The University of Victoria Law Students' Society
THE LAW OF KGeneral Policy ConsiderationsReasonable expectations vs. unfair surpriseSanctity of K vs. allocation of risk (who should bear the loss of a rogue, frustration)Caveat emptor v. reliance/ unjust enrichmentPromotion of private ordering vs. social utility: Will this type of promise contribute to social utility, or is it an area that should be left to private ordering?Who’s the least risk avoider?Unjust Enrichment? Has one party gained at the expense of another, for example, as a result of money being exchanged for the promise to perform an act?Restitution: one party gave up something for a long-term relationship and then 2nd party acts opportunistically.Reasonable Reliance? Did one party rely on the other party’s promise to their detriment?K FORMATION: IS THERE A K?It appears that there is a K, as the requisite elements: offer, acceptance, consideration, are presentOffer GeneralThe offeror is the master of the KThe offeree can bind the offeror to the K (has the power of acceptance) and thus to claim expectation damagesDenton v. Great Northern Railway Specific RulesThere must be an intent to be bound – mere advertisement, enticement or invitation to treat (ie. negotiate) is insufficientAn ad quoting prices and showing puffery is not an offer to sell (K)Johnston BrosException: An ad that is clear, definite, explicit and leaves nothing open for negotiation amounts to a K. Can change offer anytime before acceptance, but cannot change it afterA display in a store is like an ad (NOT an offer). Customer bringing goods to cashier is the offer, cashier taking money is the acceptanceLefkowitzBootsThe offer must be sufficiently specific and comprehensive that the terms of the agreement can be identified (the problem of uncertainty)An offer ceases to exist if it is rejected, and in any event expires after a reasonable time (the length of which determined by the context)AKA a refusal of the offer by offeree if not accepted within reasonable time (conduct of both parties post offer is assessed) Manchester DiocesanAn offer can be revoked anytime before being accepted. But unless the offer has expired (passage of reasonable time), effective revocation may require noticeDickinson v. DoddsAn offer is binding once it is accepted, and cannot be revokedIntentionGeneralAcceptance by word/ return promise is a bilateral contractAcceptance by performance/ action is a unilateral contractSpecific RulesMust be a clear intent to be boundJones K unenforceable (3 concurring in result): Due to uncertainty (meant to be flexible family arrangement, not K)Other judgment: K, but implied term of a reasonable time period had elapsedJones v. PadavattonDaughter argues there is a K with her mother allowing her to stay in the house until she passes the par exam. Held: no K Parties can agree that a [business] arrangement won’t give rise to legal relationsRose v. JR ComptonAcceptance and CorrespondenceAcceptance must sufficiently correspond to the offer – otherwise it is a counter-offerOfferor can specify how the offer is to be accepted (place/ time/ method)Eliason v. HenshawGenerally, acceptance must be communicated (letter, verbal) to the offeror and must be done before the offer has expired or been revokedMethod of communication may be stipulated by offerorSilence is not acceptanceLarkin v. GardinerK formation generally occurs where acceptance is receivedSpecific rulesPostal acceptance rule: offer accepted when offeree puts notice in the mail. K formed where the letter is posted. Applies when post is the contemplated method of communication onlyHenthorn (post in cont)Howell v. Hughes (post not accepted)Does not apply to revocation – offer open until revocation communicatedByrne v. LeonHenthorn v. FraserIf you post a rejection/ counter-offer and then an acceptance, the r/c-o is valid as long as it’s received firstPollockRationale: Policy: efficient (2 letters v. 3), offeror can control how offer is acceptedDoctrinal: postal service is the offeror’s agentFaxed document: instantaneous communication rule applies – K forms where the acceptance is receivedEastern Power v. AziendaEmail: acceptance is likely instantaneous: made when and where the email is available (lands in the server/ inbox)Electronic Transactns ActFormalization and CertaintyCourts will not enforce an incomplete agreement:Lacking an essential term (ex. agreement about price)May v. ButcherTentage – no K because prices, quantity and delivery not agreed upon. Court likes certainty.Hillas v. ArcosLumber – K despite uncertainties because parties acted as if there was a K (intent). K to enter into K is a K.Foley v. Classique CoachesPetrol for land – K, okay to K to agree upon reasonable price (there was intent to K). Between May and Hillas.Vagueness/ ambiguity (ex. I’ll take your butter if good”)Agreement to agree/ to negotiate (letters of intent, memo of understanding)Policy: Generally, where the courts are willing to read a term as being forming of a contract, there has been an agreement that already works (and hint of unjust enrichment). K likes certainty + commercial efficiency.Sale of Goods Act: where there’s no agreement on the price of sale, courts can read in term of reasonable price (generally only for executed Ks)Courts can enforce an agreement to negotiate for mutual agreementThere’s a duty to negotiate in good faithQuestionable – but good authority in BC so farEmpress v. Bank of NS Rental agreement. Ongoing relationship that had worked in the past, a whiff of unjust enrichmentHL recognized no duty to negotiate in good faithWalford v. MilesNo tort duty to negotiate in good faithMartel Building v. CanadaConsiderationPolicy: to control the kinds of promises that are legally enforceableEvidentiary Function: the need for evidence of the existence of a contract.Cautionary Function: ensure that parties deliberate before they contract.Channelling Function: ensure there is a simple, external test of enforceability.GeneralBargain promises must be made for consideration in order to be enforcedUsually, issues arise when there are contractual modifications or for personal KsBackground considerations for determining if there’s consideration:Evidence of the KDeliberation (arriving at an attempt to be legally bound)Unjust Enrichment Reliance (someone relies upon a promise, courts much more willing to enforce when there’s been detrimental reliance)Social utility/ facilitate private ordering/utility of exchange (ex. not everything is subject to exchange, and policies are in place addressing illegality of certain contracted agreements)Specific rulesMotive and consideration are separate thingsCourt will not look into the adequacy of consideration if it has economic value since this indicates formality and intentThomas v. Thomas1$ and maintaining the property for life interest in house is good consideration – binding KPersonal relationships (no consideration of economic value)Abstaining from complaining is not adequate consideration – no right to complainNewcombe: no right to receive $ but perhaps right to complain – evid issues!White v. BluettThe whining son. Consideration can be a detriment to the promiseNewcombe: evidence was soundHamer v. SidwayThe puritan nephewIf not a K, promises to make charitable donations not enforceable (incomplete gift)Dalhousie v. BoutilierSaid he would pay money, but gift not in willExchange of mutual promises is good considerationMutual obligations are good consideration – each promise must have value thoughTobias v. DickNo K because no mutuality – Tobias didn’t promise anything for exclusive selling rightsCourts may imply a promise to use reasonable efforts on behalf of the defendant to find a KWood v. Lady Duff GordonK - because looks like a KGoing transactional adjustment (modifications)Traditionally: K modification w/o fresh consideration is unenforceablePromise to do what you have already Ked to do is not considerationStilk v. MyrickHarris v. WatsonSailors already sold all their services. Today, would be dealt under economic duressModern law (leading case) adopts the trad’l approachGilbert Steel How can GTAs be made enforceable?SealFind new nominal considerationFind new additional considerationPromise of good price in future K’s is not good consideration (too vague)Additional credit provided is not good considUnsuccessful in:Gilbert Steel v. University ConstructionD (Uni) refuses to pay increase in price, claiming no new consideration. Held successful.Forbearance on a legal right (ex. right to sue, to fire) is good considerationTechform v. WoldaNot firing an employee given for signing a non-competit’n agreement is okPaying a lesser sum for a greater sum id not good considerationFoakes v. BeerFind a new practical benefitWilliams v. RoffeyPractical benefit of completing building on time is good consideration for price increaseFind rescission of K1 and new K2Change in price considered variation, not a new KGilbert SteelEvidentiary issue – not found in this caseChange in price can be considered creation of a new K, if price is the only important element of KOblig. under K1 are the consideration under K2Deluxe French FriesChange in price can be considered creation of a new K, if price is the only important element of KPromissory estoppelSuper modern law: dispose of the requirement“Post K modification, unsupported by consideration may be enforceable as long as the variation wasn’t procured under econ. duress”Nav Cda v. GFAA Forbearance on a right to sue is good considerationFairgrief v. EllisAgreement to pay $1000 for past services good, even though underlying claim would’ve failedBUT only if the claim isReasonable,Made in good faith (no extortion)And no concealment of material factsScott v. MeritClaim based on invalid claim not good considerationBDC v. ArkinWife’s waiving right to sue husband is not consid - she couldn’t give it up under statuteCombe v. CombeDebt Settlement/ Compromise Agreements Agreement to pay partial sum (lesser for greater) is enforceable if expressly accepted by creditorLaw and Equity ActNon-Bargain PromisesUnder Seal (clear intention)Consideration given after K transaction is not good:Consideration must be contemporaneous with promise, not after the factPolicy: lack of deliberation, lack of reliance, no unjust enrichment, moral v. legal obligations, concerns re: fraud on creditors from “paying” family backRoscorla v. ThomasPromise that horse was free of vice was given after K transaction (horse for $) – no consideration for thisActs done before consideration generally not good:Can’t sue for voluntary courtesy, But if past act was done at the request of promisor, can characterize as unilateral K to get around considerationLampleigh v. BraithwaitAsks to get pardon for killing a man (like snow shoveling). Held: K good, since requested. BUT may be considered K if: Act must be done at promisor’s requestParties must have understood that there would be paymentPayment must have been legally enforceable if promised in advancePao On v. Lau Yiu LongEven absent consideration, may be able to use reliance (estoppel)Reliance is not consideration, but can use promissory estoppel to protect against detrimental reliance on another’s statement, incl. in the context of GTAsParty is barred from denying the truth of their statements re: future actionHughes v. Met. RailwayLandlord can’t enforce strict rights, counter to dealings between parties. Estoppel.High TreesPromise to accept smaller sum is binding, even absent consideration. Estoppel.ElementsExisting legal relationship between the parties;High trees and Owen Sound LibraryIn personal cases, may not find legal rel.N.M v. A.T.AP gives up job to move to Canada to be with D. No estoppel.a clear promise or representation; made with the intention/knowledge that it be relied upon;That one party grants indulgences to another isn’t enough to create an expectation that the strict rights of the K wouldn’t be enforcedJohn Burrows Ltd v. SubsurfaceNo intention that the legal relationship re: payments would be alteredBUT doesn’t require direct evidence – can be inferred based on evidence (obj test)Owen Sound LibraryNegotiations may be “assumed” to be moved to a later deadline Newcombe: it’s a stretch …reliance; andno compelling reasons to excuse person from representation (i.e. coercion, duress)D & C BuildersBuilders abt to go bankrupt coerced by woman into accepting lesser sumequity, therefore clean hands requiredShield only – not a cause of actionGilbert SteelDon’t stretch High Trees too farCombe v. CombeWife unsuccessfully using it as a sword against husband who promised to pay Policy: estoppel as a cause of action would makes K tort-like (injurious promise)Is a cause of action in US … perhaps the SCC will recognize it in the future if v. egregiousRed Owl, Waltons v. MaherUnilateral KHistorically: motive does not matter, only conductWilliams v. CarwardineReward for info leading to murder convictionModern C/L: motive is relevantTo be eligible for award, must have knowledge of the offer and act with the intention to accept itCrown v. Clark (Australia)Reward for into leading to murder convictionPerformance of the unilateral K = acceptance, no notification requiredCarlill v. Carbolic Smoke BallAd, intended as promise and not puff Government programs must have clear windows of eligibility – otherwise following the program leads to entitlement of benefitsNote: how do characterize performance?Grant v. New BrunswickPotato stabilization program. Finds program is offer, meeting elig and submitting form is acceptAlso, government officials are ppl who have apparent authority (in this case), implied authority, actual authorityDale v. ManitobaACCESS funding for U of M students throughout degree, bindingHow can courts protect from revocation before performance complete?Imply 2 K – the second being a promise not to revokeErrington v. ErringtonK1- pay mortgage and house will be yoursK2- as long as you pay mortgage, you remain in possession Imply bilateral K by an exchange of mutual promisesDawson v. HelicopterDawson gave Helicopter info re: mines w/o rewardOffer cannot be revoked when performance has commencedAyerswood v. Hydro1, DaleEnergy efficiency programInterpretation of what promise called forGrant, CarbolicFind a relationship for trust and confidence between the parties, hold 1 liable for breach of trustStandard Form Ks and the Tendering ProcessBattle of the formsSeller and buyer use standard form contracts. Each relies on its standard form, but overlapping termsApproaches: First shot rule: first set of terms governsLast shot rule/ performance doctrine: last form wins (C/L adopts this) Reconcile the terms. If contradictory, they cancel each other out and the court implies reasonable termsTendering processOwner/ buyer makes calls for tenders/ bids. Two contract approach:Contract A: governs the tendering process. The call for tenders is an offer and the submission of bid is acceptance. If a bid is accepted, the bidder must enter into K BContract A terms depend on the call for tendersContract B: The contract for the provision of goods/ servicesGenerally, contract A must accept only compliant tenders (otherwise the next K in line has right to damages), and must treat all bidders fairly and equally MJB EnterprisesDouble N EarthmoversK FORMATION: WHO IS INCLUDED IN THE K?Third-Party BeneficiariesOnly the contracting parties have rights and obligations, beneficiaries of the K who are not party to it have no privityPOLICY: beneficiary gave no consideration, want to avoid coercion from beneficiaryNatural love and affection is not considerationTweddle v. Atkinson2 fathers agree to exchange dowry. One father dies, son in law sues for promised contribution. HELD: no privity of K!Beswick v. BeswickMan sells coal business to nephew (K), nephew agrees to terms (to pay widow) but ceases. HELD: no privity with widow but she could sue as executor of his will!Dunlop v. SelfridgeManuf->Wholesaler->Retailer. W is not an agent of M. No privity between M and R even though price control between W and R is for benefit of MOnly those in a K have protection under exclusion of liability clausesTo get around these issues can argue:Trust (trustee in K beneficiary is 3P)Assignment (assignor is in K assignee is 3P)Governed by Law and Equity Act s. 36Agency (agent is in K principal is 3P)THE AGENCY TEST FROM NZ SHIPPINGNZ Shipping: stevedores negligently damage a drill while unloading it. Are they protected by the limitation of liability between plaintiff and carrier? YES!Greenwood: employees of CT negligently cause fire. Are the protected by the limitation of liability between the shopping centre (lessor) and CT (lessee)? NO! Held: risk was allocated in lease arrangement.1. Negotiating parties intended 3rd party to benefitYes. Bill of lading (K) had clause extending protection to “every IC of the carrier”No. No evidence that clause intended to apply to employees.2. Contracting party must also be contracting as agent of the 3rd partyYes. Bill of lading state carrier was acting as agent for ICs No. No evidence that CT was contracting for employees.3. Party acting as agent must have had authority to do soYes. Carrier authorized because stevedores is a subsidiary. Also, this can be granted ex post factos.No. No authorization or ratification.4. There must be consideration moving from 3rd party to the non-agent partyYes. Stevedores unloaded the drill from the boat (unilateral K – you unload drill, I accept you’re covered)No. No consideration from employees to Greenwood. It was a lease – no performance by employees that could count as considerationISSUE: Greenwood shows that the NZ Shipping agency test is formalistic, causes unfair surprise, provides poor distributive justice (employees unable to pay), inefficient (if employees have to get own insurance)MODERN LAW: relaxing privity in the context of employment relationships (relaxed NZ Shipping test) POLICY: corporations have no arms and legsTHE RELAXED AGENCY TEST FROM LD – for employment relationshipsLondon Drugs: LD enters into K with KN to store a transformer. K limited KN warehouseman’s liability to 40$, LD gets own insurance. LD asks to retrieve transformer employees negligently damage transformer. Hypothetical Greenwood: Does LD overrule Greenwood? Court holds no – it’s consistent (distinguishes G, see below). Newcombe: Greenwood is likely overruled.1. Express or implied terms in limitation of liability clause to include the employeesYes. Exclusion clause identified warehouse employeesLikely no. K was about lease of space – employees not necessary to perform K (Newcombe: unconvincing, without employees no reason to lease space)2. Employees acted in course of their employment and were providing the very services provided in the K when loss occurredYes. It was the job of employees to move the transformer.Likely no. Employees strangers to K. Clause was a lease provision, not limitation clause.ISSUES: employees still unprotected if employers have no insurance/ limitation clauses, or if they aren’t extended to employeesMODERN LAW: relaxing privity in the general commercial context (Fraser River v. Can Dive)THE RELAXED AGENCY TEST FROM FRASER RIVER – for non-employment relationshipsFraser River: FR rents out vessels to charterers. Boats are insured, K between FR and insurer includes waiver of subrogation. CD charters and negligently sinks ship – insurer pays, but can’t sue CD since no subrogation. Can insurance co amend K to get subrogation rights? No – charterer can rely on waiver of subrogation even though they are not in privity. Since 3P had a right to rely, it cannot be revoked once crystallized.1. Did the King parties intent to give a benefit to 3rd party?Yes – express reference to charterers in insurance2. Are the actions of the 3rd party in the contemplated scope of the contracting parties?Yes – chartering the boat was within the contemplated scopeK INTERPRETATION: WHAT IS IN THE K?Guiding Principles to K interpretationPurpose of K interpretation is to ascertain the true intentions of the parties at the time the K is signedIf ambiguity:Literal meaning should not be applied where it would bring about unrealistic resultWhere the words can bear 2 construction, choose the more reasonable one/ the more fair resultIf no ambiguity: above rule is not determinative – presume that parties intend the legal consequences of their words unless result is absurdNo need for extrinsic evidence (see Parol Evid below)Objective approach to determining parties’ intention at time of KThe “factual matrix”, “commercial context” and “surrounding circumstances” are almost always relevant to the written K, regardless of extrinsic evidenceInterpretation must give effect to all parts of the agreement – presumption that no provision is redundant/ meaninglessResolve inconsistencies if possibleIn reality, lawyers often use duplicative languageSubsequent conductRelated agreements: if agreements are a component of a larger transactionMeaning of words: natural/ ordinary meaning, unless evid of otherwiseContra proferentem: ambiguities to be construed against the drafterConsolidated Bathurst v. Mutual BoilerEli Lilly v. NovopharmWaddamsReardon Smith v. Yngvar HansenBG Checo v. BC HydroRe CNR and CPParol EvidenceIf there’s a conflict between written K and extrinsic evidence, there’s a strong presumption that the written K contains the entire agreementCarmanGeneral: parol evidence is presumptively inadmissibleEven without parole evid (ex. evid of negotiations), the K is still to be interpreted in its contextPrennK re: purchase of shares. Parole ev not admitted, but commercial context used in K interpretation to achieve the same thingHawrish v. BMOSigned guarantee is binding despite oral assurance by bank manager that are contrary to the signed KIf language of K is clear and unambiguous, extrinsic evidence not admissible to alter itPolicy: administrative ease, prevents fraud, enhances certainty, efficacy of commercial docs, prevents unfair surprise, controls agents/ employeesFridman, KPMG v. CIBCExceptions – parol evidence admissible if:Parol evidence of a distinct collateral agreement that doesn’t contradict main K Therefore a way to get parol evidence into a K is to characterize it as 2 KsWritten agreement not the whole KThere was a separate agreement along with written K claimed (collateral K, warranty, but NOT condition): follow modern ruleThere’s an ambiguity that needs clarifyingThere’s a claim of: MisrepresentationMistakeRectificationCondition precedentUnconscionabilityModification and dischargeAn equitable remedyHowever, inadmissible:To show the subjective intention of the partiesTo introduce evidence of a collateral K contrary to the written KGallen v. Allstate GrainHawrish v. BMO/Bauer/CarmenHawrish: oral assurance by bank manager that are contrary to the signed KModern rule: Gallen v. Allstate GrainZippy PrintOral warranty that wheat would grow over weeds, but written exclusion clause states no warranty re: productiveness. Held: written clause is about yield, doesn’t affect its ability to grow over weedsFranchisor – franchisee, clear disparity in power between the two partiesIf the oral representation was a warranty, then:Parol evidence is admissible;Oral warranty and document must be interpreted together and harmoniously if possible;Ex. can read down exclusion clause: if you mean for something to be excluded, do so explicitlyIf no contradiction, then Hawrish/Bauer/Carmen has no application; and If there is a contraction, follow Hawrish: strong presumption in favour of the written K (but not absolute); andIf on the evidence it’s clear that the oral warranty was intended to prevail, it will prevailNote: contra proferentem If there was a representation:A general exclusion clause will not override a 1) specific representation on a 2) point of substance which was 3) intended to induce the K unless the 4) intended effect of the exclusion clause was made clear. Factors:General: intent, reliance, reas. exp, unfair surpNature of representation: quality of evidence, clarity and specificity, significanceSeriousness/ nature of contradictionNature of document: whole agreement? Clarity? Read by parties (knowledge)?Bargaining relationship: power, standard form K, past relations/ experience, sharp practice?Presumption in favour of written K increases: Adds a term -> varies -> contradictsToday, exclusion clauses explicitly exclude a lot of thingsMisrepresentations, Warranties and ConditionsClassificationRemedyInterests Protected(a) Mere PuffNoneCaveat emptor(b) Innocent MisrepresentationRescissionRestitution (prevent unjust enrichment)(c) Negligent MisrepThese are tort } actions, not actions in KRelianceReliance (tort damages for the fraud)(d) Fraudulent MisrepRescission and relianceReliance (tort damages for the fraud)(e) WarrantyExpectationReasonable expectation(f) ConditionRepudiation and expectationReasonable expectation(g) Innominate term (Hong Kong Fir event)Damages or repudiation Reasonable expectationPuffLegally meaningless, to encourage a sale, no remedy – caveat emptorInnocent misrepresentationTestRepresentation of fact that unknowingly are false;Material (important matter); Induces the making of the K; andrelied upon (can be presumed)Policy: caveat emptor v. unjust enrichmentRedgrave v. HurdK to sell law firm to lawyer. Buyer finds it’s not worth as much as represented, refuses to buy. Note: lawyer had opportunity to see books. Seller argues specific performance (P). Buyer argues rescission (D). Held: innocent misrep, rescinded.Remedy: rescission (equity) to protect unjust enrichment (restitution), but only possible if:It’s possible to put the parties back into the state before K was formed (ex. can return goods as they were)K is not executed In sale of land, rescission not available once K is executedRedican v. NesbittK for sale of cottage cannot be rescinded after performance, since land is land, regardless of electric.More leniency in sale of consumer goods: reasonable inspection periodEnnis v. KlassenSale of BMW, misrep of model discovered 3 days later, rescission allowed5 years is too long – should argue warranty or condition (if not under Sale of Goods Act) insteadLeaf v. Int’l GalleriesSale of “Constable painting, 5 years later found out it wasn’t real. No rescission – too late.Note: Sale of Goods Act has reasonable inspection period (1-2 days)Note: can only get equitable remedies (restitution, rescission), no reliance damages (which are C/L)NegligentTort, not K (therefore can get around privity of K)Remedy: RelianceApplication:In providing information/advice/opinion, a professional has a duty of care in tort even without a K relationshipHedley ByrneBank negligently provides positive credit report, causing economic loss to lender. Establishes the tort of neg. misrep. but neg. misrep not found since express disclaimerEsso PetroleumNeg misrep found: Esso has professional knowledge re: expected fuel output and did not usereasonable care in providing it.Fraudulent misrepresentationTort, not K (therefore can get around privity of K)A known false statementRemedy: rescission, reliance, to protect reliance damagesPeek v. DerryWarrantyA term of K that the parties intend to be binding, but not central (“intelligent bystander” test for intent, based on words/ behavior, not thoughts)We can characterize a warranty as a collateral (2nd) K – but this is a legal fictionRemedy: Expectation damages, to protect reasonable expectatnHeilbut SymonsBuys shares in rubber co, held no warranty. Found innocent misrep but no rescission available since they had sold their sharesEsso PetroleumWarranty found. See under negligent misrepresentation. Test: prima facie a warranty if:RepresentationMade in the course of dealingsFor the purpose of inducing the other party to act (an important issue)Induces entry into the K (reliance)And reliance is reasonableDick BentleyCare salesman makes statement about mileage, buyer finds later that it’s false. Was the representation innocent misrep or a warranty? Held: warranty, sellers should have knownRepresentations made by a brochure can also amount to warranty if they meet the Dick Bentley criteriaManufacturers who would be liable for direct sale are also liable for indirect saleRepresenter can rebut this by showing innocent misrep, ex. if the representer truly didn’t know, and for good reasonMurray v. Sperry RandManufacturer liable to farmer for a forage harvester that did not meet the represented expectations (defective or unsuitable). Brochure, which indicated the machine’s specs/performance, held to be a warranty.ConditionA term of fundamental importance (going to the root of the K) ex. price or type of goodRemedy: Repudiation and expectation damages to protect reasonable expectationSale of Goods Act (can K out of these)s. 32: unless otherwise agreed, delivery of goods and payment are concurrent conditionsGoods are reasonably fit for their purpose, are of a merchantable quality, durable for a reasonable timeOnce goods have been accepted and after a reasonable inspection period, a condition is treated as a warranty (damages but no repudiation)Innominate TermBetween a condition and a warranty – remedy depends on whether the breach is fundamental (repudiation and damages) or not (damages only), to protect reasonable expectationHong Kong FirAnalytical approachesDoctrinal: legal testPolicy: protect reliance, reasonable expectation, while avoiding unfair surpriseEconomic: who is the least cost avoider?Remedial: categorization is remedy drivenConcurrent Liability in K and TortHistorically, courts reluctant to recognize right of action in a tort in the context of a k commercial is the arena of contract – risks should be allocated by contractfloodgates concerns re economic losswords are different from acts: potential plaintiffs unlimited, especially once you put them in printwords exist forevereconomic not physical lossSCC: where a given wrong is prima facie actionable in K and tort, party can sue in either or both, subject to any limits the parties themselves have place on that right by their K Tort modified by K K-ing into more obligations: K oblig > tort K-ing out of obligations (express terms only – exemption/ exclusion of liability clause): K oblig < tortK = tort: K is easier case to make, but tort may have longer limitation period (in BC, 2 yrs)These modifications by K apply only wrt the wrongs falling within the scope of the KBC ChecoCentral Trust You can K out of torts Remedy: Torts give rise to reliance damages, but with a “whiff” of expectation damages = a lot like K damagesCapital, interest overdraft, lost wages, time it’ll take to re-establish self after wasted endeavourEsso PetroleumReliance damages from neg misrep, but included his opportunity costs. Looks like expectation measure!Exclusion of Liability (Exclusion Clauses, Waivers, and Limitations)Doctrine of Fundamental Breach – Exemption clause can’t excuse liability for a breach that goes to the root of the K (Denning)!Karsales v. WallisD (purchaser) refused delivery of severely damaged used car, P relies on exclusion clause. Denning finds fund breachRejects Doctrine of Fundamental Breach as a rule of construction, not a rule of lawSuisse AtlantiqueNo more doctrine of “fundamental breach” for exclusion clauses! Contra ProforendumReplaced with test of reasonableness: examining the reasonable intentions of the parties at time of K re: what falls in the exclusion clause. Ex. Commercial contextBreach brings K obligations to an endPhoto ProductionK to provide security to building, burns it down. Exclusion clause applies – services for security cost very little, more cost effective for factory to have insuranceCanadian Approach: Lay the doctrine of fund breach to rest and deal explicitly with unconscionabilityHunter Engineering v. SyncrudeK for conveyor systems, gears fail. Exclusion clause applies. Clause clear an unambiguous. No evidence of unconscion. The end of Fundamental BreachAs a matter of interp, what is the exclusion clause meant to incl?Ambiguity, contra prof etc. Ex. Is the exclusion lmtd to the subject matter of THAT K? Can there be a collateral K for other stuff?If the exclusion clause applies?Unconscionability at the time K was made?Public policy and illegality (Plas Tex v. Dow)?Newcombe: removes lots of flexibilityTercon Contractor v. B.C.Exclusion clause does not apply, but because the issue was outside the tendering process which had the exclusion clause.Defences – How to Get Out AnywaysNon Est Factum (it is not my deed)General: Signature rule – signed contract is proof of acceptanceNo estoppel availableExceptions:Fraud/ forgery (person had no signed)Person did not know what they were signing (blind, illiterate, lack of mental capacity)EFFECT: rescission – K voidL’EstrangeSaunders v. AngliaFor plea to be available:Document must be fundamentally different from what the signer believed it to be. If you know you’re signing a legal doc, non est factum not availSignature must not be brought about by carelessness of signer in taking precautionsIf you’re a literate adult of a normal mental capacity, then presumption that your signature is bindingSaunders v. AngliaAunt relied on nephew, did not ask for it to be read aloud when her glasses were broken and there was no mistake re: essence of the doc. K is good.Rationale: signer is in the best position to avoid lossMarvco Color Parents held carelessDoctrine of Reasonable NoticeGenerally: signature rule – signed contract is proof of acceptanceL’EstrangeException: unsigned docs that contain conditions (ex. tickets: train, bus, movie, amusement park, parking, museum, skiing etc.):Doctrine of reasonable notice: where customer did not know of the specific conditions, evidence is required to show assent to terms: Actual knowledge that docs contain conditionsReasonable steps taken to provide notice that doc contained conditionsMellish Rule inParker v. South Eastern RailwayTicket received for storage of bag at railway. Bad lost, ticket limited damages to 10 poundsThe more onerous the condition (unusual, unexpected) the more notice requiredJ. Spurling v. BradshawException: party may not rely upon terms if signer had no actual knowledge and no reasonable steps were taken to bring it to his attention (adopting Doctrine of Reasonable Notice)Limitation: applies only when contract writer knew/ ought to have known there was no actual assent (applied narrowly)Ex. transaction supposed to be fast – situation does not anticipate that customers will read the KEx. onerous provisions in standard form KTilden Rent-a-CarKarrolStandard form K. Exclusion clause was very broad, and had an onerous provision that was inconsistent with the purpose of the K.Relevant factors re: reasonable notice: reasonableness/ onerousness of exclusions, whether notice was in plain English, when it was made availablesize of the fontlength of the Kcontext (ex. standard form K)Modern law: traditional rule prevails - in absence of evidence of unconscionability, fraud, misrepresentation, non est factumDelaney v. CascadeTilden is only applicable in special circumstances: where person knew or had reason to know of other’s mistake as to its termsKarrol v. Silver StarWaiver for ski race upheld – K said that it was a “waver of liability”, clear language, short, routine, no contradicting purposePenalties and ForfeituresDamages clauses ok: parties can K for their own damages based on the damages estimated to sufferCourts will not enforce penalties/ forfeitures, where there’s no relationship between the amount to be paid and the amount damages would bePenalty: whether it would terrify you into K performance, sum is extravagant compared to lossThermidaire CorpProvision requiring payment of gross trading profit for breach of convenant not to sell competing goods is “grossly excessive and punitive?Forfeiture: whether it would be grossly disproportionatee and unjust enrichmentLaw and Equity Act s. 24: court may relieve against all penalties and forfeitures, and in granting the relief may impose any terms as to costs, expenses, damages, compensations and all other matters that the court thinks fitStockloser v. JohnsonDefault on machinery leading to repossession and retaining all installment payments is grossly disproportionate – 1 day late and 10 day late lead to same forfeitureIllegality (residual)Contrary to public policy: “No court will lend its aid to a man who founds his cause upon an immoral or illegal act”Injurious to the state (bribery, corruption)Contracts injurious to the administration of justice (paying a witness not to testify)Contracts involving immorality Contracts affecting marriageContracts in restraint of tradeContracts to benefit from crimeContracts for surrogacyHolmanWorld duty free v. Kenyan AirportShafronAssisted Human Repro ActTrade of the from France to UKRestrictive covenant for employmentCommon Law illegalityRe: restraint of trade, non-competition clauses must be clear and certainRemedy: doctrine of severance (blue pencil test)Person committing illegal act cannot benefit from it (ex. cannot be paid insurance)Shafron v. KRGBrisetteClause struck out, since the legal entity did not existMan kills wife. Insurance cannot be paid out, even if it’s to create a trust for the children, since husband is the beneficiaryInnocent parties should not be disentitled benefitsOldfieldHusband dies while smuggling cocaine. Wife doesn’t know, allowed to collect insurance.Statutory illegalityRogers v. LeonardSale of cottage void since signed on Sunday contrary to Lord’s Day ActMitigating the consequences of illegality (remedies)Traditionally: if there’s illegality, the K is void as contrary to statuteModern law: there’s a spectrum of remediesVoid ad admissio because illegal from the beginning (ex. K to sell heroine)Regulatory illegality (ex. transport truck doesn’t have insurance) – court may find K is valid, but with administrative sanctionsExceptions to non-enforcement (where court will find K despite illegality)Parties are not in equal fault – less blameworthy can seek action against more blameworthyOne party repents prior to K completionOutson v. ZurowskiPyramid schemed, find both parties are in equal fault. Ignorance of the law makes you no less blameworthyNotional severance: capping interest rate to non-criminal rate (CC s. 347, >60%/annum)New Solutions SCC 2004Interest rate is 60.1%Severance (blue pencil test)General principle post-Still: what public policy is engaged? On these facts and given the purpose of the statute is it contrary to public policy to permit P an action?ShafronStill v. Minister of Natl RevenueStill applied for permanent res and worked. EI benefits later denied because her employment was illegal. Court held she is entitled to relief: she acted in good faith and paid into EI, she wasn’t en illegal immigrant.Unconscionability, Undue Influence and Duress (residual)Issues re: fairness of bargain can be dealt with using undue influence, unconscionability, duress at the time of K formationRemedy: rescissionUnconscionability: Focus on overall commercial morality of the bargainTEST:Procedural - Inequality in bargaining power; ANDContextual factors: economic resources, knowledge, education, need, disabilityCommon categories: tend to be from existing relationships (employment, family) but no express categoriesSubstantive – improvident bargainAssume pareto efficiencyA combination of a) and b) means agreement should, prima facie, be set aside. Onus on party seeking K performance to show they considered the interests of the other party (Mundlinger)Marshall v. Canada Perm TrustAgreement by Walsh (elderly man, mentally incapacitated) to sell his estate held to be unconscionableMundlinger v. MundlingerWife, while on medication, agrees to relinquish rights to support and the family home to husband for $10,000 (husband angry when she contacts lawyer). Held: unconscionable.St. Pierre v. St. PierreHouse with taxes in arrears. K by family with grandson that if he pays taxes, he can have the house after grandmother leaves. Kicks grandmother out. Held: unconscionable. Also found undue influence. Lidder v. MunroePunjabi man and ICBC adjuster. Held innocent misrep, also found unconscionability.Measured at the time of the KHunter EngCommunity standards test (less accepted): is the transaction a s a whole sufficiently divergent from community standards of commercial morality that it should be rescinded?Harry v. KreutzigerUndue Influence:Focus on improper exercise of influence by someone in a special relationship of trust/ confidence that overbears willTEST:1. Actual undue influence: emotional, physical violence (onus on undue influence claimant)2. Presumed undue influence:a. De jure (of law): fiduciary relationships, trustee/beneficiary, solicitor/client, doctor/patient, priest/worshipper (onus on K claimant)b. De facto (of fact): if 1) relationship of trust/ confidence and 2) improvident bargain (onus on undue influence claimant) then up to K claimant to discharge proofEx. spousal relationships: 1) often both parties trust one to manage finances 2) fear of damaging the relationship is a ready weaponThe greater the disadvantage, the more cogent the relationship will have to beEarl of Aylesford v. MorrisLloyd’s Bank v. BundyElderly Mr. Bundy signs bank guarantees for debt of son’s company, secured by his farm (only asset). Held undue influence, relationship of trust between bank manager and Mr. Bundy. PridmoreICBC adjuster is like de jure relationship between solicitor and client. Note: discusses the fact that these categories aren’t actually separate.Spousal/ co-habitant relationships There is always constructive notice of the risk of undue influence where spouses/ co-habitants co-sign for debts and they meet the de facto categoryBanks put on notice, to absolve themselves of liability should;Meet with spouses privatelyExplain extent of liabilityWarn of the risksUrge the person to obtain indep legal adviceRoyal Bank of Scotland v. EtridgeWife charges matrimonial home as security for husband’s debts. Bank tries to collect, wife asserts undue influence. DuressFocus on coercion of will that vitiates consent – no alternativesTraditionally: K void – vitiated consentModern approach: voidable at the option of the party who was the object of the duressCategories:Duress to personDuress to goods, propertyEconomic duressTest:Pressure amounting to compulsion of the will of the victimVictim’s intentional submission from the realization that there are no practical alternativesFactors: whether the coerced party protested, the availability of alternative options (determinative!), existence of indep legal advice, whether the coerced party tried to avoid the KIllegitimacy of the pressure exerted, in light of the nature of the pressure and the nature of the demandEx. threat of unlawful actionIf the victim expressly or implicitly approves the K after the pressure ceases to exist, no duress will be foundPao OnUniverse Tankships v. ITWFLidderApplies to GTAs, but the illegitimacy test is hard to apply (incoherent, unruly)Gordon v. RoebuckCoercion found in GTA in real estate transaction, but no duress because no illegitimate use of power.Gotaverken Energy SystemsGTA in a pulp contract, court found duress because pulp co had no effective alternative. Pulp co agreed under protest, hadn’t taken legal advice re: duress and avoided the K once work completed.New test for GTAs?Was the promise extracted as a result of “demand or threat”Did the coerced party have no practical alternativeAssuming i and ii, did the coerced party consent to the variation?Factors: was promise supported by consideration? Was the coerced promise made “under protest”? If no, did the coerced party try to disaffirm the promise ASAPractical?Not yet adopted by SCCNAV Cda v. GFAADuress foundMistake (residual)Mistakes occur when there's a misunderstanding in assumption regarding the facts. Mistake can be pleaded during a K, or after it’s been completedCommon Law MistakeTEST (a common mistaken assumption):If there is a true ambiguity;regarding an important/fundamental term of the agreement; there is no reason to prefer one party’s understanding over the other; andparties have not allocated this risk contractually already (express or implied),the agreement may be void for mistake.Remedy: K voidPolicy: assignment of risk: who ought to bear it?Raffles, Sherwood, BellStaiman Steel (sharp practice), SmithTraditionally, mistake was based subjectively on whether there was a meeting of the mindsRaffles v. WichelhausPeerless 1 and 2. Court finds K void due to fundamental mistake – no subjective meeting of the minds. Newcombe: likely wrongly decidedModern Law: when the mistake is based on K formation, the test is objective: what would a reasonable person have thought? Smith v. HughesD believed he was buying old oats, P was selling the present oats. Held no mistake based on objective K formation. He relied on his own judgment of what the oats looked like (didn’t ask specifically) therefore own mistake.Staiman Steel v. CommercialK for “all the steel in the yard. K formation issue. Court held a reasonable person would assume all the old steel, therefore no mistake - there is a K for all the old steel.When the mistake is based on terms of the K, court may find mistake if:Identity of contracting partiesRes extincta and res suaQuality of subject matter is fundamentally mistaken Sherwood v. WalkerRose II of Aberone: beef or breader? Mistake, K void.Bell v. Lever BrosNo fundamental difference between terminating with severance and terminating with cause. No mistake. Note: courts rarely interfere with settlement agreementsEquitable Mistake (common, unilateral or mutual mistakes)Factors:Neither party can be at faultMust rise to the level of unreasonableness for a party to profit from the mistakeThere must be no injustice to innocent 3rd partiesThe mistaken terms may not have to be fundamental?Ron EngRemedy: K voidableSolle v. ButcherB rents apartment to S, both believe it’s not subject to rent control. Common mist. Equitable mistake, K voidable.The UK no longer recognizes equitable mistakeGreat Peace ShippingShips mistakenly 36 hours apart. CoA overrules Solle – no equitable mistake.Canada still recognizes equitable mistake, to retain the policy flexibility to correct unjust results. But it’s hard to differentiat from C/L and equitable mistakeMiller PavingRon EngineeringAffirms Solle v. ButcherMistaken Identity – The RogueIn cases of a rogue, which innocent party bears the losses?C/L and Sale of Goods Act: no one can transfer to another something that she does not have – buyers beware. Protects sellerEquity: tends to protect the BFPVEconomics: favours buyer, because seller is the least cost avoider (ex. require full payment before transfer)Remedies are fact based, not premised a principled solution. Issue: who should bear the loss?No offer. K A->B is void ab initio because the offer was not made to the rogue – it was made to the person rogue was impersonating. Therefore B cannot pass to C. A retains title, C bears loss.Ingram v. LittleK void. Car sale to “Hutchinson”. The identity of the rogue mattered because it’s the only reason seller agreedIssue: are you intending to K with the claimed person, or the person present? Presumption that you’re intending to K with the person in front of you - to rebut it must show otherwisePhillips v. BrooksK good. Jewellery for cheque. A bears loss, held K was with person present. Bcus rep. occurred after K?Note: Lewis v. Avery holds that Ingram and Phillips aren’t reconcilable – in both K wasn’t complete until goods exchanged handsFundamental mistake (re: the identity of the contracting party), void. C bears loss.Fraudulent misrepresentation – K voidable. K between A->B is good, but A has a right to rescind under equity. A can regaining title.If voidable K not rescinded before sale to BFPVw/oN, then C takes title. A bears loss.Lewis v. AveryLewis sells car for cheque. Held voidable, but only if BPFV is not punishedThis is the position in the Sale of Goods ActIssue: what’s the diff between fraudulent identity v. fraudulent attributes?Lewis v. AveryK voidable. A bears lossFrustrationFrustration is a mistake in assumption regarding future events. It may be available when an event occurs after K formation but before K completion, that makes performance problematicImpossible to perform: promisor to marry dies, painter loses sight, music hall burns downUndue hardship: imposes inordinate and unexpected expenseRemedy: relieves parties of future performance obligationsPolicy: assignment of riskHistorically:Stage 1. Rule of absolute promises. K liability is strict.Paradine v. JaneD’s land is invaded and he’s expelled, so fails to pay rent under lease (no income). Held: no frustration, should’ve anticipated this in KStage 2: Relaxing the absolute rule and imply a condition of the continued existence of the subjectCritique: the test is based on presumed intent of the parties (that if they thought about the situation, they would have agrees this way)Taylor v. CaldwellK for music hall, hall burns down. Held: frustrationStage 3: Doctrine of Frustration as a rule of law and implying that a K is frustrated if the foundation/ commercial purpose of the K is destroyedKrell v. HenryRooms rented to view coronation, coronation cancelled (Edward VII sick)Land: frustration is not available for sale of land – land is unique and can’t be destroyedModern law:Land: K for land can be frustrated if it involves not just the land but the commercial development of the landNote: if K is completed, SOLKBK v. SafewayK to sell land for 8.8 mill (Safeway to KBK). Zoning in ad. City rezones land, loss in value of 3.4 mill. Held: frustrated. Newcombe disagrees.TEST: whether, due to changed circumstances, the risk of unfair hardship to one party outweighs the policy of enforcement (caveat emptor)A “multifactorial approach” to determine whether what happened is radically different than expected, making performance unreasonableSea AngelVessel charter to salvage oil tanker. Port authorities prevent vessel leaving. Are costs of delay part of the K? Held: no frustration – charterer must pay cists if delay. Delay is foreseeable, risk of delay contemplated, not unjust for charterers to bear the riskFACTORS:The disrupted circumstance is fundamental to the KSubstantial hardship: major economic impact, more than an increase in expense, deprives a party of the intended benefitUnanticipated risk (could be foreseeable, but unanticipated)No allocation of risk by K (expressly, impliedly)No FaultKrell, Taylor. KBKSea AngelSea AngelLossesC/L: losses lie where they fall. Issue: losses are pure chanceAppleby v. MyersReform: restitutionIssue: recovery on restitution is limited to monetary payments, not expenses incurred in relianceFibrosa v. FairbainModren law: Frustrated Contracts ActLosses (ex. reliance damages) apportioned equallyDoes not apply to lost profits!RectificationRectification applies to a typographical or transcription error – to restore what the parties’ agreement actually wasTEST (Sylvan Lake)Plaintiff must prove the existence and content of the prior oral agreementThere must be “convincing proof” of the oral agreement (between balance of probabilities and beyond a reasonable doubt)Plaintiff must provide precise wording for the rectificationPlaintiff must show that the defendant knew/ ought to have known of the mistake in the written docSylvan Lake 480 by 110 yard, accidentally wrote 110 feetShafronRectification does not apply to change “Metropolitan City of Vancouver” (which is not a legal entity). Doesn’t meet a) or c)Consumer ProtectionPolicy rationale:Prevents monopoliesAccounts for externalitiesAdjusts for information failures (prohibiting fraud, mandatory disclosures)To ensure adequate consumer educationPaternalistic concerns: protecting vulnerable people from predatory sellersRedistributive concerns: ex. rent control, interest ratesSale of Goods ActApplies only to goods: software is a disc (property) + a licence to use the software (servive)Cannot K out of Sale of Goods Act if it’s a new good for retail sale (and not business use)S. 17-19 = statutory warrantiesS. 20 = cannot waive/diminish Sale of Goods Act warranties and conditions if it’s a new good for retail sale (and not business use)Business Practices and Consumer Protection ActApplies to: Goods, services and land“Consumer” includes consumers outside of BC dealing with a BC company“Consumer transaction” includes pre-K activities (representations)“Suppliers” includes suppliers outside BC doing business with BC consumers, regardless of privity“Supply” = sale, lease, assignment …ScopeS.5: if deceptive act or practice alleged, burden of proof on supplier to show it didn’t occurS.9: if unconscionable act or practice alleged, burden of proof on supplier. S.10: if found, transaction is not binding on the consumerExpress provisions for: door to door sales (10 day cancellation if >50$)future performance K (ex. dance classes/ gym memberships have a 10 day cancellation period)internet (distance) sales (certain information must be provided)unsolicited goods (if unsolicited, you can keep it)time share (10 day cancellation)prepaid purchase cards (no expiry date)consumer credit and debt collectionfuneral services Kss. 3: no waivers/ releases of areas covered under the act, unless expressly permitted by actRemedies: damages recoverable (s. 171), and can bring an action a) to declare that a contravening act/ practice has occurred/ is about to occur, b) an injunction restraining a supplier from contravening the ActRushak v. Henneken: P purchases 14 year old Mercedes, described as a “very nice car”. Held: breach of Trade Practices Act – car salesman’s conduct had the effect of misleading a person, “puffery” can’t be used to give an unqualified opinion when the representer knows it may be wrong. Act is to protect consumers, not punish vendors (deception doesn’t have to be deliberate)Telus Arbitration Clause: in BC, cases relating to the K must be settled under the arbitration clause, but claims of statutory breach under the BPCPA can go to court ................
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