Bailey ship mortgage

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Final K Summary

PRIVITY ........................................................................................................................................................ 4
     Scruttons (1962) (Eng) .......................................................................................................................... 4
  Exceptions to Rule of Privity ..................................................................................................................... 4
     (1) Agent ............................................................................................................................................... 4
     (2) Assignment ...................................................................................................................................... 4
     (3) Trust ................................................................................................................................................ 4
     New Zealand Shipping (JCPC) ............................................................................................................. 5
     ITO (SCC) (1986) ................................................................................................................................. 5
     Greenwood (SCC) (1980) ..................................................................................................................... 5
     London Drugs (1992) (SCC)................................................................................................................. 5
     Laing (BCCA) (2000) ........................................................................................................................... 6
FORMATION OF K – Offer and Acceptance................................................................................................ 6
  OFFER ....................................................................................................................................................... 6
  Invitation to Offer (Invitation to Treat) ..................................................................................................... 6
     Smith v Hughes – look at words objectively......................................................................................... 6
     Postal Acceptance Rule ......................................................................................................................... 7
  Offer and Acceptance Cases ...................................................................................................................... 7
     McCunn (2001) (OCA) ......................................................................................................................... 7
     St. Johns Tug Boat ................................................................................................................................ 7
  K MADE BY MAIL .................................................................................................................................. 7
     Schiller (1981) (SCC) ........................................................................................................................... 8
  FAX FORMED K ...................................................................................................................................... 8
     Eastern Power (1999) (OCA) ................................................................................................................ 8
  E-COMMERCE K ..................................................................................................................................... 8
     Electronic Commerce Act (2000) (ON) ................................................................................................ 8
     Rudder v Microsoft (1999) (ON SCJ) ................................................................................................... 9
     ProCd (US) ........................................................................................................................................... 9
     Kanitz v Rogers Cable (2002) (ON Sup Ct Just) .................................................................................. 9
  Revocation of Offer ..................................................................................................................................10
FIRM OFFERS AND UNILATERAL K’S ..................................................................................................10
     Dawson (1955) (SCC) ..........................................................................................................................10
     Errington (1952) (Eng) ........................................................................................................................10
     Liebeg ..................................................................................................................................................11
TENDER FORM K .......................................................................................................................................11
  (1) Public Auction.....................................................................................................................................11
  (2) Tendering Processes ............................................................................................................................11
     Ron Engineering (1981) .......................................................................................................................11
     Northern Construction .........................................................................................................................12
  RIGHTS OF BIDDERS ............................................................................................................................12
     Naylor (2001) (SCC) ............................................................................................................................12
     MJP (1999) (SCC) ...............................................................................................................................12
     Martel (2000) (SCC) ............................................................................................................................12
FORMATION OF K AND MISCOMMUNICATIONS ...............................................................................12
     Raffles (1864) ......................................................................................................................................12
     Smith v Hughes (1871) (QB) ...............................................................................................................13
     Hobbs (1899) (SCC) ............................................................................................................................13
     Staiman Steel (1976) (OR) ...................................................................................................................13
     Section 9 of Sale of Goods Act (SGA) ................................................................................................14
     May (1929) (HL)..................................................................................................................................14
     Hllas (1932) .........................................................................................................................................14
     Foley (1934) (Eng) ...............................................................................................................................14
     Courtney (1975) (Eng CA) ..................................................................................................................14
     Empress (1990) (BCCA) ......................................................................................................................15
     Walford (Eng HL) ................................................................................................................................15
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     Edper Brascan (2000) (ON CA) ...........................................................................................................15
  Factors which influence whether courts likely to intervene and depart from general rule: ......................16
LETTERS OF INTENT ................................................................................................................................16
     Bawitko (OCA) ....................................................................................................................................17
     Canada Square (1981) (OCA) ..............................................................................................................17
     LCDH (1988) (ON)..............................................................................................................................17
     Pennzoil (Tex) – Persuasive .................................................................................................................17
GOOD FAITH IN NEGOTIATIONS ...........................................................................................................17
     Martel (2000) (SCC) ............................................................................................................................18
     Cornell (2001) (OCA) ..........................................................................................................................18
     Andrus (1986) (OCA) ..........................................................................................................................18
     Big Quill (2000) (Sask CA) .................................................................................................................18
     Gateway (1991) (SCC) ........................................................................................................................18
RELIANCE IN NEGOTIATIONS ................................................................................................................18
     Sarnia (1990) (ON) ..............................................................................................................................19
     Brewer St v Barclays (1954) – Denning ..............................................................................................19
     Brewer v Chrysler (1977) (Alb. CA) ...................................................................................................19
CONFIDENTIALITY ...................................................................................................................................19
     Lac Minerals (1989) (SCC)..................................................................................................................19
     Visagie v TVX Gold Inc (2000) (ON CA) ...........................................................................................20
BATTLE OF FORMS ...................................................................................................................................20
     Butler (1979) (Denning) ......................................................................................................................20
     Tywood (1979) (ON) – clarification of Butler .....................................................................................20
EXCUSES FOR NON-PERFORMANCE ....................................................................................................21
  Condition (subsequent/precedent) ............................................................................................................21
  Warranty ...................................................................................................................................................21
  Innominate term ........................................................................................................................................21
     Hong Kong Fir (1962) (Eng CA) .........................................................................................................21
     Sail Labrador (SCC) ............................................................................................................................21
ANTICIPATORY REPUDIATION ..............................................................................................................22
     Cort (1851) (Eng) .................................................................................................................................22
     Hochester (1853)..................................................................................................................................22
     Frost (1872)..........................................................................................................................................22
     Domicile (1999) (ON CA) ...................................................................................................................22
  Right of Party in Breach to Claim Restitution ..........................................................................................22
  Part Performance (deposits) ......................................................................................................................22
     Howe (1854) (Eng CA) ........................................................................................................................23
     Dies ......................................................................................................................................................23
     Lozcal (1980) (Alb CA) .......................................................................................................................23
     Stockloser (1954) (CA) ........................................................................................................................23
PARTIAL PERFORMANCE RECOVERY .................................................................................................23
  ENTIRE K RULE .....................................................................................................................................23
     Blake (1853) ........................................................................................................................................24
     Sumpter (1898) ....................................................................................................................................24
     Lysaght.................................................................................................................................................24
     Daken (1916) .......................................................................................................................................24
INTERPRETATION OF K & PAROL EVIDENCE RULE .........................................................................24
  Parol Evidence ..........................................................................................................................................24
     Eli Lilly (SCC) .....................................................................................................................................24
     Bauer (1980) (SCC) .............................................................................................................................25
  How do courts attempt to fix situation? ....................................................................................................25
     Gallen (1984) (CA, SCC dismissed leave to appeal) ...........................................................................25
     Carman (1982) (SCC) ..........................................................................................................................25
     HiTech (2001) (CA) ............................................................................................................................26
     Marshall (1999) (SCC) ........................................................................................................................26
CLASSIFICATION OF K STATEMENTS ..................................................................................................26
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     Redgrave (1881)...................................................................................................................................27
     Ennis (1990) (Man CA) .......................................................................................................................27
     Heilbut (1913) (HL) .............................................................................................................................27
     Dick Bentley (1965) (CA)....................................................................................................................28
     Fraser Reid (1980) (SCC) ....................................................................................................................28
     Murray (1979) (ON) ............................................................................................................................28
     Shanklin Pier ........................................................................................................................................29
  Sale of Goods Act (SGA) .........................................................................................................................29
VERTICAL AND HORIZONTAL PRIVITY ..............................................................................................29
  Privity and the SGA (Vertical + Horizontal) ............................................................................................29
     McMorran (1977) (OR) .......................................................................................................................30
     Sigurdson .............................................................................................................................................30
FRUSTRATION ...........................................................................................................................................30
     KBK (2000) (BCCA) ...........................................................................................................................30
     Pelech v Pelech (1987) (SCC) .............................................................................................................31
     B(G) v G(L) (1995) (SCC)...................................................................................................................31
     Miglin (SCC) .......................................................................................................................................31
     HR & S Sainsbury (1972) (QB) ...........................................................................................................31
     Fibrosa (1943) (HL) .............................................................................................................................31
  Two Key Concepts (in interpreting obligations).......................................................................................31
          (1) Freedom of K (Printing case p 770) ......................................................................................31
          (2) Protection of Reasonable Expectations .................................................................................32
TECHNIQUES ..............................................................................................................................................32
  Interpretation ............................................................................................................................................32
          Fraser Reid .................................................................................................................................32
          Wallis v Pratt (1911) (HL) .........................................................................................................32
          Sodd Corp v Tessis (1977) (ON CA) .........................................................................................32
  Inconsistency ............................................................................................................................................32
          Mendelsson (1970) (QB) ............................................................................................................32
  Standard Form Agreements (K of Adhesion) ...........................................................................................32
TICKET CASES ...........................................................................................................................................33
     Parker (1877) (Eng CA) .......................................................................................................................33
     J Sperling (1956) (CA) .........................................................................................................................33
     Heffron (1973) (CA)  * Emergence of ‘Fundamental Breach’ * .....................................................33
     Thornton (1971) (ER) Denning ............................................................................................................33
     Bata v City Parking Canada (1973) (ON CA)......................................................................................34
     Specht (2001) (NY)..............................................................................................................................34
     McCutcheon (1964) (ER).....................................................................................................................34
     Tilden (1978) (CA) ..............................................................................................................................34
     Cornell Engineering (OCA) .................................................................................................................34
     L’Estrange (19th century rule) ..............................................................................................................35
     Karsales (1956) (UK) ...........................................................................................................................35
     Canso (1974) (Nova Scotia) .................................................................................................................35
     Photo Production (1980) (UK) .............................................................................................................35
     Beaufort (SCC) ....................................................................................................................................36
     Pompey (2003) (SCC) ..........................................................................................................................36
     BG Linton (1975) (SCC) .....................................................................................................................36
     Canadian Dominion (1981) (ON CA) ..................................................................................................36
     Hunter (1989) (SCC) ............................................................................................................................36
     Fraser Jewellers (1997) (ON CA) ........................................................................................................37
     Rose (1925) (UK) ................................................................................................................................38
     Morrison (1965) (BCCA) ....................................................................................................................38
     Harry (1978) (BCCA) ..........................................................................................................................38
     Kanitz ...................................................................................................................................................38
     Lloyd’s Bank (1975) (CA) ...................................................................................................................38
     Manulife Bank (1996) (SCC) ...............................................................................................................38
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     BMO v Duguid (CA) ...........................................................................................................................39
     Royal Bank of Scotland (2001) (HL) ...................................................................................................39
   ILA in Summary .......................................................................................................................................39
     O’Brien (1993) (HL) ............................................................................................................................39
     Gold (1997) (SCC) ...............................................................................................................................40


PRIVITY
    GENERAL RULE (Dunlop Tyre) – only a person who is party to a K can sue on it (lack of 3rd
       party rights or obligations)
           o (1) Applies in commercial and non-commercial settings
           o (2) Jus Terti – right of a 3rd party to claim against a promisor
           o (3) Also can be seen as 3rd giving no consideration – must see this flowing btw party
                suing and the party they intend to sue
    Consideration must move from the party entitled to sue upon the K (Tweddle v Atkinson)

Scruttons (1962) (Eng)
     Carrier – Manu  carry goods for fixed sum payment – liability limited to fixed amount
         THEREFORE Manu offset limitation through additional insurance
     Carrier – employs outside company to physically carry (Stevedores) – damage the product 
         Stevedores sued by Manu
     Court  strict application of privity – NOT protected by limited liability
     Four requirements for the agency exception (situation where 3rd party covered)
             o (1) The bill has made it clear that 3rd is intended to be protected by the provisions in it
                  which limit liability
             o (2) Bill makes it clear that carrier is not just contracting for the limitation – clauses for
                  itself, but also contracting as 3rd’s agent (applicable to the 3rd)
             o (3) The carrier has authority from the 3 rd to do that
             o (4) Any difficulties about consideration moving from 3 rd were overcome
     Court struggle with this concept in New Zealand and ITO

Exceptions to Rule of Privity

(1) Agent
      Agent (A) can be employed by principal (P) to make K on P’s behalf with 3 rd – K, once form,
        normally binds only P and 3rd  NO REASON THAT A MAY NOT ALSO BE A
        CONTRACTING PARTY – court trying to protect 3rd
      A negotiating for P with 3rd:
            o To the extent that there is disclosure of the agency relationship (make aware that A is
                representing P) – then K enforceable btw P and 3rd
            o If A does not disclose  3rd can still enforce K against P AND may also be able to sue A
                (able to look to P and A)
            o General Rule  3rd will not be able to enforce against P unless P has represented that A
                has authority (lead 3rd to believe that A has authority on their behalf) OR it is reasonable
                that 3rd would think that a person in A’s position would usually have authority to bind
                and K for P
            o Problems  if 3rd does not take the time to inquire whether the person that they are
                dealing with actually has the authority to bind the P (Carman – mom’s TV repair K with
                daughter who takes it in)

(2) Assignment
      Ex – debtor – creditor  C enters into K with an assignment (assignee) to assume the debt
         (recognized by courts) – D does not have to be aware of the assignment’s existence

(3) Trust
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        Trustee (T) – Beneficiary (B)  trustee is vested with responsibility of looking after interest of
         estate – law recognizes ability of the B to sue on the K or to compel the T to sue on the K when in
         B’s interest (even when T not privy)

* These do not cover all situations where it would be fair to allow 3 rd party privity *

Three situations where it would seem fair to let 3rd party benefit:
     A-B and 3rd is beneficiary is A dies
     A contracts w B to have pension upon retirement – seems intent would be for 3rd spousal benefit
     A carrier of B’s goods – B pays less because A says we do not insure – B tries to sue 3rd employee
         of A for damage

New Zealand Shipping (JCPC)
    Accepted detailed bill of lading as protected 3rd ‘Himalaya Clause’
           o Sensitive to commercial K – Prima facie impossible to say there was no consideration for
                one set of promises but not another
           o Since Scotson v Pegg – consideration can be given to a 3rd
    Are the carriers acting as A for 3rd?
           o (1) Bill of lading clearly stating that 3rd are covered
           o (2) Carrier stating that it is acting as agent for 3 rd
           o (3) We the Carriers are authorized by 3rd
           o (4) Consideration difficulty is overcome

ITO (SCC) (1986)
     Gave effect to ‘Himalaya Clause’ – clauses that were drafted to avoid 3rd party problems and more
       clearly defined agency relationship

Greenwood (SCC) (1980)
     Canadian Tire employees damage building during welding (negligent in action) – the K protected
       CT re landlord but did not expressly protect employees (consequently they are sued)
     Insensitive court – strict application of privity  CT had not contracted on their behalf, no trust in
       their favour THUS liability on employees
     Employees are not parties to the K – not entitled to the benefit of the contractual provision

London Drugs (1992) (SCC)
    LD storage K with K+N (DF) – DF employees damage transformer (negligent)
    PL knew or can be assumed to have known that employees of would be responsible for moving
       and upkeeping the transformer
    SCC  Protection for employees – limited liability
    Court addresses Greenwood (differentiate)
            o Btw LL-Tenant v K for services – desire to recognize special relationship btw
                 employer/employee – common sense in commercial setting that employees would carry
                 out employer directives
            o Employees NOT exposed to the burdens of the K
    Privity can be relaxed so that that an employee can benefit from a limitation of liability cl in a K
       for service btw employer-customer where:
            o (i) That is explicitly provided for in the K (satisfy Scruttons)
            o (ii) OR it is implied in the K
    How to determine if implied:
            o (a) Not contrary to express language of K
            o (b) Employee and employer identical in interest with respect to the service that was being
                 performed
            o (c) Appropriate to imply that the employee is protected by the limitation of liability cl
                 when the customer knew that the service would be carried out by the employees of the
                 employer
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             o     (d) The employees were carrying out the very service the employer was obligated to carry
                   out when the damage occurred
        NOTE – the court seems to decide the issue re 3rd party liability on the basis of the intentions of
         the parties

Laing (BCCA) (2000)
     Issue – employees protected by the limitations of liability cl in a lease?
     CA (SCC affirmed) – Yes – fused London Drugs and Greenwood
     Look to the terms of the lease in question:
           o Re Greenwood lease – a closer read would find service obligations on the part of the LL
               (finds a London Drugs situation – K for services)
           o Apply LD  Implied? Not contrary to express language, identical in interest (respect to
               services), tenant knew LL would take care of services through employees, carrying out
               the very services at time of damage
     London Drugs can apply to lease cases when:
           o Employer/employee situation
           o As long as within the K there is some element of a provision of service
           o Obiter – if Greenwood could not be diff, it would not be followed because result would
               be too contrary to London Drugs (Greenwood could be authority ONLY with similar fact
               pattern with no provision for services)

FORMATION OF K – Offer and Acceptance

OFFER
   (1) Typically K formation based on bargain model – clear offer and acceptance
   (2) If the offeree accepts all the terms – K is made – if rejected, the offer has been rejected and is dead
       and no K can arise from 2nd purported acceptance
   (3) If the offeree does not reject the terms outright but makes some changes in them, then the terms
       that he proposes becomes new offer (counteroffer)

Invitation to Offer (Invitation to Treat)
Providing info as a preparatory stage to make an actual offer – courts recognize this type of pre-offer
statement (ex request for proposals – an invitation to treat or a pre-offer; ad in a newspaper)
      Lefkowitz (US)  treated newspaper ad as actual offer – sufficiently specific because objectively
         reasonable for the offeree to think that the offer was actually being made to them – was not unfair
         to the offeror to say that the ad itself did constitute an offer
              o Generally  newspaper ads are merely invites to offer because a seller could otherwise
                   be bound to multiple acceptances, and found in breach of K (in this case – the narrow
                   offer inclined court against traditional rule)
              o Specific language = pre-offer in this case
      Boots (UK)  display of goods in a self-serve store or store window (with visible price tag) is
         NOT an offer but only an invitation to offer (confirmed in Dawood)
      Dawood (ACA)  women let off charges – switched price tags – court deemed that she was
         making a lower offer which the store could accept or decline (voidable) THEREFORE not theft

Smith v Hughes – look at words objectively
     Test – what would reasonable person have understood those words to mean given the
        circumstances? Offer or invitation to treat?
     *** If the other party reasonably thinks it is an offer, it is binding ***
     Assess the context (reasonable person)  words, prior relationship etc
     Encourage reasonable reliance  if you reasonably rely on a reasonable interpretation of the
        words as an offer, the court will enforce it

ACCEPTANCE
    For binding – must have evidence of acceptance or ack of the terms
         o Tinn – no binding K where both parties are offeror
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        General rule  acceptance complete and K made when/where offeror receives notice of
         acceptance (exception - postal acceptance rule)

Postal Acceptance Rule
     Absent a stipulation to the contrary made by the offeror the K is made when/where the offeree
        puts the notice of acceptance in the mail (Adams)
     (1) Risk of loss allocated to the offeror (unless otherwise stated)
     (2) Offeror can put limits on rule (‘not complete until I actually receive your acceptance via mail’)
        (Household Fire)
     (3) If letter of acceptance not received and offeree wants to claim benefit of the rule must have
        proof of having mailed the acceptance to correct address
     (4) If the letter is lost in the mail, and no terms are in the K regarding a lost acceptance, the offeror
        must accept (burden of lost acceptance)

Other Issues

        (1) Firm offers
              o In the absence of consideration the promise to keep an offer open is not enforceable
                  (unless consideration given). An offer said to be firm or irrevocable for a fixed period is
                  nevertheless revocable (Dickinson)
        (2)What the offeree must do to accept the offer (negative billing + silence)
              o Felthouse – silence (typically) is not acceptance – even if offeror specifies that – it cannot
                  be imposed by offeror
              o Wheeler – silence can constitute acceptance where the prior relationship of the parties
                  would make that reasonable
              o CPA s 36(1) – prevent merchants from binding offeree to either buy or return unsolicited
                  goods (exception – certain charities)
              o Twin cross-offers  mailed at same time identical offers – no binding K unless one party
                  sends some form of ack or acceptance (Tinn)

Offer and Acceptance Cases

McCunn (2001) (OCA)
    Coverage agreement supposed to end at 70 – bank knew DF had reached this age – continued to
      deduct premiums from her account (showed on statements)
    No express agreement to extend K of insurance – lack of intention on bank’s part
      (glitch/oversight) AND DF silence does not = acceptance
    Majority
            o Subjective analysis focus – intention of offeror – no evidence DF relied on the
                 insurance/was aware of it
            o Majority losing touch with objective test re whether there was an offer
    Dissent more in line with general rule of objective interpretation re O and A – indicates that the
      test is the authority and the matter is not what the bank intended but what a reasonable person
      would have thought by the conduct
            o The banks offer = the deduction of premiums and sending statements
            o PL acceptance = is her not objecting to the continuing deduction of premiums
    NOTE – the case should be used to indicate that the subjective/objective view is NOT rock solid –
      the distinction may be set aside by counsel

St. Johns Tug Boat
      Do not look at what offeror intended – use Smith v Hughes objective standard
      Offer deemed accepted by conduct – continuing to make the stand by services available after the
         extension period over AND invoices sent with rates not changed AND DF continued to make use
         of the services from time to time

K MADE BY MAIL
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Schiller (1981) (SCC)
     Initial on Sept 1st but mailed later – court distinguishes btw time by which offer had been accepted
          and time by which notice had been communicated
     Clause of K  had to be acceptance by Sept 1st BUT cover letter requested initialled copy to be
          returned ASAP
     Had been working with mail as method of communication – therefore not unreasonable for either
          party to receive acceptance by Sept 7th
     Court influenced by the fact that the offeror saw the initials as mere formalities (had expectation
          that K would be formed!)
     Shows impt of cover letter AND that facts/context can influence – parol evidence
     Indicia for acceptance? Will the offeror be taken by surprise:
               o Offer language
               o Contextual factors (negotiations, other written documents etc)
               o Nature of change in counter-offer
               o Mail (nature of communication & time it takes to get there)
     NOTE  SCC returned TJ verdict – K was formed upon signing within the time allotted, mailing
          it was not necessary to complete the acceptance due to the nature of the K

FAX FORMED K

Unless offeror specifies otherwise, fax a valid method of forming/accepting K (Rolling)
     Postal Acceptance Rule (PAR) does NOT apply to ‘instantaneous communications’ like faxes
        (Brinkibon, Eastern Power)

Eastern Power (1999) (OCA)
     K to use PL tech to build power plant in Italy – negotiations break down
     Determines whether ON has jurisdiction (and whether it is proper)
              o Where K was formed is a factor in determining jurisdiction (but not a determinative
                  factor)
     If the offer and acceptance are both done by fax – where is the K made?
     Rationale for PAR was to facilitate business due to delay if had to wait and see if
         received/confirmed – BUT – faxes = instantaneous THEREFORE general rule applies
     General rule is K is formed where offer is accepted – postal rule is that K is formed where the
         acceptance was mailed
     Court finds that K was formed in Italy  no reason to depart from the general rule because there
         is immediate knowledge of acceptance of the acceptance by the offeree when faxed across (rather
         than mailed)

E-COMMERCE K

Electronic Commerce Act (2000) (ON)
     Facilitative leg that recognizes the validity of electronic signatures and e-comm K
     K formed via email and/or e-comm are enforceable in ON
             o Weight of authority is that PAR does not apply to e-comm K – much like faxes,
                   acceptance deemed complete and K thus formed where and when it is received
                   (instantaneous communication)
             o Vendors often draft terms in online agreements to ensure jurisdiction applies
             o Key sections 
                         19(1) – clicking is an act of acceptance
                         22(3) – when something is presumed to be received: when enters into info
                            system which offeror is able to access the acceptance
     NOTE – using newspaper ad / store shelf product rules re offer and acceptance, the consumer is
         actually the offeror to purchase and the vendor is the offeree
             o May have implications re where the acceptance is formed
             o Policy is seemingly diff from E-Comm Act information
                                                                                                            9

       If elec K’s use PAR, ON CPA would apply

Rudder v Microsoft (1999) (ON SCJ)
    PL (subscribers to MSN network + law grads) sue DF in class proceeding
    DF – clause in agreement that courts in Washington state would have exclusive jurisdiction
    PL – id not accept this clause as (1) it is in fine print, (2) it is impt (should draw attention), (3)
        everyone knows that no one reads the user agreements
    For DF  provisions are enforceable = accepted
            o Found to be sufficiently clear and obvious – had to click ‘I agree’ twice, terms were in
                 plain language
            o Clicking, plain language and multiple pgs are sufficient for acceptance
    Policy  the seller has the ultimate determination of whether or not to do business with the buyer
        – and so the rules and regulations of the buyer’s state/prov should apply
    NOTE – this rule makes sense for sophisticated commercial parties – they have reviewed it
        carefully and have had legal advice – HOWEVER – when applying the rule to consumer context it
        does not work as well
    NOTE – King (1989) (Alb.)
            o K terms found within a software box were not enforceable as they could only be located
                 after purchase within the box – modification of the purchase K and therefore
                 unenforceable

ProCd (US)
     Modification of King – whether you accept terms if it is on a paper inside the box (cannot look at
        until after purchase)
     Held  acceptable SO LONG AS:
             o There is a warning on the outside of the box that states that there are more terms inside
             o You should be told that you can return if you do not agree with the terms

Kanitz v Rogers Cable (2002) (ON Sup Ct Just)
     Class action – PL (subscribers) – clause in user agreement that DF could change K whenever the
         wanted (customers deemed to have accepted their acceptances of changes by their continued use
         of the services)
              o Agreement change to include arbitration clause – PL challenge validity of this (this is a
                   motion brought by DF to stay proceedings because of arbitration clause)
     Was there offer and acceptance of the amendment? Are the amendments unenforceable because
         of unconscionability?
     For DF – have to go to arbitration (there was acceptance and not unconscionable)
              o Amendment is in plain language – posting on website (was not hidden)
              o Context of ongoing relationship – court concerned when making sure sellers have
                   certainty in for online transactions (consumers cannot hide behind notion of having to
                   through numerous screens OR not having read it thoroughly
              o Protection of availability of E-Comm transactions
     Unconscionable Test – if agreement est as valid  courts can still ask whether they should
         exercise discretion and no enforce it
              o (1) An inequality in bargaining power
                         Yes – take or leave it for consumers in this case
              o (2) The stronger the party praying on, or taking advantage of weaker party
                         No – lack of evidence of this – arbitration clause alludes to the notion that
                            Rogers was not attempting to remove liability entirely
              o (3) A resulting improvident (sufficiently divergent from community standards of
                   commercial standards) agreement
                         There is no public policy behind preference to arbitration – agreement is not
                            thoughtless – not precluded from punitive damages and mutual gain in both
                            parties using arbitration
                                                                                                            10

        NOTE  with End User Agreement (EUA) consideration all bundled up in initial agreement –
         therefore, later changed (as in this case) no issue of consideration because it has already been
         given!

CPA 2002  if unconscionability cannot protect C – leg will intervene
    S 7(2) – Any provision within a service K where the business is purporting the consumer to waive
       the right to sue will NOT stand
    S 8 – large companies cannot waive participation in class action proceedings

Revocation of Offer
    Offer can be revoked anytime before it is accepted – revocation must reach the offeree before the
        offeree places acceptance in the mail to be binding if a mail K

FIRM OFFERS AND UNILATERAL K’S

        (1) Firm Offer  an offer that is to remain open for a stated period of time
        (2) BUT at CL offeror has right to revoke a firm offer at anytime before acceptance (Dodds)
              o This is because it was a unilateral K – no consideration given by the offeree to have it
                   kept open
        (3) Usually good business practice to keep firm offers, but if you want to ensure it will stay open:
              o Option K – K in which promise to keep an offer open is bought by payment, promise
                   becomes enforceable (payment may be nominal, but it is more likely substantial)
              o OR – seal – promise to leave the offer open for a fixed period may be executed under seal
                   (to obtain the need for consideration)
        (4) Classic Rule: an offer in the unilateral sense can be revoked up to the last moment before
         complete performance (this can have problems in situations where acceptance is via performance):
              o Reward Award Offers – notice of revocation must be given before the person comes
                   forward with the info & must be done in a reasonable way (Smirnis) AND generally
                   revocation has to be done with same prominence as original offer (Shuey)
              o Courts will try to protect offeree who reasonably relied
                         So court will look for some sort of reliance or consideration flowing from
                            offeree in order to construe that offer as not being capable to be revoked, and
                            thus avoid strict application of the classic rule in unilateral situations
        Dickson (p 409)  Firm offers can be revoked as acceptance as long as there is reasonable
         notice, a nominal amount of consideration OR put a seal on it

Dawson (1955) (SCC)
    PL suing for 10% of claim – gave DF information which helped to locate
    The classic rule of revocability of unilateral offers but rule that it does not need to apply such a
       harsh rule in this case because you can construe the agreement as bilateral rather than unilateral
       (est bilateral situation to protect reliance)
            o (1) When there is complementary action on the part of both parties and the language can
                 be so fairly construed as such – interpret agreement as bilateral as opposed to unilateral
            o (2) Offer repeated twice (in this situation): D impliedly agreed that it would not prevent
                 the complementary performance by PL – BUT in going with a different exploration co.
                 the PL brought an end to the subject matter of the K
    Interpreted as bilateral (using Lady Duff-Gordon reasoning) – instinct with obligation on the part
       of PL (was prevented from performing)
            o DF misusing confidential information
            o Court will overlook revocation rule re unilateral K where there are other factors like
                 reliance and deceit
    How is this situation diff from GNR? Witham’s standing offer to supply goods could be revoked
       at anytime before an individual order placed and GNR equally free not to order goods

Errington (1952) (Eng)
                                                                                                              11

        Father’s promise was unilateral (to son and daughter-in-law) – a promise of the house in return for
         the couple’s act of paying the instalments
        It could not be revoked by him once the couple entered on the performance of the act BUT it
         would cease to bind him if they left it incomplete and unperformed (which they had not done)
              o Couple not bound to make mortgage payments because unilateral
        From this case:
              o Normally the implied promise of father to allow couple to stay in house should not be
                   enforceable by couple because they gave no consideration for it (not bound to pay) –
                   Denning ignores this notion and protects reliance
              o Inequitable to not allow them to remain once they’ve started to perform (he protected
                   reliance – estoppel probably would not have worked because no consideration)
              o Performance is only partially complete – so it might not be appropriate to construe
                   situation as bilateral (as in Dawson) because that would hold both parties to agreement –
                   in this situation Denning does not want to bind the couple to paying

Liebeg
     Ex of situation where it may be fair to say that you only have to pay if there has been complete
       performance
           o Re real estate agent commission (if deal closes) – court draws upon reasonable
               expectations of parties  if they interpreted phrase ‘offer’ to mean even if no deal
               signed, then sellers would be taken by surprise

TENDER FORM K

(1) Public Auction
      Auctioneer calls for bid = pre-offer, invitation to treat
      Someone bids = offer
      Auctioneer slams hammer – accepts last offer made = acceptation
             o HOWEVER social consequences of revoking before they actually accept probably
                  motivates people not to do that

(2) Tendering Processes
      Typically – owner wants something built – they issue a tender (which is a pre-offer, describing
        what it is they want done and asking contractors to make bids)
      Typically – the bids from contractors are irrevocable after the time for submission are passed &
        acceptance comes when bids are opened (usually in public setting)
             o Lowest bid (offer) is usually accepted
      NOTE  despite the classic rule that offers could be revoked at anytime, in the competitive
        bidding context, court protects idea of irrevocable offers (bids) to ensure certainty and protect the
        competitive bidding system (Ron Engineering)
             o General contractor bid to owner is irrevocable AND sub-contractors bids are also
                  irrevocable (Northern Construction)
      Mistakes  tender is binding offer even if there had been a mistake by the bidder in determining
        its price – unless the error is so large or obvious that it is ‘apparent on the facts of the tender’ (Ron
        Engineering & Northern)

Contract A  created by submission of a sealed bid (is a conceptual K, conceivable that parties could
impose specific terms later that depart from conceptual contract A)
     Contract A terms are irrevocable and IF the bid is accepted, the parties are obliged to enter into
         contract B
     So contract A is a unilateral K and an irrevocable bid – as the bidder you do not get to sue if you
         do not get chosen – but the courts have read-in some other elements (exceptions)
     Contract A not K in true sense because owner is bound to accept only one bid (winning bid)
Contract B  is for the actual work once a bid is accepted (created by winning bid)

Ron Engineering (1981)
                                                                                                          12

       Tender documents = offer to enter into a unilateral K (owner to contractor)
           o Key term  that the contractor who bids has put in an irrevocable bid until such time as
                the bid is selected
       Submission of bid = acceptance of the offer to enter into K (contract A)

Northern Construction
     Contractor – subcontractor  subcontractor CANNOT pull out after the tender
     Need to be irrevocable – the system will not work without some regularity
            o DF knew PL (contractor) would need sub-contractor and would rely on the DF tender and
                that PL tender would be irrevocable
            o Irrevocable even if there was a mistake in the computation of the bid (unless it is
                considered unreasonable)

RIGHTS OF BIDDERS

Naylor (2001) (SCC)
     PL v DF (Ellis Don) – DF had labour problems at the time and KNEW that PL would be affected
        as a result – nonetheless, accepted PL offer – forced to find new subcontractor (dropped PL)
             o Obligation of contractor to subcontractor?
     What are the subcontractor rights when contractor refuses contract B (after having ratified that
        lowest subcontractor with owner, and even having provided assurances to subcontractor?)
     Court  there is an existing good faith duty – facilitate mutual obligation
             o The DF must enter into contract B using the subcontractor’s specified in the general
                  contractor’s bid UNLESS reasonable grounds not to K with the subcontractor (ex – key
                  personnel has left, bad work experience, belated disclosed information etc)
             o Impt in this case  the issue of DF knowledge
                        DF argument that they are legally forbidden from employing PL now – court
                           states that DF knew of risk and took it on
                        The ON Labour Board decision did not frustrate the K – they gambled and lost –
                           does not absolve DF of their financial consequences to PL

MJP (1999) (SCC)
    ‘Privilege clause’ (included by owner) – ‘We are not bound to accept the lowest bid and we are
       not obliged to pick any bid at all’
    Did the DF breach terms of K with other bidders in accepting a non-compliant bid?
            o Lowest tender failed to incorporate certain risks and thus did not comply with tender
                specification – DF tried to rely on the privilege clause
    The privilege clause did not permit acceptance of non-compliant tender and thus though owner
       acted in good faith, had breached K with other bidders

Martel (2000) (SCC)
    A tendering authority has the right to include stipulations and restrictions and to reserve privileges
         to itself in the tender documents
    Treat all bids equally  adjustments made in bid price to reflect change (all bids adjusted equally)
    Implied duty of good faith in bidding process btw owner and bidding contractor
               o Does not mean the owner cannot adjust the bids – so long as they are all adjusted evenly

FORMATION OF K AND MISCOMMUNICATIONS

Raffles (1864)
     PL (seller) has disagreement with DF (buyer)
     Ship (‘Peerless’) – DF wanted it in Oct, got it in Dec – buyer refused to accept
     Court – for DF (no enforceable K formed)
             o Where there is a mistake at the time of formation – no reason for 1 party to think other
               understood something else
                     No bad conduct by the party denying the K
                                                                                                          13

             o    Court will allow parol evidence where there is an ambiguity (evidence outside the 4
                  corners of the K – negotiations, industry context, prior drafts of the document etc)

Smith v Hughes (1871) (QB)
     The Oats case (PL – farmer to sell certain oats to DF – horse trainer)
     DF refuses to accept the oats (not the specific ones agreed on – specially aged)
     Court – for DF (the objective or reasonable person approach to K from Blackburn)
            o Whether there is an agreement depends not on what is subjectively in the minds of the
                parties, it depends on how the promisor’s conduct would strike a reasonable person in the
                position of the promisee – what is reasonable for the promisee to have understood?
            o Caveat emptor will be taken into account when determining what was reasonable – what
                was the buyer reasonably thinking?
            o Consider that they were given a sample in this case (aids the buyer’s case)

Hobbs (1899) (SCC)
    RR (DF) makes offer to PL to transfer land for a particular price – accepts under assumption that
        this land means not just surface but also the mineral below
             o Consider the term ‘land’ – is it ambiguous?
             o DF defences – (1) agent did not have authority for transfer (2) was not ratified by the
                  company
    SCC  for the PL – awarded specific performance (land and its benefits)
             o Term ‘land’ is unambiguous – reasonable person would think that would mean surface
                  and everything below
             o Cannot give effect to some unique interpretation of one of the parties
             o DF could have specified ‘land without minerals’
             o Re ‘Agency’ and ‘Agent’ – they ratified what the agent did (despite the lack of authority
                  on his part)
                       It is fair to bind the principle to an agreement where the agent has negotiated
                           and has actual authority – also unfair to bind a principle who acted outside
                           authority
                       PL acted fairly – dealt with agent DF assigned

Staiman Steel (1976) (OR)
     Auctioneer (DF) v PL (buyer)  will sell all prefab steel on lot as one item (including new pile) –
        DF (as agent) the new pile was not included as it had already been sold
     TJ – found existing K (offer and acceptance) – substance of the K was the used prefab steel
        excluding the new pile
     Consider:
             o Intentions of auctioneer – what did he represent?
             o PL engaging in trickery – no reasonable person (in this case – anyone attending the
                 auction) would have really thought that the new steel was part of the material for auction
             o In this situation  the only reasonable thing is what the principle of the DF (the
                 auctioneer) viewed as reasonable

What does this decision encourage? Policy from the case law:
    You can rely on a reasonable meaning/understanding of the communications that you have had
        with others
    The court will try to protect reasonable expectations (objectively)
    Not subjective in sense of what was actually in promisor’s mind
    Protecting reliance / reasonable interpretation of what is being communicated to you
    Focus on what was it reasonable for promisee to expect
    Intention is also relevant at another stage (is there an intention to create legal relations – was there
        intention at the time that the K would actually be rendered enforceable?)
    INTENTION  in the mind of the promisor can be relevant in this way:
             o Promisee knows full well that all alone, that what promisor meant was not X, promisee
                 knows that subjectively in the mind of promisor was not X
                                                                                                            14

             o    If the subjective intention of the promisor is known to the promisee, will have trouble
                  enforcing that – because how can they honestly argue that they reasonably believed?

Agreements to agree are NOT enforceable (agreement not to be bound etc) (May, Walford, Courtenay)
     Agreeing to agree – essentially saying that you are leaving open the possibility that you may not
       actually agree and courts with such reservations
     Reasons:
            o (1) Too much uncertainty
            o (2) Too difficult to assess the amount of damages
            o (3) IF you have a situation where the courts are applying the rule and they think the
                reason the parties have reserved their rights to not actually bound and reserve discretion
                then it is not fair for courts to take away the discretion
     HOWEVER – Where the parties have agreed on significant terms and have started to act
       (performance) than the court may find binding arrangement
     NOTE  the above policy reasons could be used for this argument ‘yes we know the rule, but
       here is why the rule should maybe not apply here’ – Foley, Empress

Section 9 of Sale of Goods Act (SGA)
     A K to transfer property (chattel)for $ - not a service, chose in action or a land
     S 1  You can have a situation where the price is to be fixed later in a manner agreed by the
         parties or determined by in their course of dealing (ex – market rates)
     S 2  In a situation where you cannot come to an agreement – buyer is bound to purchase at a
         reasonable price (reasonable price is to be interpreted on the circumstances of each case (may
         depend on kind of formula you included, or may look into market prices)

May (1929) (HL)
    K – sale of certain goods (prices to be agreed on ‘from time to time’ btw parties)
    Parties do not come under either subsection of s 9 (SGA) and thus a K containing such a clause
       was void as an impt term (the price) had been left unresolved and could not be supplied by courts
            o Narrow interpretation of the language  an agreement to agree v treating it as a s 9 of
                SGA which provides for situations that at least have some mechanism of determining
                price

Hllas (1932)
     HL enforced option K even when a # of key terms left to be decided (size, proportions of lumber
         etc)
     Likely that the court wanted to hold Russians to it for policy (Bolsheviks)

Foley (1934) (Eng)
     2 K – 1 for sale of property + a supplemental for the purchase of gas (purchase fuel from PL
        exclusively for 3 years from ‘time to time’)
             o Potential of disputes – clause which would go to arbitration
     Court  heavily influenced by # of factors – PL manifested a form of reliance – probably would
        not have gone through with K1 without the formation of K2 – reasonable price on the part of the
        PL
             o Parties act like there is an effective agreement for some time, have an arbitration clause,
                 part performance via land transfer = enforceable (imply a reasonable price)

Courtney (1975) (Eng CA)
    Agreement to do certain things on basis that they could ‘negotiate fair and reasonable K sums’
            o Agreements to negotiate = not enforceable (approach similar to May – hard line) 
                 where there is a fundamental matter (price) left to be negotiated there is NO binding K
            o Policy reasons – uncertainty  how would we discern how much negotiation is
                 appropriate? How does one determine damages? There is always the possibility that
                 negotiations would NOT have led to agreement
                                                                                                         15

             o  Relates to duties to negotiate – in other cases, court takes softer approach and will imply
                at least some duty of good faith in negotiations
        NOTE – Multi-Malls  agreement subject to planning approvals
            o Court implied an implied duty to at least go out and try to get the approvals (court does
                not say bound to arising obligation – but may owe some damages)

NOTE  Response to proposition that an agreement to agree is unenforceable might be to argue that such
an agreement could be given force by holding that parties have obligation to negotiate in good faith. If no
agreement is reached, neither would have a claim against the other. But if one party does not negotiate in
good faith, the other could claim for breach of K

Empress (1990) (BCCA)
    Departure from classic rule – in some situations we are willing to enforce obligations that might
        be reasonably expected
             o LL (Empress) – Tenant (Bank of Nova Scotia)  lease from 1972 (with option to renew
                 the lease for stated periods of time at a price or rent to be negotiated failing which the
                 price would be negotiated by arbitration)
             o Lease negotiated in 1984 – change in terms – removal of arbitration clause
    BNS want to renew – DF considers – counter offer on date of expiry
    Even though on face is agreement to agreement re price – there is an underlying obligation to
        negotiate
             o Does not mean that either party will forced to accept a particular price, but there is an
                 implied term/duty negotiate over price with good faith AND a duty to not unreasonably
                 without agreement on what the reasonable price should be (these requirements have the
                 same effect as ‘best efforts’)
    Courts will try to give the proper legal effect to any clause that the parties understood and
        intended was to have legal effect
    In this case – LL could have said that for tenant to renew they would have to accept LL set rent
        BUT they did not – They said (a) renewal could be done at the market rental prevailing at the
        commencement of the renewal term (b) and the prevailing market rental was to be mutually agreed
        btw LL and tenant
             o The LL did not do anything that even approaches good faith
    Dissent
             o Classic rule – agreements to agree are not enforceable
             o The parties manifested an intention that they would not be bound if they could not agree
                 (taking out arbitration condition)
             o Looking to parol evidence
             o Reason you would not have good faith duty – ambiguity of the condition (too vague and
                 indefinite)

Foley Argument  in the alternative Empress/MultiMalls – implicit agreement to negotiate in good faith

Walford (Eng HL)
     PL negotiating with DF to buy DF photo business (deal in principle – negotiate something called
         a lockout agreement – DF desire for a letter of comfort from their bank – PL gets the letter –
         HOWEVER – DF still closes with a 3rd party
     PL  DF had obligation not to deal with anyone else
     Court  agreements to negotiate are not enforceable (spin on May)
              o Everything was still subject to negotiation – no clear term re now long they were to last,
                  concern re uncertainty if courts enforced agreements to agree (Empress dissent)
              o Allowed TJ damage award to stand because of DF misrepresentation in continuing to
                  deal with 3rd party

Edper Brascan (2000) (ON CA)
                                                                                                            16

        Clarifies Empress  being specific to its facts and that court was able to impose obligation to
         negotiate in good faith in order to enable an option to renew to have efficacy because there was
         objective standard available (market standard)
             o If it is not clear which case is more prevalent, BUT we should still use Empress as
                   indication of court’ s willingness to depart from classic rule re unenforceability of
                   agreement to agree

SUMMARY
    In Canada – we do pay lip service to what is articulated in Walford and Courtney BUT courts will
     in certain situations depart from general rule
    Walford v Empress  note that in Walford there is a one offer relationship v in Empress it was
     an ongoing relationship – this may hint towards where courts will be more inclined to depart
     from the general

Courtney – price, agreement to negotiate  NO K
Walford – negotiations re all, agreement to negotiate  NO K
May – price, agreement to agree  NO K
Foley – price, agreement to agree  K
Empress – price, agreement to agree, write of possession ordered – based on implied term to neg in good
faith
Hillas – implied terms, agreement to agree  K

Factors which influence whether courts likely to intervene and depart from general rule:
     Courts notion of fairness and equity – significant reliance by one or both parties? Part
         performance? Issue of reliance!
     More likely to intervene when parties in a relational situation where they have a history of being
         able to work it out – ONGOING relationship (period of time)
     Where parties seem to NOT have intended to reserve discretion
     Parties have set out an objective determination of how matter would be determined (Ex – formula
         to figure out what reasonable cost would be) AND/OR where parties have agreed in advance on
         dispute resolution process
              o It does not seem consistent to have done these and also reserve discretion
     More likely to depart if size of matter left to be resolved is smaller than the particulars of the
         agreement as a whole
     Where it may be diff to disentangle the relationship/interests of the parties (Foley)
     If parties say they have an agreement but are silent on impt term (or agree that it will be resolved
         by a reasonable term) then there is more of tendency for judge to believe the parties have made a
         present commitment and are willing to allow judge to resolve any disagreements in a
         commercially reasonable fashion

LETTERS OF INTENT

Closer step toward binding agreement (agreement in principle) – highlight essential terms – are they
formally bound by any terms at present? Will there be other terms they will be able to agree on but not
bound by yet?
     Clarify when you WILL be bound and when you WILL NOT be bound
     (1) Ensure that future negotiations occur before deal is reached
     (2) Conditions under which the negotiations will take place are specified
     (3) Precisely defined method for bringing the negotiations to an end

Letter of Intent  Bawitko, Pennzoil, CanSquare, LCDH
     (1) Non-binding provisions of letter will not use either the imperative voice or the future tense
          BUT will use conditional
     (2) Have the effect of saying – we have an agreement in principles, let the lawyers work out the
          details – parties may bind themselves to execute at a future date a formal written agreement (K to
          have a K)
                                                                                                        17

       Could be detailed OR could be written on a napkin
       Problem with them is that they do not seem to have any fixed legal meaning – not clear what the
        legal obligations that arise

Bawitko (OCA)
    Agreement to agree – essential terms are not settled, vague THEREFORE not appropriate to find
        enforceable agreement
             o Intention not to be bound except by a written K
    K to K  major terms are settled as defined by the situation – parties have expressed an intention
        to be bound (subject to lawyer drafting)
    Letter of intent is more like a K than agreement to agree IF:
             o (1) Settled all major terms
             o (2) If objectively parties knew main terms and knew of details (appeared to have intent
                 to be bound)
             o (3) Also look at conduct of parties as a whole – did parties manifest an intention that they
                 did not desire to be bound UNTIL in writing?
    Ask how clear they terms are – do the parties seem to want to contract? Have they agreed on
        essential terms?

Canada Square (1981) (OCA)
    Letter of intent sent to CS re development of rooftop restaurant – CS (President) signs letter and
        agreement is accepted – CS financial diff  desire to cancel deal
    Court  finds there was a binding agreement
             o What would reasonable interpretation be? Is the uncertainty fatal to the K? Are the
                 terms that are left vague essential or subsidiary to the K?
             o IF there is no indication that the parties are completely unable to come to agreement on
                 the vague point and the vague point is subsidiary – then we will enforce the letter of
                 intent as a valid agreement
    Criticism of decision  industry custom criticism – no one in the industry would think that if you
        are negotiating for space for a restaurant (until signed agreement!) there would be no deal

LCDH (1988) (ON)
    City of Ottawa providing K to proved service – find only 1 provider (despite the desire for a
       competitive process) – THEREFORE to contractor (ISTS)  need to subcontract some of the
       work to companies which did not pre-qualify
    ISTS – 5 yr K with the city (problem of 3rd party beneficiary) – offered LCDH (sub) a 1 yr K –
       LCDH argue breach (binding agreement for a 5 yr K)
    Court  there is no binding obligation on ISTS
            o Did not act in best faith HOWEVER there is too many essential terms not agreed upon
                 (too much uncertainty) (per Bawitko)
                       Only evidence of price = for the 1 yr
            o No promissory estoppel available (did not do anything further than a typical business
                 would do in trying to get a bid)
    NOTE  Why not make alternative claim for some reliance-based recovery for your
       restitutionary interests – particularly if you could somehow show that DF somehow profited from
       the process of negotiation (info given in reliance on fact they were going into long-term K)

Pennzoil (Tex) – Persuasive
     Press Release – agreement in principle – did it create a binding/enforceable K (11 billion dollar
        deal on a handshake?) – Yes (with Texas jury)
     Oral agreement can bind – is there a manifestation that we are not going to be bound? Application
        of an objective standard in attempt to determine whether a party wished to be bound ONLY by a
        formal written K

GOOD FAITH IN NEGOTIATIONS
                                                                                                         18

Protecting reliance in negotiations  there is NO duty to negotiate in good faith (general)
     This ignores a line of lower court authority HOWEVER the SCC has not closed the door on this
         possibility
     Where to impose duty of good faith?
              o Relationship btw parties
              o Balance of power
              o Are they acting consistent with how they have acted btw each other in the past?
              o What is the industry custom?
              o Is there a sense that one party is simply trying to get out of something which they agreed
                   to?

Martel (2000) (SCC)
    Duties/obligations of owners who are issuing tenders in the bidding process  look at good faith
         within the process
    Dept of Public Works (DF) a tenant in Martel (PL) building – lease is coming up – PL begins
         negotiations for DF to stay – left with understanding on price
    HOWEVER – DF had to adjust bid to deal with some diff in fit-up costs – PL no longer lowest bid
         – K to another
    Court  DF not obligated to accept PL bid AND no duty of good faith in alternative (though it
         remains a possibility)
    There is no tort liability for negligence in commercial situations
             o Policy reasons – point of commercial negotiations is to use info to better your position –
                  other ways to deal with negligent misconduct in neg (deceit, duress), floodgates
                  argument, court avoid regulatory role

Cornell (2001) (OCA)
     Employee made some modifications to industry standard form of employment K – made no effort
         to conceal the change but did not point it out
     OCA  there is no duty of good faith in commercial negotiations (should have read the terms
         more carefully)

Andrus (1986) (OCA)
    Vendors and purchasers owe a duty to each other to perform K honestly made – policy of court
        ought to be in favour of the enforcement of honest bargains

Big Quill (2000) (Sask CA)
     DF adjusted original agreement without notifying PL – PL paid new price – eventually sued for
        overpayment
     Court  the term is NOT enforceable against that particular party – attention should have been
        drawn to this change
             o Basically implied a duty of good faith – there was an intention to mislead in this case
             o Distinguish from Cornell  First draft (Cornell) v exchange of drafts (Big Quill)

Gateway (1991) (SCC)
     Another ex of lower courts willing to impose standards that parties behave to a community
       standard in negotiations (similar to Big Quill)
            o Contextual analysis  parties have to behave in accordance with community standards in
                honesty, custom and fairness

Summary
    Lac Minerals, Big Quill, Andrus and Gateway – aid argument that some duty of good faith should
      be imposed notwithstanding what SCC said in Martel

RELIANCE IN NEGOTIATIONS
    Even if no K present, argument can be made that client relied on negotiations and this reliance
      should be compensated if losses arise from it (Brewer St v Barclays, Brewer v Chrysler, Sarnia)
                                                                                                          19

        Ordinary rule  where person expends resources in negotiating, or preparing a bid or a work
         proposal that is not accepted, there is no right to recover
        HOWEVER  there are exceptional circumstances in which recovery is possible even if no K is
         formed

Sarnia (1990) (ON)
     If person’s work goes beyond the work normally involved in the preparation of a quotation or
         proposal, with a mutual understanding that the work is not being done gratuitously then recovery
         should be available, and this will be so even though the coming into existence of K is frustrated by
         something or somebody else (similar to Brewer v Chrysler)

Brewer St v Barclays (1954) – Denning
    Attempt to protect reliance  If you can show one of the other parties is at fault for the
        breakdown of negotiations then that party will have to shoulder the losses
             o NOTE  It was made clear that all negotiations were subject to K (estoppel cannot be
                  used)
             o Money spent modifying premises on reliance that they will reach agree.
    Case might be better explained by looking at policy considerations – court was helped to this
        ruling because it is easy to quantify damages
    Better to think of this case more in restitution terms rather than quantum meruit (as the PL stopped
        once they realized they could not reach K)
    Ask 
             o (1) If negotiations failed through the ‘fault’ of one or the other parties then party at fault
                  must live with losses incurred
             o (2) If cannot be decided on fault – must move to facts
                       In this case – work done at tenant’s request to suit their needs, so even if no
                           quantum meruit there was still no benefit flowing to the LL – so then the tenant
                           should pay (what would have happened if LL had received some benefit?)
    Note  to be at fault seems to be implying a standard – implicit in the fault analysis the court is
        evaluating whether one of the parties fell below some standard and thus seems to be as though
        there is indeed an element of imposing a duty to bargain in good faith

Note  this decision v Courtney – no enforcement of agreement to agree and no enforceable promise by
DF to pay for the info it received financing sources BUT note that court was not asked whether PL’s
restitution interest could be protected

Brewer v Chrysler (1977) (Alb. CA)
    PL (desire for dealership)  Another instance where court will protect party’s reliance – just a
        matter of formality
    Court – found no K HOWEVER – quantum meruit – will be compensated for money in services
        rendered (services rendered + lost wages)
            o DF created an expectation of receiving the dealership (PL view)
    No estoppel  clear that there was not an intention that they would be bound until K signed
    NOTE  quantum meruit, desire to prevent unjust enrichment

NOTE (re Brewer St/Brewer and LCDH and Magical Water Fountains
    You do not get to recover money spent on negotiations unless they are beyond the amount spent in
       a normal negotiation process

CONFIDENTIALITY

Lac Minerals (1989) (SCC)
     DF ack that it is custom (accepting duty of care) to not misuse information divulged during the
       negotiation (Senior co dealing with Junior co)
     Court  creation of construction trust (Lac holding for Corona)
                                                                                                         20

             o    Wilson/La Forest – Lac breached fiduciary duty to Corona (rare in commercial relations
                  – esp. in a pre-K negotiation such as in this case)
                        (i) Scope for exercise of discretion/power
                        (ii) Ability to exercise the power unilaterally
                        (iii) Peculiarly vulnerable to exercise of that discretion
             o Sopinka/McIntyre/Lemar – it is a duty of confidentiality (by admission of DF it is
                  specific to this industry)
                        Not willing to impose fiduciary obligation – merely want damages for breach
       Impt to show that there are situations (exchange of confidential info being one) where the court is
        willing to find that even if there is not an enforceable legal relation/obligation, it will impose
        duties to act in good faith, and it will impose some fairly dramatic remedies (protect reliance on
        that obligation)

Visagie v TVX Gold Inc (2000) (ON CA)
     Similar mining situation – junior partners into joint venture with senior – upon collapse senior
         party acquired mine on its own
     Court  breach of confidentiality but NO breach of fiduciary duty – DF only to transfer minority
         interest they would have had under original agreement

BATTLE OF FORMS

       Ex – send offer with terms buyer purports to order goods – with acceptance on an order form with
        his own diff terms (which form should prevail?)
       (1) Some cases say first – unless buyer brings change to attention of seller
       (2) Some cases say second – if not objected to, buyer may interpret as being accepted
       (3) Butler  documents should be considered as a whole – must do a multifactor analysis

Butler (1979) (Denning)
     Seller sends over quote/offer – buyer responds with order – HOWEVER – buyer issued its order
         with its own terms + tear strip
             o Seller has to sign order (tear strip) and send it back to buyer – essentially turning the
                   order into the offer and the signing of the tear strip into acceptance
             o Seller costs rise as result – desire higher price
     Court  for the buyer – Denning concurs with result but has concerns re ‘last shot’ mentality
         (unsophisticated for commercial party interactions)
             o (1) Diff terms? Is it possible to construe them together?
             o (2) Greater effort to notify the other party of a particular term?
             o (3) ‘Reasonable implication’ – should the court interpret in some reasonable term by
                   implication
                        Is there some sort of industry/custom the court should know about?
             o (4) Is one party trying to take advantage OR being unfair in trying to impose a particular
                   term?

Tywood (1979) (ON) – clarification of Butler
    New Brunswick DF and ON PL  DF issues n invitation to tender the provision of certain
       services – ON responds with a tender of an offer stating ‘terms – no modifications’ – no reference
       to arbitration either
    DF responds with an order AND new term – disputes must be arbitrated in NB
    Dispute arises – PL wants action in ON – DF responds  no jurisdiction
    Court  for the PL – there is no arbitration clause
            o Reasons:
                       (1) Notice? Uncertain if PL ever saw the arbitration clause
                       (2) Arbitration clauses are out of the ordinary (for 1979 re industry custom)
    NOTE  Battle of form decisions only binding when 2 commercial parties
            o Art 19 of International K Convention – if the diff terms do not materially alter = plain
                 acceptance (not counter offer)
                                                                                                           21


EXCUSES FOR NON-PERFORMANCE

Condition (subsequent/precedent)
    An impt term – if you violate you could deny the other party of the K something critical (an
        essential term)
    If violated  the innocent party will be entitled to do something AND is relieved of their
        obligations under the K (subject to their choice)
    If the condition is not satisfied and there is no express provision that K comes to an end if
        condition not satisfied then choice (anticipatory breach):
             o (1) Can treat K as being at end and sue right away
             o (2) They can wait until the time of performance (pretend K is in force)
    Condition subsequent – during ongoing relationship if a particular condition comes to pass – the
        opposing party may walk away

Warranty
    A term of the K not so critical that if it is breached the other party is deprived of the benefit of the
        agreement  innocent party entitled to sue for damages
    Both parties are required to perform their sides (implied warranties – Canlin)

Innominate term
     Arises when the parties do not explicitly say what will happen if a breach occurs
             o Express condition precedent – buyer’s obligation to purchase contingent on buyer’s
                 ability to obtain suitable financing
     Usually clauses dealing with quantity and quality of performance when the parties have not
        specified consequences of the breach
             o If you agree as to whether it would happen, you could make it a condition (Sail
                 Labradour)

Hong Kong Fir (1962) (Eng CA)
    PL (ship-owner) – had a deal with DF (ship renter)  a lease exists where DF pays / day (term –
       no obligation to pay if in repair)
            o ‘Sea Worthiness Clause’ where the PL agrees to maintain the ship in a ‘thoroughly
                 efficient state’
    DF endures 7 total weeks of repairs – writes PL and repudiates K (argues warranty – DF argues
       the clause was a condition)
    Court  the clause was ‘innominate’ – there was no explicit statement in the K that would deem it
       either a warranty or a condition
    As an innominate term legal entitlement of innocent party is only known when you consider the
       seriousness of the breach – ASK – if the breach of the clause (the event) deprives parties of
       substantially the whole benefit they intended to receive under the K:
            o (1) Ratio of breach relative to the total obligation – how serious?
            o (2) Significant loss to innocent party?
            o (3) Is a further breach likely? (in this case – ship was fixed and ready)
            o (4) Motive for repudiation by the innocent party (court was not pleased by the fact that
                 the DF was motivated by a new deal)
            o (5) Language of K

NOTE  it is not a condition just because the word ‘condition was used’ – must meet criteria

Sail Labrador (SCC)
      PL (renter) – DF (owner of boat)  lease with option to purchase (a boat for 5 yrs for 60 equal
         payments)
             o Key clause – subject to full performance by PL re payments
      PL wants to purchase at end of 5 yrs – DF denies (late 1 payment)
                                                                                                         22

        SCC holds for PL  entitled to exercise the option (adopted Hong Kong Fir – when you have a K
         which does not specify what the breach is (what will happen) then you have innominate term)
              o Look at the term as innominate term
              o Look at the obligation to make payments does NOT SAY ‘time is of the essence’ – does
                   not communicate that it is critical to the K
        If timely payments were not the essence of the K then not deemed a condition – look at the actual
         language used by parties (time for performance will be an innominate term)
        Very trivial and technical breach here – Approach DF is pushing for would be harsh and result in
         some form of unjust enrichment for DF

ANTICIPATORY REPUDIATION
    Indication of unwillingness to perform before actual time for performance

Cort (1851) (Eng)
     The innocent party (facing a anticipatory breach) can still sue for breach of K even if they have not
        completed their obligations (they were still ‘ready and willing to perform’)
             o Would be a wasteful condition to force supplier to produce and deliver

Hochester (1853)
    Look at questions in terms of the innocent party – party will not take delivery
             o Innocent party CAN SUE in anticipation of breach
             o Must show that the DF indicated a clear unwillingness to perform
    Innocent part has choice:
             o (1) Treat K as at an end (and sue)
             o (2) Treat the K as continuing and sue later
    Must have a substantial and legitimate interest in the actual performance of the K
             o Ex  if the innocent party has entered into perf of its own obligations to such an extent
                 that not continuing at that point would actually aggravate their losses

Frost (1872)
     Reconciles Hochester with Asamera – the wasteful option of #2
     If choose option #2 (and the effect is to miss opportunities to mitigate to reduce their losses then
         that will count when the day comes for the lawsuit and damages are calculated)
     If you are going to pretend as if the K was continuing – you must fulfill obligations

Domicile (1999) (ON CA)
    PL (builder) and DF (buyer) – K for property (with deposit + additional permit costs) – PL has to
        have property ready to move in by certain date AND ‘time is of the essence’ (essential to K)
    PL does not accept repudiation of K (treat K as continuing) – HOWEVER – building not ready by
        set date (sold to another party later)
    Court  looks to builder obligations – dismisses claim and returns deposit to DF
             o PL had to abide by terms of K (house not ready by agreed time) THEREFORE not
                  entitled to sue
             o PL could have given reasonable notice - set new date and renew obligation
    When neither party to perform by date – can bring a new date for the perf (PL needed to renew
        DF obligation) – must be reasonable

Right of Party in Breach to Claim Restitution
     Is a party who is excused from performance by reason of the other’s breach still required to pay
         for/return benefits received under K prior to the breach?
              o (1) PL has made an advance payment of the price and seeks to recover it
              o (2) PL has partly performed and has supplied work or material to the DF – but has not
                   completed the required performance

Part Performance (deposits)
                                                                                                         23

        Whether party who breached gets money back depends on how the money paid in advance is
         characterized: deposit v advance payment
             o Deposit does not limit the amount of damages unless it is clearly indicated that the
                  forfeiture limits the liability
             o Advance payment = return, deposit = no return UNLESS deposit/forfeiture amount is so
                  large relative to any conceivable loss that it may be viewed as ‘extravagant’ or
                  ‘unconscionable’ and a court will refuse to enforce it (Stockloser)

Howe (1854) (Eng CA)
    If the $ paid in advance = ‘earnest’ (characterized as a deposit) – then the faulting party will not be
       entitled to recover (parties intended that if K did not come to fruition the $ would be forfeited )
    K actually used the term ‘deposit in part payment’ – sign of anticipation
    Factors to help decide if $ = deposit:
            o Is it explicit in K? Evidence of industry practice as to how money paid is used?
            o Can you infer from the conduct of the parties that if the buyer did not perform, they
                 would forfeit the money paid in advance?

Dies
        Situation where the parties do NOT anticipate that the $ would be forfeited
        Buyer made a pre-payment and K did not specify deposit – PL has right to recover the part-
         payment
             o HOWEVER – DF still could be entitled to damages (if damages owed to DF is less than
                  part-payment, DF to pay balance to PL – if damages owed more, then part-payment will
                  just go towards paying those off)
             o CONSIDER NATURE OF PAYMENT - If word ‘deposit’ is not used (and nothing in
                  conduct or language that suggest) – court will generally treat the pre-payment as
                  something which may be returned to buyer

Lozcal (1980) (Alb CA)
     A provision in K that if buyer defaults they forfeit deposit does NOT limit the buyer liability (may
         have claim in damages for failure of buyer in K)
             o Genuine Deposit – has nothing to do with damages, except that credit must be given for
                  the amount of the deposit in calculating damages
             o Liquidated damages – are a genuine pre-estimate agreed upon by the parties as to
                  damages in the event of breach of K

Stockloser (1954) (CA)
     K explicit – if purchaser defaulted, vendor should be entitled to rescind K and keep all payments
        already made
             o If no forfeiture and money = part payment and buyer default = cannot recover (so long as
                 seller keeps K open)
             o If forfeiture clause or the money is expressly paid as deposit (= forfeiture clause) then the
                 buyer in default CANNOT recover (aside from equity)
     Even if parties provide that a deposit will be forfeited in the face of default – the court does not
        have to enforce penalty clauses:
             o (1) Sum to be forfeited is out of proportion with the losses suffered by PL
             o (2) To award the PL the right to keep deposit would be unconscionable
                       Ex – allow seller to keep the 90% of the money is out of proportion because
                           seller still has the good

PARTIAL PERFORMANCE RECOVERY

ENTIRE K RULE
    Where a K is made to provide goods and services for a lump sum payment (but do not have fully
      complete K) NOT entitled to payment for partial perf
                                                                                                            24

        (1) Court says this is not a quantum meruit kind of situation because buyer was entitled to have all
         of what was contracted for but would up with something less (THEREFORE – no unjust
         enrichment)
              o Bailey does not like this in terms of equity
        (2) NOTE  ON Apportionment Act – even if there is a K for lump sum at end of the year re
         employment – court will apportion the salary (day to day) so you will be compensated for your
         performance

Blake (1853)
     Utilization of Cutter case (sailor dies during journey – no compensation)
     Applies ‘entire K’ rule – PL left job before K up – not awarded wages for work done as it was a
        lump sum K
             o No quantum meruit – court finds no unjust enrichment in these situations – anything
                which can be interpreted as such arose as a result of the terms of the K and was not
                considered unjust

Sumpter (1898)
    K for lump sum (build 2 houses and stables) – ‘Entire K’ rule applied  no evidence to infer a
        fresh K (novation) had been formed (PL recovered only for values of materials later used by DF)
    Courts exceptions from ‘Entire K’ rule:
             o (1) No clear indication that the builder has actually abandoned the work
             o (2) There is an express or inferred new K to pay for work that has already been done
                 (some sort of discussion from which the courts can infer it means that parties did
                 essentially agree that they’d be paid for that which has been performed)

Lysaght
     K to build 2 roofs – 1 completed  did not seem to have abandoned K, merely that he would not
        go on unless DF paid him for work done
     DF did 2nd roof himself  infer new K to pay for work done

Daken (1916)
    If builder has substantially performed K – builder gets to sue for the full price subject to
        deductions for any damages for breach of K
    Court  if you substantially complete K, and dealing with disagreement re whether building
        complies with specifications, the homeowner will not be able to use the ‘Entire K’ rule to keep
        builder from any payment

INTERPRETATION OF K & PAROL EVIDENCE RULE

        While Marshall is not an explicit overturning of Bauer – the obiter helps make the case in
         combination with Gallen and HiTech courts are preferring the broader, less strict approach to
         Parol evidence (though Bauer remains prominent)

Parol Evidence
     Any source of terms of the K that is not part of the written K – includes both oral statements and
        written documents (outside the 4 corners)

Eli Lilly (SCC)
      It is unnecessary to consider extrinsic evidence – evidence that is outside the 4 corners of the K
          (when the document is clear and unambiguous on its face)

NOTE  if you except the Eli Lilly rule you may interpret the K inconsistently from both party’s intent –
so unless you use extrinsic evidence the court cannot properly give a K meaning
     Adjustment of Parol Evidence rule – once the court determines that the written document reflects
         the final and complete agreement of the parties, it is then when external evidence can be truly
         irrelevant
                                                                                                            25

        ON Legislative action re parol evidence – when a consumer is dealing with business (Bus Prac
         Act): allows consumers to rely on oral reps made by a business employee in K’s for goods and
         services despite what is written in K

Bauer (1980) (SCC)
    Has been virtually decimated by lower courts – treated as case which arose on its facts  PL
        (Bank of Mont) – DF (Bauer – senior officer for a company)
             o Got a loan from PL  given with security for it ((1) Assignment of company’s accounts
                  receivable, (2) Guarantee from Bauer)
             o Upon breach – move to #2 (DF felt they would not be totally liable)
             o Express words of K  you were not going to be able to take the accounts receivable and
                  enforce them (despite representations made)
    Should the court consider the extrinsic evidence of statements made to DF?
             o Parol evidence rule  in favour of PL (did not accept evidence)
    (1) Face of the document = no obligation to perfect the assignment (no obligation on PL part to
        take a step to protect DF interest)
    (2) ‘Extrinsic Evidence’ of a representation by someone at PL  the oral evidence (outside 4
        corners) contradicts the written K on its face
    (3) Where the extrinsic evidence would contradict, add to, vary the written K the court should
        NOT accept the extrinsic evidence
    NOTE  desire on part of the court to reduce negotiations to writing
             o Strongly worded document v weak extrinsic evidence (ability to use this notion in order to
                  distinguish Bauer in later cases)

How do courts attempt to fix situation?

Gallen (1984) (CA, SCC dismissed leave to appeal)
     DF sells grain seeds to PL and orally assured (reassurances) PL that there would be no problem
         with weeds – written K states: “no warranty and not in any way responsible for the crop’  crop
         fails
     Court  ‘K in fact’ prevailed over ‘K in law’ (for PL)
               o If the parties have set out all the terms of the K in writing, you cannot use extrinsic
                   evidence to add, to vary or reduce or contradict those obligations
               o BUT  (EXCEPTIONS TO BAUER) You can consider extrinsic evidence IF:
                         Written K not all the terms specified
                         To show the K is invalid (fraud etc)
                         To support claim for rectification – dispel ambiguities
                         To establish a condition precedent
                         To show there was both a written K and oral K
                                  Establish that there was a collateral agreement
                         Support a claim for equitable remedy – spec perf?
                         Evidence of a tort
     If conclude that the extrinsic evidence shows a collateral warranty/agreement then evidence
         relating to the oral evidence is admissible:
               o (1) Interpret the oral and written agreements together
               o (2) If there is no obvious contradiction then there is a strong preference for the written K
     NOTE  the evidence is strong enough that the oral representation was intended to affect the
         contractual relationship of the parties (so strong that the oral warranty should prevail, despite the
         strong presumption in favour of the written document (Bauer))

Carman (1982) (SCC)
    PL asks employee of DF (CPR) how much rock is to be removed in calculating tender (unable to
        identify employee later) – actual amount = more
    K btw parties had clause stating contractor entered into agreement based on his own knowledge
        and not any information or statement given to him by co.
    Does the pre-K statement of agent modify the terms of the written K?
                                                                                                         26

             o    Diff facts for PL  knew of the non-reliance clauses (CPR taking efforts to prevent
                  liability) – a reasonable person would know that the risk of relying on those types of
                  representations would fall on the PL
             o Test to establish a collateral warranty (proof of intention to K – what would a reasonable
                  person think if they observed the context in which this representation was made?)
        2 ways an obligation can be imposed (based on rep):
             o (1) The representation became a collateral agreement OR
             o (2) DF liable to PL by negligent misrepresentation (vicarious)
                        No evidence of intention here – even if there was, the oral representation
                             contradicts the written K so oral rep should not be relied upon (Bauer)
        Agency issue  reasonableness of expectations when you deal with an employee – reinforces
         point that you must make sure you know whether the agent has authority

HiTech (2001) (CA)
    Meaning of termination of notice period is disputed – DF (Sears) says it could give notice at
       anytime during agreement (PL wants to show significant start-up costs to exemplify the absurdity
       of the situation)
    Court  both parties lead extrinsic evidence – for PL
            o Words are susceptible to more than one meaning
                       Need to understand commercial context the parties are operating on in order to
                         find the most sensible interpretation
                       Open to extrinsic evidence not to create or find obligation apart from what is
                         written to interpret the obligation that is written in the K

Marshall (1999) (SCC)
    Obiter  PER should not keep out evidence as to whether the whole of the agreement was
        contained in the written K and only after you have looked at the extrinsic evidence can you
        actually exclude it from consideration
             o Open to the courts to imply terms as understood by the parties in order to give it business
                 efficacy – meaning you must consider the commercial context
             o And so if we are willing to do this contextual analysis in commercial situations, they why
                 not considering the treaty right?

CLASSIFICATION OF K STATEMENTS

        Factors to be considered  nature of the statement, of reliance, relative knowledge (inside
         information etc), is the statement incorporated into the K and was relief quickly sought?

CATEGORY                                               REMEDY
Puff                                                   Nothing
      No legal significance
Misrepresentation
(a statement which turns out to be untrue –
sufficiently serious for forming the basis of a duty
of care obligation)
      (a) Fraudulent – best from the PL                       Rescission and damages for deceit –
         perspective  a statement turns out to be              Court will treat K as if it never happened
         untrue AND the speaker knowingly stated
         this (Derry v Peek)
      (b) Innocent – Make a statement that was                Rescission – IFF (1) the buyer can return
         untrue but you were not aware it was                   the good in the exact form purchased, (2)
         untrue (would not have immediately been                seek relief ASAP (before full execution of
         able to have gone out and verified this)               K), (3) No damages (reliance on
         (Redgrave)                                             expectation)
                                                               Ex  Ennis Case – K for the purchase of
                                                                goods, the K is not fully
                                                                                                        27

                                                               performed/accepted because the purchaser
                                                               has a right to inspect goods and return
                                                               them within a reasonable time
                                                              Ex  Redican Case – Courts not always
                                                               motivated to expand the K, if you have a K
                                                               for a lease and you have the keys etc – this
                                                               cannot be considered an executory K

     (c) Negligent  Requirements untrue                     Damages are the key remedy – for
      statements where it was reasonably                       whatever you spent in reliance on the Neg
      foreseeable to the speaker that the recipient            Misrep
      would have reasonable relied upon it - the
      relative knowledge of the parties is key (K
      with professional) (Hedley Byrne)
    Ex  Cognos – disclaimer can negate
      liability
Warranty
    The statement rises to the level of a K on
      its own – statement where intention to be
      bound, consideration and meets all
      contractual formation requirements
    Impt  intention to be legally bound must
      be present

       Where buyer has fully performed its obligations when the breach occurs, there will be no practical
        significance in the distinctions btw warranty and condition and the buyer’s remedy will be
        damages measured by the compensation principle. In these situations there is a tendency to
        simply refer to the term that has been breached as a ‘warranty’

Redgrave (1881)
    PL said business was more profitable than it was – if DF had examine papers closely he would
        have seen this statement was false
    Court  innocent misrepresentation (before neg misrep and fraud diff to prove)
            o PL entitled to rescission
    Limits on finding of innocent misrepresentation
            o (1) Innocent party can only get rescission if they can actually give back what was
                promised in its original form
            o (2) Promisee (in receipt of false statement) is NOT entitled to reliance or expectation
                damages (ex  lost profit) – it is an equitable remedy
            o (3) Promisee generally should be seeking remedy before the K is executed or fully
                performed by the parties

Ennis (1990) (Man CA)
     Bought car, paid, drove for 3 days then learned of misrep – still got finding of innocent misrep
             o Limited effect of requirement #3 – in case of sale of goods – ‘this means after the passage
                of a reasonable period of time for the purchaser to determine whether the representations
                are true’

NOTE  Other ways to get around limits of innocent misrepresentation is to interpret pre-K statement as a
warranty, a negligent misrepresentation or a mistake

Heilbut (1913) (HL)
     ‘Caveat emptor’ – buyer beware type of statement
     PL purchases shares from DF (underwriter) – purchase is based on positive answer  shares
         down (co bankrupt)
     Court  finds for DF (no fraudulent misrep AND no warranty)
                                                                                                        28

             o Strict interpretation – want strict proof of K formation
             o To est warranty  PL has to clearly establish that the statement constitutes a collateral
               element to the written K AND this requires that a reasonable person in the circumstances
               would have an intention to be legally bound
           o Where the warranty is to add to or vary terms of K  court suspicious and impose high
               threshold of proof of intention
       Court  may have decided diff if considered imbalance of knowledge (next case)

Dick Bentley (1965) (CA)
     PL purchased car from DF – DF made representation (re mileage) indicating that he was in a
        position to know about the car (gave comfort)
     Court  found for the PL – there was a WARRANTY (court formed statement to achieve this
        conclusion as there would be been problems with rescission)
            o (1) Whether an intelligent bystander would think in the circumstances, the parties were
                 intending to enter into a legally enforceable K
            o (2) If the representation was made in the course of negotiating and was made for the
                 purpose of inducing the other party into accepting the K
            o (3) If (1) and (2) – Court will induce that this will constitute the requisite intention to
                 form a binding K BUT this presumption can be rebutted by the seller (showing that they
                 are innocent of fault – lack of knowledge)
                       Prima facie grounds for inferring a warranty
     NOTE  focus on the disparity in knowledge btw the buyer and seller

Fraser Reid (1980) (SCC)
     PL forms K with DF for purchase of newly completed home
     Clause 1  closing ‘provided that’ the seller has disclosed all outstanding infractions of orders re
        Fed, Prov and Municipal bylaws
     Clause 2  No reps, warranty etc other than those expressly stated in K
     Court  no implied warranty at CL – HOWEVER – express warranty re Clause 1
             o Based on provision which stated: “providing vendor has disclosed all outstanding
                 infractions and orders issued by government authority”
             o Legal duty to disclose this information (had knowledge – did not convey it)
             o Breach of warranty = damages (not entitled to rescind or repudiate)
     Diff btw ‘rep’ and ‘warranty’:
             o (1) Warranty is a collateral unity
             o (2) Warranty is part of the K (representation proceeds the K and induces)
             o (3) Given in course of dealing (purpose of inducing K)
             o (4) Does induce K (K made in reliance on the warranty)
                       Statement of fact v expression of opinion (representation)

Murray (1979) (ON)
    PL (farmer) v various DF (manu, distributor and retailer) – K for faulty harvester
    Pre – K
            o (1) Rep statement in brochure
            o (2) Statements from DF ‘harvester is ideal product’
    Court  liability to PL from all three DF re what is owing as a warranty - express collateral
        warranty through brochure
            o Retailer – made statements intended to induce the PL to ether into K (court has a
                warranty obligation to the PL – implied warranty in SGA)
            o US Manu – made pre-K statement through its brochure – creation of it with intention of
                potential customers (NOT just marketing but pre-K statements)
            o Canada Distributor – similar to Manu – turns on fact that agent of distributor had K and
                made rep to PL – agent for Manu
    Damages – PL claim for lost profit = mix of reliance + lost profit (less than what asked though)
    Case = product of facts
                                                                                                         29

NOTE  Privity as it relates to warranties – they are only available to the immediate purchaser and seller.
They are not afforded to another party unless that purchaser is a commercial vendor (SGA). If goods are
sold through a retailer and the goods are defective, the Manu is not responsible. However, if there is an
express statement from the Manu than they too can become liable

Shanklin Pier
     Manu advertising creates a ‘collateral warranty’ by means of unilateral K
     Manu promises anyone who reads and relies on advertisement will have the qualities set out in
        advertisement
     Buyer’s consideration is entering into K with retailer (constitutes consideration)

Sale of Goods Act (SGA)
     Imposes obligations of the seller of goods by implying terms in each K of sale
     The act permits the parties to exclude the implied terms of the Act – by an appropriately drafted K
         and to put all the risks of poor quality on the buyer
              o This ability is now curbed by the CPA 1990 and by judicial methods
     Act premised on distinction btw conditions and warranties – if the seller breaches condition buyer
         has right to reject goods , where in a breach of warranty must accept and pay for goods and then
         claim damages
     S 13  in a K of sale, unless the terms of K state otherwise
              o Implied condition = right to sell
              o Implied warranty = right to quiet possession (no challenge to legal ownership)
              o Implied warranty of no encumbrances – charge in favour of a 3rd party not declared to PL
                   at the time of sale
     S 14  warranty condition corresponding to description
     S 15 
              o (1) Implied condition of fitness for purpose where you have disclosed it
              o (2) Implied condition about merchantable quality (have not communicated the exact
                   purpose of what the product will be used for, but it will be in reasonable shape)
                         Ex  if brand new, you would expect them to be in perfect condition at the time
                             of sale
BUT

        S 15(4)  B2B expressly K out of SGA implied warranty/conditions (or to state terms
         inconsistent with them)
             o S 34  B2C CPA says no contracting out for consumers
             o THEREFORE – 15(4) not applicable to consumers
        AND
        S 12(2)  whether added term = condition or warranty depends on contractual interpretation
        S 12(3)  notes diff btw condition and warranty (breach of condition is right to walk away)
             o Entitled to rescission if buyer accepts goods and after having reasonable time to inspect
                  them does NOT return them right away then they will not have the right to a remedy of
                  rescission

VERTICAL AND HORIZONTAL PRIVITY

NOTE  NO K remedy against manufacturer although may be able to K claim against manufacturer based
on advertising

Privity and the SGA (Vertical + Horizontal)

        (1) Vertical  ultimate purchaser has no remedy against manu; but remedy against retailer is
         sometimes of no value since retailer is sometimes less substantial than manu and not worth suing
              o SGA would allow you to rely on implied warranties as your relationship of retailer/buyer
              o Unless you can bring yourself within the Murray kind of exception (est some type of
                  contractual relationship with manufacturer/distributor, ads, brochures) – then you do not
                                                                                                         30

                 have relief in K – no privity btw you as buyer and manu/distributor etc – because you do
                 not have K relationship
                       Form of relief? Claim in tort

McMorran (1977) (OR)
    Manu has made a statement (ie brochure) that is designed to induce a K (CL theory of a warranty
      owed to a buyer – PL purchases pop – explodes in eye
    Court  btw the buyer and retailer (SGA s 15(2) (merchantable quality – applies on K theory – fit
      for ordinary use
    DF shown on BOP the defect in the crown was present when he selected the bottle of beverage
      from shelf at DF store (no evidence for carelessness on part of PL)
           o Btw buyer and Manu – vertical privity problem precludes SGA – no CL theory would
               work per Murray (no brochure etc) – liable in tort for negligence for the Manu of the
               bottle (no K responsibility)
           o Only reason seller is liable to PL is because of negligence of Manu (entitled to
               indemnity)
           o PL really gets to pick the party they want to recover from (retailer can seek
               indemnification)


       (2) Horizontal  member of the consumer’s family is injured by defective goods, cannot sue
        (injured person has given no consideration to anyone and cannot sue anyone in K)
             o Buyer/seller (but buyer’s family – which may be injured by the defective good – so again,
                 the buyer’s family is not able to take advantageof the implied warranties in the SGA

Sigurdson
     PL (with wife and son) injured in car accident – faulty part – had K with DF to install part AND
        had a K with Manu for purchase of part
     Injuries due to installation – where does the remedy lie?
     Court  wife and son prevented from recovery – absence of seller negligenc
            o PL not able to recover from garage in negligence because all garage wsa doing was
                installing hose and could not inspect without opening it up (which would have rendered it
                ineffective BUT PL able to recover on breach of implied warranty and garage could be
                indemnified by Manu
     NOTE  Bailey thinks claim could have had a chance if phrased wife/son v Manu for negligent
        manufacturing

FRUSTRATION

       If after K is made there is an unexpected change in circumstances which affects the underlying
        assumptions of the parties – K can no longer be performed – it is frustrated

KBK (2000) (BCCA)
    PL has K with DF (Safeway) for sale of property (prime development) – paid deposit
            o NOTE  advertisement for ‘prime development property’ – key to the deal is that the
                 property will be tied to a certain commercial development
    HOWEVER  before closing, city introduces bylaw to limit size of development – no longer
       possible for PL to sue the property in manner intended
    Court  in favour of PL (return deposit) – found that the K was frustrated and that they are
       entitled to deposit
    Test for frustration (relying on Krell):
            o (a) What is the foundation of the K? Only if there has been an intervening event can the
                 K be found frustrated
            o (b) Was performance prevented?
            o (c) By an unforeseen or not reasonably expected change in circumstances/events
    PL had revealed its intentions (type of building it wanted to develop, the size etc)
                                                                                                             31

             o    The DF advertisement played an impt role – K relied on specific development purposes
             o    Ask  was performance prevented? In this case – zoning bylaw restricts
             o    Could this have been reasonably expected by the parties? Unusual here

Pelech v Pelech (1987) (SCC)
     Courts can vary only if there was a ‘radical change in circumstances, causally connected to the
         marriage – often disadvantaged women

B(G) v G(L) (1995) (SCC)
    Slim majority – minority argued while an agreement is a ‘relevant consideration’ courts could vary
        when there had been a ‘material change in circumstances’

Miglin (SCC)
     Prior authority was B(G)
     Wife/husband separation agreement – wife given 4 yr consulting position with husband’s firm –
         near end of obligation wife seeks support
     Court  freedom of K and finality of K (for husband)
             o Two step analysis:
                       (1) No reason to doubt that there was a ‘true accord’ (voluntary and informed
                           meeting of the minds – look for duress, oppression etc), IF YES:
                       (2) Is the agreement still consistent with parties reasonable expectations and
                           intentions and the goals of the Divorce Act?
                                 Has something happened in the interim which would be considered a
                                    significant departure from what the parties presumed the outcome
                                    would be btw them?

HR & S Sainsbury (1972) (QB)
    PL (buyer) – DF (seller)  K made before bad harvest – DF sells to 3rd party as result of low yield
    Court  for PL
           o Implied condition that DF did not have to deliver stipulated amount if, through on fault of
               his own, that much did not grow
           o NO implied condition that DF does not have to deliver at all if cannot deliver stipulated
               amount (would be unreasonable)

Fibrosa (1943) (HL)
     Issue which led to leg reform  what about the person who started to perform their obligations
         under an agreement (which was later deemed frustrated)
     PL delivers deposit to DF (K for a machine) – war breaks out
     HL  in favour of PL and order return of deposit
             o Equities from perspective of buyer (pay for machine they were not able to receive) K
                  frustrated as result of war – K dissolved
             o The same event which automatically renders performance of the consideration for the
                  payment impossible not only terminates the K for the future, but terminates the right of
                  the payee to retain the money which he has received only on the terms of the K
                  performance
             o War breaking out was unforeseen by either party (why should 1 party bear the entire
                  loss?)  avoid unjust enrichment!
     NOTE  Frustrated K Act (legislative response)
             o S 3(1) – Codification of the CL (return of pre-payments etc)
             o S 3(2) – If there is prior performance before the frustrated event, the performer can
                  recover money for their reasonable expenses
             o S 2(2) – Only applies to certain kinds of K’s

Two Key Concepts (in interpreting obligations)

        (1) Freedom of K (Printing case p 770)
                                                                                                         32

             o    Mensch
                        Most K are about the transfer of property – right to property
                        You want state regulation where it benefits you – you do not want it where it
                            does not
                        Decrease of individual liberty – rules re when K is formed correctly (duress,
                            fraud etc) are arbitrary
        (2) Protection of Reasonable Expectations
              o Respect for obligations with regard to context
              o Used where court does not like the result of the strict application of the words – impose
                  techniques (inc broad construction, explicit control through use of unconscionability and
                  duress, limitation of remedies for breach etc)
              o State – giving effect to what the parties would have interpreted in a reasonable fashion
                  (given the industry, state of knowledge etc)

TECHNIQUES

Interpretation
      Where parties have spelled out an agreement within the K which involves a limitation on their
         liability (exclude it when they are at fault)
              o Courts interpret these sceptically – interpret K to expand obligations on the party who is
                    trying to gain an exemption OR narrowly interpret the exemption/exclusion
      Fraser Reid
              o  expanded obligation of the seller re municipal bylaw infractions
              o Unwilling to create implied warranty for new homes because of concerns about possible
                    effects on housing market
              o Absent an express warranty – PL should get no relief
              o HOWEVER – SCC felt this result was intolerable – interpreted one clause in K to
                    broaden obligations and become express warranty
      Wallis v Pratt (1911) (HL)
              o DF sold see to PL – turned out to be diff seed – K stated: “seller gives no warranty
                    express or implied as to growth, description or any other matter”
              o Held  because exemption clause used word ‘warranty’ – did not exclude implied
                    condition from SGA that goods must match their description
      Sodd Corp v Tessis (1977) (ON CA)
              o Exclusions of warranties/conditions does not avail a seller if there has been a negligent
                    misrepresentation
              o Reading down  courts have done the same to prevent parties from contracting out of
                    negligence
              o Contra Proferentum  interpret the words against the drafter

Inconsistency
     The courts will take a situation where they have an exemption clause which is inconsistent with
         another clause in the K (will say it is ineffective)
     Mendelsson (1970) (QB)
             o Re car and tag for no liability for loss by the attendant
             o Denning  parking lot authority gave assurance to looking up car (cannot negate through
                  the ticket – oral and written are inconsistent)
             o Failure to address agency issue here (battle of insurers in this case)
     Two possible sources of imbalance in K:
             o (1) Inequality of info
             o (2) Inequality of power arising from structural or temporary monopoly

Standard Form Agreements (K of Adhesion)
     Ticket cases – court pays attention to a few things:
            o (1) Nature of the clause – is it a clause to allocate insurable risk?
                                                                                                          33

                           Does it make sense to say that the car owner takes a risk because the car owner
                            holds insurance?
             o   (2) Is it a significant departure from industry standard?
             o   (3) Imbalances of bargaining power?
                       K of Adhesion usually used by the party with greater bargaining power
             o   (4) Is it business to business or business to consumer in nature?
             o   (5) Tendency for courts to confine exemption clauses in a narrow manner to make up for
                 imbalance

TICKET CASES

       Similar to battle of the forms  one side is asserting the conditions they printed on the back of a
        ticket or posted somewhere are the terms that define the K
       Courts are concerned that the other party should have had the chance to see the terms and decide
        whether they’re an acceptable basis for doing business
       Concerns re fairness and possible abuse of power who imposes the terms may lead the courts to
        protect the person on whom the terms are sought to be imposed

Parker (1877) (Eng CA)
     PL checks bag to DF – given a ticket with particular serial number – liability limited – DF loses
         item
     Court  Did the PL read the back of the ticket? Did they have an obligation to?
              o (1) If the PL did not see or know that there was writing on the ticket = NOT BOUND
              o (2) If the PL knew or believed that there were conditions on the back = BOUND
              o (3) If the PL knew there was writing on back but also knew or believed that the writing
                 included conditions then as long as the DF gave sufficient notice, than the PL is BOUND
     Dissent  against PL (tough luck)

J Sperling (1956) (CA)
     The more unreasonable a clause is, the more/greater notice must be given of it
     Determinative factors (subjective to customer):
              o (1) Knowledge of the customer
              o (2) Past relationship/unfamiliarity with this type of form

Heffron (1973) (CA)  * Emergence of ‘Fundamental Breach’ *
     PL delivers keys to DF (parking lot) – ticket with serial number – ‘DF is not responsible for theft
         or damage of the car however caused’
     Conditions listed on signs as well  car / keys gone
     Court  DF is liable
              o K = bailment NOT a license
              o If K for bailment and bailee fails to deliver then bailee is liable to the bailor UNLESS:
                       Bailee NOT at fault for the loss OR
                       Valid exemption clause ‘fundamental breach’ – one way the courts have used to
                           deal with the enforceability of exemption clauses in standard form agreements
     Why the FB emergence? The heart of the K is that the bailee will return the vehicle when the
         bailor comes back for it – THEREFORE – not entitled to rely on the exemption clause

Thornton (1971) (ER) Denning
     Parking lot – ticket from machine – signs re “all cars parked at owner’s risk”
            o Including exemption liability to damage to vehicles and personal injury in lot – expanded
                 clause trying to absolve responsibility for anything
            o No evidence that the PL knew about the exemption of liability clause
     PL injured in lot – 50% fault of DF
     Exemption clause only binding If (burden of proof lies with DF):
            o (1) The customer knows that the ticket was issued subject to a condition, OR;
            o (2) Company has taken reasonable steps to provide notice
                                                                                                            34


Bata v City Parking Canada (1973) (ON CA)
     If it is shown to be a license than NO LIABILITY for DF

Specht (2001) (NY)
     PL downloaded free software from DF – no ‘I agree’ icon to click only ‘Please review and agree
         to the terms of the license agreement before downloading and using the software’
     For PL  if agreement to user agreement is a requirement of using the software, the manufacturer
         has to make it clear that customer is entering into a K

Re ticket cases  the language in them is similar to an offer and acceptance analysis
      Is the obligation of the party limited by the language of the agreement?
      Did the customer assent to this particular term? (This is why the knowledge of the customer is so
          impt in this situation)

McCutcheon (1964) (ER)
    PL (customer) and DF (shipper)  K – exemption clause for DF
           o PL does not sign standard form K – shipper ferry sinks – lose car
           o DF argument  protected from liability through the exemption clause (DF use Sperling)
    DF liable – evidentiary problem in this case – know that the PL never read the K
    Impt  absence of signature and ignorance of PL

Tilden (1978) (CA)
     DF rented car from PL (Tilden) – signed K (including additional insurance)
             o Impt  did not read K (PL employee knew this)
             o DF in accident – convicted in criminal court for drunk driving
     Did the exemption clause apply?
     Court  for the DF
             o (1) Terms in K ‘very small print’
             o (2) Inconsistency  in the exemption clause btw what is on the front and what is on the
                 back (doubtful as to whether the stronger clause should apply)
             o (3) The clause on the back is so easy to trigger – not reasonable
                       In this case – a single drink and you would be excluded from coverage
             o (4) DF did not read the K (to knowledge of the PL)
     NOTE  Focus of K law is to support the reasonable expectations of the parties
     Policy  Very difficult to discover the reasonable expectation of parties (easier to follow
         L’Estrange Rule as dissent did in this case)
             o L’Estrange – can lead to injustices in B2C agreements (cannot get service without
                 signing the K)

POLICY  Following the majority reasoning in Tilden – the test to determine if the K is binding is very
subjective – the court is forced to rely on the consumer’s subjective knowledge regarding the clauses in
standard form K’s to determine if the terms will be binding if they follow the majority opinion in Tilden
     The effect of relying on subjective analysis = litigation becoming more expensive, time-
         consuming and complex and the job of drafting will become much more difficult

Cornell Engineering (OCA)
     PL (Corporation – essentially an individual) – DF (Cornell – Stevens)
     Arguably a B2B transaction BUT involves individual and eng firm – PL to provide services (signs
         K)
     DF negotiating hard (raise cost threats etc) – PL uncertainty re shares to be received AND had
         already given up other lucrative employment
     CL  If unilateral termination of K – the DF pays 2.5x what they have already put under the K
     Court  the PL is entitled to enforce the unilateral termination clause which had be inserted into
         the Standard form K
              o (1) PL owed no duty to Stevens (re dependency)
                                                                                                      35

           o (2) If wrong about (1) then PL satisfied any obligation by saying ‘read the K’
       B2B – up to parties to look after themselves:
           o (1) Unconscionability – assume acting in self-interest (court will not condone this policy
                in absolute)
           o (2) Good Faith – parties acting in self-interest but you must have due regard to the other
                party.
                      Ex  Big Quill – making a change in K without bringing to attention of other
                          party
           o (3) Fiduciary Standard – situation where one party is dependent on the will/whim of the
                other party’s power
                      (1) Past history btw the parties
                      (2) Did one party pick on a specific advisory rule? Did one party rely on a
                          special expertise?
                      (3) Relative position of the parties re access to info and basic comprehension of
                          the deal
                      (4) How did the parties come together?
                      (5) Was the trust knowingly reposed?
       NOTE  Rectification – were there is a mutual intent to do X

L’Estrange (19th century rule)
     You sign it – it is binding (written K) UNLESS fraudulent misrepresentation

NOTE  CL developed FB in reaction to L’Estrange – if breach of term would rob the other side of the
purpose of the rule, the exemption clause is no longer binding
     FB = Can a defaulting party rely on exemption clause where they have deprived the other party of
        the essence of the K?
     Diff analysis than Hong Kong Fir (which states that if breach of term robs other party of essence
        of value they are entitled to walk away)
     Is it a rule of law OR a rule of construction?
             o Under Hunter / Photo Production – the rule of law is not appropriate for FB – more a rule
                  of construction
             o Court tendency now to uphold exemption clauses (in face of FB)

Karsales (1956) (UK)
     PL (seller) K with DF (buyer) for car – exclusion clause
     FB as a rule of law (regardless of context)
     If you FB the K – you cannot rely on exemption clause to escape/limit liability
             o If FB – K is at end (therefore cannot rely on the clause)

Canso (1974) (Nova Scotia)
    B2B in FB  applied the concept to this scenario

Photo Production (1980) (UK)
     ‘Rule of Construction’  PL (PP) K with security co DF – employee of DF deliberately starts a
        fire
     PL  argues Karsales (FB)
     DF  exempted from liability (per K)
     Court  for DF – this is a standard form K BUT these are 2 sophisticated parties
             o FB = rule of construction
                      Does not automatically remove exemption (must analyze)
                      Do words bear out on proper construction?
             o To determine whether exemption clause should be upheld:
                      (1) Does clause intend to efficiently allocate risk?
                              It is better in this case for the PL to buy insurance to protect because
                                 they are best placed to get insurance which can meet their specific
                                 needs
                                                                                                      36

                         (2) Equal partners (re unconscionability, good faith, fiduciary)
                         (3) Contra Proferentum
                                Party that drafted the language will have it interpreted against them
                                If you say you are entitled to exemption, the court will demand that you
                                   justify as to why (look to clarity of words)
                                If there is an exemption for the drafter from negligence- must specify
                                   negligence protection
            o Favours the idea of looking to context  how is this clause drafted? Is it intended to
                allocate risk?
       In Eng  moving away from Harbuts (rule of law) to rule of construction and use of words of the
        agreement – whether it is a reasonable interpretation
       NOTE 
            o (1) Economic policy reasoning – avoid wasteful 2 party insurance
            o (2) DF could not have foreseen the actions of their employees in the drafting of the K
            o (3) Once you have taken action to exempt yourself in negligence – you have also
                precluded intentional liability (assumed by the court)

Beaufort (SCC)
    Disregard HL in Photo Production
    PL (owner of development) – DF (general contractor)  DF breach of tender document (PL
        complained of DF work – refused to pay anymore)
    Court  for DF – PL refusing to pay = FB (FB accepted as rule of law)
    NOTE  for FB to work – must be an exemption clause
            o Three broad types of exemption clauses:
                     (1) Clause purports to limit or reduce that what otherwise would be the DF’s
                        duty (ex – reducing substantive obligations, express or implied warranties,
                        limiting liability to cases of wilful neglect or fault)
                     (2) Clause purports to relieve a party in default from sanctions which he would
                        otherwise have to pay
                     (3) Clause purports to qualify the duty to indemnify the other party for losses
            o NOTE  no fixed method for determining what constitutes exemption cl

Pompey (2003) (SCC)
    B2B context  rule of construction (affirmation of Hunter)

BG Linton (1975) (SCC)
    Exemption clause for CNR – they shall assume no liability for losses arising from the telegram
        service
    Court  exemption clause as binding – there was no FB because the telegram was delivered (be it
        an hr late)
    Minority (more in line with FB notion)
             o Was a breach because they understood the time and failed – reason they entered into the
                  K was because CNR held that they would meet the delivery
             o High threshold for FB

Canadian Dominion (1981) (ON CA)
    B2B K with an exemption clause – there was a FB but it fell within the exemption clause (CA
        applied the clause – basically adhered to the SCC)
             o In 1980 – SCC said rule of construction
    Notwithstanding FB – exemption clause stands because the facts come squarely within the terms
        of the K
    Reflect desire to avoid Beaufort

Hunter (1989) (SCC)
    2 DF (Hunter and Alliance) providing gears to Syncrude – initial K ad same 1 year installation
        warranty provision (product suppose to last upwards of 10 yrs – ineffective after 1)
                                                                                                           37

        (Amendment) 2nd warranty for Hunter  exempt from liability if notice of defect more than 24
         months from shipment or 12 months from start up
        DF additional provision  excluded implied warranty under SGA (this is OK for B2B context)
         (PL finds defect but does not bring it to attention)
        Issue  DF protected from liability by exemption clauses?
        SCC  Hunter clause does NOT preclude SGA liability while Alliance clause DOES preclude
         SGA liability (language is clearer in this clause)
        No rejection of FB – however, dif justifications:
             o (1) Dickson – prefers unconscionability (not FB)
                       (1) Extremely clear language to exclude application of SGA implied warranties
                           and conditions
                       (2) So AC can rely on exemption clause unless FB
                                 When look at words of exemption clause – liability could not have
                                    meant to be excluded or limited
                       (3) If on a true construction of the exemption clause liability is excluded then the
                           exemption clause is effective UNLESS there is unconscionability
                       (4) Sophistication of parties
             o (2) Wilson – FB still works BUT it is a matter of construction
                       (1) What the parties understood at time of contracting
                       (2) Whether it is fair and reasonable now in light of breach for the court to
                           enforce the exemption clause
                                 Unfairness in dealing
                                 Whether the FB deprived the innocent party of the essence of their
                                    rights under the K
                                 Pompey (SCC)
             o Both techniques can be employed – unconscionability test = high threshold

Hunter – A Breakdown
    Dickson looks solely at the words of the K and their ordinary meaning while Wilson looks more to
        the construction of the K
    Bailey  differ regarding the scope of what is FB (Wilson broader than Dickson) Wilson offers a
        better chance for someone who does not want the exemption clause to apply
    Wilson examines tools that the courts can use to preclude the enforcement of the exclusion of
        liability clauses, and indicates that they all apply to situations of B2C or B2B with a stronger party
        taking advantage of the weaker party
    In the event of a B2B situation, with equal bargaining power, the courts can use FB to refuse to
        apply the doctrine – it is to be used when subsequent events would make enforcing the K
        unconscionable
    Wilson and Dickson differ re what the power of the courts are if when the K is made, the K is not
        unconscionable, but later events make it so
             o Wilson  court should be able to step in and re-write party obligations if there is FB
             o Dickson  the court may step in only if ‘unconscionable’ not to do so (as opposed to
                   Wilson’s ‘unfair or unreasonable’)

Fraser Jewellers (1997) (ON CA)
     DF security co  took 10 min to notify police of robbery in progress
     Clause  extent of DF liability in event of loss caused by his negligence – there was a loss
         through this manner
     Court  for DF
             o The clause was clearly stated, the owner of the goods was in the best position among
                  them to have insured but failed to do so because of the cost of such action
     Followed Beaufort (more or less)
     NOTE  found that Wilson and Dickson’s judgements in Hunter have little practical difference
             o Both reasonably sophisticated parties – PL could have gotten insurance
     Who is better to bear the loss in this situation? The court determines tat the Jewellers are (policy
         decision similar to Photo Production)
                                                                                                        38


Rose (1925) (UK)
     One way to avoid the exemption clause issue is to make a K binding in ‘honour only’ (preclude
        other party from suing)

Morrison (1965) (BCCA)
    DF bank  gave mortgage to 2 men PL did not know on basis of security given by PL
    Was the K unconscionable?
    Court  for DF
            o Undue influence – attacks the sufficiency of consent
            o Unconscionability – invokes relief against an unfair advantage gained by an unconscious
                 use of power by a stronger party against a weaker
                      Proof arises out of weaker’s ignorance, need or distress

Harry (1978) (BCCA)
     K for sale of boat – set aside on basis the price was too low AND inequality in bargaining power
     Test
             o The single question is whether the transaction, seen as a whole, is sufficiently divergent
                from community standards of commercial morality that it should be rescinded

Kanitz
     Whether a provision (in this case you must arbitrate all disputes) cannot be used against you
       because it is unconscionable depends on 3 factors:
           o (1) Inequality of bargaining power
           o (2) Party with power took advantage of the other party
           o (3) Has the abuse in bargaining power led to an improvident K?
                       Lloyd’s Bank – Denning

Lloyd’s Bank (1975) (CA)
     PL (bank) mortgages property for DF (for more than its value) for a loan for DF son WITHOUT
        any sort of legal advice
     Court  for DF – mortgage not enforceable
     Denning – K obligations are enforceable BUT:
            o (1) Duress of goods
            o (2) Unconscionable transaction (use of power strong over weak)
            o (3) Undue Influence
                       (a) Stronger party misrepresents OR behaves fraudulently
                                Ex - Cornell
                       (b) Relationship of confidence and one party abused for adv
            o (4) ‘Undue pressure’ – D + C Builders, Pau On
            o (5) Salvage K’s (Port Caledonia)
     Doctrine of Unconscionability (Sachs – centred around undue influence)
            o (1) Inequality in bargaining power
            o (2) Weaker party without independent legal advice
            o (3) Enter K with ‘unfair’ terms (similar to notion of improvidence)
                       Grossly inadequate consideration
            o (4) When bargaining power of the weaker party grievously impaired
                       relying on advice of the stronger party
     Sachs  just use (3) from Denning
            o Undue influence – relationship of trust btw banker, father and son (fiduciary relationship)

NOTE  preserved individual argument cases (undue pressure etc) – ratio was reflected in the Kanitz case

Manulife Bank (1996) (SCC)
    SCC refuses to enforce a guarantee signed by a mortgager’s husband
                                                                                                        39

             o  Bank failed to have him sign and ack is obligation on a renewal of the mortgage after he
                and his wife were separated
       Because it is a K of adhesion – the terms really should not be read a face value
            o If this is done – would be against public policy because the guarantor would have
                absolutely no control over the situation

BMO v Duguid (CA)
   DF (Duguid) as K (promissory note) with PL
          o Signed the note to aid her husband in receiving a loan
          o Signed without independent legal advice (ILA) or recognition of independent advantage
   TJ – for DF (factors – no legal advice, no recommendation for such from bank, signed with
      employee present)
   CA – overturned TJ (for PL)
   Majority – undue influence
          o (1) Actual undue influence (proof of facts) OR;
          o (2) Show that they are in a relationship where undue influence can be presumed
                     (i) because of the relationship btw the parties (solicitor/client) OR
                     (ii) because reposed trust and confidence in fact with respect (in this case – the
                        husband’s control over finances) DF must prove that she deferred to the
                        husband to make financial decisions in the household
                     REBUTTAL / EXCEPTION  unless other party proves weaker party entered K
                        freely and voluntarily (no diff whether had ILA)
                              (a) Show recognized ILA (told the party to get advice OR they already
                                 had it)
                              (b) Show weaker party is sophisticated and experienced
   How did the test apply to this case?
          o Argued under (2)(ii) – rejected by court – why?
                     Wife had significant knowledge of the type of transaction
                     She is a principle at a school (would deal with finances)
                     Wife knew it was the 1st time husband had entered this type of K
                     Wife dealt with her own financial affairs
   Dissent  Presume undue influence as the nature of the spousal relationship
          o You will assume that your spouse will not put you in a diff situation
          o In BMO  repose trust and confidence because her husband would not recommend for
               her to do something contrary to her interests

Royal Bank of Scotland (2001) (HL)
    Set out guidelines for banks and solicitors advising the guaranteeing spouse (not directly
        applicable to Canada)
    In ordinary course, wife’s guarantee of husband’s business debts is not to be regarded as a
        transaction which, failing proof to the contrary, was procured by the husband’s influence
    Where a wife proposes to charge the matrimonial home, the bank has to pay particular attention
        for undue influence
    Bank must always take reasonable steps to ‘bring home to individual guarantor the risks they are
        running by signing the guarantee’

ILA in Summary
     From Lloyd’s Bank, Diguid  we can see that a lot of cases will turn on this notion and how it is
        treated by the various parties
     Often happens in family situations – where the parties have one lawyer
             o Re ILA – person will have to be referred from outside the firm
             o Must be aware of the nature of the transaction – re the loan  What is the loan for? Is it
                 considered high-risk? How sophisticated is this client? What is the nature of the deal (as
                 in standing with the industry norm)?

O’Brien (1993) (HL)
                                                                                                          40

        Wife signed as guarantor on husband’s loan (without proper protections)
        Bank required to provide her with necessary documents re the viability of the business and also to
         acquire ILA
        Court  undue influence (2)(b) from Duguid applied here
        When should a 3rd party (such as a bank) have constructive notice of a party’s equity to set aside a
         transaction?
        Constructive notice if:
              o (1) The guarantor (wife) makes the pledge with no apparent financial advantage for doing
                  so
              o (2) There is substantial risk in transaction, and in procuring the other (wife) to act as a
                  surety, the debtor (husband) has committed a legal or equitable wrong that entitles the
                  wife to set aside the transaction
        EXCEPTION  if the creditor can show that he has taken reasonable steps to satisfy himself that
         the guarantor’s agreement was properly obtained, the agreement will be enforced

Gold (1997) (SCC)
     Followed O’Brien (Canadian version)
     Bank and law firm acting for 2 companies gave opinion that a guarantee was valid
             o PL sued bank and law firm
     TJ – the bank had knowingly assisted in breach of trust
     SCC
             o In certain circumstances, the bank must advise the guarantor to acquire ILA
             o In certain cases, the creditor is under the obligation to inquire (request guarantor receive
                ILA) when the loan is clearly detrimental to the person offering security and the relation
                btw the guarantor and principle debtor is particularly close
             o Bank has to advise the guarantor, in the absence of the debtor, of the amount of sureties
                and the risks involved, and also of the potential guarantor to receive ILA
                                                                                                    41



COURSE OVERVIEW

(1) Valid and enforceable K?
      (a) 4 formalities
             o (i) In writing
             o (ii) Consideration
             o (iii) Intention re legal relations
             o (iv) Privity
                      Can 3rd parties benefit from / be liable from a K they are not part of
                                General rule = No
                                Strict application – Dunlop Tyre, Greenwood
                      There are exceptions Scruttons (4 exceptions)
                                Is agency included in the K? Have they contracted out of the general
                                    rule? (ITOR)
                                If no agency in K – can privity be relaxed? (London Drugs, Laing)
      (b) Offer and acceptance
             o Offer or pre-offer (invitation to treat)? (Lefkowitz, Boots, Daewood)
                      Smith – ‘reasonable’ objective standard
             o Acceptance = required (cannot both be offeror – Tinn)
                      Is there evidence of acceptance in this case?
                                What form of acceptance? Silence is not acceptance (Felthouse)
                                Exception to silence rule (Wheeler)
             o Form and time (Dickson) – Postal Acceptance Rule (Adams)
                      K by Mail (PAR) (Schiller)
                      Fax / Electronic - general rule
                      Location of formation (jurisdiction) (Eastern Power)
             o When can you revoke an offer?
                      Firm Offers and Unilateral K  can revoke anytime (Dodds)
                      Can be revoked as acceptance as long as reasonable notice (Dickinson)
      (c) Unilateral K
             o Is it a unilateral K (Dawson)
             o If unilateral – do not have to keep it open
             o Only way to help if unilateral is to argue bilateral (show consideration)
                      Show that your party had an obligation (Errington)
      (d) Tender Form K
             o Specialized context of bidding (Naylor, Ron Engineering)
             o 2 K formation (contract A – contract B) (Ron Engineering)
                      Have the technicalities been met?
                      What are the obligations of your client? Contractor / Subcontractor?
                      Contractor (Ron Engineering, Naylor – contractor to sub)
                      Subcontractor duty (Northern Construction)
                      Owner duty (MJB, Martal)
                                Has duty of good faith – treat bids equally
                      Misinformation from employee of owner – contractor cannot rely (agency
                          problem – not authorized to change terms – relied at own peril) (Carman)
      (e) Miscommunication
             o When did it occur? Latent or Patent?
             o Patent –Time of formation (Raffles)
             o If latent ambiguity (discovered in hindsight)
                      Parol Evidence Rule – Smith v Huges, Hobbs (minerals under the land?)
             o Enforcement – no understanding in the bid – how do you enforce the K? (Staiman)
                      Uses Smith Test – ‘reasonable person’
      (f) Agreements to Agree?
                                                                                                         42

             o   If agreement to agree – general rule = not enforceable BUT
                       SGA – Court can determine price BUT narrowed by (May)
                       Depending on context, courts can enforce where non-essential terms have been
                          left out (Hillas, Foley)
                                Court intervenes where there is standing relationship (Foley)
                       The parties must try and figure out essential term or one party can be liable
                          (Empress Towers)
                                Basically duty to negotiate with good faith
                       Clarify Empress as fact dependent (it was a clause of K) (Edper Brascan)
             o   If agreement to agree – missing essential term = not enforceable (Courtney) BUT
                       Can receive damages (MultiMalls)
             o   Agreement to negotiate
                       Not enforceable (Walford)
             o   If K to K enforceable
             o   Letters of Intent
                       Closer toward binding agreement – solve agreement to agree problems
                       Ability to protect yourself if K negotiations fail
                       Definable + essential terms must be worked out
                       Can you leave price to be determined?
             o   K to K
                       Is there a K to K? (Bawitko)
                                Do the parties want to K? Have they agreed to essential terms?
                       Informed objective approach – what would reasonable interpretation be? Is the
                          uncertainty fatal to the K? Are the terms which are left vague essential to the K
                          or subsidiary to the K? (Canada Square)
                                Ex  LCDH – too much uncertainty
                                Ex  Pennzoil – opposite – key terms were decided (orally)
             o   Court searching – not wanting to enforce agreement if an agreement has not been
                 reached by its language
             o   Consider whether parties are leaving things open
                       Opposed to  situation where most of the terms are worked out and now one
                          party is simply trying to get out of it

(2) Obligations of the parties?
     (a) Parol Evidence
             o Is the document clear on its face? If yes = no evidence (Eli Lilly)
             o What can a court look at in interpreting what the party’s obligations are? Interpreting the
                 words of the K  if the doctrine is unambiguous on its face we should accept the
                 doctrine and not worry about externalities
                       Restrictive approach – Bauer SCC
                       Wide approach – Gallin BCCA (8 scenarios reverting traditional rule)
                                Relaxed traditional rule – PERSUASIVE ONLY
                                Example of why you need these exceptions (Smith – rabbits case)
                       Court can use extrinsic evidence to interpret the meaning of an obligation
                          (HiTech)
                       Aboriginal – extrinsic evidence can be brought in that situation (Marshall)
     (b) Contractual Obligations
             o Conflicting forms (Battle of the Forms) - (Butler, Tywood)
                       Btw sophisticated commercial parties exchanging diff forms
                       Who wins the battle?
                                Last Shot Wins (Laughton)
                                Contextual factors (Denning)
                       Butler (Denning) – interpret the forms together to gather the terms of both
                          parties (adopted in Tywood)
                       Classification of terms (Hong Kong Fir)
                                                                                 43

             Can there be an excuse? What is the significance of the term?
                   o Condition – deprived of essence of K
                             Either/Or Scenario
                   o Warranty – non-essential term - sue only
                   o Innominate (Hong Kong Fir – condition OR warranty
                       depending on the 5 criteria)
                             Sail Labrador (SCC)
   Oral Statements (pre-K oral statements)
          Puff (no legal significance)
          Misrepresentations (fraudulent, innocent, misrepresentation)
                   o Refer to chart – Derry v Peek, Redgrave, Ennis
          When is it a misrepresentation and when is it a warranty?
                   o Heilbut – set a high standard of proving pre-K statement
                             For there to be a collateral K (warranty) need to have
                                 the 4 formalities
                   o Dick Bentley – relaxed (court more contextual in considering
                       whether a pre-K could rise to obligation
                             Test for warranty – three part  if statement induced
                                 the K than warranty
                   o Fraser Reid (follow Dick Bentley)  a warranty is a collateral
                       undertaking that does not go to the root of a K
                             Outlined clear diff btw misrep and warranty
                   o Murray  considering agency in warranty / misrep context
                             Follows Fraser Reid
                   o Shanklin Pier  warranty that induced the act
   Statutorily Imposed Obligations
          Will imply conditions of warranty  basically effects case law in
              statutory form
          SGA – Hunter  commercial parties can K out of this in clear, express
              language
          CPA
          Horizontal v Vertical Privity - McMorran  contractual agreement or
              warranty (if not privity to the K you cannot recover)
                   o Problem of privity arises – those who might be affected by a
                       defect in the good (but did not purchase the good) will be
                       limited by privity
                   o Sigurdson  how you phrase the claim
   Interpretation
          Freedom of K and protect reasonable expectations – policy courts will
              look to uphold
          BUT when they do not want to leave K alone they can:
                   o (a) Interpret narrowly (Fraser Reid, Wallis) – Contra
                       Proferentum
                   o (b) find inconsistency (collateral K and exemption clause)
                       (Mendelsson)
                   o (c) SFA (K of Adhesion) – 5 factors court will consider
                             Nature of the clause
                             Significant departure from industry standard?
                             Imbalances in bargaining power?
                             B2B or B2C
   K of Adhesion (Ticket cases)
          When will you be bound by the terms on the ticket?
          Consider – way in which court will interpret
          When you will be bound (Parker)
                                                                                                     44

                             The more unreasonable the term the more effort is required to give
                              notice (Sperling)
                             Interpret as a bailment or a license? (Heffron)
                             Offer and Acceptance approach
                                   o Client has signed a SFA
                                   o Courts will consider whether it is fair in the circumstances to
                                        enforce (which party drafted?)
                                   o Thornton, Sperling  to have an enforceable obligation we
                                        have to be happy that the parties assented to a term – how can
                                        there be a binding agreement without notice of a term? Does
                                        it depart from industry standard?
                                   o Specht / McCutcheon  fact specific
                             Signed K and K of Adhesion
                                   o L’Estrange  if you sign it, it is binding (unless fraud)
                                   o Tilden  how to overcome L’Estrange – 4 points
                                   o Cornell Eng  unilateral termination clause – owed no
                                        fiduciary duty (L’Estrange can be overcome by fiduciary!)
                             Fundamental Breach (FB)
                                   o Is the party at fault attempting to rely on an exemption clause?
                                   o Heffron, Photo Production, Hunter (SCC)
                                   o (1) Rule of Law – if you breach a term of the K that denies the
                                        other party the essence of the K the innocent party can walk
                                        away and you are not entitled to rely on exemption clause (if
                                        FB)
                                              Karsales
                                   o (2) Rule of Construction (PP + Hunter) – if on a true
                                        construction of the term the parties can reasonably be expected
                                        to limit liability for a breach of this nature?
                                              Beaufort – in Canadian context in B2B
                                              Hunter  Do not want to enforce agreements btw
                                                   unequal parties (we will enforce unless one party can
                                                   show it is unconscionable)
                             Unconscionability
                                   o Over the course of the K, has one party done something which
                                        could be considered unfair – so unfair as to =
                                        unconscionable? (Kanitz  test for unconscionability)
                                              Morrison
                                              Harry (sale of sailboat to a deaf man for high price)
                                   o Denning  broad unconscionability test (4 part) IF WRONG
                                        use Sach’s argument re undue influence (special relationship)
                                        (Lloyd’s Bank)
                                   o Manulife Bank
                                   o BMO v Duguid  undue influence test (spousal relationship)
                                   o ILA
                                              O’Brien, Gold (SCC)
   (c) Extra K Obligations
         o Oral statements
                  Innocent misrepresentation (Redgrave)
                  Negligent misrepresentation (Hedley Byrne)
                  Fraudulent misrepresentation (Derry)
   (d) Good Faith
         o Basically a policy question – Martel list criteria which can be met – consider the
             exceptions
         o Diff for court to tell whether there had been offer and acceptance
                                                                                                      45

                          One of the parties feels they should get something (relied on GF) even
                           WITHOUT enforceable K
             o Martel (no GF) v Brewer, Gateway, Big Quill (implied GF – lower courts)
             o LAC Minerals  possibility of fiduciary duties (btw commercial parties)
             o IF NO GOOD FAITH THAN RELIANCE IN NEGOTIATIONS
                        If costs, than who will pay (Brewer St.)
                        Equity for performance (quantum meruit) – Brewer v Chrysler
                        Cannot recover for $ spent in negotiations UNLESS beyond normal negotiation
                           process (Magical Water Fountains)
             o IF NO GOOD FAITH THAN CONFIDENTIALITY
                        Fiduciary duty can exist btw commercial parties – three criteria (Lac Minerals)
                        Breach of confidentiality (fact-driven) – it can exist without fiduciary duty
                           (Visagie v TVX Gold Inc)
       (e) Effects of Frustration (KBK, Frustrated K Act)
             o Has the foundation underlying the K changed? If so = frustration
             o Unforeseen event arises which disables a party from performing terms of the K
             o KBK  articulates test from Krell
             o Milgin  lowers the threshold for frustration in family separation agreements
                        Allows the circumstances of the family situation to affect the outcome
             o There are situations which can frustrate through no fault of your own (HR & S
                 Sainsbury)
             o Fibrosa  the party who paid deposit entitled to get it back (even though other party had
                 begun obligations)
                        Forgot that the other side may have spent some money in starting to perform
                           WHILE behaving reasonably
                        Statutory response  Frustrated K Act
                        FKA – prior performance before frustration – can recover reasonably
       (f) Rules re Suing After Breach
             o Can you sue?
             o Right of non-performing party to sue AND right to sue in anticipation of breach
                        Time for initiating lawsuit – when can you sue?
                        The Entire K Rule
                        Hochester, Cort  can sue in anticipation of breach
                                 Do not have to wait until date HOWEVER you must keep your K
                                    obligations alive as well
                        Is that consistent with duty to mitigate? (Asamera, Domicile)
                        Can either sue now (call K to end) OR treat K as continuing and sue on date of
                           breach – must be reasonable behaviour)
             o Part Performance (Deposits)
                        Can you get your deposit back? Depends on nature of deposit
                                 Pre-payment or earnest?
                        If earnest, than no refund (Howe)
                        If pre-payment, then refund (Dies)
                        Court will not presume that deposits are genuine pre-estimates of damage –
                           return deposit of damages are less OR collect extra (Lozcal)
                        Modifies Howe and Dies – still contextual – court will not enforce where (1) out
                           of proportion (2) unconscionable
             o Partial Performance Recovery (Entire K Rule)
                        Novation/rescission for a builder (applied Entire K rule) (Sumpter)
                                 No clear indication of abandonment
                                 Express or inferred new K
                        If builder has substantially performed can sue for full payment minus defects
                           (Daken)

(3) Consequences of Non-Performance
      General Rule of damages – subject to:
                                                                                                   46

         o Remoteness (Hadley Baxendale, Victoria Laundry)
         o Mitigation
   Type of breach:
         o Warranty – damages
         o Condition (essential term) – innocent to walk away AND damages
         o Innominate (Sail Labrador) – need to know the severity of the breach to k now if the
              innocent should be able to walk away
   Oral Statements (pre-K oral statements)
         o Puff
         o Warranty
   Is the obligation (limitation on an obligation) actually an enforceable one? Remedy will turn on
    this notion (if reasonable in the circumstances)
         o Innocent Misrepresentation – rescission BUT qualified (return product)
         o Neg Misrepresentation – tort (damages)
         o Fraudulent Misrepresentation – rescission + damages for deceit (high standard of proof)
   Good Faith Breach?
         o Reliance-based damages
         o LAC – fiduciary damages = constructive trust

				
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