IV. CONTENT OF THE CONTRACT
1. Formality: The Writing Requirement
Bauer v. Bank of Montreal (1980 SCC) – parol evidence rule
Gallen v. Butterley (1984 BCCA) – oral evidence may be admissible
2. Misrepresentation and Rescission: Representation and Terms
2.1 Misrepresentation and Rescission
Redgrave v. Hurd (1881 Eng CA) – K can be rescinded for misrepresentation
Smith v. Land & House Property Corp. (1884 Eng CA) – opinion as misrepresentation
Kupchak v. Dayson Holdings (1965 BCCA) – equity may grant rescission
Redican v. Nesbitt (1924 SCC) – cannot rescind for innocent misrep in executed K
Esso Petroleum v. Mardon (1976 Eng CA) – negligent misrep actionable in tort and K
Sodd Corp. v. N. Tessis (1877 Eng) – special relationship creates duty of care
BG Checo Int'l Ltd. v. BC Hydro & Power Authority (1993 SCC) – can sue concurrently unless K indicates otherwise
V.K. Mason Construction Ltd. v. The Bank of Nova Scotia (1985 SCC) – negligent misrepresentation test
S-244 Holdings Ltd. v. Seymour Building Systems Ltd. (1994 BCCA) – equitable rescission
2.2 Representation and Terms
Heilbut, Symons & Co. v. Buckleton (1913 Eng HL) – warranty vs. innocent misrep
Leaf v. International Galleries (1950) 2 K.B. 86; (1950 Eng CA) – warranty vs. condition
3. Parol Evidence Rule
4. Classification of Terms
Hong Kong Fir v. Kawasaki Kisen Kaisha Ltd. (1962 Eng CA) – intermediate terms
Krawchuk v. Ulraychova (1996 AB Prov. Ct.) – applies test from HK Fir
Wickman v. Schuler (1974 Eng HL) – breach of condition must be material and reasonable
5. Discharge by Performance or Breach
Fairbanks v. Sheppard (1953 CC) – can recover for substantial completion
Sumpter v. Hedges (1898 Eng CA) – can recover for your contribution (quantum meruit)
Howe v. Smith (1884 Eng CA) – deposit made as guarantee of performance not recoverable
Markland Associates Ltd. v. Lohnes (1973 Eng NSSC) – defective work is not a breach
Stevenson v. Colonial Homes Ltd. (1961 Eng CA) – can recover part payment, not deposit
6. Standard Form Contracts and Exclusion Clauses
Machtinger v. Hoj Industries Ltd. (1992 SCC)
6.1 Unsigned Documents
Parker v. South Eastern R.Y. Co. (1877 Eng CA) – reasonable notice req for unsigned K
Thornton v. Shoe Lane Parking (1971 Eng QB) – wide exclusion clauses req explicit notice
McCutcheon v. David MacBrayene (1964 Eng HL) – previous dealings must prove knowl
6.2 Signed Documents
Tilden Rent-A-Car Co. v. Clendenning (1978 Eng CA) – signature may not be adequate
Delaney v. Cascade River Holidays (1983 BCCA.) – waiver's language in circumstances
Schuster v. Blackcomb Skiing Enterprises (1995 BCSC) – application of Delaney
6.3 Standard E-contracts
Zhu v. Merrill Lynch (2002 BC Prov. Ct.) – online disclaimers cannot be too broad
Dell Computer Corp v. Union des consommateurs (2007 SCC) – e-K must be accessible
6.4 Fundamental Breach
Karsales v. Wallis (1956 Eng CA) – Denning's formulation of fundamental breach
Photo Production v. Securicor Transport Ltd. (1980 Eng HL) – overturns Denning
Hunter Engineering v. Syncrude Canada Ltd. (1989 SCC) – complicates Photo Production; freedom of K generally upheld w/ exceptions
Fraser Jewellers Ltd. v. Dominion Electric Protection Co. (1982 ONCA) – reconciles Hunter
Sale of Goods Act, s. 20
Solway v. Davis Moving & Storage Inc. (2002 ONCA) – applies Hunter
V. EXCUSES FOR NON-PERFORMANCE OF CONTRACT
1. Duress
Pao On v. Lau Yiu Long (1980 Eng JCPC) – establishes economic duress
Gordon v. Roebuck (1992 CA) – claimant must prove econ duress unjustifiable
2. Undue Influence
Geffen v. Goodman Estate (1991 SCC) – establishing presumption of UI; rebuttal
Royal Bank of Scotland Plc. v. Etridge (2001) – duty of stronger in non-commercial rel
3. Unconscionability
Morrison v. Coast Finance Ltd. (1965 BCCA) – establishing presumption of UC; rebuttal
Marshall v. Can. Permanent Trust Co. (1968 ABSC) – UC doesn't require knowledge
Harry v. Kreutziger (1978 Eng CA) – Lambert introduces community std test
Business Practices and Consumer Protection Act, ss. 4-10
4. Illegality
J.G. Collins Insurance v. Elsley (1978 SCC) – restraint of trade weighed with other concerns
Still v. Minister of National Revenue (1998 Eng CA)
VI. REMEDIES
1. Damages
1.1 The Interests Protected
1.2 The Expectation, Reliance and Restitution Measures
McRae v. Commonwealth Disposals Commission (1951 Aust. H.C.) – reliance damages
Sunshine Vacation Villas Ltd. v. Hudson Bay Co. (1984 BCCA) – either expectation OR reliance damages
Attorney General v. Blake (2001 Eng HL) – restitution rare but possible
2. Quantification
Chaplin v. Hinks (1911 Eng CA) – damages for lost opportunity
Groves v. John Wunder (1939 Minn. C.A.) – economic feasibility of K does not reduce damage amount
Jarvis v. Swans Tours (1973 Eng CA) – mental distress, loss of enjoyment recoverable in K
Ruxley Electronics and Construction Ltd. v Forsyth (1996 Eng HL) – imperfect result is not total failure
3. Certainty, Causation and Remoteness
Hadley v. Baxendale (1854 Eng) – test for remoteness: arising naturally? special circumstances?
Victoria Laundry v. Newman (1949 Eng) – foreseeability is enough; redefines Hadley test
Koufos v. Czarnikow (The Heron II) (1969 Eng) – adds probability to Victoria Laundry test
Whiten v. Pilot Assurance (2002 SCC) – applies test from Vorvis for punitive damages
Fidler v. Sun Life Assurance (2006 SCC)
5. Mitigation
White and Carter (Councils) v. MacGregor (1962 Eng HL)
6. Time of Measurement of Damages
Semelhago v. Paramadevan (1996 SCC) – damages in lieu of specific performance; calc date of trial
7. Liquidated Damages, Deposits and Forfeitures
Shatilla v. Feinstein (1923 SK) (1923 Sask. Prov. Ct.) – penalties and liquidated damages
H.F. Clarke Ltd. v. Thermadaire Corporation Ltd. (1976 SCC) – judicial appraisal of reasoonableness
J.G. Collins Insurance Agencies Ltd. v. Elsley (1978 SCC) – penalty clause and freedom of K
Stockloser v. Johnson (1954 Eng CA)
8. Equitable Remedies (Specific Performance and Injunctions)
John E. Dodge Holdings Ltd. v. 805062 Ontario Ltd. (2003 Eng CA) – what is "unique" property?
Warner Bros. v. Nelson (1937 Engl KB)
Zipper Transportation v. Korstrom (1997 Eng QB)
Zipper Transportation v. Korstrom (1998 Eng CA)
IV. CONTENT OF THE CONTRACT
1. Formality: The Writing Requirement
General (B & P pp. 271-277; 294-295)
- Promise under seal can be unsupported by consideration
- Some legislation exists around writing requirement
- Statute of Frauds (1677) – writing requirement in K for land (s. 4), goods, wares and merchandise valued at over $10 BP (s. 17)
- Sale of Goods Act, R.S.A. 2000 c. S-2 – slightly more flexible: s. 6: goods over $50, s. 8: written w/ or w/o seal, or orally, or combination, or implied by conduct
- Overall, statues have writing requirements for
- Land K (i.e. lending, purchase)
- Indemnity (to be responsible for another's debts, e.g. insurance)
- Guarantee (only if person defaults)
- No particular form unless specifically stipulated but essential terms required unless can be reasonably inferred or are established w/ parol evidence
- Some movement away from policy of requiring contracts to be in writing
- Non-compliance with statutes renders K unenforceable but not invalid; distinction important b/c allows K, equitable remedy of part performance, act as consideration for new K
Arguments for abolition of writing requirement
- No justification for particular list supplied
- Not in accord with social practices
- Places unjustifiable hardship on litigant who loses otherwise good claim on purely technical defence
Arguments for writing requirement
- Evidentiary function for essential terms, level of details is useful
- Possibly leads parties to take K more seriously
Bauer v. Bank of Montreal (1980 SCC) – parol evidence rule
FP was shareholder who gave personal guarantee believing that he would be given book debts. Bank did not register book properly so P was fully liable for all debts. P claimed K should be interpreted contra proferentum (ambiguous term construed against interests of the party that imposed its inclusion in the K; ct will favour innocent party); exclusionary and LLC was unconscionable; induced to enter K by representation of agent of bank e.g. assurances, misrepresentation
I Should bank's oral assurances be interpreted as an oral collateral agreement? NO
Parol evidence rule: oral evidence which varies or contradicts the main written K is inadmissible
Gallen v. Butterley (1984 BCCA) – oral evidence may be admissible
F Farmers purchased crop upon oral assurances. Crop failed, farmers sued successfully for breach of warranty; appealed
I Should trial judge have admitted oral assurances? YES
Oral and written evidence should be interpreted harmoniously to avoid inconsistency and contradiction
Oral statement may be relevant and may be admitted if
- Written agreement is not whole K (but should not assume oral assurances form collateral K)
- Statements support K (but collateral K will not be established if inconsistent/contradicts)
- Correct mistake or error in K
- Show misrepresentation
NB: Individually negotiated document is stronger than standard printed form
2. Misrepresentation and Rescission: Representation and Terms
- Important terms:
- Parol evidence rule; contra proferentum (see above)
- Entire agreement clause – written K to be taken as entire agreement, oral agreements and negotiations should not be considered
Misrepresentation
- Elements
- More than opinion
- False statement of past or present fact; cannot be an opinion or future fact
- Reliance on statement induces person to enter agreement
- CL does consider intent, knowledge, duty (i.e. innocent, fraudulent, negligent misrepresentation)
- Effect
- Makes K voidable (can continue or step out)
- Remedies
- Rescission (equitable remedy, restitutio integrum), also damages (depends on type of misrep)
- To claim rescission, must act in timely manner
- Burden of proof
- Is there a duty to investigate (caveat emptore)? No!
2.1 Misrepresentation and Rescission
Redgrave v. Hurd(1881 EngCA) – K can be rescinded for misrepresentation
FD entered K to purchaser P's house and share in P's business. P claimed business was profitable, offered paperwork that D did not examine. D discovered business was worthless, refused to complete transaction
I Can D recover? YES, K rescinded, deposit returned.
Establishes principles of misrepresentation (= material false representation):
- Does not require intent or knowledge of offeror
- Cannot fail for negligence of offeree
- Must induce offeree to enter the K
- Defence: offeree has knowledge of falsity or does not rely on representation
- Remedy: rescission ("A man is not allowed to get a benefit from a statement which he now admits to be false")
Smith v. Land & House Property Corp. (1884 EngCA) – opinion as misrepresentation
F D purchased hotel from P on statement that lessee was "a most desirable tenant." Tenant had history of late rent payments to P, eventually went bankrupt. D refused to complete
I Can P defend itself because it expressed an opinion, not a fact? NO
When facts are not equally well known to both sides, a misleading opinion functions like a misleading fact
Kupchak v. Dayson Holdings (1965 BCCA) – equity may grant rescission
F P swapped its property for shares in D's hotel. D misrepresented hotel earnings, P refused to continue mortgage payments. D had built apartment on ½ of P's property
I Can P rescind? YES, awarded rescission, compensation for value of property, interest
General rule: no rescission for misrepresentation if:
- 3rd party has acquired rights
- Restitutio in integrum is impossible
- Action to rescind is not taken in reasonable time ("doctrine of laches")
- K is executed (exception: fraud)
- Injured party affirms K
Equity does what is just, though it cannot always restore parties precisely to the state they were in before the K
- Ct has discretionary powers; extends reach of equity in this case
- Treats compensation as a form of equitable relief
- Because D acquired P's property fraudulently, ct ought not to bar rescission
Redican v. Nesbitt (1924 SCC) – cannot rescind for innocent misrep in executed K
FD purchased leasehold interest in P's house without prior inspection. Keys and cheque exchanged, but D ordered stop-payment on cheque upon seeing property for first time
I Can D rescind? NO, K was executed, parties received full consideration
Rescission not allowed for innocent misrepresentation if K is executed unless benefit provided differs in substance from that promised
If fraudulent misrepresentation, rescission may be granted even if K is executed
Impossibility of restitution will prevent rescission unless that impossibility has been caused by the guilty party
Esso Petroleum v. Mardon (1976EngCA) – negligent misrep actionable in tort and K
F Esso leased gas station to Mardon. Because of location, sales much lower than Esso's representation. Esso cut off supplies, claimed possession and overdue rent. Mardon counterclaimed for breach of warranty and negligent misrepresentation
I Is there a contractual warranty? YES; factual statement by party claiming to have special skill/knowledge, made w/ intention and success of inducing party to enter K. Esso liable for Mardon's capital losses: $$ put into business and lost, overdraft, loss of earnings, interest
Negligent misrepresentation inducing K gives rise to action in tort (negligence) and contract (breach of collateral warranty)
A party has duty to use reasonable care in their representation if they claim special knowledge/skill and act to induce another to enter a K(Hedley Byrne)
Breach of a collateral warranty gives the right to damages
NB: Usually warranties pertain to present or past facts. In this case, breach of warranty found regarding future facts
Sodd Corp. v. N. Tessis (1877 Eng) – special relationship creates duty of care
F D (professional accountant + trustee in bankruptcy) misrepresented the value of inventory of a furniture store he was trying to sell. P relied on those statements
I Is D liable? YES, special relationship and reliance. P gets damages.
Liability for negligent misrepresentation may be found in K and tort where there is a special relationship creating a duty of care
BG Checo Int'l Ltd. v. BC Hydro & Power Authority (1993 SCC) – can sue concurrently unless K indicates otherwise
F Checo entered K to install electrical towers/lines for D. Assumed right of way would be cleared prior to commencement to work; was not, causing difficulties to P. D knew work was inadequate, relied on LLC
ICan Checo sue concurrently? YES. LLC did not negate Hydro's duty of care. Mere fact that the parties have dealt with a matter expressly does not mean they intended to exclude all rights to sue in relation to that matter
Can sue in tort and K concurrently unless valid K expressly indicates otherwise
- K obligations > tort obligations likely pick K b/c higher duties
- Tort obligations > K obligations dealt with by exclusion clause or LLC in K
- Tort + K obligations same concurrently or alternatively
- May be affected by limitation periods
V.K. Mason Construction Ltd. v. The Bank of Nova Scotia (1985 SCC) – negligent misrepresentation test
F P entered K with developer based on bank's assurances of sufficient finance. P substantially completed work when developer ran out of $$; bank sold development but did not have sufficient funds to compensate P
I Is bank liable for negligent misrepresentation or breach of K? NM based on Esso, Sodd, Hedley Byrne. P awarded expectation damages and wasted expenses.
Set out four-part requirements for negligent misrepresentation
- An untrue statement
- Statement negligently made
- Special relationship giving rise to a duty of care
- Reliance on the statement was foreseeable
S-244 Holdings Ltd. v. Seymour Building Systems Ltd. (1994 BCCA) – equitable rescission
F Subcontractor gave tender for phase I of building project. Contractor mistook it as a bid for entire project. Work partially completed, then subcontractor quit the job. Other contractors hired
I Is rescission possible? YES b/c equitable. Subcontractor paid for his work.
SCC extends Denning's position on rescission from Leaf v. Int'l Galleries
- Usually rescission is barred when K is executed (unless: fraud, substantial error, complete failure of consideration)
- However, equity may allow rescission in innocent misrepresentation even if K executed
- Rescission can sometimes be inequitable because it is "all or nothing"
2.2 Representation and Terms
- Hierarchy taxonomy of statements: "Mere puff" ----- (Mis) Representations ----- Terms (warranty)
- Types of misrepresentation:
- Innocent remedy is rescission; if not possible, damages may be awarded
- Negligent remedy is damages
- Fraudulent remedy is damages
- In terms of warranty, what is said before K is treated as an actual term in the K and the remedy for its breach is damages
- If other party breaches a condition, CL gives right to innocent party to terminate its primary obligation (performance of K)
- If other party breaches a warranty, innocent party still has to carry on primary obligation but still has the right to sue for damages
- Has to be a serious breach to give damages and relief from performance
- Diplock J.: "primary obligations" – within K, "secondary obligations" – created through breach of K
- Innominate term – not really clear on the face whether they are warranty or condition
- Breach of term damages in K; can sue in tort if it is warranty
- Repudiation – show intention not to be bound by terms of K; innocent party can choose between accepting repudiation or continuing w/ K (do not confuse w/ rescission)
Heilbut, Symons & Co. v. Buckleton (1913 Eng HL) – warranty vs. innocent misrep
F R purchased shares from rubber merchants. Shares turned out to be for another company, did poorly. R sued for fraudulent misrepresentation or breach of warranty
I Did A breach their warranty? NO, no collateral K
Person not liable for damages for an innocent misrepresentation
- If rescission not possible, no other remedy
Affirmation at the time of a sale is a warranty, otherwise it is an innocent misrepresentation
Warranty is a collateral contract to the main contract
- Sole effect is to vary or add terms to the main K, thus viewed with suspicion
- Rare; must be proved strictly to show intention to contract
- In order to succeed at proving breach of warranty, must show fraudulent misrepresentation or equivalent recklessness
- Remedy: damages
Leaf v. International Galleries (1950) 2 K.B. 86; (1950EngCA) – warranty vs. condition
F P purchased painting represented to be authentic, discovered it was fake when he tried to resell it 5 years later
I Can P claim rescission? May be available (see below), but not for P b/c K executed for 5 yr
Rescission may be available for innocent misrepresentation even after execution if no other option is available and innocent party behaved reasonably
- If term of K is condition … remedy: rescission as long as buyer has not accepted goods (otherwise: damages)
- If term of K is warranty … remedy: damages
3. Parol Evidence Rule
MacDougall 67-71
Gallen v. Butterley
BPCPA s. 187
4. Classification of Terms
Hong Kong Fir v. Kawasaki Kisen Kaisha Ltd. (1962EngCA) – intermediate terms
F D contracted with P to charter a fitted, well-maintained ship. Terms: if delays, P would extend K.
D discovered that ship required repairs which ultimately lasted 7 months, after which D repudiated K and P brought action for wrongful repudiation.
I Did D repudiate K wrongfully? Yes, b/c D still had 17 months of use
Adds to classification: intermediate terms – neither conditions nor warranties
Test: nature of event + practical effect – does it deprive party to perform or substantially the whole benefit of K?
- If yes … condition – breach: repudiation
- If no … warranty – breach: damages only
Krawchuk v. Ulraychova (1996 AB Prov. Ct.) – applies test from HK Fir
F P purchased D's horse and discovered health issue, contrary to vet's letter that D had provided. Vet admitted knowledge of health issue, but stated it was non-serious and had been fixed
I Can P repudiate? NO, breach of warranty b/c can still ride horse. Damages only.