Professor Oppong – Winter 2015
Grace Kim
CONTRACTS
WINTER CANS
Table of Contents
CONTENT OF THE CONTRACT
1. Misrepresentation, Rescission & Bars
Misrepresentation Test
Redgrave v. Hurd
Smith v. Land & House Property Corp
Bank of British Columbia v. Wren Developments Ltd
Kupchak v. Dayson Holdings
2. Representation & Terms
Distinguishing Representation vs. Terms Test:
Heilbut, Symons & Co v. Buckleton
Dick Bentley Productions v. Harold Smith (Motors)
Leaf v. International Galleries
3. Concurrent Liability in Contract & Torts
BC Checo v. BC Hydro
4. The Parol Evidence Rule
Hawrish v. BMO
Bauer v. BMO
Gallen v. Allstate Grain Co
Business Practices & Consumer protection Act ss.187
5. Classification of Terms
Machtinger v Hoj Industries
Hong Kong Fir Shipping v. Kawasaki Kisen Kaisha
Wickman Machine Tool Sales v. L. Schuler
Fontaine v. Canada (Attorney General)
Rio Algom v. Canada (Attorney General)
6. Standard Form Contracts & Exclusion Clauses
A. Incorporation of Clauses
Thorton v. Shoe Lane Parking
McCutcheon v. David Macbrayne
B. Signed Contracts
Karroll v Silver Star Mountain Resorts
Tilden Rent-A-Car Co. v. Clendenning
C) Striking Out the Exclusion Clause
Tercon Contractors Ltd. v. British Columbia
Loychuk v. Cougar Mountain Adventures Ltd.
Niedermeyer v. Charlton
7. Discharge by Performance or Breach
Performance
Breach
Sumpter v Hedges
Fairbanks Soap Co v Sheppard
Howe v Smith
Stevenson v Colonial Homes
Avoiding Performance: Mistakes & Frustration
1. Unilateral Mistakes
Cases – Unilateral Mistakes as to Terms
Smith v Hughes
Hartog v. Colin & Shields
McMaster University v. Wilchair Construction
R V. Ron Engineering
2. Common Mistake
Cases – Agreements made under Mistaken Assumptions
Bell v. Lever Brothers (UK)
Great Peace Shipping v. Tsavliris Salvage
Solle v. Butcher
McRae v. Commonwealth Disposals Commission
Miller Paving v. B. Gottardo Construction Ltd.
Lee v 1435375 Ontario Ltd
3. Mutual Mistake
Staiman Steel v. Commercial & Home Builders
Scriven Bros & Co v. Hindley & Co
4. Mistakes as to Identity
Shogun Finance v. Hudson
5. Non est Factum – Documents Mistakenly Signed
Saunders v. Anglia Building Society
Marvco Color Research Ltd. v. Harris
5. Rectification (Reformation) of Mistake
Bercovici v. Palmer (Q.B.)
Sylvan Lake Golf and Tennis Club v. Performance Industries
McLean v. McLean
6. Frustration
Paradine v. Jane
Taylor v Caldwell
Maritime National Fish v. Ocean Trawlers
Davis Contractors v Fareham UDC
Capital Quality Homes v Colwyn Construction Ltd
Edwinton Commercial Corp. v Tsavliris Russ (The Sea Angel)
Relief for Weaker Parties to the Contract
1. Duress
Pao On v Lau Yiu Long
Bell v Levy
Greater Fredericton Airport v. Nav Canada
2. Undue Influence
Geffen v. Goodman Estate
Royal Bank of Scotland Plc v. Etridge
Lewis v. Central Credit Union Limited
3. Doctrine of Unconscionability
Morrison v Coast Finance
Marshall v Can Permanent Trust Co
Harry v Kreutziger
Lloyds Bank v Bundy
4. Illegality & Public Policy
KRG Insurance Brokers v. Shafron
Rhebergen v Creston Veterinary
Still v Minister of National Revenue
ReMedies For Breach of Contract
Damages
Categorizing Loss/Interest
McRae v. Commonwealth Disposal
Bowlay Logging v. Domtar
Sunshine Vacation v. Hudson’s Bay
Omak Maritime v. Mamola Challenger
Attorney General v. Blake
Remoteness of Damages
Cases on Remoteness
Hadley v. Baxendale
Victoria Laundry v. Newman
Scyrup v. Economy Tractor Parts
Koufos v. Czarnikow (The Heron II)
Measure (Assessment) of Damages
Mitigation of Damages
Liquidated Damages & Penalties
Cases - Special Issues
A. Measure of Damages
Chaplin v. Hicks
B. Cost of Completion
Groves v. John Wunder
Nu-West Homes v. Thunderbird Petroleums
C. Loss of Enjoyment
Jarvis v. Swan Tours
Miller v. Carnival
D. Boundaries to Recovery - Causation
Hodgekinson v. Simms
Borealis AB v Geogas Trading SA
CONTENT OF THE CONTRACT
1. Misrepresentation, Rescission & Bars
- Misrepresentation
Somebody makes a statement to someone else and it turns out that statement is not true and as a result you want to get out of the contract.
- Rescission
To reverse/unwind/set aside the contract, restoring the situation before contract was entered into; Remedy to Misrepresentation
Misrepresentation Test
- Is there a statement of fact (a representation) that was false?
-(Smith)- Statements of opinions are not actionable
-If the statement was material (of some significance to the contract)
AND
Statement was false
Then there’s a presumption on the inducement by the misrepresentation
- Is this innocent or fraudulent misrepresentation?
- Was the victim induced by the misrepresentation?
- Assuming there’s an actionable misrepresentation, does a bar to rescission apply?
-Each bar needs to be described and see if it applies to the sit’n at hand
INNOCENT MISREPRESENTATION / FRAUDULENT MISREPRESENTATION(Redgrave)
TEST FOR INNOCENT MISREP:
- A makes a statement of fact to B
- The fact turns out to be false.
- B relied on the statement that they were induced into a contract.
REMEDY
- Rescission
- Historically, under English Law no claim for damages. Can. Law there’s no legislation.
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PRESUMPTION OF INDUCEMENT
(Redgrave)
-Presumed that there was an inducement if the statement was material/important to the contract
REBUTTING THE PRESUMPTION (onus on D)
-If B already knew the statement was false, no inducement
-If it was very clear that B didn’t really care that it was false (no reliance), no inducement / TEST FOR FRADULENT MISREP:
- A makes a statement of fact to B
- The fact turns out to be false.
- B relied on the statement that they were induced into a contract.
- The statement was made fraudulently (a lie)
REMEDY
Rescission
OR
Equitable damages (any loss you incurred that resulted from relying on misrepresentation)
Bars to Rescission (Kupchak)
RESTITUTIO AD INTEGRUM / AFFIRMATIVE (election) BAR / LATCHES (delay) BAR- Impossible to unwind or restore back to pre-contract position
- Ex: “Sold a car on misrep., it will not be the same car when getting it back because it was driven w/ miles added on it that can’t be restored back”
- Innocent misrep – if this bar applies, there’s no remedy
- Fraud. misrep - courts are likely to allow equitable damages (the value you get that was lost)
- After discovering misrepresentation, the victim chooses to keep on going w/ the contract anyways and affirmed the misrep.
- Both types of misrep – IF this bar operates, there is no rescission AND also no equitable damage
- After discovering misrepresentation, there is a delay of any action.
- A delay can be evidence of affirmation that the victim is okay with the contract, and it is unfair to rewind on the party of wrongdoer.
- Applies same to both types of misrep
Redgrave v. Hurd
Innocent misrepresentation; presumption of inducement
FACTS
P advertised to sell practice. P makes misrepresentation for the practice income at £400, not knowing it was actually £200. D contracted to buy on reliance of the £400 statement but learnt that it’s actually £200, now refusing to pay.
RULE
- Innocent Misrepresentation Test
- A makes a statement of fact to B
- The fact turns out to be false.
- B relied on the statement that they were induced into a contract.
- Presumption of inducement
ANALYSIS
- The value of his practice was a statement of fact
- The fact turned out to be false
- The fact was relied upon to induce P into a contract
- The value of the practice was clearly material to the contract
- Presumption of inducement because of the material statement
CONCLUSION
Innocent misrepresentation exists.
Rescission of contract – it unwinds. The practice is given back to D. P gets his money back.
Smith v. Land & House Property Corp
Statement of opinion vs Fact; misrepresentation
FACTS
P sells hotel and says that it is occupied by “most desirable” tenant. The tenant was actually a bad tenant, so purchaser wants to rescind. Seller argues it was a statement of opinion, not fact.
RULE
If the facts are not equally known, then a statement of opinion by A will be assumed to be a statement of fact because he impliedly states he knows the facts which justify the opinion.
- If facts are equally known, then it could be a statement of opinion.
ANALYSIS
Here, the seller knew the facts about the tenant and the other party did not. Statement of fact and thus, misrepresentation.
Bank of British Columbia v. Wren Developments Ltd
Failure to disclose fact can qualify as misrep if other party was induced by not knowing
FACTS
A secretary renewed a personal loan on a misrepresented belief that collateral was still in the bank, because the president did not tell him that the collateral was no longer there.
RULE
Failure to disclose material facts act can be misrepresentation if the other party is induced to enter into an agreement, which he would not have entered into had he known the fact.
Kupchak v. Dayson Holdings
Fraudulent misrepresentation; bars to rescission - Restitutio ad integrum
FACTS
D lied when he said his property was profitable, and P relied upon this statement and swapped his property with D in a contract. At trial, found fraudulent misrepresentation. Appealing to see if bars to rescission applies.
RULE
Even after a finding of misrepresentation, rescission is stopped if there are bars that apply.
Restitutio ad Integrum bar – it will be impractical, unable or unjust to give the items back
2. Representation & Terms
REPRESENTATIONS / TERMS- Outside of contract, but statements about contract that induce you to enter into it
- Upon misrepresentation, remedy is:
- Bars to rescission can apply
- Inside of contract, as the provisions of a contract
- Upon breach of contract, remedy is:
- Bars to rescission does not apply
Distinguishing Representation vs. Terms Test:
Question to ask (Heilbut, Symons Co.):
Did the parties intend for this to be a term as part of the contract?
- Context of each case determines the outcome, intention of parties is key
- Judged by an objective reasonable person
Heilbut, Symons & Co v. Buckleton
Representation VS Terms; innocent misrepresentation
FACTS
Parent rubber company wants to make a subsidiary. P says “I understand you’re bringing out a rubber co”. Parent co says, “we are”. P buys shares in the subsidiary company and turns out they don’t make any rubber at all. P sues for damages as breach of contract of sale.
RULE
No damages can stem from an innocent misrepresentation.
ANALYSIS
Court says this was a representation (but innocently misrepresented) and not a breach of term.
This was an oral statement made by parent, whereas the contract was later written – this statement was not intended to be a term of the contract.
Dick Bentley Productions v. Harold Smith (Motors)
Representation VS Terms
FACTS
Bentley wants to buy a Bentley. Smith the Salesman said it had a “new engine & only 20,000km” so Bentley buys it. But it wasn’t true and Bentley wants to sue for expectation damages.
ISSUE & HOLDING
Was “new engine & 20,000km” a term of the contract that’s part of the deal? YES, it’s a term.
ANALYSIS
Court says this is a term of the contract. Why?
- These statements were important to the deal. Smith promised the car had these characteristics and it did not. The more central the statement, more likely to be a term.
- The statement was clearly intended to induce Bentley.
- Smith was a relative expert, and would or should have knowledge of the truth.
Leaf v. International Galleries
Representation vs Term
FACTS
Man buys painting described as an “original printing”. This characteristic was written down in the contract. Later finds out it’s a forgery.
ANALYSIS & HOLDING
“Original painting” is a term.
- It was written down in the contract
- The statement was important to the deal – “original painting” has more value & significance
- Seller was a relative expert, who is an art auctioneer
3. Concurrent Liability in Contract & Torts
- Same circumstances can give a raise to action in Contracts & Torts
- Ex: Banker giving financial advice: invest $1000 & get 10% back, but you end up losing $
- Contract lawsuit – Breach of contract; get expectation damages ($1000 +10%)
- Tort lawsuit – Tort of negligent misrepresentation; compensatory damage $1000
- Difference between Contracts & Torts
- Generally, you can pursue both actions – w.e is the most advantageous to you
- There are diffs in remedies, time limitations (C – 2yrs; T – 6 yrs); diff tests
BC Checo v. BC Hydro
Can pursue action in both tort & contract liability
FACTS
Written contract b/w parties that D would clear their land. They don’t and cause additional costs to P. P sues for negligent misrep (in tort) and breach of contract.
RULE
P can pursue action in both tort & contract liability.
BUT tort liability can be excluded by putting in a term in a contract thru exclusion clauses.
4. The Parol Evidence Rule
- Parol Evidence Rule
When a transaction/agreement has been reduced to writingby agreement of the parties, extrinsic evidence (like oral statements) is in general, inadmissible to contradict, vary, add or subtract from the terms of the document (Hawrish). The parol evidence rule applies to written contracts to safeguard the terms of the contract.
Parole evidence is admissible asdistinct (separate), collateral agreement, which goes along with the main agreement but does not contradict nor inconsistent with the written document. (Gallen)
- Exceptions
- Extrinsic evidence may be used to determine the validity of the document (ex – if there is ambiguity in the written contract, oral statements can be used to explain)
- Extrinsic evidence is needed to establish on conditions precedent to the agreement
- **Parole evidence is admissible as distinct (separate) collateral agreement, which goes along with the main agreement but does not contradict nor inconsistent with the written document.
- Parole evidence rule does not apply to misrepresentations
- In consumer transactions, extrinsic evidence can be used to understand the written terms. Business Practices & Consumer Protection Act – s.187
Hawrish v. BMO
Parol evidence rule: extrinsic evidence can’t contradict the written document
FACTS
Hawrish signed a document that he will pay debts. The bank manager allegedly gave oral assurance that if they receive a gurantee from someone else, his contract will end. Bank turns around and sues him, despite receiving gurantee from someone else to pay debt.
RULE
Parol Evidence Rule - An oral statement that is made at the time or before the contract is not admissible, if it contradicts or varies the written contract.
ANALYSIS & HOLDING
Oral evidence contradicted & was inconsistent with the written contract: (1) the written document said that Hawsish was bound to pay the debts; (2) written document did not specify an end time. The extrinsic evidence is not admitted and only the written contract stands.
Bauer v. BMO
FACTS
The bank didn’t register book debts even if it’s normally required because it was specified in the contract with Bauer that they didn’t have to. Bauer is claiming that the bank manager said that the would register the book debts.
ISSUE & ANALYSIS
Can Bauer rely on the manager’s oral statement? NO – the oral statement directly contradicts what it was the written statement.
Gallen v. Allstate Grain Co
Parol evidence rule as a presumption on written documents;
Reconciling extrinsic evidence w/ written terms
FACTS
Oral representation made from A to G. G signed a contract with A. The oral representation was wrong about the grain crop, and it conflicted with a clause in the written agreement.
RULE
If the oral statement simply adds to the contract (distinct, collateral agreement), but does not contradict it, parole evidence does not apply. Once parol evidence is admitted, there may be a question of interpretation aimed at reconciling the admitted extrinsic evidence w/ written terms.
Lamer comments on the Parol Evidence Rule principle:
- Parol Evidence Rule isn’t absolute; it is a presumption
- Presumption is strong in cases where negotiated document was written
- Presumption is less strong where the contradiction was between a specific oral statement and a clause of contract
- If contract is induced by an oral misrepresentation that is inconsistent w/ written contract, the written contract cannot stand
Business Practices & Consumer protection Act ss.187
Parol evidence rule does not apply to consumer transactions
187 In a proceeding in respect of a consumer transaction, a provision in a contract or a rule of law respecting parole or extrinsic evidence does not operate to exclude or limit the admissibility of evidence relating to the understanding of the parties as to the consumer transaction or as to a particular provision of the contract.
5. Classification of Terms
Classification of terms show that there is a ranking on how important the term is to the contract.
WHAT KIND OF TERM IS IT?
1. Is it a term or representation?Look at the intention of parties (above)
- Terms are a part of the contract and if you breach terms, you breach the contract.
2. Classification of terms.If it’s not expressly classified, look at the intention of parties.
a) Conditions
- Conditions precedent to a contract or performance & contingent conditions
- Breach of conditions is damages + right to terminate contract (repudiation)
b) Warranty
- Terms in a particular contract
- Breach of warranty is only damages
c) Innominate term(Hong Kong Fir Shipping)
- Court decides on factual consequences of the breach what legal remedy it should be after the breach occurs.
- Severe breach where innocent party was deprived of the point of the contract – it gives rise to a right to repudiate
- Not as severe breach – acts like a warranty, no repudiation
3. Nature of terms.Expressed Term & Implied Terms
- Expressed Term – parties have expressly agreed on it (not necessarily written)
- Implied Terms - look at the intentions of the parties to see implied terms. You can’t introduce implied terms inconsistent w/ expressed terms.
- Types of implied terms:
a)Terms implied in fact
-Business efficacy test: whether this implied term is necessary for the contract to work; commercially sensible
-Officious bystander test: whether a RoP would think this is a implied term
-Reasonably understood to mean test: Implied term “goes w/o saying”
b)Terms implied in law
-Common law & Statute; nothing to do w/ intention of parties
c)Terms implied by custom
-An obligation implied by custom is read into the contract as the nature of contract requires it (Rio Algom Ltd)
d)Terms implied by law as legal incident
-Particular type of contract
Machtinger v Hoj Industries
Types of implied term; exclusion clause