska).

BUT: I would hold also that any representation of a seal made by a signatory will do.” SO Kiska could have drawn the seal by hand hand - this might work. (Kiska).

o You need both: the SEAL and signature confirming the seal (Kiska) The seal plays evidentiary role: it is evidence that the parties intended to legally bind themselves What constitutes a valid seal (wax, sticker, printed icon) is a question of law, and it is a question of fact whether a document

is effectively sealed. Royal Bank v Kiska - (absent a seal (the written word ‘seal’ on the document is not good seal) and consideration, contract is not binding)

F

Kiska’s brother and the bank have consideration flowing both ways. Kiska gave promise to guarantee the debt but the bank does not give any promise - so the bank needs to use a seal to secure the promise/ to make it legally binding promise. At time of Kiska signing the guarantee, no wafer seal was attached.The word ‘seal’ was written on the document next to the signature.Bank is now calling on the guarantee. Kiska was not expecting to be called on.

I Is the guarantee under seal such that it is enforceable even absent consideration?A DISSENT JUDGEMENT: According to Laskin J, the document was not under seal. 

The word ‘seal’, printed on the document, is not enough to constitute a seal. It is rather an instruction to affix a seal. That means the required formality has not been observed, and the document is not under seal. If there is also no consideration, then Kiska does not have to pay.Other judges held there was consideration, so Kiska actually lost, but we read this for the dissent for seal interpretation because it appears to be the legally correct interpretation.

“A gummed wafer is enough when affixed by or acknowledged by the party executing the document on which it is placed. I would hold also that any representation of a seal made by a signatory will do.” SO Kiska could have drawn the seal by hand hand - this might work.

What we are looking here is acknowledgement of the seal by Kiska and proof of that acknowledgment.  You need both: the SEAL and signature confirming the seal.

But here we have less than even that.“Formality serves a purpose here and some semblance of it should be preserved.” CB 255

H So since it’s not under seal, if there was no consideration then kiska wouldn’t need to pay.R The document was not under seal. Printing the word seal does not constitute a seal. It is rather an instruction to affix a seal.

Formality serves a purpose here and some semblance of it should be preserved.

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10. Formality: The Requirement of WritingOn the Exam:

1. Statute of Frauds apply - the contract is not enforceable.2. Can we displace the statute of fraud to use oral evidence? Can we use equity (part performance) instead of the statute to

make it enofrceable- analyze the acts of performance- analyze broader view and lean towards the strict test

Affixing a seal can be sufficient condition of enforceability (sufficient = it’s enough) This formality is a necessary condition of enforceability in some cases (necessary= required but not sufficient) Some kinds of agreement must be in writing to be enforceable. What counts as writing:

o It must adduce the existence of the contract and not fail for uncertainty. Needs the 3 essential P's: parties (who), property (what), and price (how much) (McKenzie)

But, per Tweddell, other essential terms might exist, as here, that payment of the purchase price was to be in stages.

other essential terms that are in a particular factual context must be in writing. o The document need not be intended as a memo of the contract (flexible approach ex. email)o It is sufficient if the memo comes into existence any time before the action is commenced.o It can be constituted by several pieces of paper.o It must be signed by the party against whom the contract is being alleged. (McCamus)

mere initialing is sufficient hand-printed name is sufficient printed name of the contracting party on top of a standard form is sufficient

Electronic Contracts A memorandum in an email (or a series of emails) can satisfy this writing requirement.” Main aim of the requirement is accessibility, so electronic record is acceptable as long as it is enduring and assessable Signatures can be in electronic form See Electronic Transactions Act, SA 2001, c E 5.5

StatuteStatute of Frauds (+ 6. FOR LAND)

o Passed in 1677 by the English Parliamento S. 14 and S. 17 say that certain kinds of contracts have to be in writing to be enforceable.o Aims to prevent people from perpetrating fraud by alleging promises that were not madeo In part, it wass necessary because rules of evidence were less well developedo Alberta: “The province inherited the English statute and has not re-enacted it (So in AB it exists in its original form).

The writing requirement in s. 4 for contracts of guarantee has been supplemented by the Guarantees Acknowledgement Act, R.S.A. 2000, c. G-11, which requires additional formalities for guarantees given by individuals.” (CB 259) It is just one area where it is has been supplemented.

Otherwise we deal with the original statute There are a number of categories of contracts under the statute. We will now examine them in turn.

Rationale: o It could signal to the parties that it is legally enforceable and therefore should be taken seriously. (McCamus 167)o For contracts for land, we might want written records in part to facilitate registration systems. (McCamus 168)

Section 17: Contracts for the sale of any good of the value of $50 or upwardso Sale of Goods Act, R.S.A 2000,c. S-2, s. 6

Enforcement of contract over $50  6(1)  A contract for the sale of any goods of the value of $50 or more is not enforceable by action

(a)unless the buyer accepts part of the goods so sold and actually receives that part, or gives something in earnest to bind the contract or in part payment, or

(b)unless some note or memorandum in writing of the contract is made and signed by the party to be charged or the party’s agent in that behalf.

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⇒ For sale over $50, for the future exchange must be in writing.

Categories in s.4 of the Statute of Frauds – requirement of writing :o 1. Contracts to Charge an Executor or Administrator on a Special Promise to Answer Damages Out of His or Her

Own Estate. Still required to be in writing in Alberta. Rarely an issue. Not used in modern times

o 2. Contracts Made upon Consideration of Marriage Still required to be in writing in Alberta. Not about promises to marry but promises to transfer property in exchange for marriage Not used in modern times

o 3. Contracts to Answer for the Debt, Default or Miscarriage of Another Person (important re debt) Still required to be in writing in Alberta. Supplemented by Guarantees Acknowledgement Act, “which requires additional formalities for

guarantees given by individuals.” No benefit flows to the guarantor, so “a special cautionary device is useful.” (Think of Kiska) Guarantees Acknowledgement Act

Requirements: 3(1)  No guarantee has any effect unless the person entering into the obligation (a)    appears before a lawyer, (b)    acknowledges to the lawyer that the person executed the guarantee, and (c)    in the presence of the lawyer signs the certificate referred to in section 4.

o (2)  The lawyer referred to in subsection (1) must not represent or be employed by a person or corporation who stands to benefit as a result of the guarantee.

Certificate: 4(1) The lawyer, after being satisfied by examination of the person entering into the obligation that the person is aware of the contents of the guarantee and understands it, must issue a certificate in the prescribed form.

o 4. Contracts not to be Performed Within a Year Still required to be in writing in Alberta. Justification is witnesses’ memories, but not helpful since the suit can still be brought more than a year

after the breach. Adams v. Union Cinema: contract only has to be in writing if its performance of necessity must last

longer than 1 year If it is of indefinite duration but could be performed within a year, it doesn’t fall within the statute,

even if it will likely last longer than a year. Hanau v. Ehrlich: If there is no mention of time and time is uncertain or indefinite, the agreement is

not within the statute. Further, “an agreement that stipulates a specified period of performance of more than one year is

caught by the provision even though the contract also stipulates that the contract may be terminated within that period of time.”

Examples: Example #1: A enters into an oral, 3 year, no-cut contract with the Edmonton Oilers in March.

The next month, the Oilers cut him. Is this caught by the statute?o it is captured by statute - intended to be performed within three years

Example #2: What about a lifetime oral contract of employment? Is this caught by the statute?o No. They could die within a year- can end within a year. No limit – does not capture

Example #3: Ms. X is hired by ABC law firm as a junior lawyer under an oral contract for an indefinite period at $8,000 a month.  Both parties anticipate that the contract will last at least two years. After 3 months, Ms. X is fired without cause and without notice.  Is this caught by the statute?

o anticipation does not mattero indefinite period as per contract is not caught by the statute

o 5. Contracts for the sale of any goods of the value of $50 or upwards Still required to be in writing in Alberta. This is the most important category and the most likely to arise in modern times.

Sale of Goods Act, s. 6(1)  A contract for the sale of any goods of the value of $50 or more is not enforceable by action

(a)unless the buyer accepts part of the goods so sold and actually receives that part, or gives something in earnest to bind the contract or in part payment, or

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(b) unless some note or memorandum in writing of the contract is made and signed by the party to be charged or the party’s agent in that behalf.

o 6. Contracts for the Sale or an Interest in Land Still required to be in writing in Alberta. This is the most important category and the most likely to arise in modern times

Effects of Non-compliance with written requirements S. 4 of Statue of Frauds: No action shall be brought. This this does not mean that they have failed to create a valid contract,

but rather that it is unenforceable. o (1) This enables the equitable doctrine of part performance to apply

There must be a valid contract in the 1st place for equity to apply Equity can order part performance

o (2) It also means: Plaintiff has only a procedural problem re: enforcement of the contract but the contract itself does exist. 

Contract can be used by way of defence as in Wauchope and can also be used as consideration for a new contract.

Part Performance Doctrine:o Problems arise when parties promise that land will be transferred and work is done in reliance on that promise. o Courts of equity developed a doctrine that exempts people from the requirements in the Statute of Frauds “in

circumstances where it would be unjust to refuse enforcement of the agreement.” o This is the doctrine of part performance: where one party partially performs their undertaking, the agreement may

still be enforced to avoid injustice, even if it is oral. (McCamus 178). One party doing performance to fulfill the oral contract. The other party did not follow through the oral contract.

o TEST: According to Maddison v. Alderson, there is a strict test for part performance according to which the acts undertaken must be unequivocally ‘referable’ to the agreement in question (the acts have to be connected to the property)

Maddison v. Alderson seems to posit two views, per Fridman: (1) Narrower view: The acts relied on “must be referred to the actual contract” (the only thing

you intended full transfer of the house in exchange of the acts performed)o Part performance must be ‘referable to the oral agreement that is relied on’, per court in

McMillen v. Chapman.o This narrow view appears to have been followed in Deglman  (S.C.C. 1954) by Rand J.

while the broader view appears to have been followed by Cartwright J. (2) Broader view (less strict – more important): the acts relied on ‘must be unequivocally, and

in their own nature, referable to some (could be life tenancy or transfer of the land, employment contract, does not to be the actual contract) such agreement as that alleged.’ 

o Per Upjohn L.J.: “acts need not be referable to no other title than the one alleged.  They need only ‘prove the existence of some contract and are consistent with the contract alleged.’” 

o This broader view appears to be the one followed in Thompson. SCC in Thompson says that its decision in Brownscombe stands for the proposition that the performance has to be plainly referable to an agreement as to the very land.

o in Deglman  (S.C.C. 1954) the broader view appears to have been followed by Cartwright J. Cartwright J held that it was sufficient if the acts were “unequivocally referable in their own nature to some dealing with the land”. 

Deglman v Guaranty Trust Co (narrow) – no specific performanceF The Guaranty Trust Company of Canada (Administrator of the Estate of Laura Constantineau Brunet, Deceased) (Defendant)

Constantineau (Nephew of deceased aunt) (Plaintiff)Aunt promised nephew she would leave him her house (No. 548 Besserer) if he would run errands and do various acts she might request from time to time. 

it is a little vague already.  there is consideration: she gives the house and he performs errands

This agreement was never recorded in writing. Acts of alleged part performance: driving aunt around; doing odd jobs around the house. 

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I The contract is not in writing. So: is it unenforceable?Or are these sufficient acts of part performance?

A The court relies on Maddison v Alderson as the leading authority on part performance.According to Maddison v. Alderson, there is a strict test for part performance according to which the acts undertaken must be unequivocally ‘referable’ to the agreement in question. But there is disagreement about what this means… the acts undertaken must have some connection to the land in question/agreement. in our case, nephew is doing random jobs and it seems already less connected. unequivocally ‘referable’ = do we look at this act as an act that must have been done for the transfer of the property

Rand J (minority): “Here, as there in Maddison, the acts of performance by themselves are wholly neutral and have no more relation to a contract connected with premises No. 548 than with those of No. 550 or than to mere expectation that his aunt would requite his solicitude in her will…” CB 271

that could have been an agreement for anything else ex. other house, money etc...“we must draw the line where those acts are referable and referable only to the contract alleged.” CB 271 The contract is the transfer of the whole property. 

Cartwright J: “It is clear that none of the numerous acts done by the respondent in performance of the contract were in their own nature unequivocally referable to No. 548 Besserer Street, or to any dealing with that land.” CB 272See CB 273, Note 2: There is ambiguity in the interpretation of Maddison v Alderson. Quoting from Erie Sand & Gravel: “Where Rand J. would have required the conduct to be referable only to the specific contract that had been alleged, Cartwright J held that it was sufficient if the acts were “unequivocally referable in their own nature to some dealing with the land”. 

🡪 Less strict test (Gavel test) treated as correct there. → this one is applied Both judges argree there is no connection to the land the judges disagree re connection- Cartwright argues connection to any contract with the land in question (life

tenancy, some land interest). Rand J. - acts must be connected to the specific contract with land.  Both tests arrive to the same conclusion. 

Quantum Meruit (what is deserved): is used to determined what is owed to nephew

Quantum Meruit: reasonable value of services rendered.However, the nephew does get some compensation for the acts undertaken.He recovers some payment for the services rendered. The court uses quantum meruit to determine what he is owed. The services weren’t given gratuitously.“the respondent is entitled to recover for his services and outlays what the deceased would have had to pay for them on a purely business basis to any other person in the position of the respondent.” CB 271In this case, $3000. (Still much less than the house would be worth.)

H Not enforceable. This case cannot be distinguished from Maddison v Alderson. It fits under the same facts. The acts of part performance do not demonstrate a sufficient connection to the contract being alleged. Nephew is not living in the house, he is doing random unrelated tasks for his aunt

R According to Maddison v. Alderson, there is a strict test for part performance according to which the acts undertaken must be unequivocally ‘referable’ to the agreement in question

Maddison v Alderson F The plaintiff had been a housekeeper for lesser pay for over 20 years on the basis of a promise that she would inherit the

manor.A According to Maddison v. Alderson, there is a strict test for part performance according to which the acts undertaken must be

unequivocally ‘referable’ to the agreement in question. But there is disagreement about what this means… the acts undertaken must have some connection to the land in question/agreement. in our case, nephew is doing random jobs and it seems already less connected. unequivocally ‘referable’ = do we look at this act as an act that must have been done for the transfer of the property

H The House of Lords held there was no part performance.R They applied a strict test according to which the acts had to shows some connection to the agreement.

Thompson v Guaranty Trust Co(broader) – yes to specific performanceF Gus Thompson (Plaintiff/appellant; farm worker/caretaker) 

Dick Copithorne’s Estate (defendant; Dick had been the owner of the farm.)Gus Thompson began working as a hired hand on Dick’s farm and continued there for 48 years.

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Gus alleges that this work was done as consideration for Dick’s promise to devise and bequeath his land to Gus. Dick promised the land to Gus upon his death.  He promised it many times.When Dick was injured or ill, Gus would nurse him back to health and care for the farm.Gus took a somewhat marginal farming operation, per TJ, and made it successful.  (built granaries; made decisions on crops, equipment purchases etc.)No will was found (it was stolen from the farm), but it seemed very clear that Dick’s intention was to bequeath the farm to Gus. The small town attorney wrote the power of attorney instead of will. There is a lot evidence of oral promise → neighbours, years of work .. etc. even though there is no evidentiary issue but the promise is oral - what can be done?

I There was clearly an oral contract. So: does the Statute of Frauds apply?Or was Gus’s work over this time sufficient to count as part performance so that his agreement with Dick can be enforced?

A Spence J considers Maddison v Alderson and Deglman, among other cases.But he distinguishes this case. The services in Deglman are very different (odd jobs) from the ones at issue here. Here Gus worked on the farm, the land in question. All acts were related to the farm and he improves it. “I am personally of the opinion that practically every act of part performance as to which evidence was given…were acts which were unequivocally referable to a contract in reference to the very lands in question.” (CB 279) They are referring to lesser strict test. Gus did a lot of things for employment contract but also some of the acts are applicable to the land contract becuase he went above and beyond. Could the acts be referable just to employment contract? Gus was not just a hired hand. He did many acts that were fundamentally connected to the running of the farm in question. Gus made decisions re farm, not just 9-5 job. The acts are more referable to the transfer of the land rather than employment. Therefore he has proved part performance and the application of the Statute of Frauds can be negated. Appeal allowed: Gus can have specific performance.

H Therefore he has proved part performance and the application of the Statute of Frauds can be negated. Appeal allowed: Gus can have specific performance.

R Distinguished from Deglman. Practically every act of part performance was unequivocally referable to a contract in reference to the very land in question. He did many acts that were fundamentally connected to the running of the farm in question. Duration may also be considered.

Chapter 5: PRIVITY OF CONTRACT Definition of Privity

o A contract cannot, as a general rule, confer rights or impose obligation arising under it on any person except the parties to it (Tweddle v. Atkinson; Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd)

o As a general proposition, someone who stands to benefit from a contract between two parties cannot sue on the contract (Tweddle v. Atkinson; Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd)

Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd -(can’t be Privity of contract with third party) LEADING CASE FOR PRIVITY

F

Dunlop: Plaintiff/tire manufacturer 

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In ‘Contract #1’ with:Dew: Wholesaler

In ‘Contract #2’ with:Selfridge: Defendant/retailer

In ‘Contract #3’ with:Customer

Contract #1: Between Dunlop (manufacturer) and Dew (wholesaler) Contains a resale price maintenance clause (which is now illegal but not at the time) Under Contract #1, Dew can only sell below list price to retailers who agree not to sell below list price to their

customers To such retailers (like Selfridge), Dew can sell at 10% below list price if they obtain that retail customer’s promise to

observe the list priceContract #2:

- Between Dew, the wholesaler, and Selfridge, the retailer.- In Contract #2, Selfridge promised Dew that it would not sell below list or offer to do so; and- Selfridge also agreed to pay Dunlop £5 by way of liquidated damages in case of breach- ⇒ these promises are between Dew and Selfridge. Dunlop requested these promises, but itself is not part of the

contract. Contract #3:

Between Selfridge, the retailer, and the final consumer In breach of Contract #2, Selfridge sold below list price to its customer under Contract #3 So: Contract 2 has been breached, but contract 2 is between Selfridge and Dew.

Dunlop is the only party that cares about the enforcement of the prices to maintain prices in the market. 

I Can Dunlop sue Selfridge for breach of Contract #2, even though it is between Selfridge and Dew? Dunlop is 3rd party beneficiary to contract #2. Dunlop is getting out benefit from the contract between Dew and

SelfridgeA Haldane offered two justifications for the doctrine of privity.

(1) “only a person who is a party to the contract can sue on it.” (CB 288)(2) “consideration must have been given by [the person seeking to sue] to the promisor.”

Here Dunlop is not a party to the contract, and consideration flows directly from Dew and not “directly nor indirectly [from] the appellants.” CB 288“What… did Dunlop do, or forbear to do, in a question with Selfridge? The answer must be, nothing.” (CB 290) What did Dunlop give up (consideration) to Selfridge? Nothing. 

Dunlop Argument: (agency argument: still no consideration between Dunlop and Selfridge)Dunlop tried to argue that Dew was actually only acting as their agent. If Dew is their agent, and Dunlop is the principal, then that will give Dunlop a right to sue. Then, as agent, Dew would just be stipulating Dunlop’s right in Contract #2, and Dunlop could sue on those rights. But if that’s the case, then consideration for Selfridge’s promise not to sell under the set price would have to flow from Dunlop to Selfridge. → Dunlop still needs to connected to Selfridge. There should be some sort of consideration. There is no consideration of that sort, so there is no enforceable contract.

H Appeal dismissed - Dunlop loses. Dunlop is a third-party beneficiary here. They are not party to the contract that has been breached (Contract #2), but just a beneficiary of it. So they are not able to sue on it. ⇒ this case reaffirms modern concept of privity. It is a leading case for privity

R Only a person who is a party to the contract can sue on it. Consideration must have been given by the person seeking to sue to the promisor.

Exceptions to the privity rule as affirmed in Dunlop: Ways in Which a Third Party May Acquire the Benefit.o There are a number of situations in which the Privity rule does not apply.

(1) Statutesa. Insurance contracts are the most obvious example of this, because when someone purchases life

insurance, the benefit is assigned to a third party.

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b. X purchases life insurance such that Y will be paid $1,000,000 on her death. X is in a contract with the insurance company. Y is the beneficiary but has no privity of contract with the insurance company.

c. But through the operation of statute, Y is allowed to sue. See Insurance Act, R.S.O. 1990, c. I.8, sections 195 & 258. (See CB p 291)

(2) Specific Performancea. Administrator (executor) of the estate can sue for breach of contract. Court can order specific performance instead

of nominal damages to remedy the fact that there is no harm suffered as part of that role (Beswick). i. BUT Denning in Beswick: went far to say that Privity is just procedural but does not affect the

underlying right; he would allow her to sue (this is not followed)

Beswick v BeswickF Old Peter Beswick: previous business owner; deceased

John Joseph Beswick: Old Peter’s nephew; purchaser of business before uncle passed away with specific arrangement; DefendantMrs. Beswick: Peter’s widow; 3rd party beneficiary under Peter’s contract with John; Administrator of Peter’s estate; Plaintiff

Peter sells his business to John, his nephew, on these terms:  Peter to stay on as a consultant at 6 pounds a week  On Peter’s death, John the nephew to pay Peter’s widow 5 pounds a week until

her death.  John is now under contract to pay Mrs. Beswick 5 pounds a week. He only makes one of these

payments and refuses to pay anything further.  Mrs. B sues as administrator for specific performance of the agreement, and in her personal

capacity (but by rule of privity she should not be able to sue bc she is 3rd party beneficiary); she claimed arrears in the sum of 175 pounds. 

I Does the privity rule prevent Mrs. B from successfully bringing this action? A She is able to sue as the administrator of the estate. That role permits her to sue.

However, if suing in that capacity, it would seem that she has suffered no damages, so the court may award only nominal damages.To get around this, the court held that she could was entitled to the remedy of specific performance. Specific performance enables the court to force the nephew to continue paying the widow on an ongoing basis. (CB 295)Denning is willing to go quite far and say that privity is just procedural, but does not affect the underlying right. (See CB 294)

He would have allowed her to succeed, in part because if she were to lose, the nephew could keep the business but not uphold his promise, and “Nothing could be more unjust…” CB 294

Can be enforced by 3rd party in the name or jointly with right party As long as there a legitimate interest. Focus on the justice. 

Denning’s procedural point was not followed. But the subsequent judgement from Lord Reid reaches the same result on narrower grounds. She cannot sue in her personal capacity, but she can as the administrator of the estate. Here too they rely on claims about justice. (CB 295-297)Only administrator can bring the claim. So if you are not administrator, you have to ask administrator to sue on your behalf. Therefore, there is not control due to privity. What would happen if the newphew was the administrator - there is a potential for unsatisfactory results. Allowing administrator to sue does not solve the problem.

H No: she is not barred due to privity of contract. She can sue. She is able to sue as the administrator of the estate. That role permits her to sue.

R She is liable to sue as the administrator of the estate. However if suing in that capacity, it would seem that she has suffered no damages, so the court may award only nominal damages. To get around this, the court held that she was entitle to the remedy of specific performance. Specific performance enable the court to force the nephew to continue to pay the widow on an ongoing basis. Denning: went far to say that Privity is just procedural but does not affect the underlying right (this is not followed). Reid: she cannot sue in a personal capacity but she can as the administrator.

(3) Trusta. The thought behind privity is that there is no relationship between the third party and the person they

are trying to sue. 

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b. So – one way to get around this is to show that there is a legal relationship. One kind of relationship is that of trust.

(4) Agencya. The fourth way a third party can overcome the privity rule is if there is an agency relationship. Again,

proving the existence of a relationship of this sort undermines the claim that the third party lacks any relationship to the person they are trying to sue (need to prove that there is a legal relationship - agency relationship).

b. Per McCamus: “Under the principles of the law of agency, where a principal authorizes an agent to enter into contracts on the principal’s behalf with third parties, the result of the agent’s doing so is that the principal has a direct contractual relationship with the third party.” (p 310) Agents create rights and obligations for the principal. Agent just stands in for the principal. 

c. Example: Promisor (A) promises B to confer a benefit on C. C looks like a third-party beneficiary. Privity of contract means there is only a contract between A and B, and C cannot sue. But: If promisee (B) was acting as agent on behalf of C, things look different. In such a case, C “would have a direct contractual relationship with A and the third-party beneficiary rule would be avoided.” (C is not just a 3rd beneficiary, B was just acting on its behalf, so C is the party to the contract) (McCamus 310)

d. Note that for this kind of argument to succeed, the parties will need to prove a genuine intention to create an agency relationship.  (NZ Shipping)

e. TEST in the case brief (NZ Shipping)i. (1) The bill of lading makes it clear that the protection is intended to extend to the stevedore

(3rd party beneficiary).ii. (2) The bill of lading makes it clear that the carrier (party to the contract) is contracting as

agent for the stevedore (3rd party beneficiary).iii. (3) Carrier has authority from the stevedore to act as agent.iv. (4) Any issues about consideration moving from the stevedore (3rd party beneficiary) are

overcome (if unilateral contract – consideration by 3rd party performance)1. NZ performed the contract by unloading the goods. That performance was the

consideration for the agreement by Ajax, the shipper, to provide the exemptions to NZ. 

New Zealand Shipping Co. Ltd. v. A.M. Satterthwaite & Co. Ltd. (Agency – acting as an agent + consideration as unilateral contract)

F NZ Shipping Co: ‘the stevedore’ (uload/load ships); parent to Fed Steam; under contract #2, is obligated to unload the drill. 

Federal Steam: ‘the carrier’; subsidiary of NZ Shipping (NZ is parent); hires NZ Shipping to unload the drill via contract #2.

Ajax: ‘the consignor’; shipper; maker of drill. Satterthwaite: ‘the consignee’; holder of bill of landing and owner of drill when it was dropped due to NZ’s

negligence.

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Ajax makes an expensive drill and wants to ship it to Satterthwaite, in Wellington. They contract with Federal Steam to be the carrier – to actually transport it to Satterthwaite. This is contract #1: a bill of lading with several exclusion of liability clauses. Fed Steam is not going to be liable for

whoever they hire to onload the drill.  Ajax sells to Satterthwaite and its done by shipping by Fed Steam. All 3 are parties to contract #1. That contract is

between Fed Steam, Ajax, and Satterthwaite. 

There is then a second contract (Contract #2) between Fed Steam and NZ Shipping, according to which NZ is contracted to unload the drill.

In the course of carrying out this contract, NZ negligently drops the drill and damages it.  NZ shipping was the parent company of Fed Steam, and NZ regularly acted as agent for them. (The question that

arises here is the opposite – is the carrier, Fed Steam, an agent of NZ?) Can NZ get the protection of the exclusion clause (bill of landing) from contract #1. To get that NZ needs to prove

that Fed steam is acting as an agent for NZ shipping, therefore securing that liability exception. Contract #1: shipping the drillContract #2: onloading the drill. Only between Fed Steam and NZ Shipping. So the only person who could sue NZ is Fed Steam. Fed steam does not care about the drill. Other parties have not privity to sue. 

I When the consignee, Satterthwaite, sues NZ shipping, can NZ shipping ‘take the benefit of the time limitation provision’ in the bill of lading? (CB 305)The bill of lading is a contract between Fed Steam and Satterthwaite, not Satterthwaite and NZ. So NZ is a third party beneficiary of Contract #1. Can NZ still invoke that protection, or does privity prevent them from doing so?One further clarification: it is Satterthwaite suing and not Ajax because at the time of the drill being dropped, property in the drill had already passed to them. If it were dropped earlier and Ajax held the bill of lading, then we would be asking the same questions but about a suit between Ajax and NZ rather than Satt and NZ.

Satterthwaite suing NZ Shipping in negligence. NZ trying to defend itself by establishing privity - Fed is agent, so liability exclusion provision applies to them.

A Satterthwaite Argument: The Consignee, Satterthwaite, wants to sue. They recognize that they are barred from suing the carrier, Fed Steam, by the terms of the bill of lading.However, they think they can sue NZ Shipping instead. They argue that “the stevedores could not rely, as third-party beneficiaries, on the provision of the bill of lading that appeared to be designed to protect them.”

Judgement & Test (specific to bill of lading):Court relies on Lord Reid’s comments in Scruttons v Midland Silicones. There, he sets out four criteria for agency contracts of this sort:

1. The bill of lading makes it clear that the protection is intended to extend to the stevedore (3rd party beneficiary).

2. The bill of lading makes it clear that the carrier (party to the contract) is contracting as agent for the stevedore (3rd party beneficiary).

3. Carrier has authority from the stevedore to act as agent.51

4. Any issues about consideration moving from the stevedore (3rd party beneficiary) are overcome (if unilateral contract)

Does the contract in question satisfy these criteria?Court says yes:Clear that the bill of lading applies the exemptions to NZ Shipping. Clear that the carrier (Fed Steam) was acting as agent for NZ and was authorized to do so.

under contract #1 Fed Steam is acting as agent for NZ shipping and Fed Steam is trying to secure exemption for NZ shipping. 

Consideration point as per test step #4? Less clear…1. The bill of lading makes it clear that the protection is intended to extend to the stevedore.2. The bill of lading makes it clear that the carrier(Fed Steam) is contracting as agent for the stevedore (NZ shipping).3. Carrier has authority from the stevedore to act as agent.4. Any issues about consideration moving from the stevedore are overcome

⇒ criteria 4 is satisfied becuase of unilateral contract

Consideration issue (step 4 of the test): “The whole contract is of a commercial character” (CB 307) 

In other words, it doesn’t make sense to think of these commercial parties as making friendly, gratuitous promises to one another.

“By clause 1 of the bill of lading the shipper [Ajax] agrees to exempt from liability the carrier [Fed Steam], his servants and independent contractors [NZ Shipping] in respect of the performance of this contract of carriage.” 307The exemption is meant to apply to the whole period of carriage, whoever performs the loading/unloading.This transaction could be analyzed in a number of ways, but they choose to analyze it as a unilateral contract.

Unilateral Contract “the bill of lading brought into existence a bargain initially unilateral but capable of becoming mutual, between the shipper [Ajax] and the appellant [NZ], made through the carrier [Fed steam] as agent.”NZ performed the contract by unloading the goods. That performance was the consideration for the agreement by Ajax, the shipper, to provide the exemptions to NZ. 

unilateral: performance and consideration are all rolled into one. So: by calling NZ’s performance the consideration, the consideration problem is overcome, and the court can say that all four conditions are met for the agency contract to take place. That means privity is displaced and NZ can take advantage of the exemption clause. 

“In the opinion of their Lordships, to give the appellant the benefit of the exemptions and limitations contained in the bill of lading is to give effect to the clear intentions of a commercial document, and can be given within existing principles.” CB 308Appeal allowed: NZ is successful in its argument that the agency exception to privity of contract applies, and they can take advantage of the benefit conferred on them as a third party. Note that for this kind of argument to succeed, the parties will need to prove a genuine intention to create an agency relationship. 

H Appeal allowed: NZ is successful in its argument that the agency exception to privity of contract applies, and they can take advantage of the benefit conferred on them as a third party. 

R by calling NZ’s performance the consideration, the consideration problem is overcome, and the court can say that all four conditions of the test are met for the agency contract to take place. That means privity is displaced and NZ can take advantage of the exemption clause. 

(5) Employmenta. The fifth exception to the privity rule arises with respect to employees.b. Employer performs its contractual obligation through its employees (London Drugs)c. “[I]n the circumstances should employees be entitled to benefit from a limitation of liability clause

found in a contract between their employer and the plaintiff (customer)?: TEST (London Drugs)i. (1) Limited Liability clause expressly or impliedly extends the benefit to the employees

ii. (2) Employees were acting in the course of their employment and performing the services provided for in the contract

iii. This exception depends on the parties’ intentions.d. Employment = agency (London Drugs)

i. For non-employment context, agency requires more proof look at agency testii. Agency is assumed in the employment relationship.

e. Consideration (not like agency)52

i. consideration not required in cases of this sort (bc clause 2 of the employment test requires that the employees are performing the very services contracted for)

London Drugs Ltd. V Kuehne & Nagel - (Employers work through employees, Limited Liability should extend to employees)

F London Drugs: plaintiff/customerKuehne & Nagel: defendant/warehousing companyEmployees (Dennis & Hank): defendants/employees of Kuehne & Nagel

London Drugs wanted to store a transformer at a Kuehne & Nagel warehouse. The storage contract included a limitation of liability clause limiting the liability of warehouse workers to $40 per

package unless a special valuation has been declared and extra fees paid. Kuehene & Nagel you can purchase additional insurance if not than liability insurance is

$40London Drugs did not opt for the extra coverage from K&N, though the transformer was worth a lot more than $40…Dennis and Hank tried to move the transformer with forklifts even though it should have been lifted from above (there were instructions on the transformer). This was negligent.The transformer toppled over, leading to damages of $33,955.41.LD sues KN and Dennis & Hank.They were successful at BC Sup Ct (the court said that the exclusion clause -clause b does not apply)

Ct Appeal reduced D&H’s liability to $40 as per exclusion clause (the clause applies). LD now appeals.

I Can Dennis and Hank shelter under clause (b) as a defense to London Drugs’ action against them?The limitation of liability clause was in the contract between LD & KN, to which Dennis and Hank are not parties. They are, therefore, third party beneficiaries of the contract. They are protected under the contractIt is agreed that D & H were negligent, so the question is only whether their liability for this breach can be limited to $40 due to the limitation of liability clause.

A Applying the doctrine of privity “so as to prevent a third party from relying on a limitation of liability clause which was intended to benefit him or her frustrates sound commercial practice and justice.” (CB 312)

It is inconsistent with parties’ expectations. They have allocated risk in a certain way and it undermines this. It places all the burden on the third party beneficiary. the 3rd party is trying to protect themselves; they are not suing for the benefit like in other cases There are no good reasons not to make this exception (p 313). It’s different in that way from allowing a third party to

sue on a contract.Employee/employer relations are special. There is an ‘identity of interest’ between them in terms of performing the contractual obligations. 314Employer performs its contractual obligation through its employees. “[I]n what circumstances should employees be entitled to benefit from a limitation of liability clause found in a contract between their employer and the plaintiff (customer)?” If these conditions are satisfied: TEST

LL clause expressly or impliedly extends the benefit to the employee(s).🡪Employee(s) were acting in the course of their employment and performing the services provided for in the contract. 316🡪

This exception depends on the parties’ intentions.It is similar to the agency exception. Recall:

1. The bill of lading makes (contract #1) it clear that the protection is intended to extend to the stevedore (3rd party).2. The bill of lading makes it clear that the carrier is contracting as agent for the stevedore.3. Carrier has authority from the stevedore to act as agent.4. Any issues about consideration moving from the stevedore are overcome.

The Agency test and the employment test:

The court says that part 1 of the employment test is identical to 1 in the agency test.Parts 2 & 3 of the agency test are covered by the identity of interests between employer and employees. For non-employment context, agency requires more proof. Agency is assumed in the employment relationship.Re part 4 of the agency test: “this new exception makes no specific mention of consideration moving from the employees to the customer”. Consideration should flow from Hank and Dennis to London Drugs (H & D could argue that the performance of moving transformer is consideraiton for L&D)But clause 2 of the employment test requires that the employees are performing the very services contracted for. And that is similar to what has been found to be consideration in some cases. So for

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employment context, we do not need to unilateral analysis as it is covered by part 2 of the employment test. So: consideration not required in cases of this sort. Just look to the 2-part test.

H Yes: Dennis and Hank can take advantage of the limitation clause, even though they are not parties to the contract.The court says that “this is both the time and the case for a judicial reconsideration of the rule regarding privity of contract as applied to employers’ contractual limitation of liability clauses.”“[C]ommercial reality and common sense” require this reconsideration.

R Employer preforms its contractual obligation through its employees. There is an identity of interest between them. There must be: 1) LL clause expressly or impliedly extends the benefit to the employees. 2) Employees were acting in the course of their employment and preforming the services provided for in the contract. Exception: depends on the parties intentions. It is similar to the agency exception but here consideration is not needed

(6) Principled Exceptiona. if not covered by agency or employment exception - go to the principled exceptionb. It is a development of the idea behind the employment exception, but extended more generally to other situations.c. Further exception to London Drugs.d. Requires two factors to be present (Fraser River):

i. (1)“Did the parties to the contract intend to extend the benefit in question to the third party seeking to rely on the contractual provision?”

1. Expressed statement of coverage of 3rd party2. A promisor cannot vary the contract to retro-actively take away 3rd party rights. Can’t

unilaterally revoke that right once it has crystallized.ii. (2)“Are the activities performed by the third party seeking to rely on the contractual provision

the very activities contemplated as coming within the scope of the contract in general, or the provision in particular…?”

iii. Policy considerations:1. inconsistency with commercial reality.2. Large-scale change should be left to the legislature, but this is incremental change

that is part of the judicial duty(7) Privity Today (SUMMARY)

a. Fraser river takes the broadest approach. It looks like it could be expanded to apply in a range of other contexts.

b. However, if an agency case arose, you would want to try to argue NZ Shipping first, as it still applies. If that didn’t succeed (especially 4th consideration point could not be proved), you could try to stretch Fraser to fit.

Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd (Broadest approach to Privity of Contract. Intention of the party’s must be considered)

F Fraser River Pile & Dredge: plaintiff; barge owner Can-Dive Services Ltd: defendant; barge-chartererInsurer: In an insurance contract with F. F and Insurer are two parties to the contract - Can-Dive is 3rd party beneficiary. Is CD protected by insurance?

Fraser River owned a barge, the “Sceptre Squamish”. It was under charter to Can-Dive, and it sank (allegedly due to C-D’s negligence).

Subrogation: per Black’s dictionary: “Insurance companies… generally have the right to step into the shoes of the party whom they compensate and sue any party whom the compensated party could have sued.” 

Here, there was an insurance contract between the insurer and Fraser. So normally the insurer could have stepped in to the shoes of Fraser and sued Can-Dive. So insurer instead of paying out Fraser River, they are suing the CD to get the money form them. 

But here, the insurance contract with Fraser contained a WAIVER OF SUBROGATION CLAUSE—i.e., the insurer waived its rights of subrogation against “any charterer”. Insurer waived their rights of subrogation. 

Fraser river payed more for the insurance coverage for waiving the right - so it is one predictable comprehensive plan.

Insurer paid Fraser for its loss of the barge . After, Insurer secured Fraser’s agreement to waive the insurer’s waiver of subrogation, freeing the insurer to sue Can-

Dive by way of subrogated claim. 

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When the insurer sued Can-Dive, Can-Dive tried to rely on the waiver of subrogation.At trial, C-D was held liable: as third party they could not enforce the waiver.

I Can 3rd party beneficiary (Can-Dive) rely on the waiver of subrogation clause as a defense to the action against it in negligence? 

A The principled approach:

Depends on the intentions of the contracting parties. What did the parties intend? - analyze 2 steps while keeping this in mind. Requires two factors to be present:

(1) “Did the parties to the contract intend to extend the benefit in question to the third party seeking to rely on the contractual provision?”

(2) “Are the activities performed by the third party seeking to rely on the contractual provision the very activities contemplated as coming within the scope of the contract in general, or the provision in particular…?”

Factor 1:

There is an even stronger case here than in London Drugs for saying that the parties intended that the benefit apply to the third party. It is expressly stated to cover ‘charterers’. 

What about the argument that Fraser and the insurance company removed the third-party benefit through their agreement? Fraser (i.e. Ins co. wants to argue that freedom of contract means they are entitled to vary their contract.)

The agreement took place after Can-Dive’s rights had already “crystallized into an actual benefit in the form of a defence 🡪against an action in negligence by Fraser River’s insurers.” (CB 321) You cannot retroactively take away the right. The waiver provides the benefit to Can Dive - it’s crystalized. You cannot retroactively take away the rights of 3rd parties that has been crystalized via reliance. 

Can’t unilaterally revoke that right once it has crystallized. This basically turns Can-Dive into a party to the contract for the 🡪purpose of relying on the waiver.  

Factor 2: “At issue is whether the purported third-party beneficiary is involved in the very activity contemplated by the contract

containing the provision upon which he or she seeks to rely.” Here, the activity was chartering the barge, which was exactly the anticipated activity.🡪  

Policy considerations:Privity as it had applied in insurance contexts “was inconsistent with commercial reality.” CB 323Similarly, “Fraser River…has been unable to provide any commercial reason for failing to enforce a bargain entered into by sophisticated commercial actors.” CB 323Large-scale change should be left to the legislature, but this is incremental change that is part of the judicial duty. CB 324All this does is allow the third-party beneficiary to use the clause to defend themselves – not to found a separate claim. it does not help to file/enforce a claim.but it could be possible - there is a room for development of enforcement side of claims. However, see McCamus, who argues that there is scope for saying that it could be used to enforce claims by third parties. (pp 325-6)

H Standard privity: CD is third party beneficiary, no privity. Yes: Can-Dive can rely on the waiver of subrogation clause as a defense, even though it is a third party. The court extends the justification relied on in London Drugs to cover a broader class of cases. Further exception to London Drugs.

R The Principled Approach: Depends on the intention of the contracting parties. Requires 2 factors to be present: 1) Did the parties of the contract intend to extend the benefit in question to the third party seeking to rely on the contractual provision? 2) Are the activities performed by the third party seeking to rely on the contractual provision the very activities contemplated as coming within the scope of the contract in general or the provision in particular

Privity rule Example:o Example #1: You are in a contract to buy A’s house.  A breaches.

You can sue A.o Example #2: A and B are in a contract whereby A promises to convey a house to C and B pays for that promise.

Historically, C could successfully sue, as we see in the 1630 Provender case but this whole line of authority is reversed in the next case, the 1861 decision of Tweddle.

History Provender v. Wood & Tweddle v. Atkinson o Parents of a bride and groom promise each other that they will give a certain amount of money to the groom. In

other words, the promise is between the groom’s father and the bride’s father, but the beneficiary is the groom.

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o Legal Issue: If one or both of the fathers fail to pay, can the groom successfully sue? Provender (1630): Yes. “And the party to whom the benefit of a promise accrews may bring his action.” Tweddle (1861): No. “It would be a monstrous proposition to say that a person was a party…for the

purpose of suing upon it for his own advantage, and not a party to it for the purpose of being sued.” Tweddle changes the law and introduces the modern idea of privity of contract.

Privity and Contract theoryo Some have argued that privity is a necessary element of contract law. Others have argued the opposite. o One theory that is offered is that contract law is about the enforcement of bargains. If so, it might be said that a third

party isn’t part of the bargain.o But we do have a bargain between A and B. B has paid for the promise of A. The only difference is we are allowing

C (the third party) to enforce the bargain. But the bargain already existed. So if we care about the enforcement of bargains, perhaps there is no justification for the privity rule.

o but there should be a line for who counts as a 3rd party beneficiary. 

CHAPTER 6: CONTINGENT AGREEMENTS Also called a conditional agreement, “subject to the following condition” An agreement is conditional if its operation depends on an event which is not certain to occur (Treitel)

o Ex. Buying a house subject to financing Contingent v Promissory Conditions

o 1) Condition as an event (a contingent condition) VERSUS The contingent condition is an event which neither party undertakes to bring about Obligation is contingent on the event happening in the future

e.g. ‘A’ agrees to work for ‘B’ and ‘B’ is to pay ‘A’ the sum of 50 pounds “if it rains tomorrow.”  Per Treitel: “Here, the obligations of both parties are contingent on the happening of the specified event

which may therefore be described as a contingent condition.” “subject to” or “if” indicate that this is a contingent agreement. 

o 2) Condition as a term ( a promissory condition) Promissory condition is a term where one party’s duty to perform is contingent on the other party

performing her undertaking e.g. ‘A’ promises to work for ‘B’ at a weekly rate, payable at the end of each week. Per Treitel: “Here, the contract is immediately binding on both parties, but B is not liable to pay until A has

performed his promise to work. Such performance is a condition of B’s liability and, as A has promised to render it, the condition may be described as promissory.” 

these are ordinary promises that we talked about Conditions Precedent vs Conditions Subsequent

o Condition Precedent describes a state of affairs that must exist before one or more of the promises set out in the agreement becomes enforceable (“precedes”)

o Condition Subsequent prescribes a state of affairs that will bring an already enforceable and binding obligation to an end.

o Recall Dawson Helicopter case. condition precedent - get helicopter & obtain leave from job condition subsequent - if there is nothing found, no obligations to contract with Dawson

Legal obligations and Condition Precedent: (Wiebe) o 1) Category #1: The condition may be a condition precedent to the creation of any contract at all. In that case there

is no binding agreement yet. OR Circumstances where a condition precedent prevents the formation of a contract. the condition precedent is ‘illusory’: it is based on ‘whim, fancy, or dislike.’ It has no objective content and

therefore cannot be enforced. o 2) Category #2: The condition may be a condition precedent to the duty to perform. In that case, there is a binding

agreement but the obligations to perform are suspended until the condition is fulfilled. (more common than 1) OR

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“The much more common phenomenon is to find that a condition precedent is a condition of the enforceability of one or more of the undertakings in an agreement but not of the existence of the agreement itself.”

Circumstances where a condition precedent suspends the performance of the contract. Such agreements can have subsidiary obligations breach of which is actionable.

o 3) Category #3 (Wiebe Dissent): Where it is not clearly category one or two. It is partly subjective and partly objective. Implies a term that the purchaser will take all reasonable steps to fulfill the condition which creates an obligation. But some cases it will not be possible to imply the missing term, and the agreement will fail for uncertainty.

⇒ that is why category 3 does not really exist because it is going to end up in category 1 or category 2.  usually implied are the following: duty to seek financing, etc But it is better to think of category #3 as an interim step (imply some further subsidiary obligations) to

finding yourself in category 1 or 2. “Where an agreement is subject to a non-promissory condition precedent, such as being conditional upon

the approval of a third party, courts will often imply subsidiary promissory obligations on the part of one or both of the parties.” There is a general principle that courts can imply promises to do what is necessary for performance. (Dynamic Transport)

“I cannot accept the proposition that failure to fix responsibility for obtaining planning approval renders a contract unenforceable.” (Dynamic Transport)

Remedyo Damages is the usual remedy in contract. The aim is to put the non-breaching party in the position he or she would

have been in had the breach not occurred. (Dynamic Transport)o Specific performance is an equitable remedy available at the court’s discretion. “[S]pecific performance is generally

not to be awarded where damages will adequately compensate the plaintiff for his or her loss and will rarely be a practical option”. (Dynamic Transport)

Intention, Certainty, and Consideration

Wiebe v Bobsien (Three categories of condition precedent) – no implied term for category 3 too uncertain

F Wiebe: plaintiff/purchaserBobsien: defendant/vendor

Bobsien was selling his Crescent Beach property. Wiebe wanted to buy it, but he wanted to sell his own Port Moody house first. They entered into an interim agreement dated 22 June 1984, making the sale of the Crescent Beach house subject to

Wiebe selling his own residence “on or before 18th August 1984.” “subject to” or “if” indicate that this is a contingent agreement. 

On 22 July 1984, defendant purported to “cancel” the interim agreement. Wiebe did not accept this cancellation. On 18 August 1984, he sold his home, fulfilling the condition. He notified Bobsien that the “subject clause” was removed, and increased deposit by $10,000. Defendant refused to close.

I Is the interim agreement a binding contract?Or was Bobsien entitled to withdraw before the condition was fulfilled?

If the condition to precedent to formation of any contract - so no contract, D can cancel before the contract is formed. if this condition to performance - D cannot withdraw before fulfillment of the condition

A Arguments:

Plaintiff (Wiebe, the purchaser) says that it is a binding contract. The sale of his Port Moody house was a condition precedent, but there was an agreement. “[T]he contract was merely in suspense pending the sale of the plaintiff’s home.” CB 333Defendant (Bobsien, the seller) argues that there was no binding contract. It could be construed as an option contract but even then it would lack consideration. “Therefore the defendant was entitled to withdraw from its terms any time prior to 18th August 1984.” CB 333

Trial Judge:The trial judge decided for the plaintiff. There was a binding contract for the sale of the property. 

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He analysed the various cases under two different categories: (1) Circumstances where a condition precedent prevents the formation of a contract. CB 334 (These cases would support

the defendant’s argument).(2) Circumstances where a condition precedent suspends the performance of the contract. CB 336 (These cases would

support the plaintiff’s argument).

Category #1:With respect to this first category, the court says that this tends to be the case when the condition precedent is ‘illusory’: it is based on ‘whim, fancy, or dislike.’ It has no objective content and therefore cannot be enforced. Example: I’ll buy your house if I like it. (falls in category 1 bc based on whim). 

the reason it would be hard to check if the condition of liking the house is fulfilled. No binding agreement results from this kind of condition.“While a purchaser must use his best efforts in doing such things as obtaining financing, getting subdivision approval or selling his own home, there is no way the law can test whether he used his best efforts in deciding if he really likes a particular piece of property or not. Therefore there can be no contract in the first instance.”

Category #2:A binding agreement results but whether the primary contractual obligations must be performed (e.g. in Wiebe: to buy and sell the Crescent Beach house) depends on whether the condition precedent is fulfilled (in Wiebe, the selling of the Port Moody house). “[A] general rule is laid down that in a real estate transaction a condition precedent which must be performed by the purchaser will not usually prevent the formation of a contract but will simply suspend the covenant of the vendor to complete until the condition precedent is met by the purchaser.” CB 337Such agreements can have subsidiary obligations breach of which is actionable. (Remember this idea from Dawson!)

Wiebe has to make bona fide efforts to sell his house Bobsien has to wait and see if Wiebe fulfills the condition precedent.these are contractual obligations therefore they attach themselves to category 2 rather than 1. 

Here they held that the agreement fell into the second category: it was a binding agreement the operation of which was merely suspended. So once the Port Moody house was sold, the suspension was lifted and there was an obligation to sell the Crescent Beach house. So the defendant was not within his rights to cancel the contract. There is a contract and the performance is suspended, but there are obligations on both parties. D has to wait and not sell the house until the agreed date. PL had to make reasonable effort to sell the house. 

Wiebe v Bobsien (CA dissent) -we read for typology and not for the result

Lambert JA gives us a bit more detail about the different categories. If the condition is too imprecise or too dependent on the subjective opinion of the purchaser, there will be no contract. (Category 1)If the condition is ‘clear, precise and objective’ there will be a contract, just held in suspense until the condition is fulfilled (or not). (Category 2)“But there is a third class of condition precedent. Into that class fall the types of conditions which are partly subjective and partly objective…This type of case has been dealt with by implying a term that the purchaser will take all reasonable steps to [fulfill the condition].” CB 338 (Category 3?)

these is not part of the official categories. This one says that sometime we can turn soemthing that looks like category 1 into category 2. 

“But there are cases that fall in this third class of condition precedent where it will not be possible to imply the missing term, and the agreement will fail for uncertainty.” CB 339⇒ that is why category 3 does not really exist because it is going to end up in category 1 or category 2. usually implied are the following: duty to seek financing, etc..

Lambert held that this case was one of incurable uncertainty. It is too complex to imply a term here: what sort of requirements should we place on his attempts to sell his house?This kind of ‘subject to’ clause is common in the residential housing market, and “a purchaser who…put this type of subject clause in his offer would be astounded to find that he has committed himself to sell his own house at the best offer he receives in the time allotted, no matter whether it meets his expectations or approval, or not.” CB 339The CP here is uncertain. It could have been made certain if the condition was removed, or the house was sold. “At that time a contract would have been formed. Until then, the interim agreement remained a standing offer by the vendor to sell at $360,000, revocable at the will of the vendor, on reasonable notice to the purchaser.” CB 339It was withdrawn before the house was sold, so there was never any contract.

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H There is a binding contract.R 1) Circumstances where a condition precedent prevails the formation of a contract. Things that fall into this category is when

the condition precedent is “illusory,” it is based on “whim, fancy, or dislike.” It has no objective content and therefore cannot be enforced. No binding agreement results from this kind of condition (ex, I’ll buy your house if I like it. This does not work because you will never be able to test if you used best efforts). OR 2) Circumstances where a condition precedent suspends the performance of the contract. The condition is clear precise and objective. A binding agreement results but whether the primary contractual obligations depends on whether the condition precedent is fulfilled. A general rule is that in real estate contexts this applies. Such agreements can have subsidiary obligations breach of which is actionable.

THIRD CATEGORY: Dissent argued there’s a third category for where it is not clearly category one or two. It is partly subjective and partly objective. So if we can imply a term that one party applies, then the condition will be fulfilled and we can say there are obligations here.

Reciprocal Subsidiary Obligations

Dynamic Transport Ltd v OK Detailing Ltd - (courts can find implied subsidiary obligations) – category 3 into category 2

F Dynamic Transport: Plaintiff/PurchaserOK Detailing: Defendant/Vendor

Dynamic Transport wanted to buy land from O.K. Detailing. They entered into a contract to sell it for $53,000. The contract was made subject to condition that the land can be subdivided, but it was not made clear who would seek the approval.Present market value of the land is now $200,000.Now O.K. Detailing is trying to resist the sale on the basis that it is unenforceable because of the failure to specify who would obtain the approval. - it is too unclear and ambiguous - so no contract was formed. Dynamic Transport seeks an order for specific performance: to force the sale of the particular piece of land.

I Is there a binding contract here?Does this fall into the category of conditions precedent where no legal relationship is created (C1), or the category of conditions precedent that merely suspend the obligations of the parties (C2)?OK detailing wants it to be category 1Dynamic transport  wants it to be category 2

A Implied Subsidiary Obligations:“Where an agreement is subject to a non-promissory condition precedent, such as being conditional upon the approval of a third party, courts will often imply subsidiary promissory obligations on the part of one or both of the parties.” McCamus 718There is a general principle that courts can imply promises to do what is necessary for performance. This is just a specific instance of that principle.If the court has to place an obligation, who should bare that obligation?The vendor is the one who typically has the obligation to carry out the subdivision. “The vendor is under a duty to act in good faith and to take all reasonable steps to complete the sale. I cannot accept the proposition that failure to fix responsibility for obtaining planning approval renders a contract unenforceable.” CB 344Here the vendor is O.K. Detailing, so they are responsible for the planning application.

Remedy: The court awarded specific performance and ordered O.K. to seek the subdivision approval.Damages is the usual remedy in contract. The aim is to put the non-breaching party in the position he or she would have been in had the breach not occurred.Specific performance is an equitable remedy available at the court’s discretion. “[S]pecific performance is generally not to be awarded where damages will adequately compensate the plaintiff for his or her loss and will rarely be a practical option”. CB 346But in Dynamic Transport they did award specific performance. There was an allowance for damages if O.K. failed to make best efforts to obtain the approval (damages for breach of implied subsidiary obligation). But that award was based on the assumption that if those efforts were made, approval would be the result. That is unusual and is not guaranteed.

H The appeal was allowed: Dynamic Transport is successful in their suit for specific performance of the sale. Why?Obtaining the approval was a condition precedent to the obligations to buy and sell, and not to the whole contract. So category 2.

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This case falls into the second category we discussed above: not the first where no contract is created at all, but the second, where there is a contract but the obligations under it are suspended. We could say that it is ‘category 3’ in Lambert’s typology. But it is better to think of that as an interim step (imply some further subsidiary obligations) to finding yourself in category 1 or 2.

R Where an agreement is subject to non-promissory condition precedent, such as being conditional upon approval of a third party, courts will often imply subsidiary promissory obligations on the part of one or both the parties. There is a general principal that courts can imply promises to do what is necessary for performance

Remedies for Breach of Subsidiary ObligationEastwalsh Homes Ltd v Anatol Developments Ltd

F PL: Eastwalsh HomesD: Anatol DevelopmentsAnatal agreed to sell to Eastwalsh 147 building lots in a proposed subdivision plan.A contractual term required Anatal to use its “best efforts” to have the plan of subdivision registered prior to closing date. If this failed to happen, the agreement would be terminated.Anatal breached this term by not attempting to get subdivision proposal approvedEastwalsh sued for specific performance or for damages.Trial judge found that Anatal failed to use best efforts to register the subdivision plan. If they had used best efforts, he held there would have been a 50% chance of registering it within the time period that would have enabled the contract to go forward.Therefore, the award of damages was 50% of the increased market value of the lots: $2,020,780.

I How should P’s loss be measured?A Analysis (CoA):

4. Causation question: the plaintiff has the obligation to establish that the loss was “a reasonable and probable consequence” of the breach (on the balance of probabilities). If no loss or trivial loss shown, plaintiff can only get nominal damages.

5. Quantification question: if that has been proven, but the loss is difficult to quantify, this is no reason for denying the plaintiff the award. It is difficult to figure out what the award should be in cases of lost chance to receive a benefit. But in such cases, “the courts have attempted to estimate the value of the lost chance and awarded damages on a proportionate basis.”

“In short, in assessing damages, the court must discount the value of the chance by the improbability of its occurrence.”Discount value of chance by improbability of occurrence

·        50% chance of getting $10  $5 damages·        10% chance of getting $100  $10 damages

“[P]roof of the loss of a mere chance is not enough” 349. Plaintiff has to prove that the chance was a reasonable probability and that the lost possibility was of real substantial value.

Trial judge was right to separate the causation question from the quantification question. He was right that the cause of the loss was Anatal’s breach. But on appeal they disagreed with the second step: there was not sufficient evidence of the loss of a 50% chance. Instead, they held that “notwithstanding the breach, the transaction would not have been completed within the contract period.” CB 349Therefore, only nominal damages should be awarded.

H only nominal damages should be awarded.R The trial judge applied the correct approach but the evidence did not support a 50% chance that the plan would have been

approved notwithstanding the breach. The burden rested on EastWalsh to prove breach of contract and that if the appellant had discharged its best efforts there was a reasonable probability of registration. EastWalsh failed to satisfy this burden. In the time frame provided, the appellant’s best efforts would not have resulted in a successful registration of the plan.

Unilateral Waiver• Parties to a contract that includes a condition precedent as one of its terms can agree to vary or waive satisfaction of the

condition. o If both parties agree to waive or vary the condition there is no problem.o In other jurisdictions, the party who solely benefits from the condition can waive it as long as the other party does

not also have an interest in the condition being fulfilledo In Canada, limitation on unilateral waivers comes from the case of Turney v Zhilka

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• In many case one of the parties wishes to waive the condition so the contract can be given effect while the other party does not.

• Parities should include in the contract explicit provisions that either allowed or prohibit the waiver of conditions precedent, however, often contracts are silent on the matter.

Turney v Zhilka- Even if the condition is just for one party’s benefit à one party cannot unilaterally waive it

F Zhilka: plaintiff/purchaserTurney: defendant/vendorParties entered into a contingent agreement for the purchase and sale of land.Condition was as follows: “Providing the property can be annexed to the Village of Streetsville and a plan is approved by the Village Council for subdivision.” CB 351Completion date:  60 days after plans are approved.Neither party was tasked with seeking this approval.Purchaser made some efforts to secure fulfillment of the condition but it was not looking promising.Purchaser purported to simply waive fulfillment of the condition.Purchaser then sued for specific performance.Vendors claim that they are not bound by the agreement because the condition was not fulfilled.TJ said that the condition was for sole benefit of purchaser and so the purchaser could waive the condition.C.A. affirmed.

I Are the parties bound even in face of non-fulfillment of the annexation condition? Or can the purchaser waive the condition?A Analysis (SCC):

SCC doubts whether the condition was for the sole benefit of the purchaser but “in any event, the defence [of the vendor] falls to be decided on broader grounds.”The purchaser had no right to waive the annexation condition which was a true condition precedent.

§  No right to be waived§  Depends entirely on a will of a third party (Village Council)§  External condition upon which the existence of the obligation depends

o   Until the event occurs, no right to performance on either sideo   Condition was crucial to both parties

This is a true condition precedent—an external condition upon which the existence of the obligation depends. Until the event occurs there is no right to performance on either side. The parties have not promised that it will occur. The purchaser now seeks to make the vendor liable on his promise to convey in spite of the non-performance of the condition and this to suit his own convenience only. …Waiver has often been referred to as a troublesome and uncertain term in the law but it does at least presuppose the existence of a right to be relinquished.”

What is True Condition Precedent?§  Unclear which factors that are referred to are determinative in deciding a true condition precedent§  Depending on a ‘future uncertain event’ à too broad§  Fulfillment depends entirely on a third party’s will à perhaps, but not correctly applied to these facts§  Obligations on both sides are subject to the condition à unclear if this is it

o   Even if the condition is just for one party’s benefit à one party cannot unilaterally waive it

H Purchaser could not waive the right; no contractR This is a true condition precedent—an external condition upon which the existence of the obligation depends. Until the

event occurs there is no right to performance on either side.

Barnett v Harrison·        True condition precedent rule should stay in place because: certainty and two difficult questions are avoided by it

o   (1) Is the condition for the benefit of one party or both?o   (2) Is it severable from the rest of the agreement?

Avoiding these tricky questions is a good reason to stick with the rule according to court. So it appears that the state of the law is that even if the condition is just for one party’s benefit, it looks like that party cannot unilaterally waive it.

True Condition Precedent: Category 1 or 2?·        Category 1: obligations of both parties dependent upon fulfillment of the condition

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o Did he mean that the purported binding agreement was of no binding effect whatsoever until the condition was fulfilled? Or did he mean category 2

·        Category 2: Neither party could call on the other to perform until the condition has been fulfilled· True condition precedent sounds like Category 1: there is nothing there to waive. That is what Judson’s language indicates.

o *However*: why would an annexation clause fall into Category 1? It is not subjective in the way the court indicates in Wiebe v. Bobsien. (Subjective/whim test is still the determinative test.)

o And some cases since Turney have described a condition as a TCP and yet stated that the parties could have obligations to one another. 

So: some ambiguity remains about whether a ‘true condition precedent’ is C1 or C2.·        TCP looks like: (CB 351)

o   No right to be waivedo   Obligations depend on a future uncertain event (the happening of which depends entirely on the will of a third party)o   External condition upon which existence of an obligation dependso   Until the event occurs, no right to performance on either side

How to get around Turney in drafting contracts: o   (1) Try to just draft a waiver provision to avoid this problem

§  Draft so that the condition cannot be classified as a true condition precedent by including a waiver“The purchaser may at any time, up to and including the __day of __, 199__ , waive the protection of the above clause in whole or in part by giving notice to that effect to the vendor in writing at __ (address).” [per Davies, obviously the clause would have to operate in conjunction with and be compatible with the condition itself.]

o   (2) Frame the condition so that the appropriate party can declare the contract null and void

“This agreement may be declared null and void at the option of the purchaser (vendor) if the purchaser (vendor) is unable to obtain by the __ of __ , 19 __ , financing upon the following terms and the deposit shall be returned to the purchaser without deduction.” [per Davies, clause should also state that purchaser should exercise this option by giving notice in writing to vendor at stated address and further, a time period within which such notice is to be given.]

Contingent Agreements Summary

We categorize a CP as category 1 or 2 based on whether the condition is a matter of whim or fancy.

We categorize a CP as category 1 or 2 based on whether the condition is a matter of whim or fancyo If it looks like C1, can it be made determinate by implying obligations?o And then, possibly: is it a TCP? 

When it comes to waiver, if it is a true CP, you cannot waive. If it is not a true condition precedent (i.e. not a Turney situation), then you can waive – if the condition is for your sole benefit.

The best thing to do is draft around (Turney). Make it clear that you are not in TCP territory. Make it clear that you have an agreement, whether it is one that is able to be waived or not.

CHAPTER 7: REPRESENTATIONS AND TERMS: CLASSIFICATIONS AND CONSEQUENCESStatements can fall into three categories:

1. ‘Mere puffs’/‘sales talk’: statements made without intent that they form part of the contract.1. Carbolic case – sellers were saying their statement were just a sale talk.

2. Mere representations: not terms of the contract but can have some legal consequences.

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1. Step up from mere puffery but it is not actual terms – not core obligation of the contract3. Actual terms of the contract: more serious legal liability if broken.

1. Actual content of the contract2. Terms tell parties what they are supposed to do

Misrepresentation (per Fridman): “a misstatement of some fact which is material to the making or inducement of a contract”

General rule per Treitel: no relief for a misrepresentation unless it is a statement of existing fact (description of the way things are)

What are NOT misrepresentations:o Mere puffs do not count as misrepresentations

(not mere puffery – exaggerations)o Statements of opinion or belief do not count as misrepresentationso Representations as to the future (promises) do not count as misrepresentations

It is a promise if it is a representation about futureMisrepresentation elements:

(1) Has to be a FACTa. Fact v Opinion (Smith v Land and House Property Corp)

i. OPINION: Situations in which both parties are equally informed of the relevant facts, and one of them provides an opinion: that opinion will not be able to form a misrepresentation.

1. McCamus: “[W]here an opinion is offered by someone who has no particular expertise in the matter in question, the statement would be considered to be one of opinion rather than one of fact. A reasonable person would not rely on such an opinion.”

ii. FACT (exception to the regular definition of fact - Smith): If the facts are not equally well known to both sides, then a statement of opinion by the one who knows the facts best involves very often a statement of a material fact, for he impliedly states that he knows facts which justify his opinion.”

1. McCamus: “However, one who possesses superior knowledge or expertise with respect to the opinion offered may be held to have made an implicit statement concerning the nature of the information upon which the opinion is based.”

a. This is the case in Smith. The landlord is in a position to know facts the other party does not and is taken to be implicitly representing those facts.

b. Landlord has the knowledge and knows the facts - even though it is a matter of opinion – but there are facts that underpin it (ex. Paying rent on time)

(2) Has to be FALSE(3) Has to be UNAMBIGIOUS

a. Representor has to make clear assertions(4) Has to be MATERIAL

a. Reasonable Person Test (Treitel): “it must be one which would affect the judgment of a reasonable person in deciding whether or on what terms to enter into the contract without making such inquiries as he would otherwise make.”

i. the misrepresentation must relate to a matter that would be considered by a reasonable person to be relevant to the decision to enter the agreement in question.”

ii. Representation must be significant – ex. Income misrepresentation of no less than 1%(5) Has to be RELIED (RELIANCE) by the representee

a. Inducement criterion – the misrepresentation has to actually induce the person to enter the agreement. b. If they undertake their own investigation they will not be held to be relying on the misrepresentor’s claims.

i. But they have no duty to engage in such investigations: this is what we saw in Redgrave v. Hurd. ii. But if they do – there might be a basis saying that they were not relying on the misrepresentation.

c. If a misrepresentation is of the kind that is “liable to induce the misrepresentee to enter the contract, it would be presumed against the misrepresentor that such inducement did occur.” But note that he says this is an inference of fact, not of law, as stated in Redgrave.

General rule: “The general position taken by the common law is that silence does not constitute a misrepresentation.” There are 3 exceptions to this rule:

1. Half-truths: e.g., saying ‘I’m not aware of any restrictive covenants on the land’ when you haven’t checked.1. Implied: you look and you did not find anything – therefore is not truth. Lie by omission.

2. Active concealment of the truth: e.g., covering up a crack in a wall with bricks.1. Misrepresentation by conduct – concealing the truth

3. When circumstances change after a representation, you have a duty to tell the person about the change.

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4. [MAYBE – ONLY PERSUASIVE] General duty of good faith OR Wren may just indicate a broadening of the exceptions to the rule (Bank of BC v Wren Developments)

*Note: There are also some categories of relationship requiring additional good faith (more disclosure might be required) – more on this later…

Remedies: rescission Representations are statements that occur BEFORE the contact comes into being. IT IS PRE-CONTRACTUAL – therefore the remedies are different for pre-contractual representations from contractual

terms. Equity cannot award damages, technically speaking. Equity has the “power to do what is practically just, though it cannot restore the parties precisely to the state they were in

before the contract.” (Kupchak v Dayson Holdings) For breaches of contracts, the usual remedy is damages (looks forward). HOWEVER The usual remedy for misrepresentation is rescission (looks backward). Rescission is the noun form of ‘rescind’ – so the contract is rescinded, or cancelled/undone. The basic idea is that the whole agreement is set aside. So we are trying to restore the parties to their position before the

contract. For this reason the remedy is restitutionary in nature. It restores the parties’ prior rights. McCamus: “In essence, the remedy of rescission involves an unwinding or setting aside of the contractual relationship

between the parties.” Agreements subject to rescission are voidable (not void ab initio) it is enforceable until rescission is actually concluded.

o But when rescission does take place, the aim is to restore parties to their pre-contractual position.

Bars to rescission:o “relief will not be available if it is not possible to effect a mutual restoration of the benefits conferred by the

parties” So, if the goods have perished or been altered, restoration won’t be possible. Equity does not allow damages, but it can take account of profits, and especially in cases of fraud, courts

are willing to exercise their discretion more liberally. Dayson Holdings made changes to the property, so it is not in its original form – it would be too unjust

because they have invested money in improving it (Kupchak v Dayson)

o Affirmation - if a party has ‘affirmed’ a transaction, they can no longer rescind it. This has to occur after they are aware of the misrepresentation, and aware that they have the right to rescind.

In a way protects the guilty party. Affirmation can take place via words or conduct. It can be inferred just from lapse of time in some

situations. But the fundamental question is whether the person chosen to continue with the contract. In Kupchak, the conduct of continuing to operate the hotel was not held to be affirmation because

they communicated their concerns immediately to their lawyers (found their legal right), and because they had no other reasonable option than continuing to run the business so as not to lose money while pursuing their claim (used their right).

o Mitigation – you have to mitigate the loss- you have to reduce the loss as much as possible in order to claim against the other part. SO this is consistent with mitigation – keep running the hotel. Shareholders have responsibility to run the business. They could not transfer their shares back without the other party’s agreement.

o NO CHOICE for Kupchaks We need to find facts that are consistent with affirmation. Neutral facts are not enough!!!

o Rights of Third Parties If a bona fide purchaser has acquired a right for value, the original misrepresentee may not be able to get

the property back. Kupchak: There is also 3rd party rights are involved, it would be unjust to take away those rights because

they did not obtain the property via fraudo Execution of the Agreement

In certain contexts, once a transaction has actually closed, it cannot be rescinded for innocent misrepresentation, but it can for fraudulent misrepresentation (see Kupchak).

Kupchak is not applicable to Kupchak because the transaction has not been yet executedo Laches (unreasonable delay in bringing a claim)

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Delay alone is not enough: it must be unfair to the misrepresentor (e.g. it appears misrepresentee has waived their right to the remedy).

In Kupchak, they reached out to their solicitors promptly. In addition, after being informed of the impending claim of fraud and action for rescission,

Dayson still went ahead with the sale of the Haro st. property. This indicates that they were not misled by any delay on the part of the Kupchak’s. They acted with notice.

o Execution of the contract in certain contexts Execution of property contracts: In the case of land, traditionally, execution is regarded as a bar (absent a

finding of fraud).  See, for example, the Manitoba Court of Appeal in Ennis v Klassen, 1990 CanLII 7949 (MB CA) at 33.

This is because in cases of land, the purchaser has the opportunity to discover problems in advance of completion of the contract.

But see McCamus: this rigid approach may have “a harsh effect in circumstances where an inspection on the premises cannot, as a practical matter, precede closing.” 354 Instead he argues that we should see execution as a relevant but not decisive factor.

The execution of the contract in the context of sale of goods. Some courts have ruled that execution is no bar pending “the passage of a reasonable period of

time for the purchaser to determine whether representations are true” per the Manitoba Court of Appeal in Ennis and based on Leaf v. International Galleries at 34.

The rationale in the case of land does not apply to chattels, where there is limited or no opportunity to examine it in advance.

So execution may not be a bar to rescission, and in Leaf, Denning appears to suggest that it wouldn’t be an issue here. The real issue is that after execution, more than a reasonable time has passed.

Case summaries: Not necessary to prove that the person making the representation knew that it was false (Redgrave v Hurd) The crucial thing is that it was false and it is now known to be so, and therefore the person cannot be allowed to get a benefit

from that false statement (Redgrave v Hurd). The effect of a misrepresentation does not go away because the other party (misrepresentee) was negligent (Redgrave v

Hurd). o Presumption of misrepresentation can be rebutted by the proof of knowledge. In order to take away misrepresentee’s

title to be relieved from the contract on the ground that the representation was untrue, it must be shewn either that he/she had knowledge of the facts contrary to the representation, or that he/she stated in terms, or shewed clearly by his conduct, that he did not rely on the representation.

o The fact that other party has opportunity to discover – only matters when the actual knowledge is achieved

Misrepresentation and Rescission

Redgrave v Hurd (1881 CA England) – reasonable opportunity to discover truth and elements of misrepresentation

F Plaintiff: Redgrave, Elderly solicitor practicing in Birmingham. Wants to sell his practice.Defendant: Hurd, solicitor practising in Stroud.Regrave wanted to sell a share in his practice as well as his home to a new lawyer. Hurd entered negotiations for this transaction and asked for information about the practice’s finances.Regrave told him that it was around £300 to £400 per year (it turned out that this was not true)Papers shown only indicated £200 per year and when Hurd inquired further Regrave gave him some additional papers and letters that he claimed made up the difference. Hurd did not examine these papers in detail, however, and went ahead with the sale for £1600. He did not let the discrepancy to stop himWhen Hurd moved to Birmingham and looked more closely he saw that the practice was “utterly worthless”, and he refused to close the deal.Redgrave, the elderly lawyer, sues for specific performance (he wants the transaction to be completed). Hurd says he has been induced to enter into the transaction by misrepresentation. He countersues for rescission, return of deposit, and damages.Hurd lost at trial because the papers were available to him and he failed to examine them. It now comes up on appeal.

I Does the plaintiff have an enforceable contract or is it impeachable via pre-contractual misrepresentation?

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A Reasonable opportunity to discover the truth• What about the argument that Hurd knew or had the opportunity to find out that the statements were false, by reading

the papers?• This is no answer to the claim of misrepresentation. The effect of a misrepresentation does not go away because the

other party (Hurd) was negligent (did not look closely enough at the statements). CB 361• “If it is a material representation calculated to induce him to enter into the contract, it is an inference of law that he

was induced by the representation to enter into it, and in order to take away his title to be relieved from the contract on the ground that the representation was untrue, it must be shewn either that he had knowledge of the facts contrary to the representation, or that he stated in terms, or shewed clearly by his conduct, that he did not rely on the representation.” CB 362

1. Material representation that makes another person enter into a contract2. There is a presumption of inducement 3. To rebut the presumption, Hurd must be shown to know about this representation – and despite

discrepancy still decided to go ahead with the transaction. • In other words, we have a presumption that has to be rebutted by actual knowledge.• Misrepresenations can be innocent, fraudulent, and negligent • The fact that other party has opportunity to discover – only matters when the actual knowledge is achieved

The misrepresentation, as we have seen, must be of an existing fact (state of affairs - income of legal practice - this fact can be verified). And of course it must be false (or it wouldn’t be a misrepresentation).

1. HAS TO BE A FACT2. HAS TO BE FALSE3. UNAMBIGIOUS – has to be clear assertions4. MATERIAL

1. TEST (Reasonable person test) Material: i.e., per Treitel: “it must be one which would affect the judgment of a reasonable person in deciding whether or on what terms to enter into the contract without making such inquiries as he would otherwise make.”

5. RELIANCE - Relied on by the representee (inducement criterion) – the statement that induces one party to enter into the contract

Material: Statements made in Redgrave v Hurd about the annual income of the firm are obviously material. Compare this to cases where the income of a property was misrepresented by an amount less than 1%. This was not held to be material.Reliance:If a misrepresentation is of the kind that is “liable to induce the misrepresentee to enter the contract, it would be presumed against the misrepresentor that such inducement did occur.” McCamus 341. But note that he says this is an inference of fact, not of law, as stated in Redgrave.

H Appeal allowed: Hurd wins. He can rescind the contract and have the deposit returned.R Not necessary to prove that the person making the representation knew that it was false (the person (Redgrave) did not have

try to trick another on purpose– it more about the fact that the statement was false). The crucial thing is that it was false and it is now known to be so, and therefore the person cannot be allowed to get a benefit from that false statement.The effect of a misrepresentation does not go away because the other party (misrepresentee) was negligent.

Smith v Land and House Property Corp (1884 CA England) – statement of opinion as a fact

F Plaintiffs wanted to sell a hotel, and stated that it was leased to Frederick Fleck. They described him as “a most desirable tenant”. Defendants agreed to buy the hotel. Fleck became bankrupt. Defendants refused to complete sale.

I Is the description of Fleck as a desirable tenant a misrepresentation? Plaintiffs argue that it is a mere expression of opinion, not a statement of fact. Recall that misrepresentations must be about existing facts.

A Fact vs Opinion: OPINION: Bowen LJ draws a distinction between situations in which both parties are equally informed of the relevant facts, and one of them provides an opinion: that opinion will not be able to form a misrepresentation. FACT: “But if the facts are not equally well known to both sides, then a statement of opinion by the one who knows the facts best involves very often a statement of a material fact, for he impliedly states that he knows facts which justify his opinion.” CB 364

- Even if it is a statement of opinion, it can be counted as a fact because you know more and impliedly your opinion is

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justified by fact.- This a grey territory where arguments arise

Here, rent had been paid late, “by driblets under pressure”[!!], and that was enough to make him undesirable in the court’s view.So the plaintiff had represented material facts that he knew – about the late rent payments – in the form of an opinion about his desirability as a tenant.

- PL knew about late payments- If the tenant was paying rent on time up to until the representation – it does not matter what happens later to change

those facts. This counts as a misrepresentation, so the defendant can get out of the sale. This is a kind of exception to the view that a statement of opinion or belief cannot count as a misrepresentation. “However, one who possesses superior knowledge or expertise with respect to the opinion offered may be held to have made an implicit statement concerning the nature of the information upon which the opinion is based.” McCamus 338

This is the case in Smith. The landlord is in a position to know facts the other party does not and is taken to be implicitly representing those facts.

Landlord has the knowledge and knows the facts - even though it is a matter of opinion – but there are facts that underpin it (ex. Paying rent on time)

H This counts as a misrepresentation, so the defendant can get out of the sale.

Bank of British Columbia v Wren Developments Ltd – Silence and [4th exception to the general rule]

F

Wren (the company) took a loan from the bank and, as security for this loan, deposited with the bank some shares in a number of companies. This was done via a hypothecation agreement. Hypothecate, per Black’s, means “to pledge property as security of collateral for a debt.” Allan had also signed a guarantee for the loan.Over time, plaintiff (bank) released some of these shares to Smith without Allan or Wren’s knowledge or consent. This negatively affected Allan’s position under his guarantee. Allan was then told that the loan was in arrears (behind on payments) and he needed to sign a new guarantee.Allan asked about the position of the shares, and the supervisor said he would look into it and report back. But Allan did not wait for an answer - he simply signed on the assumption that there had been no change. He felt certain the shares were still held by the bank since Smith was not entitled to release them acting alone.Bank already has default judgment against Wren on the loan and summary judgment against Smith of his guarantee.

I Does Allan have to pay $25,000 pursuant to his written guarantee? A There was a unilateral mistake on the part of the defendant Allan which was induced by the misrepresentation of the plaintiff

in failing to disclose material facts to him.” CB 367Even though the bank did not make a representation, instead that the act and conduct of the bank misled Allan that there has been no change to the securities.

General rule: silence is not representation. Does Wren fit in one of the 3 exception categories?The court held that the ‘failure to disclose material facts’ in Wren constituted a misrepresentation.Per McCamus: “The Wren case cannot easily be explained within the established categories of cases requiring disclosure.” p 344 Does not naturally fit into those 3 categories – the bank says ”I don’t know, let me check”McCamus suggests that guarantees might be evolving as a new category where good faith is required. - General duty of good faith *--> potential developmentOr Wren may just indicate a broadening of the exceptions to the rule… we will have to wait and see…As the law still stands – the misrepresentations cannot occur by silence unless they fit into those categories that listed on the slide (+ maybe Wren – but not super persuasive currently)

H Action dismissed: Allan does not have to pay the guarantee. Upon the evidence I find that the defendant Allan, when he signed the second guarantee, was misled by the words, acts and conduct of the plaintiff into believing that there had been no change

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in the collateral securities held by the plaintiff, and otherwise he would not have signed it.R McCamus suggests that guarantees might be evolving as a new category where good faith is required. General duty of good

faith *--> potential developmentOr Wren may just indicate a broadening of the exceptions to the rule… we will have to wait and see…

Kupchak v Dayson Holdings Ltd - RescissionF The Kupchaks (appellants): purchased shares in a motel company, Palms Motel Ltd, from…

Dayson Holdings (respondents)As part of the sale, the Kupchaks additionally transferred two properties in addition to money to Dayson Holdings in exchange for shares in the hotel. There were ongoing monthly obligations that meaning that the transactions were not completely doneThe Kupchaks soon discovered that the statements made by Dayson Holdings about the earnings of the hotel had been false.They stopped paying the mortgage and consulted their lawyers.The trial judge found that there was fraud inducing them to enter the contract. This is held to be the case on appeal as well. Fraud is settled for our purposes. Fraud is a type of representation. Innocent, fraudulent and negligent representation.

I Remaining question on appeal is: what should the remedy be?

A Normally rescission would be granted, and the aim would be to put the parties back in the pre-contract position. But here, one of the properties that was given in exchange for the Motel shares (the Haro St property) had been torn

down and a modern apartment building had been built in its place, and they have sold a half interest in it to someone else. So it cannot be given back.

To rescind the transaction – the property would be given back to Kupchak, but it is not possible in this case anymore.

“the respondents’ dealing with the Haro St. property, which they acquired by fraud, ought not to bar rescission of the transaction unless it be impractical, or so unjust to the respondents that it ought not to be imposed upon a guilty party.” CB 370

o Even though respondent are guilty, would it be too unjust to take away the property? Here it would be too unjust because they have invested money in improving it. There is also 3rd party rights are involved, it would be unjust to take away those rights because they did not obtain the

property via fraud The respondents (Dayson Holdings) ask instead for its value as agreed in the transaction ($80,000) Equity cannot award damages, technically speaking. But here they say that they do have the power to order rescission, and in light of this, they can order parties to

pay compensation “in order to effect substantial restitution under a decree for rescission” (CB 370) Equity has the “power to do what is practically just, though it cannot restore the parties precisely to the state they

were in before the contract.” (CB 370) - it would not be very equitable for no awarding compensation (not the same as damages) – monetary value for thing

exchanged – it is backwards looking which undo the wrong/ undo the contract Even though someone had an opportunity to find out the truth – reasonable opportunity is not an answer to the claim of misrepresentation in the case of innocent and fraudulent representations.

Non of the bars to rescission were successful. So, in Kupchak, since there was fraud, but there was also this problem of the impossibility of restoring the prior rights, what did the court do?The court said that “Dayson Holdings could not resist rescission on the basis of its own dealing with property it had acquired by fraud” McCamus 351-2- Dayson acquired property fraudulently and also made changes to the property after Kupchaks raised the issue re transaction.It granted rescission, but instead of restoring the actual property, it ordered compensation for the value of the property at time of transfer.This is a way to get around the problem. It is not technically damages, it is just a monetary substitution for the restitution they are owed.

Affirmation:In Kupchak, the conduct of continuing to operate the hotel was not held to be affirmation because they communicated their concerns immediately to their lawyers (found their legal right), and because they had no other reasonable option than continuing to run the business so as not to lose money while pursuing their claim (used their right).- Mitigation – you have to mitigate the loss- you have to reduce the loss as much as possible in order to claim against the other part. SO this is consistent with mitigation – keep running the hotel. Shareholders have responsibility to run the business. They could not transfer their shares back without the other party’s agreement.

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NO CHOICE for KupchaksH “Accordingly, I would order rescission…and order the respondents to compensate the appellants for their equity in the Haro

St. property based upon its value on March 31, 1960, to be ascertained by an inquiry, with interest at 5% per annum from that date…” CB372Non of the bars to rescission were successful.

Representations and Terms

Innocent, Negligent and Fraudulent Misrepresentationso Innocent misrepresentation (the test is the one we saw last lecture): a false statement of existing fact that is unambiguous,

material, and relied on.o Redgrave

o Fraudulent misrepresentation: the test is as above but it must also be made with knowledge it is false or reckless disregard for its truth or falsity. (See Redgrave – even though it was innocent rep in that case, but there is a discussion of it)

o Kupchako Smith v Land

o Negligent misrepresentation: we will turn to this shortly.o The remedy will be different in each case

The difference between representations and terms:

• We are now turning from representations that induce people to enter into a contract to representations that form actual terms of the contract (aka TERMS).

• A number of questions arise: how do we determine which representations actually form part of the contract, and can therefore make the person liable in damages for breach of contract?

• This is (like most things in law) a fraught (stress/ anxiety) question requiring argument… • Recall our Central Question: How do we categorize the various statements that are made in the course of formation of a

contract?• When someone is induced into an agreement by a representation, and it turns out to be false, there can be a number of

different results (see McCamus pp 728-9):1. If it was a misrepresentation that induced formation of the contract, equity may award rescission, whether it

was innocent or fraudulent. (Redgrave) If it was fraudulent or negligent, there may be an additional claim in tort – more on this later.

2. If we can argue that the misrepresentation was subject to an implicit undertaking that the representation is true, then we might be able to say that that undertaking is enforceable as a collateral contract or as a term of the contract. In such a case, we can get damages, not just rescission.

• Can we make a representation into a term of a contract or collateral contract? If we can do that, we can get damages (it is more powerful – forward looking – trying to put you in the place you could have been in had the contract been performed)

• Rescission is backward looking – brings you back to the place had the contact had not happened at all.

3. If the statement of fact was explicitly stated in the contract, it will then be a term, and damages will be available.

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Remedy: rescission Remedy: Damages

• So – given these different results and different remedies, there will be incentives to try to argue that it is a term rather than a misrepresentation inducing formation. We will see this as we work through the cases.

Misrepresentation vs. Warranty Test for representation (whether it actually intended to be a warranty) is intention to create collateral contract (as it was

not written into the contract as an actual term)o Is there a promissory intention?

o If it is, on the other hand, just a statement of fact not intended to be a promise, it will more likely fall into the category of a precontractual misrepresentation.

o Legal Test per Lord Denning: “If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice.”

o We must consider “totality of the evidence” that indicates an intention that the affirmation form part of the contract (Heilbut).

o Factors to considero Does the representor has expertise or privilege access to the information?o Representee reasonably rely on that information

o So if there is no evidence to support that this was a collateral contract, it will be a mere representation A mere statement about the nature of the company does not indicate sufficient evidence of a

collateral contract/warranty. (Heilbut) “Answer to an inquiry for information is not warranty. There is nothing which can by any

possibility be taken as evidence of an intention on the part of either or both of the parties that there should be a contractual liability in respect of the accuracy of the statement.” (Heilbut)

Intention is the central thing at issue. A way of interpreting this appears to be whether we can say that the representation was intended as a promise. Remember that contract is about promise. For it to be a part of the contract or a collateral contract, what we need is

promissory intention. If it is, on the other hand, just a statement of fact not intended to be a promise, it will more likely fall into the category of a

precontractual misrepresentation.

Terms: Condition v Warranty Conditions – condition goes to the very root of the contract

o strongest and most powerful kind of term. o If it is a condition you can reject the goods (Leaf - painting) before accepting it.o Can also choose to affirmo Whether you affirm or terminate, ALSO entitled to damageso Example: you ordered apples, the seller sends you potatoes – goes to very root of the contract

Warranty is an undertaking or guarantee that a particular statement of fact is true or will continue to be true or will become true on a particular future occasion

o In Heilbut: “[T]he term “warranty” is being used here in a generic sense as equivalent to “contractually binding undertaking,” rather than in its more modern and technical sense as referring to a contractual term, breach of which sounds only in damages.”

o Warranty concerns some less important or subsidiary element of contract.o somewhat weaker term that allows claim to damages only, but one cannot reject the goods.o Example: apples were supposed to be shipped in blue packaging and they arrive in pink packaging.

The Law of Mistake in Relation to Quality (Leaf) Generally, the law of mistake has the effect that the contract entered into is void. The mistake must be ‘fundamental’, such

that performance is impossible: for example, if the subject matter does not actually exist. Mistakes as to quality do not typically count as mistakes that will render a contract void.

o E.g. Scott v Littledale: contract for the sale of tea was valid even though there was a mistake about the quality of the tea that decreased its value because it is still tea.

o Mistake about the habitability of a house will similarly not render contract void. If it was not a house at all – then void.

o Treitel suggests that the test could be asking parties “what are you contracting about?”: this is to determine whether the quality in question goes to the very subject matter of the contract.

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Heilbut, Symons & Co v Buckleton – representation & NOT collateral contract F Heilbut: defendants/appellants; rubber merchants. He owns a lot of Filosola shares and tries to sell them to the public with the

help of Mr. Johnston Filisola Rubber: Rubber company. Heilbut underwrites (accepts liability) a large number of shares in them.Mr. Johnston: The agent for selling shares in Filosola for Heilbut. Buckleton: plaintiff/respondent. Bought the sharesMr. Wright: the broker for BuckletonOn April 14 Buckleton called Johnston from Wright’s office. There was a phone conversation in which a representation was made that the company was “a rubber company”. Buckleton trusted Johnston because he said it is rubber company – it was enough for BuckletonBuckleton then agreed to purchase a large number of shares in the company.However, a deficiency was discovered in the rubber trees on Filisola Estate, and the shares subsequently fell in value.Now, Buckleton sues for fraudulent misrepresentation, or alternatively for damages for breach of warranty – the statement that the company was a rubber company.So, he is suing in both – (1) if there was a representation and (2)if that representation was a term

I It is not in issue that there was a representation made that the company was a rubber company. The question is: what is the legal status of that representation?Was it a mere misrepresentation inducing the contract?Or was it a collateral warranty creating a binding contractual obligation?“[T]he term “warranty” is being used here in a generic sense as equivalent to “contractually binding undertaking,” rather than in its more modern and technical sense as referring to a contractual term, breach of which sounds only in damages.” McCamus p 730Here, that means the question is whether there is “a contract collateral to the main contract to take shares, whereby the defendants in consideration of the plaintiff taking the shares promised that the company itself was a rubber company.” CB 377

A How does the collateral contract/warranty analysis work?The representation made before formation becomes a term of a collateral unilateral contract. “If you enter into the main contract, I promise that the representation is true.” (If you to enter into the main contract, I promise that this is a rubber company). The promise of it being a rubber company is made in consideration for other party entering into the main contract. The acceptance and the consideration would be entering the main contract, so by doing that the party accepts that the representation/the promise is true.Lord Moulton: Such collateral contracts can exist, but they are rare. It would be more natural to vary the terms of the main contract, so we have to be strict about finding these contracts on the facts.We have to look for animus contrahendi – contractual intention.

We must prove that the representation was actually intended as a warranty. Therefore, the parties did actually intend for this to be a collateral contract and be bound by it.

Test for representation in question (whether it actually intended to be a warranty) is intention to create collateral contract (as it was not written into the contract as an actual term)

At common law, innocent misrepresentation does not give rise to damages. (As we saw in Redgrave, innocent misrepresentation can lead to rescission in equity, but not a common law remedy.)At common law, “the attempts to make a person liable for an innocent misrepresentation have usually taken the form of attempts to extend the doctrine of warranty beyond its just limits and to find that a warranty existed in cases where there was nothing more than an innocent misrepresentation.” (CB 379)The court suggests that this is what is going on in this case. This is not the term of the contract, we should not extend the doctrine of warranty beyond its limits to get better remedies. Lord Moulton says that some statements have been made by other courts that are too broad and sweeping.e.g.: “being made in the course of dealing, and before the bargain was complete, it amounted to a warranty” CB 379Also too strong to say that “if a vendor states a fact of which the buyer is ignorant, they must, as a matter of law, find the existence of a warranty” CB 380 We should instead be looking to whether ‘the totality of the evidence’ indicates an intention that the affirmation form part of the contract. CB 380

H This does not count as a warranty.“There is in the present case an entire absence of any evidence to support the existence of such a collateral contract.” CB 378A mere statement about the nature of the company does not indicate sufficient evidence of a collateral contract/warranty.“In the present case the statement was made in answer to an inquiry for information. There is nothing which can by any possibility be taken as evidence of an intention on the part of either or both of the parties that there should be a contractual liability in respect of the accuracy of the statement.”

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Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd – Warranty (term) & NOT representation

F Mr. Charles Walter ‘Dick’ Bentley: plaintiff, wanted to purchase a BentleyHarold Smith Motors Ltd./Mr. Smith: defendant, vendor who sells BentleySmith told Bentley a number of things during the negotiations for the sale of the Bentley. In particular, he stated that the car had only done 20,000 miles since it was fitted with a replacement engine and gearbox. Bentley bought it for £1850, and Smith said it was guaranteed for 12 months including parts and labour.He ended up having to take it back for work numerous times, and was disappointed. He wants to keep the car, but he wants some of his money back die to the poor quality and he was overcharged for it. He eventually brings this action for breach of warranty (therefore term category) for 400 pounds. He is asking for damages.

I Is there a breach of “warranty”?Or, more specifically, how do we categorize the statement that the car had only done 20,000 miles since the replacement engine and gearbox? Was it an innocent misrepresentation, or was it a warranty?

A Legal Test per Lord Denning: “If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice.” CB 382But what conduct will count as intention?“if a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act on it, and it actually induces him to act on it by entering into the contract, that is prima facie ground for inferring that the representation was intended as a warranty.” CB 382But this presumption can be rebutted if we can show that it was actually an innocent misrepresentation. (e.g. in Oscar Chess, which we now turn to.)Oscar Chess• Non-professional vendor• Passes on log-book which stated year of car to be 1948 from the prior owner• No warranty based on reasonable bystander test• The statement is an innocent misrepresentation.Dick Bentley• Professional vendor (professional status matters)• Stated a fact (20,000) that should have been in his own knowledge• It is a warranty based on a reasonable bystander test

H In Bentley they determined that there was a warranty. It was intended to be part of the sale. In effect, he was saying: “If you will enter into a contract to buy this motor car from me for £1,850, I undertake that you will be getting a motor car which has done no more than twenty thousand miles since it was fitted with a new engine and a new gearbox.” CB 383This is a unilateral analysis. The core contract is entering into the sale of the car. Collateral warranty is if you enter into the sale and purchase of the car (core contract), I promise the condition of the carIt is clear that this was what was conveyed and intended to be conveyed to Bentley.

Leaf v International Galleries – you cannot claim a lesser remedy and get a remedy of a stronger claim

F Leaf: Plaintiff; purchaser of a painting which the vendor claimed was a Constable (painter)International Galleries: Defendant; vendor of the painting1. During contractual negotiations, defendant represented the painting in question as a painting by Constable. This was also a term of the contract.2. Five years later, the plaintiff wanted to sell the painting, and at that point, he was informed by Christies Auction House that it was a fake.3. Plaintiff now seeks rescission. He is arguing that the statement that the painting was by Constable was an innocent misrepresentation.

I Is the plaintiff entitled to rescission? He just wants out of the transaction – he wants to be back as he was before all of this this (rescission)

A Lord Denning: The plaintiff sues only for rescission in equity. But to determine if he is entitled to a remedy, we must look to the law about sale of goods (the common law).What’s going on here?The two remedies have to work in tandem. So we have to consider what one is entitled to in both realms to figure out the right result in one realm.

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There are two directions to go: either it was an innocent misrepresentation inducing formation, and then rescission is available. Or it was a term of the contract, and damages are available. Leaf is only suing along the first path. But Denning looks to the second path to figure out what makes sense in the first path. Remember that the misrepresentation path is the ‘weaker’ path. This is where someone has made a representation about the way things are: a statement of fact. That might induce someone to enter a contract, but it isn’t a promise.On the second path, we have a promissory relationship. So this is the ‘stronger’ path to take. Denning’s argument here seems to take the following form: Logically speaking, it wouldn’t make sense to do better if you only have a misrepresentation, and are on the weaker path. So we have to examine the remedy on the stronger side to see what is available there, because that will limit what is available on the weaker side: it cannot be better than the strong side.There was a term in the contract about the quality of the subject-matter: who the artist was.“That term of the contract was either a condition or a warranty.” CB 384

• If a condition, he could have rejected the picture before he accepted it.• If a warranty, he would have had a claim in damages only.

Denning concludes that it was a condition. However: “the right to reject for breach of condition has always been limited by the rule that once the buyer has accepted, or is deemed to have accepted, the goods in performance of the contract, he cannot thereafter reject, but is relegated (downgrade to a lower rank) to his claim for damages”. CB 384

Did Leaf accept?The buyer is deemed to have accepted after retaining them for a reasonable time without complaint.Five years is much more than a reasonable time. “It is far too late for him at the end of five years to reject this picture for breach of any condition.” CB384After that time he can get the remedy of damages, but he didn’t bring that claim. He wants to reject the picture under rescission instead. But he cannot do better then under misrepresentation than under the terms in terms of remedies. Under common law, he is not entitled to reject the goods under the breach of condition

So… after that detour into what would have been permitted under the ‘stronger’ path (if it were a term), we see that he would not have been entitled to reject the goods at this stage (aka 5 years later) under the common law.Back to the claim at hand: what about the argument that it is a misrepresentation?“an innocent misrepresentation is much less potent (not as powerful) than a breach of condition. A condition is a term of the contract of a most material character, and, if a claim to reject for breach of condition is barred, it seems to me a fortiori that a claim to rescission on the ground of innocent misrepresentation is also barred .” CB 385In other words, it wouldn’t make sense to allow him to do better if it is only an innocent misrepresentation than he would if it were a term of the contract.

The Law of Mistake in Relation to QualityEvershed Judgment: more issues + MISTAKEDid he contract to buy a Constable?Or did he contract to buy “a specific chattel, namely, an oil painting of Salisbury Cathedral…on the faith of a representation, innocently made, that the painting had been painted by Constable”? CB 385Evershed argues for the latter (Salisbury Cathedral painting), and that means that he still has the article he contracted for. It is “a difference in quality rather than in the substance of the thing itself.” CB 385Mistake?This is addressing the question of mistake, which is also dealt with by Lord Denning:“There was a mistake about the quality of the subject-matter, because both parties believed the picture to be a Constable, and that mistake was in one sense essential or fundamental. Such a mistake, however, does not avoid the contract. There was no mistake about the subject-matter of the sale.” CB 384 There is a mistake in quality but not in the thing itself.

Is this true? Isn’t the essential nature of the thing different in this case?Generally, the law of mistake has the effect that the contract entered into is void. The mistake must be ‘fundamental’, such that performance is impossible: for example, if the subject matter does not actually exist.Mistakes as to quality do not typically count as mistakes that will render a contract void. E.g. Scott v Littledale: contract for the sale of tea was valid even though there was a mistake about the quality of the tea that decreased its value because it is still tea.Mistake about the habitability of a house will similarly not render contract void. If it was not a house at all – then void.However, if the mistake about the quality is such that it goes to the identity of the thing, we may have a mistake that makes the contract void. (Treitel s 8-019)Treitel suggests that the test could be asking parties “what are you contracting about?”: this is to determine whether the quality

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in question goes to the very subject-matter of the contract. The way mistake is discussed in Leaf, the suggestion seems to be that the parties would answer that they have contracted for ‘a picture’. But as Treitel points out, it seems much more likely that they would say ‘a Constable’.Treitel indicates that Leaf may be wrongly decided, but at any rate, the discussion of mistake is only dicta, as the case is decided on grounds of misrepresentation.

Evershed also raises a policy argument for denying relief.There is disagreement about whether pieces of art are genuine or fakes, and this would result in “costly and difficult litigation” CB386Better to say that if people choose to buy art on the faith of a representation, then once the article is accepted, that is the end of the transaction. “[O]therwise, business dealings in these things would become hazardous, difficult, and uncertain.” CB 386Besides, there is a common law remedy available if it is a warranty, and if so, there is no justification for bringing in equity.

H Therefore, he cannot now rescind, five years later. Appeal dismissed.

Statutory ReformThe complicated issues we have just been examining lead to calls for law reform. But what should the ideal system entail? (See CB 387)

• Make representations always form part of the agreement, so remedies for breach are available?• Increase the scope for the remedy of rescission?• Allow parties to choose between the two?

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If promise – go to termso Remedies are forward looking

If statement of fact – go to misrepresentation o Remedies backward looking

Left-hand side is formation issues.

Right hand side is performance issues.

You can have tort claims on either side: there can be negligence in performance as well.

• Allow courts to choose? Consumer Protection Act RSA 2000

See excerpt in Casebook, pp 391-398 The act altering or changing the law re bars to rescission. This act provides a number of protections against specific wrongs that may be done by sellers, including misrepresentations

of various kinds. Section 7(1) (expands available remedies) specifies that cancellation of the transaction is an available remedy (similar to

rescission), in addition to any remedy available at common law, such as damages. Note that it is the consumer protection act. So it only affects the rights/remedies of consumers. If you have commercial

parties they are still governed by the law we have been examining so far.

Concurrent Liability in Contract and Tort When someone has made a false statement of fact/misrepresentation causing loss, can the victim sue in tort as well as in

contract? The law on this has shifted over time, but the short answer is yes:

o If it was fraudulent, you might have a claim in the tort of deceito If it was negligent or careless, you might have a claim in negligence

Note that you can have liability in both tort and contract but you cannot recover twice. One set of facts can give rise to more than one cause of action but not double recovery.

Negligent misstatement (Deloitte & Touche v Livent Inc,) This case tells us that a prima facie duty of care exists when there is proximity and reasonable foreseeability.

o Proximity is established if there is a close and direct relationship between the parties. o Reasonable foreseeability is established if

(a) the defendant should have reasonably foreseen that the plaintiff would rely on his or her representation; AND

(b) such reliance would, in the particular circumstances of the case, be reasonable. History: Hedley Byrne & Co v Heller

This is a landmark case from 1964 where it was recognized that the tort of negligence could cover economic loss caused by negligent misstatements.

The plaintiff asked the defendant (a bank) for advice about the creditworthiness of a customer of the bank. The bank said positive things, but disclaimed liability for accuracy.

In reliance on this advice, the plaintiff entered into a business relationship with the customer in question. The plaintiff subsequently suffered economic loss.

The disclaimer meant the plaintiff lost, but the court held that if there had been no disclaimer, there could have been a claim for negligent misrepresentation.

How does liability arise? There must be a ‘special relationship’ between the parties for this liability to arise.

o Special relationship is relationship equivalent to contract The more profession their relationship there is more likely that there is an assumption of responsibility or

that it is reasonable to rely on that advice Especially if there is an advice-giving relationship

Post Hedley After Hedley was decided, it was theoretically possible to be liable in tort and contract for the same misrepresentation. But the SCC seemed inclined not to go down that path and wanted to limit things. In J. Nunes Diamonds v Dominion

Electric, they rejected concurrent liability. The suggestion was that if a contract exists, it states the whole basis of liability between the parties. If there is a contract, that is the only basis to sue, so no more suing in tort. Contract sets the boundaries how one can sue

Subsequent cases chipped away at this idea, leaving room for concurrent liability. We now consider the details of this concurrent liability.

So now we look at what is left there after cases chipped away at the idea of no concurrent liability. There is some room for concurrent liability – we analyze now

Summary: Negligent Misstatement Concurrent liability is the law (BG Checo)

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o Parties who are guilty of tortious misconduct when breaching a contract will be liable concurrently in contract and tort, unless the agreement between the parties stipulates to the contrary.” (McCamus)

o Central & Eastern Trust Co. v. Rafuse: where the court held that concurrent liability was possible where the contract created a sufficiently proximate relationship to generate a duty of care in tort. In such a case, “where a given wrong prima facie supports an action in contract and in tort, the party may sue in either or both, except where the contract indicates that the parties intended to limit or negative the right to sue in tort.”

BUT That means that the fact that parties have covered an issue in their contract doesn’t mean they can’t sue in tort. “It all depends on how they have dealt with it.” (BG Checo)

1. “[W]here the contract stipulates a more stringent obligation that the general law of tort would impose.”

o Contract can stipulate a more stringent stipulation – so the lawsuit in tort is unlikely because it would be better to sue in contracts. But you can sue if there are other procedural benefits - the right to sue concurrently is the law.

2. “[W]here the contract stipulates a lower duty than that which would be presumed by the law of tort in similar circumstances.”

o Contracting out of your tort duty – ex. Exclusion clause. It is hard to sue a point in this case.

3. “[W]here the duty in contract and the common law duty in tort are co-extensive.” o You can sue concurrently – it increases your chances of recovery because you can argue

in alternative + procedural benefits (limitation period) Contract claim:

o 1st look at the text of the contract to determine rights and obligations of the parties (BG Checo) Reconcile if possible inconsistent provisions (BG Checo)

1) “It is a cardinal rule of the construction of contracts that the various parts of the contract are to be interpreted in the context of the intentions of the parties as evident from the contract as a whole.” (BG Checo)

2) General terms are qualified by specific ones. Specific term will take precedence over general term (BG Checo)

o Measure of Damages (BG Checo) Damages are forward looking: the measure of damages is what is required to put the innocent party in the

position it would have been in had thae contract been performed as agreed (BG Checo) Innocent party cannot recover profit and can only recover costs (BG Checo)

Tort Claim:

BG Checo International Ltd v British Columbia Hydro & Power Authority - post Hedley – concurrent liability is the Law

F BC Hydro & Power Authority (“Hydro”): defendantBG Checo Ltd. (“Checo”): plaintiff; successful tenderer on a transmission line project.Nov/82: Hydro called for tendersDec/82: BG Checo inspected area where proposed work should be by helicopter – assumed that clearing process that had begun would be completed by HydroFeb/83: BG Checo’s tender was accepted whereby Checo contracted to construct 130 towers and install insulators, hardware, and conductors over 42 kilometers of right of way.Hydro did not complete clearing (the debris etc.) the right of way“dirty” condition of right of way caused BG loss, because in addition to the contract work – it had further do the clearing to actually do their workThe clearing cost is the loss in questionBG Checo sues for negligent misrepresentation or, alternatively, breach of contract. It later amended its statement of claim to include fraud as facts emerged Hydro knew of problems with right of way clearing and how it would negatively impact the successful tenderer.Cl 2.03 – It shall be the Tender’s responsibility to inform himself of all aspects of the work and no claim will be considered… for any misunderstanding.Cl 404 – Contractor shall inspect and examine site… contractor shall be deemed to have satisfied himself as to correctness and sufficiency of his tender…Cl 6.01 – Clearing of right-of-way… has been carried out by others and will not form part of this contract [IMPORTANT]

I Can BG sue in both contract and tort? It now comes up to the Supreme Court. Remaining questions are “whether claims lie in contract and tort and, if so, what is the measure of damages.” CB 406

A Trial Court and COA:

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Trial judge found that Hydro had acted fraudulently.BC Court of Appeal rejected the finding of fraud, but did find that there was a negligent misrepresentation inducing Checo to enter the contract. (CB 404)ISSUE: It now comes up to the Supreme Court. Remaining questions are “whether claims lie in contract and tort and, if so, what is the measure of damages.” CB 406

SCC:“Rather than attempting to establish new barriers to tort liability in contractual contexts, the law should move towards the elimination of unjustified difference between the remedial rules applicable to the two actions, thereby reducing the significance of the existence of the two different forms of action and allowing a person who has suffered a wrong full access to all relevant legal remedies.” CB 406This is the gist of the judgment: it confirms that concurrent liability is the law. There is a need for simplification and suing concurrently does it. This decision ‘greatly simplified’ the law “and adopted a straightforward principle that parties who are guilty of tortious misconduct when breaching a contract will be liable concurrently in contract and tort, unless the agreement between the parties stipulates to the contrary.” (McCamus, 740)

Claim #1: the claim in contract1. We look first to the text of the contract in determining the rights and obligations of the parties.

a. Question is how to reconcile seemingly inconsistent provisions. b. We have clause 6.01 – Hydro is responsible for clearing, but then Cl 2.03 – It shall be the Tender’s

responsibility to inform himself of all aspects of the work and no claim will be considered… for any misunderstanding (the responsibility falls on Checo)

c. Those two provisions are inconsistentWe need to reconcile the provisions:

1) “It is a cardinal rule of the construction of contracts that the various parts of the contract are to be interpreted in the context of the intentions of the parties as evident from the contract as a whole.” (Cb 407)

2) General terms are qualified by specific ones. Specific term will take precedence over general termHere, the general term is the obligation on Checo to satisfy itself about the state of the site. The specific obligation is that Hydro has the obligation for clearing. So, the specific obligation to clear was not negated by the general clause, it goes the other direction. Specific obligation overrules the general obligation. The provisions of the contract are not inconsistent. And Hydro has breached this specific clause.

Measure of DamagesDamages are always forward looking: “The measure of damages is what is required to put Checo in the position it would have been in had the contract been performed as agreed.”

• That would have meant Hydro would have cleared the trees and Checo wouldn’t have had to do it. • Checo would have avoided some overhead, and it can recover some of that, but not profit on the clearing of the right

of way, because that was not bargained for. There is not scope for including profit and only can recover costs for completing it.

(Might we object here that Checo loses the chance to do other profitable work while clearing the area?)• Checo could have claimed that while they were not doing the clearing they would have done other

profitable work and could have gotten profit

Claim #2: the claim in tortThey hold that there can be concurrent liability.They follow Central & Eastern Trust Co. v. Rafuse, where the court held that concurrent liability was possible where the contract created a sufficiently proximate relationship to generate a duty of care in tort. In such a case, “where a given wrong prima facie supports an action in contract and in tort, the party may sue in either or both, except where the contract indicates that the parties intended to limit or negative the right to sue in tort.” CB 408BUT That means that the fact that parties have covered an issue in their contract doesn’t mean they can’t sue in tort. “It all depends on how they have dealt with it.” CB 409

1. “[W]here the contract stipulates a more stringent obligation that the general law of tort would impose.” (CB 409)1. Contract can stipulate a more stringent stipulation – so the lawsuit in tort is unlikely because it

would be better to sue in contracts. But you can sue if there are other procedural benefits - the right to sue concurrently is the law.

2. “[W]here the contract stipulates a lower duty than that which would be presumed by the law of tort in similar circumstances.” (CB 409)

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1. Contracting out of your tort duty – ex. Exclusion clause. It is hard to sue a point in this case. 3. “[W]here the duty in contract and the common law duty in tort are co-extensive.” (CB 410)

1. You can sue concurrently – it increases your chances of recovery because you can argue in alternative + procedural benefits (limitation period)

This is a type three situation. The contract didn’t change Hydro’s duty to not misrepresent the way things are (the contract did not do anything to alter that obligation). So Checo can sue in tort because that obligation still remains in tort

H Hydro is liableR This is the gist of the judgment: it confirms that concurrent liability is the law. There is a need for simplification and

suing concurrently does it. In Checo, it is a promise: A promise that they cleared the road. It is also a negligent misrepresentation.The short answer is that one statement can lead to liability in two ways. It can be a misrepresentation that induces the formation of the contract. But it could also be explicitly stated in the contract (or we could argue that it becomes part of the contract by arguing it is a collateral warranty). In other words, the same statement could be legally understood in more than one way. This is why we permit people to sue concurrently. They are looking at the statement in question, and trying to fit it into a legal box that gives them a remedy. It might fit into more than one box: it could be a misrepresentation or a term. There may be some advantage to suing in contract or tort, so we want them to have both options. But they will not be entitled to double recovery. It is rather that they are putting forward both options. They will only succeed in placing it in one box or the other, but they can argue both - that's the core idea of concurrent liability.

Promise: terms vs misrepresentations What differentiates terms from representation is intention. If intended as a promise them more likely to be a term of the

contract. In Checo, it is a promise: A promise that they cleared the road. It is also a negligent misrepresentation. That means that they can sue on the left hand (misrepresentation -tort claim) side in tort. And they can also sue on the right hand side (term) for breach of contract.

The Parol Evidence Rule The parol evidence rule “holds that, in certain circumstances, the party wishing to rely on the oral undertaking may be

prevented from introducing evidence of an oral understanding that supplements or is inconsistent with the written agreement.” McCamus 197

o Parol evidence means oral evidence.o However the rule applies not just to oral communications, but any prior communications.o It tries to prevent any oral evidence, when the agreement was reduced to writing

Sattva(SCC): “[T]he parol evidence rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly reduced to writing ….The purpose of the parol evidence rule is primarily to achieve finality and certainty in contractual obligations, and secondarily to hamper a party’s ability to use fabricated or unreliable evidence to attack a written contract…” (at para 59)  

o Exceptions to Parol Rule: 1st exception(more like clarification): The parol evidence rule does not apply when the contract is

intended to be partly oral and partly written, per Alberta CA in Newell v Newell, 2007 ABCA 311, at para 9. Because it is based on expectations of the parties.

Parol rule applies to contracts that were WHOLLY reduced to writing 2nd exception: Per Sattva: the parol evidence rule does not apply to preclude evidence of surrounding

circumstances when interpreting the words of a written contract. (para 60) Per the Alberta CA in IFP Technologies (Canada) Inc. v EnCana Midstream and Marketing, 2017

ABCA referencing Sattva: “…evidence of surrounding circumstances is not used for this purpose [adding to, subtracting to the words of the contract…] but rather as an objective interpretive aid to determine the meaning of the words the parties used. Therefore, while the factual matrix cannot be used to craft a new agreement, a trial judge must consider it to ensure the written words of the contract are not looked at in isolation or divorced from the background context against which the words were chosen. The goal is to deepen the trial judge’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract.”

o we want to get the intentions of the parties right

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Oral or written pre-contractual communications may be brought to demonstrate the correct interpretation of the document.

Sattva: “The parol evidence rule does not apply to preclude evidence of the surrounding circumstances. Such evidence is consistent with the objectives of finality and certainty because it is used as an interpretive aid for determining the meaning of the written words chosen by the parties, not to change or overrule the meaning of those words. The surrounding circumstances are facts known or facts that reasonably ought to have been known to both parties at or before the date of contracting; therefore, the concern of unreliability does not arise.” 

Exemption and Entire Agreement Clauses: For now, just note that entire agreement clauses (basically captures parol evidence rule – the clause says that the contract is

captured only by what is written in it ) can be used to prevent the reliance on any materials beyond the written agreement. However, courts do construe these clauses narrowly and will look to see that they are a genuine representation of the parties’

intentions. If the entire agreement clause is in a standard contract and one party may not be aware of its effect, courts are often more

willing to allow the oral undertaking to have some force.

Classification of Terms Summary:

• Condition goes to the ‘very root’ of the contract. • Breach of condition entitles the victim to terminate. (can also choose to affirm). Whether you affirm or terminate,

also entitled to damages. (Treitel)• Warranty “concerns some less important or subsidiary element of the contract.” (Treitel)

• Breach of warranty entitles the victim to damages only (so no terminating the contract)• Given that there are different remedies depending on the classification of the term, it is very important to establish what the

term is.• Under certain circumstances, if the other party has breached, you can refuse to perform your side of the contract (aka

repudiation of the contract).• BUT if the term is not a condition and only a warranty, and you refuse to perform, you may yourself be in breach!

• Rescission: unwinding the transaction and putting an innocent party before they were in a contract or before the agreement• Equitable rescission for misrepresentation (as we have been using it).• Sometimes we see it used (Hong Kong Fir) - The termination of an agreement for breach (but it should be

repudiation). There is a terminology mix up in this area of law.• Repudiation: The choice by the innocent party to treat the contract as terminated by the breach

• A severe breach of contract (repudiatory breach) non-innocent party that gives rise to the innocent party’s right to terminate the contract

• Repudiation is the response to repudiatory breach

Post HK Fir Analysis Hong Kong Fir does not replace the warranty/condition distinction but is additional to it (First City Trust v Triple 5 (T5))  Ultimately we are looking for intention of the parties: Keep in mind when applying the intent tests that:

o Even where the breach of a term has produced a minor event, it can be treated as a breach of a condition. See Wickman v Schuler quoting Bettini: “Parties may think some matter, apparently of very little importance, essential; and if they sufficiently express an intention to make the literal fulfillment of such a thing a condition precedent, it will be one.”

Parties have a right to be unreasonable, so they can claim something to be a condition. The more unreasonable they are the more explicit they have to be.

We are searching for the “intention as disclosed by the contract as a whole.” (CB 460)

STEP #1: Apply the traditional condition/warranty test as articulated in Bentsen v Taylor “There is no way of deciding that question except by looking at the contract in light of the surrounding circumstances, and

then making up one's mind whether the intention of the parties, as gathered from the instrument itself, will best be carried out by treating the promise as a warranty sounding only in damages, or as a condition [which relieves the other party of the duty to perform].” (quoted in T5, para 43)

STEP #2: include consideration of the commercial setting when assessing surrounding circumstances [such as, per Reardon, the ‘genesis of the transaction, the background, the context, the market in which the parties are operating.’]

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IFP Technologies (Canada)  Inc v EnCana Midstream and Marketing, 2017 ABCA 157: the court MUST interpret words in their factual matrix or surrounding circumstances. :

o “As to what is meant by surrounding circumstances, this consists of “objective evidence of the background facts at the time of the execution of the contract ... that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting”: Sattva, supra at para 58.”

What is the normal practice in the industry The conditions required for the successful completion of obligation (ex. Skilled crew)

o They then set out examples of relevant background facts: (1) the genesis, aim or purpose of the contract; (2) the nature of the relationship created by the contract; and (3) the nature or custom of the market or industry in which the contract was executed: Sattva, supra at

paras 47-48…o “Ultimately, the surrounding circumstances can include “absolutely anything which would have affected the way in

which the language of the document would have been understood by a reasonable man”: 

STEP #3: if intent thus far not determined (via step 1 and step 2), “then the basis for seeking out that intent should be, as put forward by Hong Kong Fir…an assessment of the gravity of the event to which the breach gave rise.” (T5, para 49).

TEST for INNOMINATE TERMS• Assuming the term involved is an innominate term, the innocent party will be discharged from further performance under the

contract if the answer to the following test is positive:• The test for when the party is able or not to repudiate: “does the occurrence of the event deprive the party who has

further undertakings still to perform of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing those undertakings?” (HK Fir)

• If the ‘depriving’ event occurs due to breach by one party, that party is in breach of contract (OR is it frustration?)Step #1: Is it an innominate term

• Innominate terms (3rd category): “Of such undertakings, all that can be predicated is that some breaches will, and others will not, give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract.”

• Consequences of breach of these kinds of promises don’t depend on whether we call it a condition or a warranty. They depend on the nature of the event to which breach gives rise.

• Instead of looking at the nature of the promise, we look at the breach of the promise and its result. And then we see whether the remedy should be repudiation or not

Step #2: Does the breach of the innominate term amounts to repudiation?• What kind of breach amount to repudiation? (Spirent Communications of Ottawa Limited v Quake Technologies

(Canada) Inc 2008 ONCA & RIC New Brunswick Inc v Telecommunications Research Laboratories 2010 ABCA) 5 factors – we don’t need for all 5 to be present:

• (1) the ration of the party’s obligations not performed to the obligation as a whole• What did not-innocent party fail to perform?• What did not -innocent party actually perform?• What is the total ratio?

• (2) the seriousness of the breach to the innocent party (subjective analysis re innocent party)• What consequence resulted from the breach for the innocent party?• How important this is to the innocent party

• (3) the likelihood of repetition of such breach• Relevant when there is an ongoing transaction

• (4) the seriousness of the consequence of the breach (objective analysis)• How serious the consequences are?

• (5) the relationship of the part of the obligation performed as the whole• What is the total amount that has been performed and what is remained to be performed

Step #3: Classification of the innominate term• Condition-like Innominate term: Some promises will be the kind where every breach will deprive the party of the

whole benefit of the contract. • Repudiation and damages

• Warranty-like Innominate Term: Some promises are of the sort where breach will never deprive the party of the whole benefit of the contract.

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• ONLY damages

Frustration If the event occurs due to no one's fault, the contract may be frustrated. Per Fridman: “The key to both the understanding and the application of the doctrine of frustration in modern

times is the idea of a radical change   in the contractual obligation , arising from unforeseen circumstances in respect of which no prior agreement has been reached, those circumstances having come about without default   by   either   party .”

[example: Taylor v. Caldwell  (1863), 3 B. & S. 826 (Q.B.) (Building destroyed by fire)]

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd F Hong Kong Fir Shipping Co.: Plaintiffs; owners of vessel

Kawasaki: Defendants; charterersKawasaki wanted to charter a vessel for 24 months.Hong Kong Fir Shipping was to let the vessel ‘Hong Kong Fir’ to Kawasaki.The contract included the following provisions:cl.1: specified the 24 month period and that the vessel was “in every way fitted for ordinary cargo service”. (CB 448)cl.3: stated that the owners would maintain the ship in a “thoroughly efficient state in hull and machinery during service.” (CB 448) These two terms are talking to seaworthiness.FEB 13: Ship is delivered at Liverpool, complete with an undermanned and incompetent engine-room staff—despite owner’s knowledge that ship’s machinery was old and needed a better crew.During the voyage to Osaka, ship was off hire for approximately 5 weeks due to the need for engine repairs.MAY 25: Ship arrives in Osaka in very bad shape due to engine room staff incompetence. Ship needs 15 weeks of repair to make it seaworthy.JUNE 6: Charterers purported to “repudiate.”JUNE & AUGUST: There is a steep drop in freight rates.

-Note: it is not clear whether they want to repudiate because of rates drop or because of the problems with the shipSEPT 11: Charterers again purport to “repudiate.” (The election of the party not at fault to treat the contract as discharged by the breach.”.)SEPT 15: Ship is made seaworthy and has an efficient and adequate engine room staff. Still available for 17 months out 24 months of the contract available at this stage.

I Is there a breach of term such that the charterers can treat the contract as repudiated?• If it was condition – Kawasaki could repudiate• If it was warranty – no repudiation available and Kawasaki cannot treat the contract as being repudiated

OR are Kawasaki themselves liable for wrongful repudiation?On the one hand, the ship was off for a total of about 5 months and had been used for about 3 months. On the other hand, there were still 17 months left on the charter.

A Trial: The Trial Judge held that there was breach of the seaworthiness term.However, in June, there were no reasonable grounds for concluding that the plaintiff could not make the ship seaworthy by mid-September at latest. And therefore no breach on Hong Kong Fir’s part that would entitle Kawasaki to repudiate.Trial Judge rejected the defendant's contention that it was entitled to repudiate (and the alternative contention that the contract was frustrated).

Judgement: Diplock L.J.: Sometimes parties have specified events that will relieve the other party of the duty to perform. But when they haven’t, courts have to exercise their judgment.The test for when the party is able or not to repudiate: “does the occurrence of the event deprive the party who has further undertakings still to perform of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing those undertakings?” Court says it doesn’t make sense to answer the question by the simple distinction between conditions and warranties (how it was decided in the past)Instead: Some promises will be the kind where every breach will deprive the party of the whole benefit of the contract. (Conditions).Some promises are of the sort where breach will never deprive the party of the whole benefit of the contract. (Warranties).

Innominate Terms (3rd category):But there are some that cannot be classified as either. “Of such undertakings, all that can be predicated is that some breaches

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will, and others will not, give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract.” (CB 451)

Consequences of breach of these kinds of promises don’t depend on whether we call it a condition or a warranty. They depend on the nature of the event to which breach gives rise.

Instead of looking at the nature of the promise, we look at the breach of the promise and its result. And then we see whether the remedy should be repudiation or not

Hong Kong Fir promised to provide a seaworthy ship.The problem of whether they breached that term is not solved by asking if the promise to provide a seaworthy ship is a condition or a warranty.It is an undertaking that falls in the third category: this means that some breaches of it will lead to an event that deprives the other party of the full benefit, and some breaches will not. We look at the events which happened due to the breach, and ask if those events deprived Kawasaki of the whole benefit of the contract. Here, Diplock holds that it was not: the trial judge was right (the breach here did not deprive Kawasaki of whole benefit) and there is no right to repudiate. Seaworthiness term is a very broad term and technically can be breached by a small event (3 hour repair needed) or a big even (it sinks). So instead (calling it condition or warranty) we would call it innominate term – some breaches would result in the deprivation of the whole benefit and other breaches would not do that. Innominate terms: what was it that caused the breach to happen; does it deprive an innocent party from the whole benefit?

H Kawasaki cannot repudiate the contract.R Consequences of breach of these kinds of promises don’t depend on whether was call it a condition or a warranty. They depend

on the nature of the event to which breach gives rise.

The Pre-HK Fir Scheme Per the Alberta CA in First City Trust Co. v Triple Five Corp.  (1989), the traditionally accepted test for distinguishing a

condition from a warranty, pre-Hong Kong Fir, is a question of whether the term and its non-performance went to the “whole root and consideration” of the contract.

Breach of condition would allow the innocent party to repudiate and/or seek damages. Breach of warranty would allow the innocent party only to seek damages.

Under the pre-Hong Kong scheme, a breach of term defined to be a condition triggers the right to repudiate, even if the event caused by the breach is minor.

This is unnecessarily rigid. The parties could have argued that seaworthiness is a term going to the root of the agreement, and therefore they have a right

to terminate. Alternatively, the argument could be made that it is to be expected that repairs will be needed, and those will entail minor

breaches of the seaworthiness undertaking. But these shouldn’t provide a justification for termination. On the old scheme, even the most minor breach of the seaworthiness term would allow for termination. This is the

problem the court sets out to remedy in Hong Kong Fir. (See McCamus p 660 for discussion)

The New Approach: Innominate Terms Hong Kong Fir seeks to mitigate the potential harshness and formulaic quality of the old scheme by introducing a third

possibility, namely the innominate term. Assuming the term involved is an innominate term, the innocent party will be discharged from further performance under the contract if the answer to the following test is positive:

The main test: Does the occurrence of the event deprive the party who has further undertakings still to perform of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing those undertakings?

If the ‘depriving’ event occurs due to breach by one party, that party is in breach of contract.

Further Guidance on Applying HK Fir Additional content regarding contractual analysis is offered by IFP Technologies (Canada)  Inc v EnCana Midstream and

Marketing, 2017 ABCA 157.  The court MUST interpret words in their factual matrix or surrounding circumstances.  Per Alberta CA, at para 83:

“As to what is meant by surrounding circumstances, this consists of “objective evidence of the background facts at the time of the execution of the contract ... that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting”: Sattva, supra at para 58.”

o What is the normal practice in the industry82

o The conditions required for the successful completion of obligation (ex. Skilled crew) IFP Technologies (Canada)  Inc v EnCana Midstream and Marketing:

o They then set out examples of relevant background facts: (1) the genesis, aim or purpose of the contract; (2) the nature of the relationship created by the contract; and (3) the nature or custom of the market or industry in which the contract was executed: Sattva, supra at

paras 47-48…o “Ultimately, the surrounding circumstances can include “absolutely anything which would have affected the way in

which the language of the document would have been understood by a reasonable man”: Sattva, supra at para 58, citing Lord Hoffman in Investors Compensation Scheme Ltd. v West Bromwich Building Society, [1998] 1 WLR 896 at 913 (UKHL).”

Further Guidance re Intention Keep in mind when applying the intent tests that:

o Even where the breach of a term has produced a minor event, it can be treated as a breach of a condition. See Wickman v Schuler quoting Bettini: “Parties may think some matter, apparently of very little importance, essential; and if they sufficiently express an intention to make the literal fulfillment of such a thing a condition precedent, it will be one.”

Parties have a right to be unreasonable, so they can claim something to be a condition. The more unreasonable they are the more explicit they have to be.

We are searching for the “intention as disclosed by the contract as a whole.” (CB 460) Common sense has a role to play. Per court in Wickman v Schuler, using the word condition in the contract may be enough to

establish this intention but not conclusively. “The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear.” (CB 460)

The Performance Obligation: The Principle of Good Faith and the Dutyof Honest Performance

Introduction to implied terms

We are now going to ask the question: What performance obligations arise from the various terms we have identified?o Parties will often specify in detail the precise performance requirements. But sometimes they don’t, and even if they do, there

are some additional duties that courts will imply. o The Bhasin case we will look at today helps us address this issue.

Implied Terms:3 main ways to imply terms:

As a matter of custom/usage (rare) Implied in fact: this depends on presumed intention. (MJB case –business efficacy test & officious bystander test)

(Machtinger: CB 521)1. intention of these particular parties, and not reasonable parties

Officious Bystander test: Imagine the parties were interrupted by an officious bystander who asked them ‘Excuse me, but did you

mean to include this term?’ Would the parties would respond ‘Of course!’? If that test is met, the term may be implied.  It must be so obvious to both parties that they would respond in this way. It is the intentions of the actual parties, not reasonable parties.

Business Efficacy Test – the whole contract would not perform the function of it. So term is needed for the contract to make sense. Sending ice-cream (it is assumed it is refrigerated)

Implied in law: not based on intention but by operation of law in certain kinds of contracts.

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Test of necessity 1. the test is that “such obligation should be read into the contract as the nature of the contract implicitly

requires, no more, no less: a test, in other words, of necessity” (Machtinger)2. we ask whether it is “necessary in a practical sense to the fair functioning of the agreement, given the

relationship between the parties.” (Machtinger)3. We are looking at the nature of the contract as well as the nature of the relationship in question.

1. Nature of the contract – for example, employment contract 2. Nature of the relationship: employee-employer relationship

Machtinger v HOJ Industries (employment law case)F This is an employment law case, dealing with the question of whether there is an implied requirement of reasonable notice of

termination of employmentI Legal issue, as stated by the court: “in the absence in a contract of employment of a legally enforceable term providing for

notice on termination, on what basis is a court to imply a notice period and, in particular, to what extent is intention to be taken into account in fixing an implied term of reasonable notice in an employment contract?” CB 521

A Implied by law or fact?o “Requirements for reasonable notice in employment contracts fall into the category of terms implied by

law” (CB 521)o Here we are not implying a term as a matter of fact. If we were, the question would be whether the parties

clearly intended to include it but overlooked it (recall the officious bystander test and the business efficacy test).

o Here instead we are implying it as a matter of law. This means we aren’t looking to the parties’ presumed intention but rather we are concluding that because the contract falls into a certain category, a term will be implied.

Test of Necessity:o Necessity is the touchstone. What does necessity mean?o One proposed test was that the court could imply whatever was reasonable, but this was rejected as going

too far. (Denning, naturally) o Instead the test is that “such obligation should be read into the contract as the nature of the contract

implicitly requires, no more, no less: a test, in other words, of necessity” (Per Lord Wilberforce, CB 522)o Necessity does not mean it must be necessary for the very existence of the contract (this would be a stronger

test)o Instead, we ask whether it is “necessary in a practical sense to the fair functioning of the agreement, given

the relationship between the parties.” (softer requirement – the contract needs to function fairly) o We are looking at the nature of the contract as well as the nature of the relationship in question.

Employment Contracts:o “[T]he question which courts have been asking themselves is whether in the world in which we live

today it is a necessary condition of the relation…of employer and employee that there should be a contractual duty imposed on the employer to provide the employee with reasonable notice of termination.” (CB 523)

1. The answer, looking at the jurisprudence, is a clear yes.o Therefore here the reasonable notice term is implied by law and requires notice in this situation. o Employment is the context where the terms are implied as a matter of law rather than fact (intention of the

parties)1. note: it is still possible to imply terms as a matter of fact in employment context

H Therefore here the reasonable notice term is implied by law and requires notice in this situation.

The Principle of Good Faith and the Duty of Honesty Performance

Bhasin v Hrynew – good faith & duty of honestyF • Bhasin: Plaintiff. Enrolment director (ED) for Can-Am, a company that sold educational savings plans (ESPs).

Bhasin sold these investment products as ED. He is technically not an employee of Can-Am; just operates under its umbrella

• Canadian American Financial Corp (Can-Am): Other defendant. Company that sold these ESPs.• Hrynew: Defendant. Another ED who had been successful and had merged with some other EDs.

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• Hrynew wanted to merge with or take over Bhasin’s business as well. • Bhasin was not interested in the merger. Hrynew asked Can-Am to make it happen.• Can-Am was getting looked into by the Alberta Securities Commission, and it had to appoint someone to audit all of

its EDs for compliance with securities law. • Can-Am appointed Hrynew to this role. This would mean Hrynew would be in a position to look at Bhasin’s

confidential business records. Bhasin objected to this.• Can-Am told Bhasin (falsely aka it was lying ) that Hrynew’s work would be subject to a duty of

confidentiality.• Bhasin asked Can-Am whether the merger was going to happen and Can-Am ‘equivocated’ and didn’t provide a

straightforward reply (while knowing the merger would go ahead).• When Bhasin continued to object to Hrynew auditing him, Can-Am exercised its right not to renew Bhasin’s

Enrolment Directors’ Agreement.• The Enrolment Directors’ Agreement contained:

• a non-renewal clause exercisable on 6 months notice by either side• There is no restrictions or pre-conditions on this clause

• an entire agreement clause which seeks to define the scope of the parties’ contract in order to preclude allegations of terms beyond what is written in the contract [there are no “representations, warranties, agreements, terms, conditions or collateral agreements…”]

• Nothing beyond of what is in writing is part of the contract; they are trying to preclude the idea of implied terms

Caan-Am went ahead with the merger Bhasin lost his business because of the forced mergerI Is there an implied duty of good faith here that governs how Can-Am can exercise its contractual right of non-renewal of the

agreement?More broadly, what is the role of good faith in Canadian Contract Law?

A Trial Level:• Notwithstanding the entire agreement clause, the Trial Judge in Bhasin implied a term that the contract could only be

terminated for good faith reasons.• They held that Can-Am misled and was dishonest with Bhasin on a number of fronts.• The contract between the parties contained an implied term of good faith.• The entire agreement clause was not a barrier to implying a good faith term because, inter alia, it would be unjust and

inequitable to allow Can-Am to rely on it.• Trumped the entire agreement clause

• Based on the good faith term, Can-Am’s non-renewal would have to be exercised fairly. • Breaches of good faith by Can-Am are connected to Bhasin’s loss of his agency. Damages awarded: $380k

including for loss of income and business.ABCA:The Alberta Court of Appeal reversed, concluding that a good faith term could not be implied.There was no duty or term of good faith performance engaged by the contract including because:

(1) a court cannot imply a term that conflicts with an express term; and(2) the contract contained an entire agreement clause.

No obligation of good faith here. SCC:Good FaithBhasin then succeeded at the SCC level, but on different grounds.The Supreme Court held that there is a general principle of good faith that underpins contract law as a whole.

• The good faith principle is a standard which underpins, organizes, and unites those aspects of contract law that require “honest, candid, forthright or reasonable contract performance” at para 66.

• It is not in itself a cause of action.• The SCC in Bhasin recognises a general principle of good faith that underpins contract law.• They state that they are recognizing a principle that already exists.• “The first step is to recognize that there is an organizing principle of good faith that underlies and manifests itself in

various more specific doctrines governing contractual performance. That organizing principle is simply that parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily.” CB 468

• Parties must generally perform their contracts “honestly and reasonably and not capriciously or arbitrarily” CB 468, emphasis added.

• This means that parties must have “appropriate regard to the legitimate contractual interests of the contracting partner” CB 468.

• Appropriate regard is not defined- it is contextual element

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• This does not require the same level of duty as that of a fiduciary (it is not as strong). • The good faith principle does not found a cause of action. • Instead, the principle is a standard that organizes, unites, and underpins contract law. Good faith informs various

doctrines, and those doctrines can raise a cause of actionThe good faith principle has two functions:

1. it is the source of and justification for certain aspects of contract law already in place.2. it is the foundation for the courts to devise new contract rules or elements, though this must be in a restrained,

incremental, and precedent-respecting manner. Per the SCC: The application of the organizing principle of good faith to particular situations should be developed where the existing law is found to be wanting and where the development may occur incrementally in a way that is consistent with the structure of the common law of contract and gives due weight to the importance of private ordering and certainty in commercial affairs.In Bhasin, the SCC recognizes a new duty of honesty which informs all contracts, arising out of the principle of good faith.

• This duty is a “simple requirement not to lie or mislead the other party about one’s contractual performance” (duty of honesty)

• Duty of honesty comes out of the principle of good faith – analogous to equitable contracts – operates in all contract and does not have to be implied individually to every case

• Breach of duty of honesty is independently actionable (unlike the principle of good faith itself) but it is not a term. • It is a duty which applies to all contracts, and operates independent of the parties’ intentions.• Entire agreement clauses cannot totally exclude the duty, though parties may be entitled to relax the duty. CB 470

SCC rejects analysis by TJ whereby she implied a term of good faith in Can-Am and Bhasin’s contract because it falls outside of existing relationships (eg: insurance and franchise) and types of situations (ie: the three identified by McCamus and discussed above - reasonableness).SCC also rejects implying a good faith term due to operation of the entire agreement clause. They then reverse the CA decision based on applying the new duty of honesty.

H • Can-Am breached the duty of honesty.• Had Can-Am been honest in contractual performance, Bhasin would have sought to sell or otherwise monetize his

agency before Can-Am triggered its decision not to renew.• Relying entirely on the TJ’s quantification of damages, SCC awarded Bhasin the value of his agency at time of non-

renewal: $87,000 (plus interest plus costs).R In relation to its honesty arm (that comes out of good faith principle), the principle is responsible for generating

the duty of honesty in contractual performance: This is what is newly recognized in Bhasin. What Bhasin does is provide a new explanation for the source and justification of a number of pre-existing doctrines.

It tells us that they all arise out of the general principle of good faith. It also tells us that a new duty, the duty of honesty, arises out of the good faith principle. Bhasin relates to good faith in the performance of contractual obligations. We have yet to see whether good faith will general a duty in other contexts, such as formation, or what other effects it

might have.

Good Faith (Bhasin)o The SCC in Bhasin recognises an already existing general principle of good faith that underpins contract law.

o The good faith principle is a standard which underpins, organizes, and unites those aspects of contract law that require “honest, candid, forthright or reasonable contract performance” at para 66.

o It is not in itself a cause of action.o Good faith principle: Parties must generally perform their contracts “honestly and reasonably and not capriciously or

arbitrarily.” This means that parties must have “appropriate regard to the legitimate contractual interests of the contracting partner”

“Appropriate regard is not defined”- it is contextual element This does not require the same level of duty as that of a fiduciary (it is not as strong).

The good faith principle has two functions:

1. it is the source of and justification for certain aspects of contract law already in place.1. Implied term of reasonableness

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2. it is the foundation for the courts to devise new contract rules or elements, though this must be in a restrained, incremental, and precedent-respecting manner.

1. Duty of honesty (Bhasin)Function #1 in Pre-Bhasin: Good faith as reasonableness

o One way the principle of good faith has manifested, especially pre-Bhasin, is that it has led to an implied term of reasonableness in certain contexts.

o Some contracts contain a good faith term implied by operation of law via necessity (such as insurance, employment, landlord/tenant, and franchise contracts).

o Some contracts contain a good faith term implied in fact. The term is implied based on the presumed intentions of the parties and must be “in some sense, obvious from the circumstances….” per McCamus. Recall MJB discussion of how terms are implied in fact based on business efficacy/the officious bystander test.

o SCC gives the example of the tendering contract, where good faith is “generally” implied, at para 56o Note that this is a limited avenue. It must be necessary and must fit with contractual interpretation.o Beyond the types of relationships/contracts in which a good faith term will be implied, there are three types of situations

which will also lead to courts implying a term. o The SCC, citing McCamus, identifies those situations as follows: “(1) where the parties must cooperate in order to achieve

the objects of the contract; (2) where one party exercises a discretionary power under the contract; and (3) where one party seeks to evade contractual duties.” (not exhaustive)

o While this list is thereby somewhat confined, it is also the case that the list “is not closed” and what it requires is always context-specific.

o The cause of action is breach of contract for all cases where a term is implied.o Example of McCamus ‘Situation 2’: discretionary power in a contract

o Mitsui & Co. (Canada) Ltd. v. Royal Bank of Canada, Mitsui & Co. (Canada) Ltd. v. Royal Bank of Canada, 1995 CanLII 87 SCC. (See Bhasin para 50)

o The lease of a helicopter included an option to buy at the “reasonable fair market value of the helicopter as established by Lessor.” The SCC in Mitsui stated as follows: “[c]learly, the lessor is not in a position… to make any offer that it may feel is appropriate.  It is contractually bound to act in good faith to determine the reasonable fair market value of the helicopters, which is the price that the parties had initially agreed would be the exercise price of the option.”

o Per the SCC in Bhasin, the reasonableness requirement above arose as an implied term that “was necessary to give business efficacy to the agreement.”

o There are some expectations of good faith in the exercise of discretion.

Function #2 Bhasin era: Good faith as honesty (duty of honesty) In Bhasin, the SCC recognizes a new duty of honesty which informs all contracts, arising out of the principle of good faith.

• This duty is a “simple requirement not to lie or mislead the other party about one’s contractual performance” (duty of honesty)

• Duty of honesty comes out of the principle of good faith – analogous to equitable contracts – operates in all contract and does not have to be implied individually to every case

• Breach of duty of honesty is independently actionable (unlike the principle of good faith itself) but it is not a term. • It is a duty which applies to all contracts, and operates independent of the parties’ intentions.• Entire agreement clauses cannot totally exclude the duty, though parties may be entitled to relax the duty. CB 470

Summary: Good Faith Principle The good faith principle does not change contract law fundamentals. Rather, it explains those fundamentals and moors them.

The good faith principle is not a free-standing rule or otherwise independently actionable – at least so far. In relation to its reasonableness arm, the principle underpins common law rules which, in certain types of relationships and

certain types of situations, recognize obligations of good faith contractual performance. In relation to its honesty arm, the principle is responsible for generating the duty of honesty in contractual performance:

This is what is newly recognized in Bhasin.

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CHAPTER 8: STANDARD FORM CONTRACTS AND EXCLUSION CLAUSESIntroductionThe general problem with standard form contracts:

Standard form contracts are a valuable tool to reduce transaction costs, and make it easier to engage in contractual relationships.

However, a problem arises when those contracts exclude liability for certain harms/wrongs, especially when they are signed in circumstances where the parties were not of equal bargaining power and/or had no real choice or alternative.

On its own they are not bad.

Questions re standard form contracts1. Has the clause been effectively included as a term of the contract?

1. Signature or notice (awareness)2. What does the clause mean?

1. Language – does it exclude behavior or occurrence in question3. Is there some reason for refusing to apply the clause in this context?

Unsigned contracts As you might expect, unsigned documents raise different issues: it is harder to demonstrate that the party really assented to

the terms. But even signed documents leave some room for ambiguity about whether the terms are really part of the agreement, properly

understood.

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GF as reasonablenessGives rise to duties by implying terms because it is not actionable on its own

Approach 1- The ticket cases, where the contract was made with a person, held that the notice was sufficient because the person could withdraw

Approach 2- The ticket cases do not apply to machine issued tickets because the notice comes too late (Thornton)

o Mellish LJ in Parker v. South Eastern Railway. “the customer is bound by the exempting condition if he knows that the ticket is issued subject to it; or, if

the company did what was reasonably sufficient to give him notice of it.” Reasonably sufficient notice (Thorton):

“All I say is that it is so wide and so destructive of rights that the court should not hold any man bound by it unless it is drawn to his attention in the most explicit way…In order to give sufficient notice, it would need to be printed in red ink with a red hand pointing to it – or something equally startling.”

Reasonable notice of terms : fact specific but can consider the followingo Reasonable notice for one class of customers may not be reasonable for another class.

Different standards for, eg, commercial parties with experience shipping goods, familiar with standard bills of ladings, than we would expect for contracts with an ordinary person off the street.

o Where the person receiving the document might reasonably assume that the document has some purpose other than communication contractual terms, courts incline to the view that reasonable notice has not been given.

This will often be the case in carpark cases: the ticket can reasonably be understood to be a receipt or voucher the purpose of which is to determine ownership of the car

Signage can be helpful but it must be visible at the time of signing Tickets that are designed to hide the limitation (small print) may not fulfill the requirement Notice requirement will escalate in proportion of the harshness if the terms in question

Thornton v Shoe Lane Parking Ltd - (UNSIGNED/ must provide reasonably sufficient notice/practical possibility of finding out)

F Mr. Thornton: plaintiff; a “freelance trumpeter of the highest quality”Shoe Lane Parking Ltd: defendant owner of a multi-storey car park which uses an automatic machine to issue tickets.Thornton parked his car in the parkade, and when he came back to collect it, he was seriously injured (personal injury, not car damage).At trial they held that it was half his own fault but half due to the fault/negligence of Shoe Lane Parking.On appeal, the defendants do not contest their fault, but they argue that due to exemption clause, they are not liable.Exempting condition was displayed on a sign not visible when entering.The relevant clause was as follows:Defendants “shall not be responsible or liable for any loss or misdelivery of or damage of whatever kind to the Customer’s motor vehicle… or injury to the Customer or any other person occurring when the Customer’s motor vehicle is in the Parking Building howsoever that loss, misdelivery, damage or injury shall be caused…”The ticket was issued by a machine, and the defendants claim that the ticket is a contract, and that it incorporated the exclusion condition.The exclusion condition was found displayed on a pillar that one needed to drive into the garage to view.

I Are the exempting conditions part of the contract? If so they would bind parties, car park would be exempt from liabilityA Approach A: Ticket is delivered by an attendant (Traditional Analysis)

Offer: made by proprietor by issuing ticket via attendant (actual person)Acceptance: given by customer retaining ticket without objection (had a chance to view conditions)per Denning M.R.: “The Customer is bound by the exempting condition if he knows that the ticket is issued subject to it; or if the company did what was reasonably sufficient to give him notice of it.”Here they did not do what was sufficient. Sign was on a pillar too far away from the moment of entering the contract.When there is a person – there is an opportunity to reject the contract (so does not apply in this case)

Approach B: Ticket is delivered by an automatic machineOffer: made by proprietor who holds out the machine as ready to receive moneyAcceptance: given by customer when the customer puts his or her money into the slotBUT: If you have not seen the terms, you cannot be bound by them. You are only bound by the terms are the ones that are known at the moment of the offer per Denning M.R.: “The terms of the offer are contained in the notice placed on or near the machine stating what is offered for the money. The customer is bound by those terms as long as they are sufficiently brought to his notice beforehand, but not otherwise. He is not bound by the terms printed on the ticket if they differ from the notice, because the ticket comes too late.”

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(CB 496)

Denning analyses the situation first according to Approach B, where there is a machine.He says that in this case the offer was made at the entrance, where the sign detailed the charges and said ‘at owner’s risk’. That is understood to refer to damage to the car.The offer was accepted by the plaintiff driving to the entrance and taking the ticket. At that point, the contract was concluded, and “it could not be altered by any words printed on the ticket itself. In particular, it could not be altered so as to exempt the company from liability for personal injury due to their negligence.” (CB 496). Personal injury sign is appeared after the contract took place. Denning then goes through the alternative analysis, assuming “that an automatic machine is a booking clerk in disguise.” (CB 496)In that case, we apply the three questions from Mellish LJ in Parker v. South Eastern Railway.“Telescoping the three questions, they come to this: the customer is bound by the exempting condition if he knows that the ticket is issued subject to it; or, if the company did what was reasonably sufficient to give him notice of it.” (CB 497)

Here, they did not do what is reasonably sufficient to give notice: this was admitted.What would that require? “All I say is that it is so wide and so destructive of rights that the court should not hold any man bound by it unless it is drawn to his attention in the most explicit way…In order to give sufficient notice, it would need to be printed in red ink with a red hand pointing to it – or something equally startling.” CB 497

H “[In the present case,] the whole question is whether the exempting condition formed part of the contract. I do not think it did. The plaintiff did not know of the condition, and the defendants did not do what was reasonably sufficient to give him notice of it.”The defendants cannot use the exempting condition to escape liability. Appeal dismissed.

Signed DocumentsStep 1: Apply L’Estrange

The classic/traditional rule for signed documents is: (L’Estrange)o When a document containing contractual terms is signed, then, in the absence of fraud or misrepresentation, the

party signing it is bound, and it is wholly immaterial whether he has read the document or not. This means that it is the responsibility of the signing party to read the document.

o Agreement is proved simply by proving that it is your signature o However: the worry of insufficient notice of problematic or unfair terms can arise

Step 2: Do any exceptions apply?1. Non est factum: the signature is not representative of the signer’s genuine act (the contract is not what you sought you were

signing – limited doctrine).2. Fraud (lie) or Misrepresentation (if someone said don’t worry about the exclusion clause, it does not matter –

misrepresenting the role of exclusion clause)3. A situation in which

1) the party signing was mistaken about a term and the other party knew or had reason to know this? (Karroll interpreting Tilden)

If the circumstances suggest that the signing party does not intend to be bound by a term, then the party benefiting from the clause has a duty to take reasonable measures to bring it to the signing party’s attention.

o TEST: would a reasonable person in the defendants position conclude that the PL was not agreeing to the terms?

There is NO general requirement to bring an onerous clause to their attention in this way. “It is only where the circumstances are such that a reasonable person should have known that the party signing was

not consenting to the terms in question, that such an obligation arises. For to stay silent in face of such knowledge is, in effect, to misrepresent by omission.”

2) the defendants failed to take reasonable steps to bring it to her attention.

When is there a need to take reasonable steps to advise/bring attention? Factors that may be relevant (Not an exhaustive list):• Effect of the clause in relation to the nature of the contract (whether it runs contrary to the ordinary expectation of

the party)• Length and format of the contract

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• Clear format and headings would be considered as reasonable step (Karroll)• Time available for reading and understanding it

Tilden Rent-a-Car Co. v. Clendenning - (signature is not enough if there are onerous terms that are not given notice)

F Mr. Clendenning: defendant; signed insurance contract without reading it.Tilden Rent-A-Car Co: plaintiff; wants to rely on exclusions to make defendant liable for collision damages.Clendenning had operated the car while intoxicated, and a provision of the contract limited liability in such situations (o alcohol only)

I Court says a signature “is only one way of manifesting assent to contractual terms.” (CB 510) What we have to ask is “whether the other party entered into the contract in the belief that Mr. Clendenning was assenting to all such terms.”

A Here, a signature is not enough to really demonstrate agreement to “unusual and onerous terms which are inconsistent with the true object of the contract” (CB 511)Staying under legal limit is more reasonable benchmarkBut the norms have changed since the time of the caseIn such situations, the party seeking to enforce such terms should have to take reasonable measures to draw the term(s) to the attention of the other party. In this case, no effort was made to draw the attention of Clendenning to the onerous provisions in question (Karroll limits application of this rule)

H Therefore Tilden cannot rely on those clauses even though he signed the contract, and Clendenning is not liable for the damage to the vehicle.

R Here, a signature is not enough to really demonstrate agreement to “unusual and onerous terms which are inconsistent with the true object of the contract”

With onerous provisions/clauses, the party seeking to enforce such terms should have to take reasonable measures to draw the term(s) to the attention of the other party.

Tiden Summary: o signature “is only one way of manifesting assent to contractual terms”o a signature is not enough to really demonstrate agreement to “unusual and onerous terms which are inconsistent with

the true object of the contract”o With onerous provisions/clauses, the party seeking to enforce such terms should have to take reasonable measures to

draw the term(s) to the attention of the other party.

Karroll v Silver Star Mountain Resorts Ltd - (LEADING CASE/there’s not general requirement to bring attention to a clause/restricts Tilden)

F Karroll: plaintiff; broke her leg while in a downhill skiing competitionSilver Star Mountain Resorts Ltd: defendant; relies on terms of release as a defenseKarroll wanted to compete in a ski competition put on by Silver Star Mountain Resorts. She signed a document releasing them from liability.She had previously competed in this same race, and signed the same liability form. She was subsequently involved in a collision with another skier, and broke her leg.She alleges negligence on the part of Silver Star Mountain Resorts , they did not clear the course before Karroll began

Release document (very clear and at the beginning of the contract):RELEASE AND INDEMNITY – PLEASE READ CAREFULLY“I agree to: RELEASE, SAVE HARMLESS; and INDEMNIFY Resorts and/or its Agents from and against all claims, actions, costs and expenses and demands in respect to death, injury, loss or damage to my person or property, wheresoever and howsoever caused, arising out of, or in connection with, my taking part in the Event… (including, without limitation, negligence)”It explicitly included acts caused by the negligence of Silver Star Mountain Resorts. Broad and all encompassing exclusion clause

I Is the plaintiff bound by terms of the release?Is the clause part of the contract or not?If she is bound, she has no action. But she claims that it does not apply because she had insufficient notice/opportunity to read and understand it.

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A There are two lines of authority that are in tension here.

1. The line coming from L’Estrange v. Graucob (classic view), which says that “where a party signs a document which he knowns affects his legal rights, the party is bound by the document in the absence of fraud or misrepresentation, even though the party may not have read or understood the document”. (CB 514)

2. The line deriving from Tilden v Clendenning, which says that “the party seeking to rely on an exclusion of liability which the signing party has not read, must show that he has made a reasonable attempt to bring the signing party’s attention to the terms contained on the form if he wishes to rely on the release”. (CB 514)

How do we reconcile these two lines of authority?The key is to see the limited scope of the line from Tilden. It is not a general principle of contract law, but rather applies only in special circumstances.1. We start with L’Estrange v Graucob2. We then ask if any of the exceptions apply: a) Non est factum: the signature is not representative of the signer’s genuine act (the contract is not what you sought you were signing – limited doctrine).b) Fraud (lie) or Misrepresentation (if someone said don’t worry about the exclusion clause, it does not matter – misrepresenting the role of exclusion clause) Tinden adds another expception but it need to be more limitedc) Finally: Was it a situation in which the party signing was mistaken about a term and the other party knew or had reason to know this? (Karroll interpreting Tilden)If the circumstances suggest that the signing party does not intend to be bound by a term, then the party benefiting from the clause has a duty to take reasonable measures to bring it to the signing party’s attention. - So you don’t always need to draw attention to exclusion clauses

There is no general requirement to bring an onerous clause to their attention in this way. “It is only where the circumstances are such that a reasonable person should have known that the party signing was not consenting to the terms in question, that such an obligation arises. For to stay silent in face of such knowledge is, in effect, to misrepresent by omission.” (CB 515-516)

Karroll signed the release with knowledge that it would affect her rights.First, we start with L’Estrange v Graucob, and ask whether the exceptions apply.Non est factum does not apply. There was no misrepresentation or fraud.Therefore she is bound unless this is a situation that falls under the third exception: one in which 1) a reasonable person would have known she did not intend to agree to these terms, and 2) the defendants failed to take reasonable steps to bring it to her attention.

H Here, she does not fall into the 3rd exception. 1. The release was consistent with the purpose of the contract; it enabled her to engage in a risky activity that she wanted to engage in. Excluding liability makes sense for that purpose.2. The release was short, clear, easy to read. There was no fine print. It made the aim clear.3. Signing such releases was common in this kind of race and Karroll had signed such releases before.“These facts negate the inference that a reasonable person in the defendant Silver Star’s position would conclude that Miss Karroll was not agreeing to the terms of the release. In these circumstances it was not incumbent on Silver Star to take reasonable steps to bring the contents of the release to her attention or ensure that she read it fully.” (CB 516-517)Further - in the alternative, if this conclusion is wrong, they state that “Silver Star took reasonable steps to discharge any obligation to bring the contents of the release to the attention of Miss Karroll.” (CB 517)- Clear heading – format was clear – so reasonable steps.

Principles of Contractual Interpretation

(a) Implied Terms Machtinger v HOJ Industries Ltd see previous lecture

(b) Ambiguity An important rule of contractual interpretation is the contra proferentem principle.

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o That principle says that if there is ambiguity in a clause, it will be interpreted against the interest of the party who drafted it.

o This is most relevant for our purposes in the context of standard form contracts: any ambiguity will be interpreted in the favour of the non-drafting party. Courts are more likely to apply the rule in contexts where there is an inequality of bargaining power and/or a ‘take-it-or-leave’ it bargaining situation.

The rationale is that the drafting party had the chance to protect their interests, and they only get to protect those interests to the extent that they clearly communicated that to the other party.

The drafter should bear any risk resulting from unclear drafting

(d) Strict Construction This is a related idea to contra proferentem. Courts will often apply a principle of strict construction to exclusion clauses generally.

o In particular, clauses excluding liability for negligence are likely to be interpreted strictly. “As a general proposition, very clear words must be employed in order for one party to protect itself from liability for

negligence: Canada Steamship Lines Ltd. v. R.” (CB 534) General words won’t be enough to preclude liability for negligence. But this principle has been relaxed somewhat in Miida Electronics v. Mitsui. They took into account that it was a contract

between commercial parties, and they applied the principle of interpreting the contract as a whole.

(c) Context and the Factual Matrix In this next section we will ask to what extent the context and factual circumstances surrounding the contract are relevant to

its interpretation. Old view: evidence of parties’ prior negotiations is not admissible. It is really only the final document we should look at

because that is the only document that is authoritative as to the parties’ intentions. New view: “the modern Canadian position is more flexible and is in favour of admitting such evidence, though weighing it

carefully, where there are at least two reasonable interpretations of the contract in question.” (CB 528) Evidence of subjective intentions is still not admissible, however. We are looking for the intention of the parties as seen

objectively. o We are looking for objective evidence of intention: What did the party do to convey their subjective intentions to

the other party that can be assessed objectively.

Surrounding Circumstances/Factual matrix Per Sattva, the goal of contractual interpretation is to “understand the mutual and objective intentions of the parties expressed

in the words of the contract” at para 57. This involves the plain meaning rule and the contract’s factual matrix.

Two elements of Contractual Interpretation (TEST): o Sattva: The interpreter must “read the contract as a whole, giving the words used their ordinary and grammatical

meaning [plain meaning rule] with the surrounding circumstances known to the parties at the time of the formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning.”

o (1) The words on the page [plain meaning rule]o (2) Context/ surrounding circumstances (read the contract as a whole (Sattva))

The factual matrix(context/surrounding circumstances) must be considered even absent ambiguity (IFP) “Considering the surrounding circumstances of a contract does not offend the parol evidence rule” (oral

evidence is not permissible when the contract is reduced to writing) (IFP) Sattva: “As to what is meant by surrounding circumstances, this consists of “objective evidence of the

background facts at the time of the execution of the contract ... that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting”

Examples of relevant background facts include (IFP):

a) the genesis, aim or purpose of the contract; b) the nature of the relationship created by the contract; and c) the nature or custom of the market or industry in which the contract was executed

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o Sattva & Investors Compensation Scheme Ltd. v West Bromwich Building Society: the surrounding circumstances can include “absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man”

o Even if there is an entire agreement clause: evidence of prior negotiations and MOUs (memoranda of understanding) are still admissible (IFP)

Example:o A promises to supply railway tracking to B by a fixed date. o A also promises to pay $5000 to B for every day it is late in delivering the tracking.o What is the intent of the parties in relation to this late delivery clause?o One interpretation: The clause applies no matter of circumstances no exception – plain meaningo OR Motivating the parties to do everything they can to achieve their contractual obligations. If it is A’s fault - clause

applies; If it is not A’s fault – might not apply

IFP Tech v EnCana Midstream and Marketing (ABCA)-(consider factual circumstances even if no ambiguity)

F This case concerned the interpretation of a clause in a contract. At issue was the meaning of the phrase “working interest”. We can apply this interpretation analysis to any phrase.

I What is the relevance of the factual matrix absent ambiguity?What is properly included within the factual matrix?

A ABCA:1. “Considering the surrounding circumstances of a contract does not offend the parol evidence rule” (oral evidence is not permissible when the contract is reduced to writing )at para 812. The factual matrix must be considered even absent ambiguity at para 82.

At para 83: “As to what is meant by surrounding circumstances, this consists of “objective evidence of the background facts at the time of the execution of the contract ... that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting”: Sattva, supra at para 58.”

At para 83 continued: “Examples of relevant background facts include:

(1) the genesis, aim or purpose of the contract; (2) the nature of the relationship created by the contract; and (3) the nature or custom of the market or industry in which the contract was executed: Sattva, supra at paras 47-48…

Ultimately, the surrounding circumstances can include “absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man”: Sattva, supra at para 58, citing Lord Hoffman in Investors Compensation Scheme Ltd. v West Bromwich Building Society, [1998] 1 WLR 896 at 913 (UKHL).”

Prior agreements such as MOUs (memoranda of understanding) can be appealed to as evidence of the background circumstances/factual matrix. (at para 84)

This is the case even if there is an entire agreement clause: evidence of prior negotiations and MOUs are still admissible.

The Doctrine of Fundamental Breach (NOT LAW ANYMORE USE TERCON TEST INSTEAD)

The doctrine of ‘fundamental breach’ was a somewhat problematic doctrine that held that “a party could not rely upon an exclusion clause, however widely expressed, where it had committed a fundamental breach of contract.”

Fundamental breach: the breach that goes to the root of the contract. This led to predictable problems of determining what counted as a fundamental breach. It was ultimately reconsidered in Tercon, which we now turn to.

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Tercon Contractors Ltd v British Columbia (5 point test/fundamental breach shouldn’t be used- but new test similar factor)

F Tercon: plaintiff; responded to a Request for Proposals (“RFP”) – submitted a tender to BC; their tender was not chosenProvince of BC: defendant; accepted a non-compliant tender from BrentwoodBrentwood (the third party) Lacking drilling & blasting expertise, it entered into a pre-bidding agreement (joint venture) with a company (“EAC”) that did have the expertise but who was not a qualified bidder.

Submitted a non-compliant bid (Joint ventures were ineligible); misdescribed EAC as a ‘major member’ of the team instead of a joint-venture (this was a false description).BC accepted this noncompliant bid and tried to conceal this fact. So BC intentionally and knowingly accepted non-compliant bidThe RFP contemplated that proposals would be evaluated according to specific criteria including that bids from those in a joint venture were not eligible.

Contract A’s exclusion clause (the ‘no claims clause’) stated as follows: “Except as expressly and specifically permitted in these Instructions to Proponents, no Proponent shall have any claim for any compensation of any kind whatsoever, as a result of participating in this RFP, and by submitting a proposal each proponent shall be deemed to have agreed that it has no claim.”Recall from first semester: by submitting a bid, Tercon has entered into Contract A with the province of BC. Contract B would be for the actual building of the highway. So the problem here is contract A – the breach of the contract A by accepting non-compliant bid.

I Can Tercon succeed in an action based on breach of Contract “A” or is the no claims clause a complete answer? (Tercon is seeking compensation equivalent to the profit it expected to earn had it been awarded Contract “B”)

A MajorityLiability under Contract AThe no claims clause does not provide a defense.

DissentLiability under Contract AMinistry misconduct was not so egregious as to generate public policy reasons depriving the Ministry of protection of the no claims clause to which Tercon freely agreed.

Trial Level:At trial, the judge found that the exclusion clause was ambiguous and therefore contra proferentem (should be interpreted in Tercon facovour and against drafter - BC) would apply, meaning the clause should be interpreted in Tercon’s favour. She also found that there was a fundamental breach. (CB 538)In light of a fundamental breach, the conclusion followed that the exclusion clause would not apply.

SCC Majority Judgment:The majority holds that we should do away with the doctrine of fundamental breach. Tercon changes the approach to exclusion clauses. Fundamental breach is no longer the law. Use Tercon test to see if exclusion clause is applicable.Majority agrees with Binnie’s approach to applicability of exclusion clauses (which we will look at shortly) but not with his interpretation of this clause.

How should the clause be interpreted?Majority construes the clause narrowly, and holds that what happened here does not count as “participating in the RFP” because the province’s choice of a non-conforming bidder took them outside of that process. The exclusion clause only protects them from damages arising out of participation in the RFP, and so they hold it does not apply because this was not properly understood as participating in the RFP. Participating in RFP happens as long as the rules are properly followed.

Interpretive point: we should not read any provision in isolation: must “be considered in harmony with the rest of the contract and in light of its purposes and commercial context.” (CB 539)E.g. They note that “submitting a proposal” is also used, and is presumed to have a different meaning, which supports interpreting “participating in this RFP” in the way that they do.Further, they point out that the Province had the right to cancel the RFP and propose a new one with different eligible parties. There would be no need for this if they were protected from consequences for choosing an ineligible party.

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Conclusion:(1) “In short, I cannot accept the contention that, by agreeing to exclude compensation for participating in this RFP process, the parties could have intended to exclude a damages claim resulting from the Province unfairly permitting a bidder to participate who was not eligible to do so.” CB 540(2) Alternative conclusion: If wrong on the interpretation point, would hold that the language is ambiguous (could also mean participating against other eligible participants as interpreted in favor of Tercon), and therefore we apply contra proferentem: On that basis they would also be barred from using the exclusion clause.

Binnie’s Dissent:Legal issue: when will an exclusion clause apply or not apply? Binnie also agrees that we should reject the doctrine of fundamental breach. He calls it ‘unhelpful’.Instead, the test is whether there is some overriding consideration of public policy that is sufficient to defeat the value of freedom of contract. If not, then the exclusion clause applies. Relying on a previous case, Hunter, he points out that we should look to doctrines we already have, such as unconscionability. (CB 542-3)

(1) Public PolicyWhat counts as a public policy argument that will trump freedom of contract?Binnie raises examples of egregious criminal or fraudulent conduct as obvious examples where the contract should not be enforced.However, he says, “the contract breaker’s conduct need not rise to the level of criminality or fraud to justify a finding of abuse.” (CB 544)

Benchmark for the conduct (behavior that the court would not let you get away and get protection from exclusion clause)Plas-Tex Canada v Dow Chemical: a case where Dow knowingly supplied a defective product to a customer, leading to pipeline leaks, causing property damage and health issues.There, it was held that “Dow was so contemptuous of its contractual obligation and reckless as to the consequences of the breach as to forfeit the assistance of the court.” (CB 544)So: if we have conduct approaching serious criminality or egregious fraud, that will be incontestable cases of public policy overriding freedom of contract (aka overriding exclusion clause). But beyond that, harder to know where to draw the line.

Binnie argues that the exclusion clause does cover the conduct in question. He thinks it is a strained interpretation to say that the process stopped being the RFP process due to the province’s choice of an ineligible party.Tercon is a major commercial party. No imbalance of bargaining power.The conduct of the province was in breach of Contract A. However, it was not so egregious as to lead to the result that public policy requires us to to not enforce the exclusion clause. Therefore Tercon cannot recover: the exclusion clause bars damages claim.

H appeal allowed: Tercon can get damages.R The majority holds that we should do away with the doctrine of fundamental breach. Tercon changes the approach to

exclusion clauses. Fundamental breach is no longer the law. Use Tercon test to see if exclusion clause is applicable.

Tercon on how to approach exclusion clauses:1. Is there a breach of contract (here, is there a breach of Contract A)?2. If yes, is the exclusion clause at issue part of the contract?

a. This analysis would matter when it is not clear whether the exclusion clause is part of the contract. b. Here we would apply the analysis from Thornton/Tilden/Karroll: was the clause incorporated either by signature

or notice?3. If yes, does the exclusion clause apply to the circumstances as a matter of interpretation? (depends on parties’ intentions)

a. Majority approach (use contractual interpretation test above):i. Majority construes the clause narrowly

ii. we should not read any provision in isolation: must “be considered in harmony with the rest of the contract and in light of its purposes and commercial context.”

iii. If wrong on the interpretation point, would hold that the language is ambiguous (use one of the principles: strict or ambiguous or implied terms) (could also mean participating against other eligible participants as interpreted in favor of Tercon), and therefore we apply contra proferentem.

b. Dissent approachi. Binnie argues that the exclusion clause does cover the conduct in question. He thinks it is a strained and

artificial interpretation to say that the process stopped being the RFP process due to the province’s choice of an ineligible party.

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ii. He uses strict construction – does not go beyond what words say – analyzed fairness later in public polity and unconscionability reasoning.

4. If yes, is the exclusion clause unconscionable at the time the contract was made (versus at time of breach)a. We can apply unconscionability doctrine test b. (1) Triggered by situations of unequal bargaining powerc. (2) unconscionability can arise out of legislation. This might arise out of policy considerations arising from

relevant legislation like the Transportation Act. Here, these considerations favor “the transparency and integrity of the bidding process” at para 132. BC contravened this legislation – therefore parties acted unconscionably because it is not in accordance with public policy considerations laid out and protected by the Act.

5. Assuming validity, is there any overriding public policy reason [weighed at time of breach] that would justify the court’s refusal to enforce it?

a. Benchmark for the conduct (behavior that the court would not let you get away and get protection from exclusion clause)Plas-Tex Canada v Dow Chemical: a case where Dow knowingly supplied a defective product to a customer, leading to pipeline leaks, causing property damage and health issues.

b. For discussion of public policy, see Plas-Tex Canada Ltd v Dow Chemical of Canada. Per SCC in Tercon, Dow was so “contemptuous of its contractual obligation and reckless as to the consequences of the breach as to forfeit the assistance of the court.”

c. So: if we have conduct approaching serious criminality or egregious fraud, that will be incontestable cases of public policy overriding freedom of contract (aka overriding exclusion clause). But beyond that, harder to know where to draw the line.

d. Room for argument- discuss potential public policy reasons for not enforcing the exclusion clause.

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