Parole Evidence
Rule / -Exceptions have swallowed the ruleNow it is only a presumption.However it is still applicable where:(i) evidence of a party’s subjective intention is not admissible; (ii) impact on collateral warranty that contradictswritten agreement.
Test:
1) Determine if the representation is a warranty(question of fact)
2) If yes, then interpret harmoniously to determine if there is no contradiction.
3) If there is a contradiction(Hawrish SCC, Bauer SCC), then strong presumption that written K should trump.
-This is because if it was a collateral K parties would not enter into 2 Ks contradicting each other. However, if it only modifies without contradicting then weaker presumption (Gallen BCCA)
Considerations and Policy ReasonsCertainty/efficiency vs. imbalance of power/fairness
-If the K is a standard form K then weaker presumption against parole evidence than if it was drafted by the parties.(Gallen BCCA)
-A general exclusion clausewill not override a specific representation on a point of substance which was intended to induce the making of the agreement unless the intended effect of the exclusion clause can be shown to have been brought home to the party. (Zippy Print BCCA).
-In consumer transactions, clauses will not exclude parole evidence related to the transaction (Business Practices and Consumer Protection Act)
-Parol evidence is accepted in cases where the misrepresentation is not about the terms of the K but about whether the K can be relied upon(Curtis CA)
-It does not apply where there is a clear intention to create a binding collateral K.(Gallen BCCA)
Guiding principles of interpretation / #1 – Process of contractual interpretation is aimed at ascertaining true intentions of parties at time K is signed.
#2 – Courts apply an objective approach to determining parties’ intention at time of K.
#3 – “Factual matrix,” “commercial context,” “surrounding circumstances” are almost always relevant.
#4 – Where there is no ambiguity in written agreement there is no need for extrinsic evidence.
#5 – General rule is that evidence of prior negotiations is inadmissible for purpose of construing final agreement.
#6 – Interpretation must give effect to all parts of K. No provision of an agreement should be interpreted to be redundant.
#7 – Subsequent conduct
-Although English courts have stated it is not legitimate to examine subsequent conduct, Canadian courts have generally taken more flexible view.
-Where there are two reasonable interpretations of a provision then evidence of subsequent conduct “may be admitted and taken to have legal relevance if that additional evidence will help to determine which of the two reasonable interpretations is the correct one.” (Re CNR and CP BCCA)
#8 – Related Agreements may be taken into account where agreements are components of one larger transaction.
#9 – Words are to be given their natural or ordinary meaning. Evidence may be admitted to prove that word has special or technical meaning.
#10 – Construction Contra Proferentem: Provisions of Ks that suffer from ambiguity are to be construed against the interest of person who drafted or proffered the ambiguous provision.
STANDARD FORM Ks AND EXCLUSION CLAUSES
Reasonable Notice Doctrine (exclusion clauses) / Unsigned Ks > Mellish rule:Conditions apply if there is actual knowledge, or reasonable steps taken to provide notice of conditions. (Parker CAold)
-Evidence can be: actual knowledge that document contains conditions; or reasonable steps taken to provide notice of conditions.
-Requiresknowledge of actual exempting condition rather than simply notice that there is a condition.(Thorton Denning)
Signed Ks: Doctrine generally not applicable. Law essentially treats signature and notice as substitutes.
-General rule: party signing a written K is bound by its terms regardless of whether read or aware of terms (L’Estrange, CA).
-In limited circumstances where D knows signature does not reflect P’s true intentions (mistake as to terms) the doctrine applies (Clendenning ONCA)
-Consider circumstances: Hasty, informal, no opportunity to read, lengths and small print. Onus on P to show them(Karroll BCSC)
-In order for a court to find the term sufficient to cover any negligent behaviour, it must be satisfied that the individual signing it, if he read it, could reasonably be expected to understand its meaning.(Ochoa BCSC)
Applicability of Exclusion Clauses / -Doctrine of Fundamental Breach (Reversed in Tercon)An exemption clause cannot be construed to excuse liability for a fundamental breach of K—a breach that goes to root of the K. (Denning, Karsales)
-The doctrine is only a rule of construction, not a decisive (Suisse Atlantique HL, Photo Production HL, Hunter Engineering SCC)
-One year warranty for $4M K still stands when machine broke after 15 months needing 400k of repairs (Hunter Engineering SCC)
Tercon SCC: End of Fundamental Breach Doctrine and test on whether clauses apply:
1) As a matter of interpretation, does exclusion clause apply?
-Consider nature of the breach > is it covered by the exclusion clause?
-A general exclusion clause may not cover all the circumstances. Also consider interactions with other provisions to interpret.
-Example: Tercon’s claim is not barred by exclusion clause because clause only applies to claims arising “as a result of participating in RFP” not covering the possibility of other parties being allowed to participate.
2) If exclusion clause applies, was it unconscionable at time the K was made?
-This second issue has to do with contract formation (not post-formation conduct/breach)
-Two step test for unconscionability:a) Procedural (inequality in bargaining power), andb) Substantive (unfairness in the resulting K)
-Imbalance of knowledge, even if two sophisticated commercial parties, but this case was decided in 3rd point since they abused the K. (Plas-Tex ABCA)
3) If the exclusion clause is valid/applicable, should the Court nevertheless refuse to enforce due to an overriding public policy reason? (this is more about the breach, is D abusing a clause that did not seem prima facie unconscionable, but taking into account D’s conduct it is?)
- High threshold (there is a strong public interest in enforcing Ks)In Plas-Texthey had to show that D: 1) Knew of the risk 2) Failed to disclose important assumptions 3) Deliberately withheld info to induce K. (This is not necessarily always the test but shows high threshold.
- Examples: criminality, fraud, abusive conduct. Cannot use clause to cover yourself from abusive conduct(Plas-Tex)
Policy in Std. Form Ks / For: Facilitates shopping, Efficiency in bargaining, in B2B there is a presumption that Std. form Ks are fair.
Against: Imbalance of power, no bargaining, particularly in consumer Ks.
MISTAKE
- Mistake is a LAST RESORT(due to caveat emptor). It is a residual category of relief involving a serious ambiguity in the terms or the parties’ contractual assumptions.
- Unlike frustration which is a mistake as to future events, the doctrine of mistake applies to existing facts and assumptions at the time of formation.
Mistake / Did one person make a mistake as to the facts?
- Generally caveat emptor unless there was fraud, etc. (Smith)
Did one person make a mistake as to the terms?
- Did the other person know of or ought to know of the mistake? This is known as snapping up; no agreement. (Hortog)
Was there a mutual mistake as to the terms?
- Apply objective reasonable person testand look for consensus ad idem (Smith)
- Is an objective intention discernable? If yes then you have a K. (Staiman HC)
- Is it impossible to discern an objective intention? No contract. (Raffles)
Was there a common mistake as to a fact?
- If the mistake was fundamental then no contract. (Sherwood)
Common Law and Mistaken Assumptions (renders K void ab initio) / -A mistake that goes to basis for entering into K (external mistake).
-Essential issue is risk allocation: did parties allocate risk of mistake?
- Test inBell v Lever Bros HL:
Must be a mistake of both parties, and must be a mistake about a fundamental underlying assumption without which the quality of the thing is essentially different than what it was believed to be.
- Three categories of mistake fundamental assumptions:
1) Identity of parties: If intention is to K with specified individual only – K void.(Shogun)
2) Existence of subject matter: Void if the item does not exist (Not McRaesince item was guaranteed), or if the purchaser already owns the item.
3) Quality of subject matter: Must be by both parties AND must be some quality which makes the thing essentially different.
- McRae: It is not a mistaken assumption if the party promised it exists. A party can’t rely on mistake to get out of a K where it is responsible for that mistake.
Equitable Mistake (renders the K voidable) / Solle v Butcher: Denning said, if K not void at common law, is it voidable on grounds of equitable mistake?
- Test (unilateral mistake): If one party induced by material misrepresentation by the other (even if not fraud), or if one knows of the mistake and doesn’t point it out. > Unconscientious.
-Test (common mistake): If parties were under common misapprehension as to facts/rights, as long as misapprehension was fundamental, and the party seeking to set it aside was not himself at fault (must come to equity with clean hands). > The case in Salle
-Fundamental mistake, no fault on party invoking mistake, one party took advantage of the other, would it be unconscientious to enforce the K? If so, K is voidable at equity.
Result: If equitable mistake, then K is voidable (court can rescind or intervene as they see fit).
Great Peace: Overturned Sollein England and eliminated equitable mistake. > made the test about whether performance was impossible.
Canada unlike UK, kept equitable mistake. Standard in Great Peaceis way too high. Preferable to keep common law mistake, supplemented by flexible equitable mistake.
Miller Paving: Affirms equitable mistake in Canada. Party can’t be at fault to rely on equitable mistake. Here, Miller was at fault (risk allocated to him).
Common law versus equitable: “Fundamental quality”(in equity) versus “essentially different” (common law)
Policy: Benefits of equitable mistake:
- Less restrictive (unlike Great Peace)
- More remedial flexibility (voidable not void)
- Prevents injustice to third parties relying on K
Step-by-Step Mistake Approach / #1 – Apply normal K formation rules: is there a K? Was there sufficient certainty about subject of K, price, and parties? Apply objective reasonable person test? Is this a Raffles-type case where parties were contracting over two different ships or a Staiman type case where court can impute a definite agreement between parties?
#2 – Is this a “snapping up the offer” type of situation where offeror might be seen to be taking advantage of offeree by not disabusing offeree of a mistake (Hartog)?
#3 – Caveat emptor generally applies in business-business sales: risk of mistakes as to fact rest with party making mistake.
#4 – If a problem arises with respect to K, typically a question of terms of K – was there a representation or warranty? What are terms of K? Did K allocate the risk? Did K exclude liability for risk?
#5 – Apply common law mistake analysis: mistake about a fundamental underlying assumption? If so, K is void. If K allocated risk of relevant mistake, then mistaken party bears risk.
#6 – Apply equitable mistake analysis: fundamental mistake, no fault, one party taking advantage of other, would it be unconscientious to enforce K? If yes, K is voidable (court can rescind). If K allocated risk of relevant mistake, then mistaken party bears risk.
MISTAKEN IDENTITY
Issue in mistaken identity cases: which innocent party should bear loss? Common law has traditionally favoured property owner over innocent 3P (nemo dat).
-Usually if K is face-to-face there is strong presumption that party intended to contract with the rogue. > so could be voidable at best.
Void vs Voidable / -Whether the property owner (A) retains title depends on the characterization of the contract between A and B (rogue)
-Was there no offer made to the rogue? If no, contract void. (Cundy> written K so inference that the K was not with rogue> Questioned by Nicholls and Millet in Shogun)
-Was there a fundamental mistake as to the identity of the party? If yes, contract void.
-Was there a fraudulent misrepresentation? If yes, contract voidable. (Shogun)face to face, but P relied on credit rating of impersonated.
-Was there a sale to a BFP?
- If contract void then title doesn’t pass to 3P.
- If contract voidable then title likely passes to 3P.(Shogun)
MISTAKE: RECTIFICATION (mistake in recording agreement)
Test from Performance Industries (SCC, 2002):
1. P must prove existence and content of prior oral agreement.
2. Must be “convincing proof” of oral agreement (beyond a balance of probabilities but less than beyond a reasonable doubt).
3. P must provide precise wording for rectification.
4. P must show that Dknew or ought to have known of mistake in written document. Essentially, P must prove that to refuse rectification would be inequitable and unconscionable. > Ambiguous term not enough for rectification (Morley Shafron SCCMetropolitan City of Vancouver)
MISTAKE: NON EST FACTUM (CAPACITY)
General Principles / Exception to the signature rule – “It is not my deed”
Originally available for fraud/forgery, or blind/illiterate.
Effect / K void ab initio
Policy / Risk allocation – who bears loss between mistaken party, and innocent 3P who relied on contract?
Saunders v Anglia (HL) / -Available: If person isn’t able, for permanent or temporary reasons, of reading or sufficiently understanding the document signed.
-Not available: if a) brought about by carelessness or b) if actual document is not fundamentally different from what signer believed it to be.
Onus: On mistaken party to prove he took all reasonable steps.
FRUSTRATION
- Unlike Mistake, Frustration relates to inaccurate assumptions about future circumstances.
-Mere fact that K becomes more expensive or difficult to carry out is not in itself a sufficient reason to provide relief. (KBK BCCA)
- Principle: Unexpected event must be so far beyond range of risks K allocates that it constitutes fundamental change in bargain (e.g. death, incapacity, method becomes impossible)
-Policy: Risk allocation/certainty/insurance vs Fairness
Posner (Policy against frustration) / -The doctrine of frustration should be replaced by requiring the party that was in the best position to insure themselves against the risk to bear the burden.
-The doctrine of frustration should be contracted away (e.g. force majeure clauses) in order to allocate the risk to the more efficient insurer.
Old approach / -When a party creates a duty they are bound to make it good, notwithstanding any accident. (Paradine 1647)
Taylor (1863) / -The doctrine of impossibility (in this case through destruction of the subject matter) was established.
-Imply a condition of continued existence of subject matter of K.
Krell v. Henry (1903) / - Coronation case: Expands from destruction of physical subject matter to destruction of commercial purpose of K.
-Parties discharged from further performance because the K could be carried out but the circumstances which formed its basis have wholly changed.
KBK (BCCA) / Test:
1) Must occur after formation2)must not be self-induced3)must not have been foreseeable/risk not allocated in K.
4) Must make the purpose of the K impossible or drastically difficult to achieve:
- Must be more than mere inconvenience
- Must make K fruitless
- Must be radical change in K (completely affects nature, meaning, purpose, effect and consequences of K)
- Must be permanent
Consider:
- Mere knowledge of development intention might not be enough (Victoria Wood), but if the purpose of K is expressly mentioned in K then stronger assumption that the purpose of the K was frustrated (KBK)
Remedial Consequence / - Historically, common law test was that loss lies where it falls, because it was not void ab initio(Appleby v. Myers OLD)
- Evolved to allowing restitution but not reliance (Fibrosa HL)
- Frustrated Contracts Act: In BC, reliance losses are independently compensable. Even where there is no pre-payment, court may apportion any reliance losses. Losses are apportioned equally.
DURESS
Remedy / - Older authorities held K void as it vitiated consent.
- Modern approach is to find that K voidable at option of party who was object of duress.
Modern Test
Universe Tankships
(JCPC) / #1 – Pressure amounting to compulsion of will of victim.
Protest / Availability of alternative courses of action / Existence of independent legal advice / Steps to avoid K
#2 – Illegitimacy of pressure exerted in light of nature of pressure (i.e. was there threat of unlawful action?) and nature of demand (what was being demanded).
#3 – If victim expressly or implicitly approved K after pressure ceased to exist, victim will be denied relief.
Test in K Modification
Nav Canada (NBCA) / 1. Promise (K variation) extracted as result of “pressure,” whether characterized as “demand” or “threat”
- Usually express or implied threat to breach the underlying contract, usually by withholding future performance.
2. Coerced party had no practical alternative but to agree to coercer’s demand to vary terms of underlying K
- The absence of practical alternatives is evidence of a lack of consent, but is not conclusive of the issue.
3. Assuming first two criteria are met: did coerced party consent to variation?
- Was promise supported by consideration? > However consideration now only a factor, Ks can be modified without consideration on one side.
- Whether coerced party made promise “under protest” or “without prejudice”; and
- If not, whether coerced party took reasonable steps to disaffirm promise as soon as practicable?
- Neither good faith nor fact coerced party received independent legal advice is a defense.
UNDUE INFLUENCE
- Unconscientious use by one person of power possessed over another in order to induce other to enter a transaction
- Remedial Consequence: Transaction is voidable. Court can rescind transaction.
Geffen SCC / Test:
1. Is there a relationship of dependence?Whether potential for domination inheres in nature of relationship itself> look at recognized relationships.
- Class 1: P must prove actual undue influence on the facts, not strictly requiring power imbalance, but hard to imagine without. Similar to duress
- Class 2: Presumed undue influence (creates presumption only, which is rebuttable in step 3)
- De jure: Existing categories where dependence is presumed (e.g. solicitor/client) Etridge
-De facto: P must prove relationship of trust/confidence AND questionable nature of the transaction
2.Was there a manifest disadvantage? Either unduly benefit to D or unduly disadvantage to P (Commercial context requirement only)
- La Forest(Concurring): Focus should be on the process, not the result manifest disadvantage should not be a requirement, just evidence of abuse of confidence.
- Open for argument here – unsettled area
3.If yes, (only for Class 2) onus then shifts to “influencer” to rebut the presumption (and show the transaction was freely entered into)
- Show no actual influence was deployed in transaction
- Independent legal advice obtained
- Magnitude of disadvantage or benefit is cogent evidence going to issue of whether influence was exercised