Contracts CANS FINAL by vow15418

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                            Contracts CANS FINAL
NOTE: PRINCIPLES/RULES, OBITER, IMPORTANT FACTS

Topic 7 – Equitable Estoppel

1. The Estoppel Concept
     When an estoppel is raised, someone who has spoken certain words is precluded from
        going back on what they represented
     Estoppel binds people to a falsehood; it precludes people from speaking what is the truth
        in court – for that reason can be considered an iniquitous concept
     PRINCIPLE = Estoppel acts to prevent harm that would otherwise befall a representee
        who has relied on a representation by the representor
2. At Common Law and Equity
     Equity = body of rules/principles that form appendage to common law;
     How applied to case? - Courts may come upon set of facts that reveals general
        principles of law will not do justice SO applies exception to general rule of law or
        establish brand new set of rules to apply to that set of facts – latter solution is EQUITY
     Judicature Acts (late 19th century) fused courts of common law and equity, but not rules;
        rules exists side by side, not compete BUT if rule of common law competes with rule of
        equity, equity will prevail
     Common law estoppel explained:
            o Representor makes representation that causes representee to adopt assumption
                of fact for purposes of their legal relations
            o estoppel arises where representee has changed his/her position on faith of
                assumption so that he/she will suffer detriment if representor does not adhere to
                assumption provided
            o EFFECT = deny representor ability to resile on representation
     Distinguishing characteristics of common law estoppel: (2)
            o = evidentiary doctrine, NOT substantive
                     governs what evidence counts in court; not speak to legal rights of parties
                     indirect substantive effect (on rights of parties) by altering facts
            o operate only on representations of existing fact; if representation about future
                then common law doctrine of estoppel not apply because concerned about facts
                NOT promises
Jorden v. Money stands for principle that common law estoppel only apply to statements of
existing fact and not to promises; estoppel NOT apply to promises because if did, would do
away with doctrine of consideration; M trying to enforce promise with insufficient consideration

 Grundt v Great Boulder Mines (1937) 59 CLR 641: ‗[The purpose of common law estoppel] is
 to prevent an unjust departure by one person from an assumption adopted by another as the
 basis of some act or omission which, unless the assumption be adhered to, would operate to that
 other's detriment.‘
 Waltons Stores v Maher (1988) 164 CLR 387: ‗A party who induces another to make an
 assumption that a state of affairs exists, knowing or intending the other to act on that assumption,
 is estopped [at common law] from asserting the existence of a different state of affairs as the
 foundation of their respective rights and liabilities if the other has acted in reliance on the
 assumption and would suffer detriment if the assumption were not adhered to.‘
Equitable Estoppel emerged and developed two lines of authority to contradict Jorden v. Money;
RESULT = estoppel limited to statements of existing fact limited to common law estoppel;
statements as to future can be estopped under equitable estoppel:
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      Proprietary estoppel – remedy which grants right of access; representation of township
       that there is a right of access is NOT a representation of existing fact
      Promissory Estoppel – origins in Hughes v. Metropolitan Railway and High Trees

 Hughes v. Metropolitan Railway (SM)
Facts:
     landlord serves notice to repair to tenant; if in six months repairs were NOT completed
       then Landlord can forfeit lease
     Tenant response to notice that willing to do repairs but willing to hold off because
       landlord may want to buy off remainder of lease; landlord and tenant begin negotiations
     Landlord NOT respond to comment by tenant that would to refrain from doing repairs
       during negotiations; landlord served notice of ejectment (because repairs not done by six
       month deadline on notice of repair)
     LANDLORD suing to enforce notice of ejectment; TENANTS arguing to estopp from
       ejectment by arguing landlords ―lulled the tenants to sleep‖ – led them to believe that did
       not have to repair while negotiations were ongoing so would be in position to not able to
       make repairs under six month notice
Decision/Facts: HELD FOR MR (tenant)
     representation by landlord = by entering into negotiations, implicitly saying notice of
       repair in abeyance; BUT not representation of existing fact; = promise to not enforce
       right to evict tenant after six months
     HOLDING = estoppel raised; REASONING = IF have contractual right against someone
       and promised not to enforce it on its terms, and IF promise acted upon to detriment of
       representee THEN representee (landlord) cannot enforce strict legal rights in contract;
     PRINCIPLES = by promising NOT to enforce legal rights loose them AND if right
       suspended, creates obligation to give notice that right has restarted
NOTE: same moral grounding operates at common law to preclude people from raising truth
when already uttered falsehood and at equity to hold people to their promises when have
induced reliance

3. The High Trees Case = HIGH WATER MARK of promissory estoppel
 Central London Property Trust Ltd. V. High Trees House Ltd. (222)
Facts:
     C leased block of flats to H for 99 years; Flats not fully let at beginning of war SO original
        arrangement modified in writing and ground rent reduced
     Flats begun to be filled when war ended – C wrote to H saying wanted full payment and
        payment in arrears; C brought cause of action against H to recoup discount from two
        previous quarters (payment in arrears)
NOTE: at common law, case not be successfully because Foakes v. Beer stands directly in way
of H – promise to accept less by H would not be binding because no consideration
Decision/Analysis: HELD FOR H (tenant)
     REASONING = Promise made on assumption that flats not let; BUT as soon as situation
        changes and flats let, promise looses basis because scope not include discount for fully
        let apartments
     DENNING says NOT case of estoppel; BUT sits on same grounds as estoppel  just as
        law does not appreciate inconsistency as to facts which can cause harm, it also does not
        appreciate inconsistencies with promises as to future
     DENNING alludes to possibility (in obiter) that can end estoppel on notice because to
        give notice seems to do quite enough to prevent harm due to detrimental reliance
     tension in estoppel - Does C extinguish right to full rent by promising to decrease right
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       OR does C suspend right to full rent in circumstances? – in this case rights would be
       suspensory rather than extinguished
 High Trees – DENNING - ‗cases in which a promise was made which was intended to create
 legal relations and which, to the knowledge of the person making the promise, was going to be
 acted on by the person to whom it was made and which was in fact so acted on. In such cases
 the courts have said that the promise must be honoured…As I have said they are not cases of
 estoppel in the strict sense. They are really promises - promises intended to be binding, intended
 to be acted on, and in fact acted on….In each case the court held the promise to be binding on
 the party making it […] [the courts] have refused to allow the party making it to act inconsistently
 with it. It is in that sense, and that sense only, that such a promise gives rise to an estoppel.‘

Ratio: ―a promise intended to b


e binding, intended to be acted upon and in fact acted on, is binding so far as its terms properly
apply‖
     promise as to future relied upon can be binding even without consideration SO LONG
        AS promise made to vary existing contractual right  estoppel not apply to brand new
        contract, merely to a variation on a contract

4. The Kind of Representation Required - What kind of conduct harmful in realm of estoppel?
 John Burrows Ltd. v. Subsurface Surveys Ltd. (226)
Facts:
     S purchased business from J for prince in excess of $127,000
     Part of purchase secured by promissory note that provided for monthly installments
        and contained acceleration clause permitting creditor to claim entire amount due if
        default of more than 10 days on any monthly payment
     18 months after note signed, 11 of payments had been made BUT on no occasion did j
        object to late payments, NOR invoke acceleration clause creditor accepted late
        payments without protest and NOT invoke clause
     After disagreement, J sued for whole amount when S late with payment (invoked clause)
Issue: does defense of equitable estoppel or estoppel by representation apply to case at bar?
Decision/Analysis: HELD FOR J (creditor)
     ―Estoppel‖ defense by S = J lulled then into sense of security SO J estopped from
        insisting on strict legal rights in contract
     Estoppel NOT apply; policy reason = if court held J to its representation then are saying
        creditors must always enforce strict legal rights or loose them
     Court will NOT enforce estoppel in case of ―indulgences‖ because would put creditors in
        bad position  [If a mere indulgence were sufficient to estop a commercial creditor] it
        would mean that holders of such notes would be required to insist on very letter being
        enforced in all cases for fear that any indulgences granted and acted upon could be
        translated into a waiver of their rights to enforce the contract according to its terms
     RESULT = Equitable estoppel defense cannot be invoked UNLESS there is some
        evidence that one of parties entered into course of negotiation which had effect of
        leading other to suppose that strict rights under contract would not be enforced
Ratio: for equitable estoppel defence to apply plaintiff must have known or should have known
(by implication) that his action or inaction was being acted upon by defendant and that
defendant changed legal position; conduct must have amounted to promise/assurance intended
to affect legal relations of parties  need clear, unambiguous promise to extinguish right
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Owen Sound Public Libraries – (CDN case) If someone relies on conduct or representation to
significant detriment, THEN inference is strong that conduct/representation was promise
(relaxes John Burrows req‘mnt BUT not disagree with decision)  GENERAL PRINCIPLE =
when there is reliance there is a promise

5. One Who Seeks Equity Must do Equity (= maxim)
 D. & C. Builders Ltd. v. Rees (228)
Facts:
     R employed D to do work; D did work and rendered accounts; D owed money by R
     D wrote R asking to pay remainder but R NOT reply
     R‘s wife offered to pay less in settlement
     D said would accept lesser sum and give them year to find balance
     D brought action for balance; R set up defense of bad workmanship and that there was
         a binding settlement
Issue: whether R can estopp D from claiming balance owing; whether there was true accord
Decision/Analysis: HELD for D; no true accord b/c wife of R put undue pressure on D to accept
     Foakes v. Beer principle applies at first blush SO D entitled to balance owing BUT paid
         by cheque so Foot v. Rawlings would apply and consideration provided so R off hook
     Denning faced with argument of consideration – HOLDS mode of payment irrelevant to
         consideration and leaves Foakes v. Beer fully intact
     INJECTS ―qualification‖ – Foakes will not operate where would be inequitable to allow
         promisor (D) to resile – BUT not inequitable to allow D to resile (ie: insist on legal rights)
         because accord made under duress, SO no true accord
     PRINCIPLE = creditor is barred from legal rights only when would be inequitable to
         insist on them; creditor only bound if there is a true accord
Ratio: If promise made to accept less in satisfaction of debt and if acted upon by lesser sum
being paid then cannot demand outstanding payment because would be inequitable; makes
―qualification‖ to Foakes - will not operate where would be inequitable to allow promisor to resile

6. Giving Notice to Resile
 Saskatchewan River Bungalows Ltd. v Maritime Life Assurance Co. (231)
Facts:
     Maritime issues life insurance policy on life of Fikowski to SRB (transferred to F‘s wife)
     SRB mails cheque to Maritime for annual premium (July); NOT received
     CORRESPONDENCE = Maritime sends letter requesting payment of July premium
       (―late payment offer‖); Maritime sends subsequent letter advising F‘s wife premium from
       July unpaid and policy ―technically out of force‖ and require immediate payment;
       Maritime then sends notice of policy lapse
     SRB NOT pick up mail often in winter and did not all receive letters until April
     SRB sends cheque for 1984 premium and 1985 premium
     Fikowski dies SRB claims benefits, Maritime denies based on policy lapsed
Issue: Whether Maritime waive right to compel timely payment under policy? If so, did it give
notice when time requirement reinstated?
Decision/Analysis: HELD FOR M – no estoppel because no reliance
     SRB ARGED estoppel defense - through its conduct, Maritime waived right to compel
       timely payment under policy; none of its actions sufficient to reinstate time requirements
     alleged representation made by Maritime = November letter; SRB ARGED use of word
       ―technically‖ means that it is not out of force in reality
     since SRB NOT pick up mail until April, NO evidence of reliance on November letter
     If SRB did rely on promise to waive right, it was unreasonable
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       PRINCIPLE = person asserting estoppel must show that relied and reliance must be
        reasonable in order to be protected by the law
Ratio: estoppel NOT extinguish rights, merely supensory; rights raised by estoppel can be
terminated by estopped party if give sufficient notice (NOTE: court not actually say suspensory)
NOTE: Court decided case based on ―waiver‖; not discussed in class, see case brief

 International Knitwear Architects Inc. v. Kabob Investments Ltd. (231)
Facts:
     Plaintiff (IKA) = tenant of parent company; defendant = (Kabob) – under five year lease
     May - tenant in financial difficulty so requrests reduction in rent; landlord agrees; Tenant
       NOT pay on December 1
     December 13 landlord operates right of distress (right to seize property located on
       premises to secure landlord‘s claim to rent; limits as to what can be seized); December
       24 – landlord demands whole rent over whole lease; wants arrears in rent back to May
     Tenant sues for unlawful distress; counterclaim by landlord for arrears (FOCUS)
Issue: whether landlord estopped from claiming arrears (resiling on promise to reduce rent)?
Decision/Analysis:
     Landlord estopped from making claim to arrears from May 1989 until December 1991
     Looks at conduct to determine what period of notice representor must give to revert to
       full rights under contract  reasonable notice must be given to revive obligations and
       notice need not be dated
     What amounts to reasonable notice? = question of fact

NOTES on suspension of rights and revocability of promise
     View that estoppel ought to be suspensory only attractive because it helps reconcile
       promissory estoppel with Foakes v. Beer because means that
           o Estoppel does not render promise to accept less binding PERIOD, it merely
               expends right of creditor to insist on full payment right away
           o If NOT inequitable to do so, creditor should be able to request full payment later
     View estoppel is prima facie suspensory only stated in Emmanual Ayodeji Ajay v. RT
       Briscoe [1964] 3 All ER 556 - promissory estoppel […] subject to the qualification […]
       promisor can resile from his promise on giving reasonable notice, which need not be a
       formal notice, giving the promisee a reasonable opportunity of resuming his position
Charles Rickards v. Oppenheim = example of when promise becomes final and irrevocable
b/c promisee cannot resume position
     Buyers request delivery to be put off and sellers agree; BUT sellers deliver on date
       requested and buyers say too late so in breach of contract
     Sellers claim estoppel (using as ―sword); Buyers defense is contract – sellers not follow
       terms so in breach; sellers ARGUE estoppel obliterates defense
HOLDING = buyers abandoned right to deliver on original date for forever more; after reliance
taken place (by buyers) promise becomes binding
RATIO = promise becomes final and irrevocable because promise cannot resume position if
promisor resiles
     TEST of revocability of promise = inequity; look for where equities lie (must look at
       who effected by resiling on promise, including promisor, promisee and third parties); also
       consider limits of promise in fact b/c promise may not be intended to cover all situations

7. Reliance
     DEFINED = action; something someone does in response to promise/assurance
     Controversial whether reliance must be detrimental to create estoppel
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      Detrimental reliance DEFINED as reliance such that promisee would be worse off after
       breach than was before promise made (usually expenditure/outlay of money)
      Was there detrimental reliance in High Trees? - Reliance = promisee paid portion of full;
       facially NOT detrimental b/c tenants getting benefit by paying less; BUT possible to
       argue detriment consists of having to pay arrears in lump sum than in instalments
      According to Denning, need not have detrimental reliance; all need are facts that show
       that resiling on promise would be inequitable
      promissory estoppel = doctrine of equity SO litmus test is whether would be inequitable
       to rely on promise
      PRINCIPLE = detrimental reliance sufficient, BUT not necessary to generate estoppel

 W.J. Alan & Co. v El Nasr Export & Import Co. (236)
Facts:
     Buyers purchased 500 tons of coffee from sellers, in 2 separate contracts
     Price in contract in Kenyan shillings; payment to be made by confirmed, irrevocable
        letter of credit
NOTE: letter of credit = document with specific instructions to bank located near port of delivery
that instructs bank to deliver to seller certain sum of money upon presentation of certain docs
     Letter of credit in sterling; NO difficulty in practice with difference in currency initially;
        BUT in November pound devalued and currencies became inconsistent with each other
     Sellers claimed for excess that loss as result of devaluation of pound
Issue: Whether sellers can be estopped from claiming loss due to devaluation because
acquiesced from enforcing strict terms of agreement
Decision/Analysis:
Two arguments by buyers:
     Variation on contract (accepted by MEGAW)
             o Promise to modify made by buyers; accepted by sellers
             o Consideration by buyers to sellers? – buyers promising that if pound decreased
                 in value against sterling than sellers would reap profits
     Estoppel argument (accepted by DENNING)
             o Even if NO variation, sellers estopped from insisting on original currency
             o Representation = sellers did NOT object when letter of credit extended in sterling
                 AND presented invoices and requested payments in sterling
     DENNING - Maybe no consideration moving from him who benefits by waiver; maybe
        no detriment by acting on it; maybe nothing in writing; BUT one who waives strict
        rights cannot afterwards insist on them
     Seller‘s ARGUE NOT estopped - buyers NOT detrimentally rely on seller‘s acquiescence
     DENNING REJECTS – It is not a detriment, but a benefit to him, to have an extension of
        time or to pay less, or as the case may be. Nevertheless, he has conducted his affairs
        on the basis that he has that benefit and it would not be equitable now to deprive him of
        it…." I know that it has been suggested in some quarters that there must be detriment.
        But I can find no support for it in the authorities…‘
Ratio: detriment not required to invoke equitable estoppel so long as the promisee altered its
position in reliance on the representation or promise; all required is that one ―acted on belief
induced by the other party‖

 The Post Chaser (242)
Preliminary Notes: on international sale of goods
    majority of traders are intermediate traders (trade ―in strings‖)
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       declaration of ship/notice of appropriation required; sellers try to make declaration as
        quickly as possible; declaration allows buyers in string to balance books and sell to sub-
        buyers; transfer of paper work in the international sale of goods is very important
       Traders attach great importance to speedy transfer of the notice of appropriation

Facts:
Kievet → Plaintiff (Sellers) → Defendant (Buyers - 792) → Conti → Lewis & Peat → I.C.C. →
NOGA
                 ↓               ←       ←        ←        ←      ←      ←       ←      ←
         Third Party (605)
     declaration of ship to be made by sellers to buyers ASAP after vessel‘s selling
     Kievet declared to plaintiff on December 16th; plaintiff/sellers received on 16th, but held
         on to notice until January 10th; defendant/buyers requested notice several times
     declaration was sent up the string, but NOGA objected to its lateness; then sent back
         down string; Conti sends it back to buyers
     plaintiff/sellers sue defendant/buyers for difference in price between what buyers should
         have paid and what sellers got from third party in distress sale
Issues:
1. Whether seller‘s failure to make timely declaration sufficient to give buyers right to reject?
    (Or were they compelled to accept goods and sue for damages for lateness?)
2. If it was sufficient to give rise to a right to reject, had they waived that right? Were buyers
    (defendants) estopped from relying on invoking that right?
Decision/Analysis: HELD FOR DEFENDANT (buyers)
NOTE: plaintiff (sellers) raised an estoppel argument as shield, not as sword (defence)
 What was representation?
     sellers acquiesced in delivery of papers indicating were okay with arrangements
     note sent January 20th by buyers asking for transfer documents from Kievit = clear
         indication wanted to complete sale
     HELD that receiving declaration without protest NOT unequivocal representation by
         buyers that waived their rights
     HOWEVER, action (letter) on January 20th estopped the buyers from going back
         because it was a sufficiently clear waiver of right to reject
 Post Chaser - ‗I do not find it possible to conclude that the mere fact of receiving the declaration
 without protest or reserve constituted an unequivocal representation by the buyers that they
 waived their rights.‘ However the buyers‘ message of Jan. 20 […] was a representation by the
 buyers that they were prepared to accept the documents, thus waiving any defect in the prior
 declaration of shipment. In my judgment, this was a sufficiently unequivocal representation for the
 purposes of waiver.‘

 What reliance did sellers place on buyer‘s waiver of right to reject ?
     Promise acted on by Kievet by producing documents for Conti
     TEST = whether it would be inequitable for the buyers to resile - YES
‗impossible therefore…to decide the present case by saying that the sellers acted to their
detriment […] sellers did (through Kievit) present the documents; and it can therefore be said
that they did conduct their affairs on the basis of the buyers' representation.‘
  Post Chaser - To establish such inequity, it is not necessary to show detriment; indeed, the
  representee may have benefited from the representation, and yet it may be inequitable, at least
  without reasonable notice, for the representor to enforce his legal rights. […] But it does not follow
  that in every case in which the representee has acted…in reliance on the representation, it will be
  inequitable for the representor to enforce his rights; for the nature of the action, or inaction, may be
  insufficient to give rise to the equity, in which event a necessary requirement stated by Lord Cairns
  for the application of the doctrine would not have been fulfilled.‘
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NOTE: Detrimental reliance required in estoppel, but how define detriment (strong vs. weak)
determines whether gives rise to estoppel
Case presents two definitions of detrimental reliance:
Weak Definition –promise induces promisee to alter his position such that he would be worse off
upon the breaking of promise than he was before promise was made; includes lost opportunity
EXAMPLE = High Trees - If tenant had put money saved into an investment where he couldn‘t
recover the money; making of the promise not decreased bank account of promisee, but has
reordered his affairs and locked away money that he wouldn‘t have done except for promise; If
promise is broken he may suffer financial penalties for removing his funds; SO breaking of
promise causes him detriment

Strong Definition – The promise induces the promisee to alter his position such that he is worse
off upon the making of the promise than he was before the promise was made.
EXAMPLE = Post Chaser - If sellers had to pay significant fees to deliver documents, THEN
would have shown strong detrimental reliance (bank account down)

 Estoppel as a Sword or Shield?
Phrase that ―estoppel is not a sword‖ NOT mean cannot be used by a plaintiff
   The Post Chaser - Plaintiff/Seller uses estoppel
   Rickards v. Oppenheim:
          o Selling of widgets, buyers tell sellers to deliver late, buyers refuse the widgets
          o Plaintiff are the sellers, who are using estoppel as a mine-sweeper (estoppel)
NOTE: When estoppel is used by a plaintiff it is used as a minesweeper

8. Swords, Shields, and Minesweepers
     It is NOT true that estoppel only used by defendant; can be used by plaintiff to clear
        away defense to claim of estoppel (in Post Chaser and Rickards v. Oppenheim)
     If estoppel can be used as shield (defense) and mineswepper (clear away defense), why
        can it not be used as sword? What does mean that estoppel cannot be used as sword?
Combe v Combe (249)
Facts:
     just before divorce, husband promised to provide 100 per year; immediately breaches
     after about 7 years wife claims damages for 675 in arreas
     TRIAL HELD judgment to plaintiff for 600 on basis of doctrine in High Trees (=
        unequivocal promise intended to be binding and intended to be acted upon)
Decision/Analysis:
     Promise by wife impliedly = if you give me this maintenance, I promise NOT to go to
        court under Family Law scheme (promise to forebear)
     Court HELD NO consideration - although may suffer detriment by her forbearance, NOT
        requested by husband
     Estoppel NOT applied b/c NOT stand alone as cause of action (= dependent on some
        other cause of action) – NOT action in and of itself; ONLY support another legal reason
 Combe – DENNING - ―It is important that it [principle from High Trees] should not be stretched too
 far, lest it should be endangered. […] That principle does not create new causes of action where
 none existed before. It only prevents a party from insisting upon his strict legal rights, when it
 would be unjust to allow him to enforce them. […] It may be part of a cause of action, but not a
 cause of action in itself.‘ […] It can never do away with the necessity of consideration when that is
 an essential part of the cause of action‖
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     Why should NOT be able to use estoppel as sword? - Concern = undermining
      consideration; if use estoppel as claim than do not have to have consideration
NOTE: rule followed more in theory than in practice; sometimes Cdn courts will use estoppel as
sword without actually saying so

Petridis v. Shabinsky (245) – landlord = mall owner; tenant = owner of restaurant in mall
Facts:
     Lease included option to renew must be exercised by tenant in writing by December 31st
     Plaintiff (tenant) mentioned to defendant (landlord) in mid-December need to get
       together about renewal of lease; defendant see you after holidays
     negotiations in writing and in person for five months but unable to agree on rent
     defendant gave one month notice to vacate by July 1st and accepted another lease
     plaintiff SUED for injunction and declaration that lease had been renewed
Issue: whether landlord estopped from insisting upon December 31st deadline to renew option?
NOTE: highlighted section is how all issue statements in estoppel cases are formed
Decision/Analysis: HELD FOR PLAINTIFF (NOT based on promissory estoppel)
     NOT case of promissory estoppel as doctrine commonly understood (assurance by
       one party that will not enforce legal rights with intention that assurance be acted upon by
       other party)
     Representation MUST be at time when a legal relationship exists; option = legal
       relationship; representation = negotiations that began on January 28
     Requirement of promissory estoppel = must have a pre-existing legal relationship b/w
       parties (b/c if did NOT have then would be using estoppel as sword)
     RATIONALE: Estoppel applies to preclude party A from asserting certain legal rights A
       had against B, in cases where A has promised NOT to assert rights and B has relied to
       potential prejudice on that promise – presumes that there must be a preexisting legal
       relationship so that A can make promise NOT to assert right against B
     Since representation made AFTER option terminated, promise by landlord to give
       tenants option to renew = promise to create a brand new right (or revive old right)
     BUT finds in favour of plaintiff based on doctrine of waiver - people with rights can
       waive/suspend rights and during waiver/suspension rights may be either lost or not
       permitted to be enforced strictly without NOTICE (W.J. Alan)
     BUT distinction b/w waiver and estoppel NOT convincing - In waiver one party precluded
       from terminating where would be inequitable to allow party to terminate; seems to be
       referring to estoppel under another name in order to rule in favour of plaintiff
     HOLDING for tenant confers NEW RIGHT on tenant; since would be equitable to do so,
       nature of right is to allow exercise option within few days of negotiations breaking down
Ratio: must have pre-existing legal relationship b/w parties that promisor promises to alter (b/c if
NOT, then using estoppel as sword)

 Robichaud c. Caisse Populaire de Pokemouche Ltée (248)
Facts:
    Plaintiff‘s judgment unpaid to bank so bank enters into accord with plaintiff to remove
       judgment IF pay $1000
    Board of bank refuses to ratify agreement and cash cheque
    Plaintiff suing for specific performance – cash cheque; remove judgment from registry
Decision/Analysis: HELD FOR PLAINTIFF (defendant estopped from resiling on promise)
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       Bank had promised to release judgment on payment of $1000 and in doing so KNEW
        plaintiff would rely to his detriment
    Defendant asserting estoppel can be used as defense ONLY and not by a plaintiff
    Court REJECTS general rule that estoppel invoked as ground of defence and not as
        ground for action: ―this principle invoked as rule of evidence only against applicant
        [defendant] because, as in case at bar, would be unjust to allow him (bank) to retract
        promise as result of which plaintiff had made commitments to his detriment‖
    HOLDS in favour of plaintiff on basis of estoppel  Plaintiff merely asking that bank
        respect promise made to him and on which he relied to his detriment
    TWIST IN CASE = DEBTOR (not creditor) SUING to get judgment debt extinguished;
        NO difference b/w defendant or plaintiff bringing forth claim b/c EFFECT is same (ie:
        promisor estopped from resiling on promise because promisee relied to detriment)
Ratio: to say estoppel cannot be used as a sword does NOT mean it cannot be used as plaintiff;
can be used by both plaintiff and defendant to stop promisor from resiling on promise
NOTE: to say estoppel not be used as sword MEANS not used to create new cause of action

 Waltons Stores v Maher (252) - High Court of Australia (PERSUASIVE)
Facts:
     Proposed in negotiations of lease that M demolish existing stores on site and erect new
        buildings; target date created sense of urgency
     Main issues of agreement determined SO W‘s solicitor‘s sent agreement to M‘s solicitors
     M‘s solicitor‘s sought minor changes to lease; W‘s agreed to terms but not W
     M‘s solicitors told W‘s solicitors agreement need to be completed soon to meet
        construction deadline; W‘s solicitors said would inform tomorrow if any terms not agreed
     M had solicitors execute lease and sent to W‘s ―by way of exchange‖; M begins
        demolishing (rely)
     W had doubts; BUT no correspond for ~ 3 mos when W‘s solicitors sent letter to M‘s
        solicitors saying NOT continuing with deal
     When arrived all of existing structures developed and 70% of new structures made
     M suing for declaration of binding contract and for breach of contract
Issue: Whether W estopped from denying existence of binding contract that it would take lease
of M‘s premises
Decision/Analysis: HELD for M – estoppel used as ―sword‖
     If seeking declaration in contract law ONLY, then b/c W not provide formal acceptance
        (Myers v. Davies) – W clear NOT want to be bound until is formality
     Statute of Frauds applied in case (required memorandum in writing)
     Promissory estoppel (High Trees) NOT seem to apply:
            o NO preexisting legal relationship b/w the parties (contract NOT concluded)
            o M trying to use equity and create ―contract‖ through estopping W from deying
                 contract came into existence
            o using estoppel as sword to create new contractual rights
GAUDRON J and DEANE J
     used common law estoppel instead of equitable estoppel to find in favour of M
     interpreted facts as showing W led M to believe contract already came into existence
     BUT Walton‘s never made promise to complete contract
     implied promise = through W‘s acquiescence; stood by and watched as M relied to
        significant detriment; express promise = W‘s solicitors saying that if don‘t hear from us
        presume everything okay with our clients
                                                                                               11


       PROBLEM with judgments = solicitors had enough knowledge to know that there was no
        contract SO must have been promise as to future, NOT common law estoppel
MASON and WILSON JJ
RECALL - policy reason courts sight for NOT allowing estoppel to be used as a sword = would
damage doctrine of consideration
     Why do Justice‘s say estoppel can be used as sword? – relates to unconscionability
     Doctrine of promissory estoppel extends to enforcement of ―voluntary promises‖
        because departure from basic assumptions underlying transaction b/w parties must be
        unconscionable; BUT mere failure to fulfill promise NOT unconscionable conduct
     Cites Humphreys Estate that suggests unconscionability will suffice to arise promissory
        estoppel where encouragement by party estopped in other party of assumption that
        contract will come into existence or promise will be performed and that other party relied
        on that assumption to his detriment
     Unconscionability of W‘s acquiescence arose form sense of urgency and reasonable
        assumption by M that necessary exchange only formality since had executed deed and
        sent to W‘s solicitors
PROBLEMS with judgment:
     creates contract without consideration; BUT even if was sufficient consideration, still not
        have contract b/c statute of frauds NOT met and parties clear that NO intent to be bound
        until exchange effected
     contract law NOT care about fairness; estoppel cares about fairness SO enforcing
        promise in estoppel different from enforcing promise in contract
             o To enforce promise in contract = expectation damages
             o To enforce promise in estoppel = damages should be HARM suffered
     FUNCTION of estoppel = prevent harm; FUNCTION of contract = confer legal power
     Two tests for conduct to arise estoppel: ―unconscionability‖ - sets bar HIGH and
        ―inequitability‖ – broader standard (applied in Canada)
     In case there was promise to create new right (to create contract; new legal relationship)
     In Australia, estoppel severely constrained to promises made in commercial relations –
     Since must be preexisting legal relationship where promisor will standby while promisee
        rely reasonably to detriment, CREATES steep hurtle to meet unconscionable conduct
BRENNAN J sets out best logical argument against ONLY using estoppel as sword
‗[T]here is a logical difficulty in limiting the principle so that it applies only to promises to
suspend or extinguish existing rights […] There is no logical distinction to be drawn between a
change in legal relationships effected by a promise which extinguishes a right and a change in
legal relationships effected by a promise which creates one.‘
     In both circumstances where change in relationship from extinguishing existing right and
        creating new one, EFFECT = same – creates new right

Final Notes on Estoppel (from Pratt)
    Equitable estoppel requires it be unconscionable to resile on promise
    most compelling and common basis for this unconscionability is presence of
       intentionally-induced detrimental reliance (whether weak or strong) on the part of the
       promise; BUT arguably not only basis of unconscionability: promises are issued in order
       to cause promisees to respond in a certain way - whether in action or thought - and
       when they achieve this objective the promisor is usually morally prohibited from going
       back on his word, at least without providing notice of some sort
    This kind of moral wrongdoing NOT influenced the common law much, but in its more
       sensitive moments equity's ire gets raised by it (most commonly by DENNING)
                                                                                                  12


      SO detrimental reliance NOT absolute requirement of promissory estoppel, either strong
       or weak; BUT Courts like detriment because it implies a pecuniary loss
      As practical matter, and probably as matter of strict law, some form of detrimental
       reliance is requirement in order to found a claim in estoppel



Topic 10 – Privity: Contracts for the Benefit of a Third Party
1. The Two Limbs of Privity
     DEFINED broadly = contract cannot confer rights or impose obligations on any person
       except the parties to it
     REFINED DEFINITION creates ―two limbs‖ = ONLY those who are party to a contract
       will be 1. ―subject to its duties‖ and 2. ―capable of enforcing those duties‖ (sue on it)
     Prior to modern doctrine stated in 1861, state of law in Provender v. Wood (302):
            o PRINCIPLE = Party to whom benefit of promise accrues (beneficiary of contract)
               may sue on contract
            o MOTIVATION at time = to decide in favour of those contract intended benefit

 Tweddle v. Atkinson (302) – HIGH WATER MARK of modern doctrine of privity
Facts:
     Son of Tweddle married daughter of William Guy, deceased
     BEFORE marriage, parents orally promised marriage portion; AFTER marriage, parents
       entered into written arrangement where mutually agreed William Guy will pay £200 to
       William Tweddle (―Tweddle Junior‖); and John Tweddle shall pay £100 to Junior;
       explicitly provided that Junior can sue parties for sums promised
     Guy NOT pay £200 to Tweddle Junior; who sues estate of Guy
Issue: Whether Junior entitled to recover money although not privy to the contract
Decision/Analysis: HELD FOR DEFENDANT – Junior not successful
     Junior fails b/c NOT party to contract (HIGH WATER MARK)
     Another reason third party cannot sue = not provide CONSIDERATION  If want to sue
       on a promise, plaintiff MUST provide consideration for it; Junior NOT pay for promise
     PRINCIPLE = third party beneficiary under contract cannot sue on it; stranger to contract
       cannot sue even if contract confers benefit on him/her
     case decided based on consideration grounds, NOT privity

TWO RULES:
1. Privity: ONLY a party to a contract can sue on contract
2. Consideration: ONLY those who have paid for a promise can sue on it
 Rules converge – are virtually identical
ONLY two circumstances where rules will diverge
A. Third party provided consideration for the promise BUT is NOT privy to contract (not likely)
 BUT if paying for promise, the promise was made to you and are party to contract
B. Privy to contract but have NOT provided consideration
 Typical example = A makes promise to B and C jointly; A makes promise to pay C $x;
consideration for promise provided by B; can C sue on promise? – NO b/c no consideration

 Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd.
Facts:
    Dunlop (manufacturer) enters contract of sale with Dew (wholesaler) with price
       purchasing agreement, where Dew NOT sell tires below Dunlop‘s list prices
                                                                                                    13


       Contract b/w Dew and Selfridge with price maintenance clause – Selfridge could not sell
        tires that bought from Dew lower than Dunlop‘s list price
       Dew sells tires to Selfridge; Selfridge goes to Dew and says need tires for a customer
        and then Dew makes contract of sale with Selfridge for lower than list price
       Action by Dunlop against Selfridge for breach of contract; contract b/w Selfridge and
        Dunlop being sued on b/c there Dew not hurt by breach so no reason to sue
                K of sale (price purchasing agreement) – NOT breached by Dew
Dew (wholesaler)                                 Dunlop (manufacturer)

K of sale                                        Cause of Action
breaches price
purchasing agreement
                        Selfridge
Issue: Whether Dunlop‘s cause of action against Selfridge is valid to retain injunction and
damages for Selfridges breach of agreement with Dew NOT to sell or offer below list price
Decision/Analysis:
     PRIVITY – Dunlop cannot sue b/c Dunlop is NOT promisee to Selfridge‘s promise to
        maintain list price; Selfridge made promise to Dew
     Court focus on CONSIDERATION - Dunlop must show paid for Selfridge‘s promise;
        chain of causation b/w Selfridge and Dunlop broken by Dew
     DUNEDIN thinks Dunlop should have right to sue b/c Selfridge getting unjustly enriched
Ratio: only party to contract can sue on it; ―our law knows nothing of a jus quaesitum tertio‖; and
for agency to apply, need 1) intent to create agency (reference to agent); and 2) good
consideration moving from principle (here from Dunlop to Selfridge)
Dunlop v Selfridge - Viscount Haldane – ‗[I]n the law of England certain principles are fundamental.
One is that only a person who is a party to a contract can sue on it. Our law knows nothing of a jus
quaesitum tertio [right of a third party to recover] arising by way of contract...A second principle is
that if a person with whom a contract has been made is to be able to enforce it consideration must
have been given to the promisor or to some other person at the promisor‘s request.‘


2. The Basis of the Rule: Arguments for and Against
FOR…
     Mutuality of obligation – if third party allowed to sue party to contract, BUT party to
       contract cannot sue third party, would not create obligation on third party to fulfill
       obligations if cannot be sued
       REBUTTAL - exists within UNILATERAL contract where if not paid for performance can
       sue, but if not perform, payer cannot sue
     autonomy – parties to contract intended to enter contract where confer rights on each
       other, BUT never intended to confer rights on third party
       REBUTTAL – create limits so third parties only enforce in certain circumstances
AGAINST…
     third party relied to significant detriment to promises parties to contract ha made to
       each other and KNOWN was relying
     unjust enrichment of party to contract (did not have to pay b/c owed to third party) –
       someone should be able to sue and who better than who was to benefit
     if parties intended to allow third party to sue then allow to give effect to intentions

3. Exceptions and Circumventions
     Canada – only in NB common law curtailed by statute; BUT both Manitoba and Ontario
       Law Reform Commissions strongly recommended abolition or serious curtailment
                                                                                                          14


     Legislatures not get involved b/c common law done good job at pushing into strict corner
(a) Enforcement by the Promisee (ie: plaintiff sue on contract for benefit not given to third party)
     A can sue B for breach to third party BUT run into problem when determine damages b/c
       A not suffered any pecuniary damages b/c third party not get damages SO ideally want
       A to be given remedy of specific performance
     BUT specific performance only awarded in few situations where damages not do justice

 Beswick v. Beswick
Facts:
     ―old‖ Peter Beswick = coal merchant; business transferred to nephew: uncle employed
        as consultant until death and after death widow to be pd annuity
     Uncle died; nephew paid widow first £5 but then stopped paying
     widow brought action against nephew for promised sum; sued in capacity of adminstratix
        of estate; Widow looses at trial on basis that was third party to contract
Issue: Whether widow entitled to promised sum, in arrears and specific performance for future
Decision/Analysis:
Court of Appeal – DENNING (303) – HELD for widow party to contract because suing as
administratix of estate so assumes uncle‘s rights including right to sue
     General rule = ―no third person can sue, or be sued, on a contract to which he is not a
        party‖; BUT says that it only rule of procedure that goes to remedy NOT underlying right
     Where contract made for benefit of third party who has legitimate interest to enforce it, it
        can be enforced by third person in name of contracting party
     Third person has right arising by way of contract; has interest protected by law
     Qualifications = third person have NO legitimate interest (Dunlop); seeking to rely on
        exemption clause to exempt from just liability (Scruttons v. Midland Silicones)
House of Lords (309) – HELD for widow on same basis as CA
     In personal capacity, widow NO right to sue; as adminstratix of estate, right to require
        nephew to perform obligation under agreement
     NOT accept view damages to third person must be nominal
     Case entails all features of application of remedy of specific performance: mutuality;
        nephew received whole benefit so as matter of conscious court ensure he performs part
     Nephew ARGUES since widow personally had no rights could enforce, court not make
        order that would enforce rights
     Court awards specific performance b/c damages would not do JUSTICE  Why should
        estate barred from exercising full contractual rights b/c in so doing secures justice for
        widow who is unable to assert own rights
     PROBLEM with awarding specific performance to do justice to widow: essentially trying
        to do justice to estate and estate not have feelings so cannot actually do it injustice
Ratio: CA - third party benefiting but not party to contract can sue on it in name of contracting
party or force them to join action, and seek specific performance as remedy where is payment
of money; HL - party to contract can sue to enforce benefit to third party and seek specific
performance as remedy

(b) Trust
                      K - A promises B to pay C $1000 - breached
A – Grantor/Settler                                B - trustee             B (trustee) has fiduciary duty to
                                                                           C to compel (sue) A to pay
                                                                           money; B‘s obligation as
                                           B held promise in trust for C   trustee is to do everything
               C - beneficiary                                             possible to obtain money for C
                                                                                                             15



      Granter confers land ―in trust‖ so title held by trustee BUT not for trustee‘s own use;
       trustee will hold land for use of beneficiary on terms set out by grantor
     Kind of property to held in a trust unlimited (usually land or chattels); ―chose in action‖ (=
       right someone has under law comes to fruition through court of law, ie: right to property)
     IN THEORY = If B fails to sue A then C can sue B to compel him to sue A and name A
       as co-dependent; THEREFORE not actually an exception to rule of privity b/c B suing A
     IN PRACTICE = lawsuit by C against A
     B must provide consideration to A; sits awkwardly in structure of bargain to say B‘s
       consideration was that entered contract for benefit of C; when made out stretches
       bounds of consideration
(c) Agency Generally
                   K (ie: purchase of home)                            B makes promise to A to benefit C
A – Agent                                     B – third party/vendor   – if can show C was principal and
                                                                       A not entering contract on own
C confers                                                              behalf but on behalf of C; contract
authority to act                                                       made between as C and B; A
on behalf                                                              entered contract on behalf of C
                   C - principal

(d) Agency and Exemption Clauses
     Sometimes B negotiating under wrong impression that dealing with principal (through
        agent) BUT actually dealing with agent on own behalf = undisclosed principal
     CLEAR EXCEPTION TO RULE OF PRIVITY b/c B‘s intends to enter into contract with A,
        but law actually gives effect to intention of principal (C) who B did not know existed
     Figures prominently in cases with exclusion clause – purports to exclude certain kind of
        liability against the ―proferens‖; benefit to third party = exclusion of liability
     Doctrine of vicarious immunity –rule of law that exclusion clauses b/w A and B for
        benefit of C were enforceable by C against B
     BUT trumped by PRIVITY – now C wide open to lawsuit by B against C
     Can circumvent privity by agency argument – A agent for principal C for benefit of
        exclusion clause (remarkable C principal although in reality acting as agent of company)
     If can show A entered contract to include exclusion clause as benefit for C then C can
        enforce clause against B
Alder v. Dickson – ship = Himalaya:
     Alder passenger on ship captained by Dickson; Alder injured on ship
     Passenger ticket had wide ranging exclusion clause said shipping company not held
        liable for negligence of servants
     Alder sued Dickson as an employer of carrier
     ISSUE = can Dickson take advantage of term of contract to which he was not a party
     HELD as matter of general principle that carriers could enter contracts with passengers
        and include clauses for benefit of employees which would be enforceable by employees
        if shown carriers acting as agent of employees (in negotiating exclusion clause)
     Clause not sufficiently clearly worded to indicate company acting as agent for Dickson
     need evidence of agency not just intention to benefit employee
     RESULT of case = shipping companies started to draft specific clauses saying company
        acting as agent of employees in negotiating clause  Himalaya clauses

 New Zealand Shipping Co. Ltd. v. A.M. Satterthwaite & Co. Ltd. – Eurymedon (322)
         K = bill of lading – incl. Himalaya clause
                                                                                                     16


Ajax                                                            Federal Steam (carrier) – AGENT
(seller/consignor/shipper)                                            (3rd party)



AM Satterthwaite                                          New Zealand Shipping - PRINCIPAL
(buyer/consignee)                                                            (stevedores)
Facts:
      Clause in bill of lading excluded all liability on part of employees/subcontractors AND
         limited Federal Steam liability to $100  ‘It is hereby expressly agreed that no servant
         or agent of the carrier (including every independent contractor from time to time
         employed by the carrier) shall in any circumstances whatsoever be under any
         liability...for any loss or damage.’
      Employees (stevedores) of NZS damaged goods when unloaded; AMS sue NZS
      NOT sue Federal Steam b/c since NZS NOT party to contract, not excluded from liability,
         BUT NZS limited to $100 liability
Issue: whether NZS which is not party to bill of lading can take advantage of exclusion clause;
specifically, whether Federal Steam acting as agent of NZS when negotiated clause with Ajax
Decision/Analysis:
      To decide if agency argument applies, refers to Scruttons v. Midland Silicones where
         Lord Reid laid down four part TEST to agency:
1. Bill of lading clear stevedore is intended to be protected by provisions – MET
2. Bill clear carrier also contracting as agent for stevedore that provisions should apply to
     stevedore - MET
3. Carrier has authority from stevedore to contract on behalf (later ratification by stevedore ok)
      MUST show NZS clearly conferred authority on Federal Steam and aware had conferred
         b/c concern exists would bind NZS to other terms in agreement
      MET b/c of nature of two companies – NZ traditionally acted as agent for Federal Steam
4. Any difficulties about consideration moving from stevedore are overcome - MET
      NZS must show it provided consideration ideally, although not necessarily, to Ajax
      Consideration = unloading ship; BUT that was its pre-existing duty; RECALL Shadwell v.
         Shadwell HELD pre-existing duty owed to third party = good consideration (to Ajax)
      TEST PASSED so NZS party to contract b/w Ajax and Federal Steam; need to be in
         privity with Satterthwaite
      bill of lading binds the owner of the goods – Ajax at time of shipment owner of goods but
         upon being unloading at Wellington (by NZS), goods became property of Satterthwaite
         binding them to bill of lading and party to contract with NZS
      Contract b/w Ajax and Satterthwaite = UNILATERAL – Bill of lading brought into
         existence bargain initially unilateral but capable of becoming mutual; became full
         contract when … Satterthwaite performed services by discharging goods
  ‗[The bill of lading] brought into existence a bargain initially unilateral but capable of becoming
  mutual, between the shipper [seller] and the [stevedores], made through the carrier as agent. This
  became a full contract when the [stevedores] performed services by discharging the goods. The
  performance of these services for the benefit of the shipper [seller] was the consideration for the
  agreement by the shipper [seller] that the [stevedores] should have the benefit of the exemptions
  and limitations contained in the bill of lading.‘

Ratio: third party can benefit from limitation of liability if there is clause in contract indicating an
intention to extend benefit to them and if party to contract is signing as agent with their authority,
and problems regarding consideration are avoided
                                                                                                   17


 Eurymedon case and Lord Reid test firmly part of common law in Canada

(e) Provisions Limiting the Liability of Employees
 London Drugs Ltd. v. Kuehne & Nagel International Ltd. (328)
Facts:
     LD = owned transformer and wanted to store with KN
     Agreement under standard form for storage; included exclusion clause (cl. 11) that limits
       KN liability to $40 or allows LD to request extra insurance
     With full knowledge and understanding of clause, LD chose NOT to obtain additional
       insurance from KN BUT arranged for own all-risk coverage
     B&V = employees of KN damaged transformer by acting negilgently; LD sues both KN
       and employees (B&V)
NOTE: LD‘s insurance company suing; subrogate itself to rights of LD under contract; BUT law
recognizes LD suing to recover money paid out to insurance company through premiums
TRIAL (BCSC) finds B&V liable and gives full damages to LD; BCCA decides in favour of B&V

Issue: Whether employees can claim benefit of employer‘s limitation of liability clause
secondary issue = what is duty of care owed by employees to employer‘s customers

Decision/Analysis: 3 judgments all based on different reasoning
MCLAUGHLIN – declines to follow majority b/c not think interpretation of clause by IACOBUCCI
―reasonable‖; concurred LD unable to sue B&V on basis that duty of care somehow limited by
exclusion clause
LAFOREST –holds on policy grounds that B&V hold no duty of care to LD; re-established
doctrine of vicarious immunity – employees of company should be immune to same extent as
employer is from actions arising from work; so if commit torts in course of employment should
be immune from being sued against directly and liability should fall on employer
REASON = employees doing work for company and company reaping profits of labour so
employer should also liable for negligence (mere carelessness) of employees in employment
MARJOITY - IACCOBUCI ***relaxes ambit of doctrine of privity*** FOCUS
      Admits to making changes to doctrine (substantive law), BUT cautions that not changing
          law wholesale b/c that is role of legislature; role of court is to decide justice of case at
          bar and if have to overturn precedent to do so then will
      notes two of major arguments in favour of privity do not apply in circumstances
              o Floodgates argument - BUT no concerns here b/c third party attempting to avoid
                 privity to be able to use contract as defense = exception NOT circumvention
              o Mutuality of Obligation - BUT B&V not suing, merely trying to enforce limitation of
                 liability clause
      Arguments in favour of exception presented:
              o identity of interest - KN and employees both of an identity of interest and can be
                 treated as matter of legal realism as one entity although in law are separable
              o Allocation of risk - to allow LD to sue employees would give LD an extra avenue
                 that it did not bargain for
  There is clearly an identity of interest between the employer and his or her employees as far
  as the performance of the employer's contractual obligations is concerned. When a person
  contracts with an employer for certain services, there can be little doubt in most cases that
  employees will have the prime responsibilities related to the performance of the obligations
  which arise under the contract.‘
  ‗In either scenario, the parties to the contract agree to a certain allocation and then proceed,
  based on this agreement, to make additional insurance arrangements if required. It stretches
  commercial credulity to suggest that a customer, acting prudently, will not obtain insurance
  because he or she is looking to the employees for recovery…‘
                                                                                                   18




       Rejects employees claim that ambit of contract = employees immune to complete extent
        of employers ($40); COURT says would undermine basis of contract law as to give
        meaning to intentions of parties
    HEART OF JUDGMENT = intentionality; exclude privity (and allow third party to enforce
        exclusion clause) ONLY to extent that will give intent of parties – SETS OUT TEST
            1. Limitation of liability clause must, either expressly or impliedly, extend its benefit
               to employees seeks to rely on it; and
            2. Employees seeking benefit of limitation of lability clause must have been acting
               in course of their employment and must have been performing very services
               provided for in contract between employer and customer when loss occurred
Apply law to facts:
    To satisfy criterion #1 – LD argues NO mention of ―employees‖ or ―warehousemen‖ in
        clause; language used in other terms so if intend to extend to employees language
        would be same; COURT says NOT preclude finding employees implied third party
        beneficiaries – uses identity of interest argument
    Presumption = unless clause explicitly say that will not be for benefit of third party than
        on basis of policy, we OUGHT to interpret it as extending
    Criterion #2 easily met
 RESULT = Exception carved out limited on its face by criteria in TEST – small zone of
exclusion and doctrine of privity remains in force at common law
Ratio: in employer-employee situations, where a limitation of liability clause expressly or
impliedly extends its benefits to employees, and employees are acting in course of employment
when negligence occurs, they can rely on limitation of liability clause in contract between
employer and customer; = a ―principled exception‖ to doctrine of privity

 Edgeworth Construction Ltd. V. ND Lea & Associates Ltd. (339)
                       K (included exclusion clause)
Edgeworth Ltd.                                                 Ministry


       SUING                                           K to build road
                               ND Lea Ltd.
Facts:
      EC in business of building roads in BC; EC successful bid for of highway in Revelstoke;
      EC entered into contract with Ministry for work; ND contract with ministry to provide
         engineering drawings of roads
      EC alleges lost money on project due to errors in specification/construction drawings
      EC commenced action for negligent misrepresentation against engineering firm which
         prepared drawings (ND)
Issue: whether fact that ND was third party and had no contractual relations with EC, meant that
it did not owe a duty of care to EC
Decision/Analysis:
      EC NOT bring cause of action against ministry b/c wanted to keep doing business
      ND argument based on privity – can avail itself of limitation of liability clause in contract
         b/w ministry and EC b/c was for benefit
      COURT HELD duty of care owed by ND to EC b/c ND knew documents were prepared
         to be sent out to construction companies using them to prepare bids
      Problem for ND Lea = exclusion clause said documents not guaranteed by or on behalf
                                                                                                 19


        of ministry, did NOT say anything about ND or employees of ND
       How DISTINGUISH from London Drugs to hold NO privity? - ND more capable of
        protecting itself from liability than employees of KN
     Because of London Drugs need to ask if is anything clearly obvious that should allow
        clause to extend to ND‘s benefit – IF NOT then presumption = should not be extended
CRITCISM of JUDGMENT - No longer talking about intention of parties, actually talking about
policies (OUGHT) – BUT court must place decision in terms of contract – If cannot exclude duty
of care based on exclusion clause then none existed

Doctrine of Subrogation
    = substitution of one person in the place of another with respect to a lawful claim or
       demand against a third party … so that the substituted party succeeds to the rights of
       the other with respect to the claim against the third party
    GOAL of subrogation = loss fall on person was supposed to fall on originally
INSURANCE CONTEXT –
    A and B enter into contract of insurance where A = insurer and B = insured
    C (third party) does some damage to B whereby B suffers insured loss
    A pays B for loss b/c is obligated under contract of insurance
    Ultimate responsibility for payment should rest with C b/c is tortfeasor
    A subrogates itself to the of B against C
    Occasionally insurers enter into contract with insured that includes waiver of
       subrogation clause – insured gets promise from insurer that insurer will not subrogate
       itself to the insured‘s rights

 Fraser River Pile & Dredge v. Can-Dive (SM)
Facts:
     Parties involved: Owner of barge = FR; charterers = CD; insurance company
     CD negligently causes barge to sink; FR insured against loss and paid by insurer $1.1
         million for loss
     Insurance Policy contained waiver of subrogation clause
     Shortly after paying 1.1 million settlement, insurer negotiates with FR to relinquish
         waiver of subrogation to restore right to subrogate against CD
WAIVER OF SUBROGATION CLAUSE - ‗In the event of any payment under this Policy, the
Insurers shall be subrogated to all the Insured's rights of recovery therefor, and the Insured shall
execute all papers required and shall do everything that may be necessary to secure such rights,
but it is agreed that the Insurers waive any right of subrogation against: ... (b) any charterer(s)
and/or operator(s) and/or lessee(s)...

Issue: Whether CD avail itself of waiver of subrogation clause in insurance policy b/w FR and
Insurance Company?
Can CD avail itself of waiver of subrogation on agency grounds? (Lord Reid‘s 4-part test)
If that does not apply, can we apply London Drugs?
[NOTE: did not answer first question b/c decision focused on London Drugs] try to apply
Decision/Analysis:
      NOT intention in London Drugs to limit application of principled approach to situations
         involving only employer-employee relationship
      Court creates PRINCIPLE EXCEPTION to privity (generalizes TEST from London Drugs)

 ‗[E]xtrapolating from the specific requirements as set out in London Drugs, the determination in
 general terms is made on the basis of two critical and cumulative factors: (a) Did the parties to
 the contract intend to extend the benefit in question to the third party seeking to rely on the
 contractual provision? and (b) Are the activities performed by the third party seeking to rely on
 the contractual provision the very activities contemplated as coming within the scope of the
 contract in general, or the provision in particular, again as determined by reference to the
 intentions of the parties?‘
                                                                                                        20




FIRST CRITERIA – intention to extend benefit to third party - MET
    Problem with intention based on facts b/c Insurer and FR amended insurance policy of
      insurance to allow insurer to sue CD (FR and insurer have freedom on contract)
    If then allow third party to become privy to contract to enforce term (waiver clause) in it
      against Insurer and FR then inhibited freedom of contract b/c Insurer and FR can no
      longer freely amend contract b/c third party must consent to amendment
    Court gets around PROBLEM by saying post-accident amendment to insurance policy
      concluded subsequent to point at which CD‘s right under contract crystallized into actual
      benefit in form of defense
    Point at which CD‘s right crystallized = FR chartered to CD; when CD became a member
      of amorphous (unnamed) class of charterers then had right against parties
  ‗The agreement in question was concluded subsequent to the point at which what might be
  termed Can-Dive‘s inchoate right under the contract crystallized into an actual benefit in the
  form of a defence against an action in negligence by Fraser River‘s insurers. Having contracted
  in favour of Can-Dive as within the class of potential third-party beneficiaries, Fraser River and
  the insurers cannot revoke unilaterally Can-Dive‘s rights once they have developed into an
  actual benefit. At the point at which Can-Dive‘s rights crystallized, it became for all intents and
  purposes a party to the initial contract for the limited purposes of relying on the waiver of
  subrogation clause.‘

SECOND CRITERIA –activities performed contemplated as coming under contract - MET
Policy Reasons in Favour of CD:
     Intentionality argument (also proffered in London Drugs) – intention of parties under
        original contract was to give CD this benefit so no reason why should not be used to
        solidify agreement
     CRITICISM – argument stronger if CD had knowledge of subrogation clause
     Relaxing doctrine of privity in these circumstances establishes default rule that most
        closely corresponds to commercial reality
Ratio: extends ―principled exception‖—focus on intention of parties contracting; intention to
waive privity rights to allow third party to benefit can be done either expressly within the contract
(as in Fraser River) or impliedly (as in London Drugs)

TO THINK ABOUT: in Fraser River and London Drugs third party not seeking to enforce
contract to sue a party to the contract, seeking to enforce provision in contract as a shield
(defense!); unlike case like Beswick where wife trying to enforce contract to sue party to which
she is not a party; Had Mrs. Beswick been suing in 2004, could she have succeeded under
Fraser River exception?

Topic 11 - What is a Promise in Law? Ascertaining the Scope of the Contract
1. Representations and Terms
     ambit of a contract – what are its terms and what can be enforced?
     term DEFINED = promise the breach of which gives rise to right to damages for breach
     Several classes of terms: distinction b/w and among terms turns on consequence of
       breach of the term
           1) warranties (right to damages)
                                                                                              21


           2) conditions (innocent party has right to damages and to terminate contract)
           3) innominate (sits on fence and depends on breach)
      FOCUS = distinction b/w terms and representations
      not everything spoken or written in context of drafting contract amount to term; may be
       “mere” representation – breach NOT arise right to sue for breach of contract/damages
      When faced with case, MUST determine if statement is term of contract or mere
       representation (or even a mere puffery - no legal effect)
      QUESTION of whether statement is a term of contract or a mere representation ARISES
       where someone induced to enter contract b/c of specific statement, enters the contract
       and then representor resiles on statement
      HOW determine if statement in negotiating contract is a term of contract or mere
       representation? – turns on intentions of parties – did the parties intend term to be
       contractual promise?

2. When Does a Statement Become a Term?
(a) Promises Versus Statements of Belief
 Oscar Chess v. Williams (SM)
Facts:
     W‘s mother purchases automobile thought to be 1948 model b/c stated in registration
        book as when first registered
     Year later W ―traded‖ to OC second-hand Morris motor car for £290 described as ―1948
        10-horsepower Morris‖ and traded over registration book
     10 months later OC found out it was a 1939 Morris and would have paid only £175
     OC claimed £115 damages for breach of warranty either on basis that had been
        condition (ie: essential term) of contract that car was 1948 model or that there had
        been collateral warranty that it was
Issue: Whether W gave binding promise to OC that car was made in 1948
Decision/Analysis: DENNING
     For OC to get damages for breach, utterance by W must be term (binding promise)
     CRUCIAL QUESTION = was it a binding promise or only an innocent misrepresentation?
     Court HELD statement to be mere representation - W made statement of belief or
        opinion (―I believe this is so‖), NOT promise (―I warrant/guarantee this is so‖
     If asked officious bystander whether W would have guaranteed car, would have said no;
        W would have said ―I guarantee this is so based on what the book says‖
     W NOT first buyer of used car so only has second-hand knowledge of actual pedigree of
        car based on registration book
     MORRIS DISSENTED – statement cannot be mere representation because year of car
        fundamental to agreement to purchase; DENNING‘S response – inquiring into intention
        of representor
Ratio: lays down fundamental distinctions –
     condition = stipulation which is fundamental to contract
     warranty = provision which is collateral to main purpose of contract
     practical distinction in consequences – breach of condition entitle innocent party to treat
        contract as being at end; breach of warranty entitles innocent party only to damages

(b) The Plight of the Expert
 Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd. (409)
Facts:
     Dick Bentley wants Bentley so asks Smith to look out for one Bentley
     S finds one, purchases it and tells DB about it
                                                                                                22


      DB went to see car; S told him a German baron was pervious owner; said it fitted at one
       time with replacement engine and gearbox, and had done 20,000 miles only since fitted;
       speedometer on car showed only 20,000 miles (NOTE: this was representation)
     DB takes for test drive and buys it; S has to repair it many times
Issue: whether representation was innocent misrepresentation (does not give rise to
damages) or whether it was warranty
Decision/Analysis: DENNING
     Statement HELD to be warranty
     Main criteria in distinguishing from Oscar: Smith in position to know or could have found
       out true state of car; DENNING claims although not do so, ought to have known better;
     Representation HELD for purpose of inducing  ‗...if a representation is made in the
       course of dealings for a contract for the very purpose of inducing the other party to act
       on it, and it actually induces him to act on it by entering into the contract, that is prima
       facie ground for inferring that the representation was intended as a warranty.‘
     RESULT = creates rebuttable presumption against representation being warranty
       based on expertise and knowledge of representee
     BUT representor can REBUT this inference if can show that it really was innocent
       misrepresentation, in that he was in fact innocent of fault in making it, and that it would
       not be reasonable in circumstances for him to be bound by it
CRTICISMS:
     DENNING‘S judgment influenced by fault of Smith (representor); BUT fault based
       argument has no place in law of contract b/c centres on intentions of parties;
     Statement regarding ―inducement‖ = WRONG because fails to recognize whether or not
       it was actually intended to be a term – what does it matter if it induces a contract

SUM of Oscar Chess and Dick Bentley – two important factors courts will look at in deciding
whether statement is a term or representation:
    Whether statement one of opinion/belief or part of contract (Oscar Chess)
    Expertise of party making representation (Dick Bentley)

3. Contracts Partly Written, Partly Oral
(a) A Presumption Against Them
      FOCUS: QUESTION = construction (to construe) – what is ambit of contract?
      If some terms written down and others not, then is prima facie evidence of assumption
         parties want to be bound by written terms
      presumption against the existence of partly written, partly oral contracts – written
         document contains all terms and any oral representations not contractually binding
      Strength of presumption will depend on number of factors:
             o Nature of writing – detailed lengthy legal document prepared by lawyers creates
                 strong presumption
             o Sometimes presumption is so strong that almost not rebutable - pay careful
                 attention to wording of clause
(b) The Parol Evidence ‗Rule‘
Originated in Goss v Lord Nugent (1833) 110 ER 713 – ‗By the general rules of the common law,
if there be a contract which has been reduced into writing...evidence is not allowed to be given
of what passed between the parties, either before the written instrument was made, or during
the time that it was in a state of preparation so as to add to or subtract from or in any manner to
vary or qualify the written contract.‘
2 interpretations of RULE from Goss:
1. Robust Interpretation (minority view) = real substantive rule of law of evidence that
                                                                                                        23


   precludes people from leading evidence in court that tends to contradict or vary written
   agreement; specifically precludes people from adducing evidence of terms outside written
   agreement; RESULT = presumption is evidentiary
    REJECTED on following grounds – forms second interpretation
          o Rule = circular –applies to exclude evidence only where contract has in writing; if
              in writing then entirety of agreement written down; BUT how determine whether
              contract been reduced to writing? – only look at evidence of oral statements
              made outside writing to determine if parties intended oral statements to be terms;
          o RULE only applies once discerned what the rule precludes you from discerning
              (whether oral statement is term)
2. Parol evidence rule NO effect on basic presumption against partly written, party oral
   contracts b/c parol evidence rule not a rule of evidence, but rule of common sense

5. Collateral Contracts
(a) The Concept
     Promise consideration for which is entering into the main contract  Evans v Andrea
        Merzario [1976] 1 WLR 1078 DENNING – ‗When a person gives a promise or an
        assurance to another, intending that he should act on it by entering into a contract, and
        he does act on it by entering into the contract, we hold that it is binding.‘
     Collateral contract = unilateral (by Denning‘s definition); by definition cannot be bilateral
        b/c would amount to a contract to enter into a contract
(b) The Utility of the Concept
     Created to circumvent ROBUST parol evidence rule – HOW?
     no longer arguing one partly written, partly oral contract; arguing two separate contracts,
        one written and one oral; NOT against parol evidence rule because not arguing oral
        statement exists to modify written agreement but arguing it is agreement in itself
     If there is collateral contract than partly/partly presumption has no bearing; BUT despite
        that, it is against presumption against actual existence of collateral contract
(c) A Presumption Against Them
 Heilbut, Symons & Co. v. Buckleton (405)
Facts:
     Defendants (HS) selling shares in new rubber company; entered written contract with B
     Under contract HS would obtain for B 6000 shares in company
     Before making written contract with HS, B‘s agent spoke with HS in phone conversation:
        B: I understand you are bringing out a rubber company; HS: We are; B: Do you have any
        prospectuses? HS: None yet; B: Is it [the rubber company] all right? HS: We are bringing
        it out. (NOTE: this was representation); B: That is good enough for me.
     When turned out company owned virtually no rubber trees cause of action ensued; B
        argues breach of collateral contract by HS
Issue: whether was collateral contract that warranted company was rubber company, collateral
to main contract of purchase of shares
Decision/Analysis:
     If found to be a mere representation than there would be no remedy b/c rescission not
        available b/c of existence of third parties‘ rights; B arguing collateral contract to show
        statement could be sued upon as contractual promise
     HS not actually say ―this is a rubber company‖ although answers question to that effect;
        B discount expertise b/c NOT actually have prospectus
     Court HELD collateral contracts must from nature be rare and viewed with suspicion
 House of Lords - It is collateral to the main contract, but each has an independent
 existence...But such collateral contracts must from their very nature be rare. The effect of a
 collateral contract such as that which I have instanced would be to increase the consideration of
 the main contract by ,100, and the more natural and usual way of carrying this out would be by
 so modifying the main contract and not by executing a concurrent and collateral contract. Such
 collateral contracts, the sole effect of which is to vary or add to the terms of the principal contract,
 are therefore viewed with suspicion by the law. They must be proved strictly.‘
                                                                                                     24




       NO EVIDENCE to support existence of collateral contract; no suggestion B regarded
        statement by HS as anything but representation
Ratio: Presumption against partly written/party oral contracts is NOT avoided when go to a
collateral contract; Court should be slow to find collateral contract
NOTES:
     collateral contract argument difficult; to avoid partly/partly presumption, collateral
        contract not usually successful; BUT sometimes may succeed in arguing subject-nature
        of collateral contract is distinct enough to make collateral contract argument viable
     In trying to rebut presumption against partly/partly and collateral contracts must answer
        why oral statement NOT included in written document?

 Shepperd v. Ryde Corporation (SM)
Facts:
     Defendant = municipality of New South Wales sells S house
     R has pamphlet that sets out development plans for area where S buying house
     Pamphlet clear land for S‘s house is opposite two parks; BUT parks made into houses
     S sues for an injunction to stop R from making houses instead of parks
     High Court looking solely at whether R should be enjoined from going ahead with plans;
       BUT burden of proof on S to obtain interlocutory injunction is to make out a prima facie
       case that there is contractual undertaking to keep land parkland
Issue: Whether there was ―oral‖ collateral contract between R and S that land would be park,
consideration for which was entering into main contract for sale of house
Decision/Analysis:
     nature of this promise would make it binding; HELD collateral contract existed
     subject matter collateral to main contract – nature of land across street not in essence
       part of main contract so can form DISCRETE and SEPARATE collateral contract
 Shepperd v Ryde – ‗The reluctance of courts […] reason for this is that too often the collateral
 warranty put forward is one that you would expect to find its place naturally in the principal contract.
 In a case like the present it is, we think, otherwise. Doubtless the main contract might have included
 a clause by which the Council undertook not to depart from the housing scheme. But it seems to be
 not unnatural that the parties should treat the contract as devoted to the purchase of the lot […] It is
 the common intention that he would so rely upon it and on that basis proceed to contract to buy the
 particular lot allocated to him. It is because of this that the assurance which is embodied in the plan,
 when it is read in the light of the pamphlet, obtains its effect as a collateral promise.‘

       S precluded from arguing partly/partly b/c of Statute of Frauds requirements that
        contracts regarding interest in land MUST be written –
Ratio: when subject matter is distinct in oral agreement to be a contract on itself OR there is
Statute of Frauds requirement then would want to argue collateral contract rather than partly
written/party oral contract to make claim successful (NOT binding precedent but pervasive)

(d) Inconsistent Collateral Contracts
     If nature of oral statement contradicts main contract then collateral contract not exist
     PRATT says absurd b/c no possibility of making valid contract in law inconsistent or
        contradictory to the main one; ie: why does written contract have to trump oral (collateral)
        contract if can prove oral contract existed consideration for which entering written one
                                                                                                     25


 Hawrish v. Bank of Montreal (445)
Facts:
     line of credit granted by bank to company
     Bank asked H for contract of guarantee (= promise that if company defaults on loan then
       would pay off debts owed by company); H signed guarantee that stated was t to cover
       existing as well as future indebtedness
     Written contract of guarantee entered on a standard form includes a merger clause
       (entire agreement clause) that says H assures Bank no representation made to him
     H claims oral assurance from assistant manager of branch when signed that guarantee
       to cover only existing indebtedness and that would be released form his guarantee when
       bank obtained joint guarantee form directors of company; Bank obtained joint guarantee
     company insolvent; bank brought action against H for full amount of his guarantee
Issue: Whether oral assurance collateral to main written ―contract of guarantee‖
Decision/Analysis:
     Even assuming that statement by bank made in contractual intent, HELD NO collateral
       contract b/c contradicts terms of guarantee (main contract)
     Cites Hoyt’s v. Spencer – collateral contract must be consistent with main agreement

 Hawrish – ‗collateral agreement allowing for the discharge of the appellant cannot stand as it clearly
 contradicts the terms of the guarantee bond which state that it is a continuing guarantee...[A]
 collateral agreement cannot be established where it is inconsistent with or contradicts the written
 agreement. […] High Court of Australia in Hoyt’s Proprietary Ltd. v. Spencer [(1919), 27 CLR 133,
 which rejected the argument that a collateral contract which contradicted the written agreement could
 stand with it. Knox C.J., said: ―A distinct collateral agreement, whether oral or in writing, and whether
 prior to or contemporaneous with the main agreement, is valid and enforceable even though the main
 agreement be in writing, provided the two may consistently stand together so that the provisions of
 the main agreement remain in full force and effect notwithstanding the collateral agreement.‖‘

       NOT convinced evidence in case indicates clear intention to create binding agreement
       NOT collateral contract b/c collateral agreement allowing for discharge of H clearly
        contradicts terms of guarantee which state it is continuing guarantee
NOTE: inconsistency is taken very broadly by courts
Ratio: any agreement collateral to written agreement may be established by parol evidence,
provided it is independent agreement could be made without writing and not in any way
inconsistent with or contradictory of the written agreement
CRITICISMS:
     RULE in Hoyt’s not justifiable because if take court at its word that oral agreement made
        with contractual intent, then no contradiction
     Collateral contract merely further specification of intentions of parties so is variation of
        written agreement; oral agreement NOT contradict, it merely varies written agreement
     PRATT claims NO legal grounds for rule; once taken as true oral agreement made with
        contractual intent, why should then say written agreement obliterates oral agreement?
     Court proceeded on assumption that was a contractual undertaking and that even if it
        was a collateral contract then it would not stand because was inconsistent

Topic 12 - Misrepresentation and Rescission
1. Introduction
     Deals with statements made in pre-contractual context not amount to terms of contract
     Three types of misrepresentation (in order of degree of seriousness):
           o Fraudulent – made with knowledge that it is not true
           o Negligent – made without due care with respect to truth of statement
                                                                                                     26


           o   Innocent – representor had no idea nor could be expected to know that
               statement was untrue
     Primary remedy for all forms of representation = rescission; NOTE: always available at
        common law for fraudulent; allowed for negligent and innocent by equity
     Basic idea of rescission = put parties back in position in before representation was made
     Contracts induced by misrepresentation are voidable not void
2. Statement of Fact – amounts to representation
(a) Statements – YES representation; something meaningful - not necessarily spoken
(b) Promises – NOT representation; promise or representation as to future NOT statement of
fact b/c cannot either be true or false when made
(c) Statements of Opinion – NOT representation; statement is assertion something is true but if
merely opinion that something is true then NOT statement of fact (be careful not to take too far)

 Smith v Land & House Property Corp (390)
Facts:
     S offered for sale a hotel, stating currently leased to Fleck, ―a most desirable tenant‖
     L agreed to buy hotel; shortly after Fleck went into bankruptcy; L refused complete sale
     CAUSE OF ACTION = S sued for specific performance; L defended on basis that
         misdescription of Fleck‘s virtues amount to misrepresentation; S argued reference to F
         was mere expression of opinion and not statement of fact
Issue: Whether description of Fleck amount to misrepresentation to make contract voidable
Decision/Analysis:
     S argued reference to Fleck mere expression of opinion and not statement of fact
     Court HELD statement to be misrepresentation; statement of opinion can be statement
         of fact; if can be shown that Fleck not desirable tenant then have misrepresented
         something based on own state of mind
  Smith v Land & House Property Corp – ‗[I]t is often fallaciously assumed that a statement of
  opinion cannot involve the statement of a fact. In a case where the facts are equally well known
  to both parties, what one of them says to the other is frequently nothing but an expression of
  opinion. The statement of such opinion is in a sense a statement of a fact, about the condition of
  the man's own mind, but only of an irrelevant fact, for it is of no consequence what the opinion is.
  But if the facts are not equally known to both sides, then a statement of opinion by the one who
  knows the facts best involves very often a statement of a material fact, for he impliedly states that
  he knows facts which justify his opinion.‘

Apply to Facts:
    QUESTION = are statements here statements which involve representation of material
        facts?  YES - statements on subject which prima facie vendors know everything and
        purchasers nothing
    Vendor‘s assertion regarding tenant = assertion of specific fact (b/c landlord knows
        relations b/w himself and tenant others not know) and NOT true assertion
Ratio: statement of opinion may be considered statement of fact if one who makes statement
knows fact best so statement becomes statement of material fact

(d) Statements of Intention
     Statement as to future (―I intend to do thus and so in future‖); generally NOT actionable
     BUT implies or contains within it statement of fact
     If can adduce evidence of state of mind of representor so can prove that never had
        intention to do thus and so, THEN can prove is misrepresentation as to state of fact
Edgington v Fitzmaurice (1885) 29 Ch D 459
                                                                                                  27


     E = shareholder who rec‘d prospectus type document from company requesting loans
     Company needed loans to finance some expansion on property
     Company went bankrupt and plaintiff lost investment
     E sues for misrepresentation about what money was to be used for and faced with
      objection that was a statement as to the future – statement of intention
    Company actually used money to pay off existing debts
    Court HELD in favour of E because company knew not its intention to finance expansion
PRINCIPLE = if state of man‘s mind (true intention as to future) can be ascertained, it is a fact

(e) Statements of Law – prima facie NOT amount to misrepresentation
      2 possible rationales: 1. only courts can say what law says so when lay person makes
         statement actually making statement of opinion; OR 2. law itself not actionable
      2 exceptions: 1. where statement made fraudulently then actionable misrepresentation
         in tort of deceit; 2. made by someone who owes duty to state law accurately
(f) Silence – prima facie NOT amount to misrepresentation
      misrepresentation requires actual statement SO mere silence cannot generally speaking
         be statement BUT in some cases silence will have meaning and amount to a statement
      ―buyer beware‖: no remedy if not told info if vendor not owe duty of disclosure to seller
exceptions - cases where exists duty to disclose (ie: silence can amount to misrepresentation)
      Half truths – statement literally true but creates false impression in mind of hearor
              o Knots Patent Brick and Tile – purchaser of land asks vendor‘s solicitor if there is
                  any restrictive covenants on the land; solicitor says ―I am not aware of any‖; BUT
                  fails to add that not checked into matter; HELD to be misrepresentation because
                  silence distorted truth of actual representation
              o Dimmock v. Hallett – involved real estate agent who represented to prospective
                  purchaser that building for sale was fully let; this was true LITERALLY but not
                  stated that all of the tenants had recently given notice to vacate
      Representations falsified by later events – someone made representation true at time
         but then subsequently becomes aware that it is not true then representor has duty to go
         back to representee and correct the misapprehension

Bank of British Columbia v. Wren Developments Ltd. (392)
Facts:
     W received loan from Bank; loan guaranteed by two directors of W (Allan and Smith)
     Each director signs two guarantees: 1. October 1969; 2. renewal of first on June 1971
     W provided shares it owned in two other companies as collateral for loan
     After first contract of guarantee signed by two directors, security (collateral) pledged for
        loan altered by S; Bank releases to S some of the shares it was holding as security on
        loan and S exchanges those shares for others
     RESULT = bank still has security but in different form (different shares)
     A received letter that Bank not prepared to carry loan and must arrange payment
     Bank informed him S recently made satisfactory arrangements for payment of loan and
        signed new guarantee and asked A to do same, said was routine procedure
     A signed new form of guarantee but not know shares released/exchanged
Issue: Whether Bank‘s failure to inform A of change to collateral amounted to misrepresentation
to allow A to avoid new guarantee contract
Decision/Analysis:
     BASIC RULE – where representation falsified by later events, representor under
        obligation to inform representee
                                                                                                 28


      Misrepresentation by Bank = in asking A to renew guarantee, Bank implicitly
       representing that security on loan remains same as on first guarantee
      Bank aware security no longer same; SO under obligation to disclose information to A
      RESULT = A NOT liable to Bank upon second guarantee



3. Inducement – must be shown to grant rescission
(a) Intention to Induce the Contract – must show representor made representation in order to
induce contract (= easily met)
(b) Reliance by the Representee
      ONUS OF PROOF rests on representee induced into contract
      burden made easier by presumption in Smith v. Chadwick – if misrepresentation made
        with intention of inducing contract and where contract entered into, THEN law will
        PRESUME that representation induced the contract  also stated in Redgrave v. Hurd
NOTE: MUST be material inducement that provides genuine reason for entering the contract
Presumption can be overcome – Atwood v. Small - no longer lies in mouth of representee that
relied on representation when can be proved on facts that reliance was on own verification

 Redgrave v. Hurd (386) – FUNDAMENTAL CASE
Facts:
     R, solicitor, advertised sale of practice; in interview H inquires re: profits; R says = £300
     H writes to find out value of business over thee years; at 2nd interview R produces
        documents that show income of £200 per year for past three years; H asks how
        difference made up and R gives him bunch of docs that show source of extra business
     H not look at papers and makes contract for sale
     docs indicated extra income of about £50; H discovers truth, refuses to complete sale
     R suing for specific performance of contract of sale; counter-claim (defense to action for
        specific performance) by H who wants out of deal because induced by misrepresentation
Issue: whether R‘s misrepresentation as to profit induced H into sale
Decision/Analysis:
     R ARGUES rescission not be granted because had H exercised due diligence and
        looked at documents provided for him would know of actual income (accepted at TRIAL)
     Court REJECTS – even if H guilty of negligence, not remove effect of misrepresentation
     fact that representee could have verified information and did not, does not affect rights
     H relied on representation so contract rescinded; BUT no damages
     H NOT restored to status quo ante by rescission and return of deposit b/c money and
        time invested in move not restored
     rescission merely undo contract; To rescind contract, must separate losses that flow
        directly from contract and losses as consequence of contract
     Implication: better to sue for breach of contract when consequential losses significant
     rescission restitutionary: defendant restored only to extent enrichment of plaintiff undone
Ratio: If a party has relied on a material misrepresentation to enter into a contract, rescission is
available if representation is material, and party did not know it was untrue. Burden of proof is
on the party making the misrepresentation to rebut the presumption that the misrepresentation
induced the other party to enter the contract (show they didn't rely on it or knew it to be untrue

4. Rescission
(a) The Nature of the Remedy
     Misrepresentation (if actionable) renders contract voidable b/c representee can elect to
                                                                                                29


        affirm or rescind; If contract void then no election to void it b/c already void in law
       voidable means contract exists until such time as representee elects to avoid it; ONCE
        rescinded (avoided), voidable contract no longer exists!
     Rescission NOT judicial remedy; = self-help remedy; damages is judicial remedy
     HOW rescind contract? – representee alerts representor of intention to rescind
        contract; very often representor not assent so get court to effect rescission by compelling
        other party to do what takes to restore status quo
     To affirm contract, must do something that indicates to other party that not intend to
        take any action on falsity of statement
     STRONG argument representee cannot affirm without knowledge of ability to rescind
     BUT why burden representor because of lack of knowledge of representee; if business
        being carried on, representor should be able to rest assure that contract is affirmed
     law only requires statement be false; not that representee knowledge of right to rescind
(b) Limits on the Right to Rescind – ―bars to rescission‖
1. affirmation - once representee elects to affirm and make clear through conduct or words
    then contract affirmed
2. Impossibility of restitutio – impossibility of restoring parties to status quo ante; common
    law very strict, unless could restore EXACTLY then rescission impossible; equity always
    more flexible approach; governs today – not require perfect restitution, require substantial
    restitution
3. Third Party rights - where to rescind contract would effect third party rights, rescission not
    possible; law protects most innocent

 Kupchak v Dayson Holdings (394)
Facts:
    K purchased shares in hotel business by giving D property worth ~ $65000 less than
       hotel; paid for hotel by property plus $65000 paid for by mortgage in instalments
    K induced to enter sale by misrepresentation of sale by D that hotel capable of earning
       $47000 in 7 months; later surfaced hotel actually been running at loss
    K stopped paying instalments; K sought to rescind deal at later point;
       misrepresentation found to be fraudulent that induced making of contract
    PROBLEM with rescission - could not resort parties to status quo ante b/c K conferred
       on D some real estate, part of which conferred to third party so not restorable to K
    Party unable to give back = representor (wrongdoer); BUT representee commonly
       unable to give back
Decision/Analysis:
    INTERESTING Q = Is court likely to be more sympathetic to allowing rescission despite
       inability to restore status quo ante than would if was representee unable to give back?
    YES – Court cites Spence v. Crawford - broadly speaking a defender, who, as
       purchaser, has been guilty of fraud, is not entitled to raise in bar of restitution his own
       dealing with the property that he has acquired by fraud…
    PRINCIPLE = Equity will set aside the contract on terms – court will fashion remedy to
       bring about rescission in financial terms even though not effected in physical terms
    Other relevant fact - K would have got back conveyed property but subject to higher
       mortgage so must also be compensated for that
    Second bar to rescission alleged by D: alleged by staying on as hotel directors, keeping
       shares and operating hotel in knowledge of misrepresentation, K affirmed contract
    Court REFJECTED b/c impossible for K to extract selves from situation without D‘s
       approval (ie: good reason for conduct)
                                                                                                   30


NOTE: case is good example of equity going to EXTREME lengths to rescind contract when
perfect rescission not possible (see case brief – compares rescission to indemnity)

NOTE: Equity‘s willingness to be flexible where common law will not is enhanced substantially
when there is fraudulent misrepresentation, over mere innocent misrepresentation; more
wrongful misrepresentor is, more willing court of equity will fashion remedy of rescission

Topic 13 - Termination of the Contract by Breach
1. The Classification of Terms
     Three types of terms: Warranty, Condition, Innominate (intermediate) term
     Breach of any give rise to right to damages; BUT sometimes injured party wants to
         abandon deal as result of breach
     Remedy of ―termination‖ available only for breach of condition or fundamental breach of
         innominate term
     Breaching party bring cause of action for “wrongful repudiation”
2. The Traditional Dichotomy: Conditions and Warranties
     Genesis of dichotomy in s. 12(2) of Sale of Goods Act
Whether a stipulation in a contract of sale is a condition the breach of which may give rise to a
right to treat the contract as repudiated or a warranty the breach of which may give rise to a
claim for damages but not to a right to reject the goods …
     if classified as condition breached by seller, then buyer has right to damages and to
         return goods by rejecting contract; Dichotomy treated very strictly by common law courts
     s. 14 of Ontario Sale of Goods Act provides that it is term of every contract for sale of
         goods by description (buyer not see goods) that seller promises goods received will
         match description; applied rigidly so even small variation of description led to termination
     Consequences of breach immaterial to question of whether buyer could terminate
         because nature of condition is pre-classified as something that leads to right to terminate

 Hong Kong Fir Shipping (469)
Facts:
     Defendants chartered ship from plaintiffs for 2 years in Dec 1956
     Contract of charter (―Charter Party‖) contained two clauses; FOCUS: ―seaworthiness
       clauses‖ = owners would ―maintain her in a thoroughly efficient state in hull and
       machinery during service‖
     Ship delivered at Liverpool in run down state; staff incompetent, repairs took long time
     During repairs ship off-hire so charterers not paying for time
     Charterers reported to repudiate 3 months before complete and when complete
     Owners suing charterers for wrongful repudiation; owners seeking damages in form of
       Charter fees minus what could go into market and find subsequent Charterers to pay
     Charterers wanted to terminate contract because freight and Charter Party rates had
       fallen significantly since agreement entered into because of end of Suez Crisis
Issue: Whether the seaworthiness clause is a condition the breach of which gives rise to right of
Charterers to terminate contract
Decision/Analysis:
     Charterers ARGUE that owners must show seaworthiness clause was condition any
       breach of which would give rise to right to terminate
     Court says NOT condition, but innominate term  does breach go to root of contract?
‗There are…many contractual undertakings…which cannot be categorized as being ‗conditions‘ or
‗warranties‘... legal consequences of a breach of such an undertaking, unless provided for expressly
in the contract, depend upon the nature of the event to which the breach gives rise and do not follow
automatically from a prior classification of the undertaking as a ‗condition‘ or a ‗warranty.‘‘
                                                                                                 31




       CANNOT be pre-classified; look to consequences of breach to classify as innominate
       RATIONALE = Parties cannot be construed to have bound themselves in law that any
        breach of ‗condition‘ would lead to termination or contract
     Seaworthiness clause = innominate b/c
Lays down TEST as to whether consequence of breach allows termination:
ANSWER whether occurrence of event deprive party still to perform obligations of substantially
whole benefit intended to receive as consideration for performing obligations
MUST ASK whether term pre-classified as condition or warranty or whether left unclassified;
one of three things must be true:
1. The agreement makes it clear, expressly or otherwise, that parties intended that every
    breach of term in question, however trivial, would give innocent party a right to terminate; or
2. The agreement makes it clear, expressly or otherwise, that parties intended that no breach
    of the term in question, however serious, would give innocent party a right to terminate; or
3. The parties did not agree in advance about the legal rights of innocent party to a breach of
    the term in question; that is, they did not pre-classify term
Once determined innominate term, need to determine if fundamental breach occurred:
     In Hong Kong did not go to the root of the contract (no lengthy explanation)
     Possibly infer reasons why not fundamental by looking at trial decision:
            a. Delay from repairs (breach) not frustrate purchase of bargain
            b. Once crew replaced and ship repaired found no further breaches would occur (ie:
                cause of breach fixed)
Ratio: effect of breach at time of breach rather than the parties‘ intention at time of formation is
more fundamental in analysis of condition / warranty; terms should be considered innominate
terms until practical consequences of breach are determined

NOTE: Hong Kong causes some concern for commercial parties because of uncertainty; prior to
lawyers could tell parties rights based on whether term condition or warranty; NOW must advise
taking risk in abandoning goods just because ship late because not necessarily condition

5. When will a Term Be Classified as a Condition?
(a) Express Agreement
     Parties made clear in agreement intend term to be condition
     Cannot take word ―condition‖ in legal sense; must interpret in eyes of reasonable person
     Inquire if parties manifestly intend to be term any breach of which no matter how trivial
       would generate right to terminate; if YES then condition, if say NO then innominate term
(b) Implied Agreement
     Was it nevertheless clear from context that parties‘ intention for term to be condition?
     Objective interpretation of facts – words used, context of negotiation, expertise of parties
Various indicators of conditions (ie: intention to make condition):
     Importance of term to parties – presumed parties NOT intend insignificant term to be
       condition
     Commercial Certainty – in commercial relations, important parties able to know legal
       rights in advance; Court ask whether parties likely to have wanted great deal of certainty
       with respect to term
            o most important example = TIME CLAUSES – common law take to be conditions
                unless parties indicated otherwise; equity reversed
                                                                                              32


           o    NOW presumption = time clause NOT condition; BUT easily rebuttable by
                showing ―time is of the essence‖
            o NOTE: If time clause breached then injured party right to give notice to other
                party that time is of essence; allows to unilaterally change contract by changing
                innominate term into condition
 Wickman Machine Tool Sales Ltd. v. L. Schuler A.G. (480)
Facts:
     W = sellers of machine tools enters into manufacturing agreement with S
     W has sole right to distribute and sell S‘s tools in Japan
     Clauses set out basic requirements imposed on W (clauses 7 and 11)
     W failed to comply strictly with obligations under 7(b); S repudiated agreement claiming
       defaults amount to breach of ‗condition‘ and conferred absolute right to terminate
     W (breaching party) suing S for wrongful repudiation; W claiming NOT right to terminate
       for particular breach
Issue: Whether breach by S is breach of condition or fundamental breach of innominate term?
Decision/Analysis:
     W argue S not have right to terminate b/c cl. 11 req‘mnt of 60 days notice; cl. 7 subject
       to cl. 11; success of argument turned on whether breach of cl. 7 remedial breach
     HELD possible to remedy breach of clause 7; on face of contract, cl. 7 subject to cl. 11
       BUT can be rebutted; if rebutted, cl. 7 would be condition
     Strong presumption against conditions; HELD cl. 7 not condition
     BUT cl. 7 actually included word ―condition‖; look at DENNING‘S three meanings:
The Proper Meaning – ‗condition‘ NOT used in clause in proper meaning; need to ask:
     Whether requirement ‗a condition‘ that was prerequisite to very existence of agreement?
     Whether requirement ‗condition‘ that was prerequisite to right to recover on agreement?
The Common Meaning
     legal meaning = terms where sometimes ‗condition‘ where prerequisite of obligation to
       pay or term gives rise to damages upon breach; EFFECT depends solely on true
       interpretation of clause itself
The Term of Art – common legal meaning that breach gives rise to terminate immediately
     When simply use word ‗condition‘ in clause, used in regular speak by laypersons in
       meaning something else; SO cannot accept automatically be a condition in legal sense
     Strong indication of intention to be condition in use of word, but NOT conclusive
     Way to determine if condition or innominate term – ASK what would be result if would be
       construed as condition? – even most trivial breach would give rise to right to terminate;
       was this intended by parties?
NOTE: trivial breach may not occur in all circumstances, depends on nature of term
     fact that particular construction leads to unreasonable result = relevant consideration;
       more unreasonable result more unlikely it is parties intended to be condition and if do
       intend more necessary it is shall make intention abundantly clear
     even trivial breach cl. 7 would lead to right to terminate in this case; NOT CONDITION
     Fact that it was not a condition did NOT make it an innominate term – made it a term the
       breach of which gave right to terminate only under specific circumstances parties had
       made for selves
     Actual consequences of breach in question are immaterial to whether term is condition;
       take point of view of formation of contract and look at term and determine whether
       condition or innominate term without having benefit of knowing consequences of breach
Ratio: where term can be breached in many ways with varying degrees of serious (trivially and
seriously) THEN very unlikely is condition (presumption is that NOT intend to be condition)
                                                                                                 33




Topic 14 - The Incorporation and Construction of Onerous Terms
1. The Problem of Exclusion Clauses
     Upon breach, breaching party subject to certain amount of liability; but may have
       included term that limits liability either completely or to certain amount
     Abstract level – like other terms; Practical level – special b/c onerous by limiting liability
       to extraordinary extent (ie: liability for negligence)
     Law of contract only inquiring if term intended to be assented to
     If suspicion arises that not assented to, then proferens must show assented to; must ask
       two questions:
           o Incorporation - Was exclusion clause incorporated (part of contract)? IF YES…
           o Contractual Construction - What liability is excluded by clause? (interpret cl.)
2. Incorporation by Signature: The Rule in L’Estrange

 L’Estrange v. F. Graucob Ltd. (SM)
Facts:
     Plaintiff buys slot machine from defendant; not work properly
     Machine not work satisfactorily and plaintiff brought ACTION against defendants
       claiming damages for breach of implied warranty that machine fit for purpose sold (from
       Sale of Goods Act)
     Sellers ARGUED contract expressly provided for exclusion of all implied warranties
     Buyer REPLIED that at time when signed, not read it and knew nothing of its contents
       and clause excluding warranties could not easily be read owing to smallness of print
Issue: whether clause formed part of contract
Decision/Analysis:
     law applicable to THIS case where signature required = In ordinary case where action
       brought on written agreement signed by defendant, agreement proved by proving
       signature and in absence of fraud, is wholly immaterial that not read agreement and not
       know contents
     COURT said does not matter that not read or not knew of contents; signed so deemed to
       have read it – lays down fundamental rule (see below)
***RULE*** = When document containing contractual terms signed, then, in absence of fraud, or
misrepresentation, party signing bound; wholly immaterial whether has read document or not
RULE subject to exceptions:
     Non est factum (not my deed) – where someone illiterate and document read to them
       incorrectly then could avoid being bound even if signed; only exceed in exceptional
       circumstances where is radical difference between thing signed and what thought signed
     Rule in Curtis – when signature to condition, purporting to exempt person from his
       common law liabilities, obtained by innocent misrepresentation, party who made that
       misrepresentation is disentitled to rely on exemption
     Rule in Tilden – Party seeking to rely on terms NOT able to do so if not take reasonable
       measures to draw terms to attention of other party; in absence of such measure, not
       necessary for party denying knowledge to prove fraud or misrepresentation

 Curtis v Chemical Cleaning and Dyeing Co (513)
Facts:
    C took dress to CDC to be cleaned; C given receipt and asked to signed
    C asked what signing and why required; told company excluding liability to certain risks,
       including damage to beads on dress
                                                                                                  34


       BUT receipt actually purports to exclude liability to any damage; wider exclusion then
        represented by shop keeper
Issue: Whether proferens (company) can avail selves of clause despite misrepresentation?
Decision:
     NO – cannot avail of clause because of misrepresentation (see rule above)
     EXCULSION clause misrepresented; despite signature, misrepresentation determine
        ambit of clause
     any behaviour (by words or conduct) sufficient to be misrepresentation if it is such as to
        mislead other party about existence or extent of exemption
     representation might be literally true but practically false, not because of what it said, but
        because of what it left unsaid; in short, because of what it implied
     although innocently, was sufficient misrepresentation to disentitle CCD from relying on
        exemption, except for beads/sequins
Ratio: when signature to condition, purporting to exempt person from common law liabilities
obtained by innocent misrepresentation, party made misrepresentation disentitled to rely on
exemption

 Tilden Rent-A-Car Co. v. Clendenning (532)
Facts:
     C rented car from T and signed standard form rental agreement must not read; also
        purchased insurance coverage
     Involved in accident and seeks to deny coverage by clause in agreement – exclusion
        damage waiver
Issue: whether C bound by clause despite not read it and signed it; whether L’estrange applies
Decision/Analysis:
     COURT HELD NOT bound by cl. 7; C is insured (L’Estrange NOT apply)
     T could not rely on clause b/c had no reason to believe assented to by C; effect of
        contract is give insurance with one cl. and take away with other – inconsistent terms
     MAIN REASON for holding = terms in insurance section of contract were so onerous as
        to be inconsistent with main thrust of contract
     Finding not solely based on extremely onerous term as to be unconscionable and
        contrary to thrust of main agreement; also must have reasonable belief other party
        assented to agreement, signature not suffice
     Document was standard form so NON-NEGOTIABLE; nature is one-sided and courts
        will look at assent of other party with suspicion because not equal bargaining power
     Important that is unusual term b/c if not unusual may have been bound; if usual then
        would be expected to know it was in contract as a reasonable term
Ratio: Even with written documents, person relying on limiting conditions must take ―reasonably
sufficient‖ steps to inform signor about onerous clauses
IMPLICATION - If companies start using standard form contracts repeatedly in an industry
become expected THEN actual knowledge of terms not required

3. Incorporation by Reasonable Notice
(a) The Ticket Cases – clauses found on back of tickets; passengers injured and owner seeking
to avoid liability based on clause on back of ticket; Issue in cases = whether can be bound by
clause despite absence of signature

 Parker v. South Eastern Ry. C.; Gabell v. South Eastern Ry. Co. (515)
FACTS:
    P deposits bag and pays; gets ticket – on front has date, price and ―see reverse‖
                                                                                                 35


        On back clause seeking to limit liability to £10 for lost baggage; similar provision posted
         on sign in cloak room
      Bag damaged; plaintiffs sue for value of bags and contents lost by negligence
Issue: Whether clause ―on back‖ incorporated into contract and P bound by it?
Decision/Analysis:
      SUMMARY OF LAW on point (three limbs):
             o Do not recognize any writing on document THEN not bound
             o Recognize there is writing and know are contractual terms THEN are bound
             o Recognize there is writing and see they are contractual terms, THEN may be
                 bound if can show that reasonably knew were contractual terms
      Where ticket contains contractual terms, plaintiff will be bound by terms if and only if she
         had actual or constructive (= deemed to have) knowledge
      ONLY QUESTION = when will be deemed to have knowledge – when reasonable notice
         has been given
Ratio: In attempting to add exempting conditions to a contract by means of terms printed on
ticket, offeror must do what is ―reasonably sufficient‖ to give offeree notice of those conditions
for them to be bound
 NOW QUESTION = what amounts to reasonable notice

(b) Type of Document and the Nature of the Transaction – If ―type of agreement‖ commonly
governed by special terms (not just from statute or common law) THEN unless from another
country and not cultured to particular tradition will be bound by term
QUESTION = would reasonable person expect particular document to contain contractual terms

 Thornton v. Shoe Lane Parking Ltd. (519)
Facts:
     T parked car in multi-storey automatic car park; Sign at entrance said ―ALL CARS
       PARKED AT OWN RISK‖
     No attendant at entrance and ticket distributed from machine; Ticket says subject to
       conditions posted in parking lot; T not see conditions; posted in obscure places
     T injured when put belongings into car; accident found to be half own fault and half of
       parking company
     TRIAL HELD for T; SLP liable to T for damages for personal injuries
Issue: Whether ticket dispensed from automatic machine that refers to limiting conditions posted
elsewhere on premises bind customer to conditions making operated exempt from liability?
Decision/Analysis:
     Once contract formed cannot be modified but by way of another agreement
     Condition brought to attention after contract formed (contract concluded when T put
       money into machine) SO cannot be part of contract
     When cannot negotiate with person, then when pay money contract irrevocable at that
       time and no new clauses can be added to it
     bound by terms as long as are sufficiently brought to notice beforehand, not otherwise
     Causer v Brown HELD that If transaction such that would reasonably expect to be
       voucher and not contact then not expect to know of terms in contract and not bound
     ticket no more than voucher or receipt for money paid
     CRUCIAL Q = whether exempting condition formed part of contract; NO; T not know of
       condition and SLP not do what reasonably sufficient to give notice
‗[The exempting condition] is so wide and destructive of rights that the court should not hold any
man bound by it unless it is drawn to his attention in the most explicit way ...In order to give
                                                                                                    36


sufficient notice, it would need to be printed in red ink with a red hand pointing to it – or
something equally startling.‘
Ratio: Stricter reading of what constitutes ―reasonably sufficient‖ notice as conditions become
more extreme or unusual; Cannot introduce limiting conditions after formation of contract

(d) Are the Terms Unusual?
 Interfoto Picture Library Ltd. v. Stiletto Visual Programmes Ltd. (523)
Facts:
     IPL operates library of transparencies; SVP orders photographs
     IPL sends 47 transparencies that includes delivery note with clause that provides if not
        returned within 14 days then ―holding fee‖ of £5/day/transparency would apply
     conditions ONLY conditions of bailment of transparencies; new contract must be agreed
        to use transparencies and SVP ARGUE not happen so unnecessary to consider further
     TRIAL judge held on quantum meruit (objective market value) rate = £3.50 per week
     FOUND to be exorbitant rate so highly unusual term
Issue: whether clause incorporated into contract? (incorporation)
Decision/Analysis:
     When compared to industry norm and whether would expect to find in clause, it far
        exceeded what normally expected so NOT binding
     linear relationship between onerousness of clause and kind of notice must give to make
        it reasonable; more onerous clause, more notice required  DENNING - ‗In order to
        give sufficient notice, it would need to be printed in red ink with a red hand pointing to it –
        or something equally startling.‘ (Thorton )
     Applies RULE from Thornton - where condition particularly onerous or unusual party
        seeking to enforce must show condition fairly brought to notice of party
     Condition 2 – very onerous clause; SVP not conceivably have known if attention not
        drawn to clause; Condition 2 never became part of contract
Ratio: onerous clause NOT incorporated into contract and party not bound unless conceivably
could have known clause existed or other party take sufficient steps to draw attention to it;
higher standard of notice for more onerous clauses

(e) Was there a Prior Course of Dealings Between the Parties?
     Final factor in determining if exclusion clause incorporated = whether parties have prior
       course of dealings where entered into similar transactions
Henry Kendall & Sons v. William Lillico
     W sold bird feed; customarily engaged in transactions with H over long period
     After each transaction, note sent to purchaser after transaction completed purporting to
       exclude certain warranties that seller would be bound under Sale of Goods Act
     After long period, feed killed number of birds; H sued W under provisions in Act; W
       ARGUED terms had been excluded; H ARGUE notices came too late SO contract
       concluded and then purported to add a term; W COUNTER continue to do business
       despite received numerous notices so H ―estopped‖ from denying that when entered into
       transaction with W terms in notice not included
     HELD terms included; RATIO: Terms became included through prior course of dealings

To create course of dealings NEED to show:
    ―course‖ of dealings = substantial number of transactions (no numerical answer)
           o Hollier v Rambler Moters – H had vehicle repaired by R 3-4 times over 5 years;
              HELD not to be sufficient to create prior course of dealings
           o Henry Kendall & Sans v. William Lillico - 3-4 purchases/month for 4 years
                                                                                                 37


      Defendant must reasonably show done business sufficient number of times that as
       reasonable person would know plaintiff intending to include particular term in contract

4. Construction Contra Proferentem
(a) Introducing Construction Contra Proferentem
     When construing exclusion clauses, apply doctrine of contra proferentem (―against
         the proferens‖) – drafter of contract (defendant) seeking to rely on exclusion clause
     Doctrine = if any ambiguity in clause, construe against defendant, in favour of plaintiff
(b) Some Examples
Beck v. Szymanowski [1924] AC 43
     Sale of reels of thread that were to contain 200m on each real
     Contract stipulated ―goods delivered shall be deemed to be in all respects in accordance
         with the contract UNLESS seller notified within 14 days of delivery‖
     18 months after a delivery, buyer discovers reels contained only 100m; sued for breach
     Sellers ARGUE ―deeming clause‖ - waited too long and lost right to sue
     Court construed against seller because said ―goods delivered‖ should be deemed to be
         in accordance; since some of thread not been delivered HELD clause not apply
Thorton v. Shoe Land Parking – clause said cars parked at ―owners risk‖; Denning in obiter said
not cover liability for personal injury
Bright v. Sampson
     Person injured while at roller skating rink; injuries caused b/c of state of floor
     Sign posted that said no responsibility accepted by management for any injuries to
         patrons AND skating at patrons‘ own risk
     HELD injury result of negligent upkeep of rink; sign excludes injury inherent in skating
         itself; first sentence informed by second; failure to upkeep rink not a kind of loss clause
         meant to exclude b/c merely mentioned skating
(c) Excluding Liability for Negligence
     Defendant purported to exclude liability for acts of negligence that cause personal injury
     Courts generally take hard line; strong presumption party would not voluntarily agree
         to absolve other party for negligence
     Gillespie Bros v Roy Bowles Transport ―inherently improbable test‖  ‗[It is] inherently
         improbable that one party to the contract should intend to absolve the other party from
         the consequences of the latter‘s own negligence.‘
     Can exclude liability for negligence (rebut presumption) by showing beyond any doubt
         that other party when assented to contract knew assenting to absolving defendant of
         liability for negligence – Three-Part TEST in Canada SS Lines v The King
1. Clause expressly mentions negligence (or a synonym such as ‗carelessness‘) will suffice
2. Clause contains no express reference to negligence must use words with wide enough
    scope to encompass negligence.
3. Even where words are found to be wide enough to cover negligence, will not be construed
    to exclude liability for negligence unless defendant could not have been held liable for loss
    in question except for his negligence. In other words, if the defendant could be held liable for
    the loss irrespective of negligence, then liability for negligence will not be excluded.
STEP 1 - if passed then excluded from liability for negligence
STEP 2 - ascertain whether clause ―potentially wide enough‖
     Examples of phrases traditionally NOT held to be potentially wide-enough:
             o ―not responsible for loss‖
             o ―excluding all liability for any loss or damage‖
     Examples of phrases potentially wide-enough to exclude liability for negligence:
             o ―excluding loss or liability for injury howsoever caused‖
                                                                                                     38


               o ―no liability for any act or omission‖
 Courts looking for evidence parties not just thought about kind of loss that would lead to
liability, but also MANNER in which loss created b/c negligence is a manner of causation
STEP 3 – if potentially wide enough, look to see if any other liability (strict liability) can be liable
for; if NO other liability THEN to say NOT exclude liability for negligence, clause meaningless
NOTE: strict liability (= faultless liability): does not require negligence/carelessness to be
committed, enough to show elements of tort where committed; all contractual liability is strict
unless there is an implied term that must provide due care (ie: doctor/lawyer)
      If strict liability exists follows exclusion clause although potentially wide enough to
          exclude liability for negligence will NOT exclude liability for negligence b/c will exclude
          strict liability instead
EXAMPLE [with strict liability] - Shipping contract imports strict liability on carrier so liable for
any damages to goods regardless of if took due care; assume shipper negligent and caused
damages to goods; clause in contract says exclude liability to goods ―howsoever it is caused‖ so
potentially wide enough to cover negligence; can still succeed in suing for negligence because
carrier is strictly liable for damage to goods; SO exclusion clause interpreted to exclude strict
liability and can be negligence in contract
EXAMPLE [without strict liability]– bailee of goods NOT under strict liability so only potentially
liable for negligence; bailee careless but cannot be sued in negligence clause in contract
potentially wide enough to cover negligence and cannot find strict liability so NO other option
and if to give clause meaning, MUST apply to negligence
 Court trying to give effect to STRONG presumption that party to contract will not exclude
liability for negligence; SO if have strict liability, and exclusion clause potentially wide enough to
exclude liability for negligence then not strictly liable but may be liable for negligence in contract

5. The Doctrine of Fundamental Breach
(a) The History of a Mistake
 Karsales (Harrow) Ltd. V. Wallis (545)
Facts:
     W wanted to buy a car on hire-purchase terms; S sells car to K, who then sells car to
        finance company (MF) who lets out to W on hire purchase terms; K = middle-man
     When W first saw car in good condition; when picks up from MF in very poor condition;
        whatever happened allegedly due to conduct of MF; W not take car so not paying
     K sues W for failure to pay on hire-purchase terms, not MF because MF assigned rights
        to K under contract so K takes over position of MF and sues as though was MF
     Buyer was entitled to get car that was in substantially same condition as one saw; K
        responds with exclusion clause that purported to exclude all conditions and warranties
        regarding road worthiness and condition of vehicle
Issue: Whether exclusion clause operative so that K not liable for condition of vehicle
Decision/Analysis: DENNING
     obligation on lender to deliver car in substantially same condition
     HELD failure to uphold obligation was fundamental breach that goes to root of contract;
        it injured party of substantially entire benefit of bargain
     If breach fundamental then exclusion clause will not operate
     RULE – no exclusion clause protect defendant who commits fundamental breach
     Necessary to look at contract apart from exempting clauses and see what are terms,
        express or implied, that impose obligation on party; IF guilty of breach of obligations in
        respect that goes to very root of contract, cannot rely on exempting clauses
Ratio: Denning lays down substantive doctrine of fundamental breach so that when breaching
party breach obligations in manner that goes to root of contract, exclusion clause not valid
                                                                                                  39



DEBATE re: doctrine of construction or substantive law?
    First decided by HL in Suisse Atlantique (1966) – HELD doctrine of fundamental breach
        one of construction where intentions of parties dictate whether exclusion clause meant
        to exclude liability for fundamental breach; NO substantive rule such that fundamental
        breach automatically prevents breaching party from relying on exclusion clause
    BUT in Harbutt’s Plastesine v. Wayne Tank (1970) DENNING reconstructed substantive
        doctrine of fundamental breach by cutting and pasting parts of Suisse judgment
    Photo Productions v. Securicor (1980) HL HELD exclusion clause applied although was
        fundamental breach; DENNING‘S substantive approach expressly over-ruled by HL;
        courts to use construction approach to look to intention of parties at formation of
        contract, look at whole of contract to determine whether fundamental breach occurred
        outside contemplation of parties (= law in England)
Pratt – ―Fundamental Illogic of Fundamental Breach‖ – doctrine has NO application to any case
    Doctrine of fundamental breach operates to neutralize any exclusion clause that would
        otherwise apply to exclude liability for a breach that deprives the injured party of
        substantially the entire benefit of her bargain (= fundamental breach)
    BUT benefit injured party bargained for has to be determined by reference to exclusion
        clause (cl. ingredient in bargain); it defines where risks of loss lie, and thus defines what
        injured party bargained for
    Exclusion clause may be broadly enough to cover liability for particular breach suffered
        by the injured party (ie: the fundamental breach), or it might not be
    If NOT broad enough, then clause has no application; If it is broad enough, then as
        matter of logic breach not fundamental (because injured party did not bargain to place
        responsibility for this loss on other party) and doctrine of fundamental breach NOT apply
    DENNING‘S mistake = looks at contract apart from exclusion clause  essential error of
        substantive doctrine

(b) Fundamental Breach in Canada
NOTE: Beaufort Realities (1980) SCC adopted Photo Production constructivist approach
 Hunter Engineering Co. Inc. v. Syncrude Canada Ltd. (554)
Facts:
     S purchases gearboxes from H and A turn out to be defective; Sale of Goods Act applies
        regarding the ―fitness‖ of product
     Exclusion clause in contract b/w S and H BUT it is not wide enough to exclude liability
        from Sale of Goods Act – Court concludes H liable regarding fitness of product
     FOCUS on contract between S and A where nicely drafted exclusion clause potentially
        wide enough to exclude statutory liability (from Sale of Goods Act)
     Only option for S to ARGUE A committed fundamental breach because gearboxes
        defective and cannot rely on exclusion cause because of fundamental breach
Issues: whether A committed fundamental breach and whether breach covered by exclusion cl.
Decision/Analysis: WILSON
     Settles on definition of fundamental breach set out in Photo Production - construction
Two modes of application of constructivist approach:
1. Unadulterated view – read clause giving it normal objective meaning and give effect to
    words as reasonably construed  REJECTS (see 1st quote)
‗This approach would have the merit of importing greater simplicity into the law and
consequently greater certainty into commercial dealings, although the results of enforcing such
exclusion clauses could be harsh if the parties had not adequately anticipated or considered the
possibility of the contract's disintegration through fundamental breach.‘
                                                                                                40


        PROBLEM with view = if can say never considered event then say never intended
         exclusion clause to apply so then injured party have cause of action
      INSTEAD need to engage in constructivist exercise to see where parties would have
         wanted risk to fall (upon breach) in event unconsidered by contract  must inquire into
         intention of parties as to where risks would fall
NOTE: Fairness plays secondary role to primary one of what are intentions of parties – fairness
comes into play because parties presumed to be fair in original negotiations and dealings
      BUT WILSON says courts in contract interpretation should never be concerned with
         harshness/fairness – concerned with intentions of parties
2. ADOPTS hybrid version between Suisse Atlantique, Photo Production and Karsales
      Should not apply fairness standard at time of formation of contract  ‗[T]he courts, in my
         view, are quite unsuited to assess the fairness or reasonableness of contractual
         provisions as the parties negotiated them.‘
      Need to inquire into nature of negotiations before concluding exclusion cl. too harsh to
         be bound b/c extremely onerous provision may be fair and reasonably assented to
      BUT different when courts determine whether exclusion clause should be enforced
         AFTER breach occurred
‗The relevant question for the court [is]: is it fair and reasonable in the context of this
fundamental breach that the exclusion clause continues to operate for the benefit of the party
responsible for the fundamental breach? In other words, should a party be able to commit a
fundamental breach secure in the knowledge that no liability can attend it? Or should there be
room for the courts to say: this party is now trying to have his cake and eat it too. He is seeking
to escape almost entirely the burdens of the transaction but enlist the support of the courts to
enforce its benefits.‘
      Pratt – Baffled that distinguishes between vetting clause after breach and at time of
         formation – purpose of exclusion clause to anticipate for possibility of events occurring
         SO fairness crystallized when formed
      WILSON also imports doctrine of unconscionability (TEST of unconscionability – 564)
         o In situations involving contractual terms result of inequality of bargaining power,
             judiciary has weapons apart from artificial constructions of exclusion clauses
         o BUT where there no inequality of bargaining power (in this case), courts should give
             effect to bargain freely negotiated by parties
         o Pratt - if unconscionability operates to obliterate contract does so from source of
             equity, not contract law
 ANALYSIS LAID DOWN: ascertain intentions of parties from carefully reading of clause;
THEN determine whether to give effect to clause in light of subsequent events; if applies
depends on whether fair and reasonable to apply
HOLDING = NOT fundamental breach so A NOT liable; ―defects do not amount to a breach
going to root of the contract. They are repairable, albeit at some expense.‖; concludes nothing
unreasonable in giving effect to exclusion clause
Ratio: substantive approach overruled, constructivist approach reaffirmed; relevant question
for courts is whether parties, on a true and natural construction, succeeded in excluding liability
at time the contract was made; after considering provision's true construction, court must
consider whether or not to give it effect in context of subsequent events, such as fundamental
breach; exclusion clauses can be rendered unenforceable even if no fundamental breach found;
legislative protection exists and other judicial avenues (unconscionability) may apply
NOTE:
      Under WILSON’S approach, more room for court‘s discretion to determine whether fair
         and reasonable to enforce clause, having regard to breach itself (perhaps less certainty)
                                                                                                 41


      Under DICKSON’S approach – when clause CLEAR and states outright what liability
       should be, courts should give effect to parties‘ intentions and not strike down, unless
       unconscionability comes into effect (perhaps more certainty)

Topic 15 - Termination of Contract by Frustration
1. Development of the Doctrine of Frustration
     May occur where unforeseen events arise AFTER contract made that may prevent
       parties from obtaining what intended to obtain under agreement; in some cases,
       prevention so severe that contract frustrated
     If event not so extreme and unable to perform obligations then contract breached
     BUT if so unforeseeable then argue contract ceased to exist (frustrated); not in breach
 Paradine v Jane (667) – FIRST CASE
Facts:
     J = tenant of farm owned by P; J pay rents out of profits from farm
     Unable to pay because land taken over during civil war; P sued J for nonpayment
     J ARGUES should not have to pay because was unforeseen event
Issue: whether unforeseen event absolve J‘s obligation to pay rents
Decision/Analysis:
     TOO BAD; obligated self to pay and fact that could no longer pay irrelevant
     When party by own contract creates a duty or charge upon himself, he is bound to make
       it good, notwithstanding any accident by inevitable necessity, because he may have
       provided against it by contract
     Sets out rule of absolute contracts – justification based on voluntariness of obligations
       – when obligation taken voluntarily (as opposed to obediential where if through no fault
       of own that unable to perform then not liable) then liable because could have provided
       against event in contract

 Taylor v Caldwell (668)
Facts:
     27 May 1861 – entered contract by which C agreed to let T have use of Surrey Gardens
        for four days in July and August to give concerts and C agreed to pay 100t for each day
     Existence of Music Hall in a state fit for a concert essential for fulfillment of contract
     6 days before first concert, hall destroyed by fire at no fault of either party
     T sues for breach of contract because premises unusable
Issue: whether under these circumstances, the loss which T sustained is to fall upon C
Decision/Analysis:
     Finds three classes of cases where Paradine rule NOT applied (narrow exceptions) and
        then creates NEW rule:
             o Death or permanent incapacity of artist
             o Specific goods sold and perish before delivered and after contract made; seller
                NOT liable for breach if goods perish at no fault
             o Bailed goods – destroyed/removed at no fault of bailee
         in each case unforeseen events absolve obligation under contract
     PRINCIPLE = where person/thing necessary to completion of contract (essential
        to/essence of contract) disappears and at no fault to either party, become unable to
        complete contract, then contract ceases to exist (terminates)
‗The principle seems to us to be that in contracts in which the performance depends on the
continued existence of a given person or thing, a condition is implied that the impossibility of
performance arising from the perishing of the person or thing shall excuse the performance.‘
                                                                                                      42


       parties contracted on basis of continued existence of Music hall, being essential to
        performance; Music Hall ceased to exist, without fault of either party excuses T from
        taking Garden and paying money and C from performing promise to give use of Hall
Ratio: destruction of subject-matter of contract frustrates contract and frees both parties from its
obligations under the contract
2. The Juristic Basis of the Doctrine
     Taylor v. Caldwell creates implied consent theory of frustration - implied term that
        certain things necessary for contract to be completed will continue to exist because if
        cease to exist contract will end
     Davis Contractors v Fareham ends implied consent idea – RULE laid down by courts not
        about intentions of paries
‗frustration occurs whenever the law recognizes that without default of either party a
contractual obligation has become incapable of being performed because the circumstances in
which performance is called for would render it a thing radically different from that which was
undertaken by the contract‘

 SUMMARY OF LAW ON FRUSTRATION - National Carriers v. Panalpina [1981] AC 675 –
 ‗Frustration of a contract takes place when there supervenes an event (without default of
 either party and for which the contract makes no sufficient provision) which so significantly
 changes the nature (not merely the expense or onerousness) of the outstanding contractual
 rights and/or obligations from what the parties could reasonably have contemplated at the time of
 its execution that it would be unjust to hold them to the literal sense of its stipulations in the new
 circumstances; in such case the law declares both parties to be discharged from further
 performance.‘
3. Operation of the Doctrine – three requirements for doctrine to operate
(a) Supervening Event AFTER contract made occurrence of which not provided for in contract
NOTE: if unforeseen event occurred BEFORE contract formed = Doctrine of Mistake – res
extincta – mistake deals with unforeseen events occur before contract made that radically alter
nature of contract and AT no fault of either party
(b) No Fault (of either party) – if party pleading frustration bears some responsibly for event
claim not acceptable because party arguably breached contract = self-induced frustration

 Maritime National Fish v Ocean Trawlers (684)
Facts:
     MNF owned 4 trawlers and needed 5th so chartered from OT
     To fish with vessel needed license and MNF awarded three licenses that decided to
        attach to three of own trawlers, NOT OT‘s
     MNF sough to abandon ―Charter Party‖; ARGUED frustrated because not able to
        perform obligations since no license for 5th vessel chartered from OT
Issue: whether contract frustrated or can be concluded to be self-induced frustration by MNF
Decision/Analysis:
     property decided on simple conclusion that was act and election of MNF that prevented
        vessel from being licensed
     Essence of frustration is NOT due to act or election of either party
     SO loss of vessel license = ―self-induced frustration‖
     Frustration = matter ―caused by something for which neither party was responsible‖
     Cannot conclude contract frustrated by reason of withholding of license was matter for
        which appellants not responsible; it happened in consequence of their election
Ratio: when essence of frustration due to act/election of party then is self-induced frustration
                                                                                             43


(c) Supervening Impossibility – event must have effect of making performance of contract
impossible, illegal, and radically different from which original contract undertaken (supplier
arguing frustration)
NOTE: impossibility/illegality is important BUT actually a question of fairness in each case as
to whether contract has been frustrated
     Contract become impossible in number of ways:
           o Necessary thing can cease to exist (Taylor v. Caldwell) – principle embedded in
                Sale of Goods Act
           o Necessary thing becomes unavailable – may still exit but out of reach; when
                unavailability temporary may need further investigation
     Supervening illegality – contract calls for performance that after made becomes unlawful
           o Fibrosa [1943] AC 32 - war makes trade with occupied Poland illegal
     Impossibility = strictly construed; not good enough that contract expensive/onerous to
       perform; must be impossible
EXAMPLE = Amalgamated Investment v. John Walker and Sons [1977] 1 W.L.R. 164
     Contract to sell warehouse; purpose of purchase to develop land
     Day after contract signed – Department of Environment announced warehouse
       incapable of being demolished because is architectural interest site
     RESULT = value of land fell and developer argues contract frustrated
     HOLDING = NOT frustrated; still getting land that was subject of contract; fact that now
       unprofitable venture too bad

 Davis Contractors v Fareham (675)
Facts:
     Owing to unexpected circumstances, without fault of either party, adequate supplies of
        labour not available; work took 22 instead of contract 8 months to complete
     DC suing to be paid more than contract price because took longer to complete
     CLAIM = quantum meriuit (―amount deserved‖) = claim in restitution where unjustly
        enriched at another‘s expense; given sum representing reasonable price of work, not
        contract price so to succeed contract must no longer exist
     DC ARGUES contract frustrated because no longer able to perform in 8 months
        because of shortage of labour
Issue: whether shortage of labour made contract impossible to perform on its terms (8 mos)
Decision/Analysis:
     LEGAL EFFECT of frustration = when event occurs meaning of contract taken to be
        what parties as reasonable persons would presumably have agree upon if had made
        express provision as to rights/liabilities in event
     NOT FRUSTRATED for two reasons:
            o Event not unforeseeable – labour shortages/strikes often argued as frustrating
               events BUT rarely succeed  ‗[T]he cause of the delay was not any new state of
               things which the parties could not reasonably be thought to have foreseen
            o Parties attempted to make provision for this event; were going to put term
               ―subject to supply of labour‖ in contract but in end did not - Not only was this
               foreseen event but also that risk was on DC‘s back
Ratio: Hardship not enough to frustrate; impracticability not enough, must be impossible

(d) Frustration of Purpose (recipient arguing frustration)
     Frustration of purpose occurs when unable to fulfil purpose for entering contract
     Circumstances changes so performance unlike what bargained for
EXAMPLE – ―Coronation Cases‖ – most famous = Krell v. Henry (met with hostility)
                                                                                                      44


       RESULT = very limited in scope; rarely raised successfully
       Clark v. Lindsay = clear Krell must be narrowly construed; MUST be able to say contract
        about Coronation procession and contracted for ―rooms with a view‖, NOT about rental
        of room itself
     For claim to be successful MUST be able to say existence of contract meaningless
Krell v Henry (1903) 2 K.B. 740 – ‗I do not think that the principle of [frustration] is limited to cases
in which the event causing the impossibility of performance is the destruction or non-existence of
some thing which is the subject-matter of the contract or of some condition or state of things
expressly specified as a condition of it. I think that you first have to ascertain, not necessarily
from the terms of the contract, but, if required, from necessary inferences, drawn from
surrounding circumstances recognised by both contracting parties, what is the substance of the
contract, and then to ask the question whether that substantial contract needs for its foundation
the assumption of the existence of a particular state of things. [ie: is the state of affairs now
disappeared] If it does, this will limit the operation of the general words, and in such a case, if the
contract becomes impossible of performance by reason of the non-existence of the state of
things assumed by both parties as the foundation of the contract, there will be no breach of the
contract thus limited.‘

 Claude Neon v Sing (672)
Facts:
     C to construct and lease to S sign to be erected on building where C install and keep in
       repair but S pay for electric power
     Lighting restrictions imposed because of war that included prohibition against use of
       lighted outdoor signs b/w sunset and sunrise
     S ARGUES that carrying out of contact become impossible by change in law and in
       effect relieved from further payment on principle of frustration
Issue: whether purpose of contract (for electric sign) frustrated by new law
Decision/Analysis:
     Common standard from ―Coronation Cases‖ = does state of new facts destroy identity
       of subject matter as it was in original state of facts?
     No part of contact b/w parties became impossible; true that S not get illuminated sign
       and in that respect similar to Krell v. Henry BUT having regard to comment in Ocean
       Trawlers case, not think should say contract is for an illuminating sign

 Capital Quality Homes v Colwyn Construction (678)
Facts:
     Capital bought land divided into 26 lots; intention to build houses and sell to individual
       purchasers
     17 months later and 33 days before closing date amendment to Planning Act for
       ―downsizing‖ – trying to decrease population density so need permission to subdivide
     EFFECT = prevent conveyance of each property without approval or authority AND not
       possible to convey individual lots before closing date
Issue: Whether amendments to Planning Act frustrate agreement
Decision/Analysis:
     States principle = NO frustration if supervening event results from voluntary act of one
       of parties OR if possibility of such event arising during term of agreement contemplated
       by parties and provided for in agreement
     HELD contract frustrated; legislation that supervened not contemplated, not provided for
       in agreement and not brought about through voluntary act of either party
                                                                                               45


       COURT finds that legislation destroyed very foundation of agreement; all factors
        necessary to constitute impossibility of performance established and doctrine of
        frustration can be invoked to terminate agreement
Ratio: relaxes earlier restriction that frustration does not apply to land; allowed in case


4. The Effect of Frustration



        TK                             TF
(a) At Common Law
     all obligations accrued and become binding at TF (debts) remain owning
     contract terminated in futuro (as to future) NOT ab initio
Fibrosa – ameliorated with total failure of consideration – where $ paid in full amount for
nothing performed could be retrieved in restitution – statutorily entrenched in Frustrated
Contracts Act s. 3
(b) Under Statute
     Statute NOT codify doctrine of frustration only changing consequences of its operation
     S. 3(1) and 3(2) only allow for recovery of money
     S. (1) – frustration dissolves contract and parties restored to status quo ante
     S. 3(3) – applies where party partially performed and performance of services not paid

Topic 16 - Remedies for Breach of Contract
1. Remedies as Responses to Wrongs
     Breach of duty = wrong in law; view remedial response as having certain objective
     Four different kinds of objectives law may choose to achieve:
       o Compensation (most prevalent) – make injured party whole by compensating them
           for what lost as result as wrong; whatever losses suffer or gains prevented by wrong
           must be redressed in money terms
       o Coercion – seek to compel defendant to so what promised or duty bound to do (ie:
           specific performance and injunction); generally unavailable in equity only
       o Restitution – disgorge wrongdoer of any profits gained or reaped by virtue of breach
       o Punishment – punitive award may be viable objective; deter socially undesirable
           conduct; occasionally awarded in contract
PRINCIPLE = in giving damages for breach of contract, injured party should, so far as it can be
done by money, be placed in same position would have been in if contract performed

2. „A Queer Kind of Compensation‟: Damages for Loss of Expectation
     ―Expectation Damages‖ awarded b/c seek to put injured party in position would have
       been in if had got what expected
Formula = (expected revenue – costs saved by breach) – actual revenue = damages; BUT NOT
focus on formula as much as on objective to give expected profit

 Fuller & Perdue
    BASIC POINT = different kinds of interests law seeks to protect in awarding damages for
       breach of contract
    After breach, parties have interest in having certain values protected:
       o Reliance Interest - Not being made worse off by contract than would have been had
          contract never been made in first place
                                                                                                 46


       o Expectation – Put injured party in position had contract been performed
       o Restitutionary – interest of not having someone profit from breach; no unjust gains
      Fuller - expectation interest is ―queer kind of compensation‖; not easy to explain why
       protect expectation interest b/c compensating by giving back something never had
      Fuller - most compelling interest to be protected (in name of justice) = restitution;
       reliance interest second most compelling
      Expectation award highest damages; restitution lowest; restitution generally smaller than
       reliance because reliance includes restitution and more b/c any cost or money paid to
       defendant paid in reliance and also unjust enrichment to defendant (restitution);
      In terms of restitution, wrong is unjust enrichment (of defendant) AND unjust
       impoverishment (of plaintiff)
      Fuller justifies expectation interest as proxy of reliance; says MUST include lost
       opportunity in reliance interest; if take reliance to include lost opportunity than
       expectation and reliance interest will mesh
      BUT reliance costs usually refer to out-of-pocket expenses in reliance on agreement

3. Causation and Uncertain Future Losses
     Must show loss caused by breach; Onus of proving causation on plaintiff; must prove
      losses forthcoming
     When compensatory damages calculated, court must ask how plaintiff‘s life proceeded
      but for wrong; must show ―downturn‖ result of wrong  speculation
     Court not defeat claim altogether if cannot say with certainty what ―would have‖ gained
      as long as can prove would highly probable

4. Lost Chances of Profit
 Chaplin v Hicks (841)
Facts:
     Women to submit photograph with application to C; newspaper publish pictures; readers
        vote who most beautiful
     C take 50 contestants with highest number of votes and interview; offer three-year
        theatrical engagement (based on 3-tiers) to 12 winners of 50
     H one of 50 to be interviewed; letter sent to H to be in London for interview 2 days hence
     H receive letter day of interview; not make it to interview
     CAUSE OF ACTION = H sued for loss of chance of selection
Issue: Whether H can be awarded damages for loss of chance
Decision/Analysis:
     UNILATERAL contract – if send picture then will enter contest and take reasonable
        steps to notify you of interview (term breached)
     C NOT contest existence of damages and breach; C ARGUE damages should not have
        been awarded b/c impossible to determine quantum of damages (loss) so only nominal
     COURT NOT agree impossible to determine pecuniary loss with contingencies
     Awarding damages for chance that could have won; chance in itself valuable and to
        deny valuable is to say value of lottery ticket is value of paper on which printed (arguably
        more than that); MUST quantify value of chance
‗Where by contract a man has a right to belong to a limited class of competitors, he is
possessed of something of value, and it is the duty of the jury to estimate the pecuniary value of
that advantage if it is taken from him.‘
Ratio: Damages unconstrained by any rational formula and left to determination based on fact

5. Reliance Damages
                                                                                                    47


(a) Introduction
Two instances where plaintiff may seek reliance:
1. Speculative bargains
2. Bad bargains – sometimes to advantage to seek reliance because if put in position would
    have been had contract been fulfilled would only get nominal damages

(b) Extremely Speculative Ventures
 McRae v. Commonwealth Disposals Commission (615)
Facts:
       CDC in position to sell off vessels in territorial waters of Australia in wake of war
       CDC invited tender for ―one oil tanker including contents wrecked on Jourmand Reef
          approximately 100 miles north of Samarai‖
       M submits tender and gets bid; expends significant amount of resources to seek tanker
          BUT not find it because Reef never existed so neither could tanker
       M sued for breach of contract, deceit, and negligent misrepresentation
Issue: What amount of damages should be awarded to M
Decision/Analysis:
       M ARGUED should be expectancy damages case; NOT possible b/c not able to say
          what would have recovered; alternatively M ARGUED should awarded damages based
          on obtaining average oil tanker
       COURT said that if granted damages based on ―reasonable‖ tanker would be importing
          description to tanker into contract
       M relied on Chaplin v. Hicks - loss of chance of making millions from finding tanker
       COURT distinguish from Chaplin b/c purchasing a tanker NOT chance to find valuable
          tanker; also, value of tanker radically undeterminable (could be determined in Chaplin)
       M sued for wasted expenses in setting out vessel for salvage operations and lost
          opportunities for using vessel for certain purposes (protect reliance interests)
       CDC argued damages should not be awarded because of causation problems – must be
          able to meet ―but for TEST‖; ARGUED expenses may have been wasted had found ship
          because ship may have been worthless
       COURT said not fault of M to not discharge burden of proof for causation; if reason
          cannot prove causation b/c of breach, not lie in mouth of defendant to prove causation
       M cannot prove that there was loss of profit because of mistake of defendant SO onus
          shifts to CDC to rebut presumption that M would have broke even (so no reliance losses)
       presumption plaintiff will break even when reason plaintiff cannot show loss of profits
          due to breach
‗It is the breach of contract itself which makes it impossible to value a non-existent thing. It is the
breach of contract itself which makes it impossible even to undertake an assessment on that
basis, and, in so far as the Commission‘s breach of contract itself reduces the possibility of an
accurate assessment, it is not for the Commission to complain.‘
Ratio: plaintiff has prima facie case to recover wasted expenses wherever established expense
incurred in reliance on the promise of breaching party; traditionally onus of proving loss lies on
plaintiff; once shown plaintiff cannot prove because of breach THEN onus shifts to defendant to
show expenses would have been wasted besides breach

(c) Unprofitable Contracts
     Plaintiff engaged in ―bad bargain‖ and defendant breached bargain
     Plaintiff loathed to say give me my expectation because giving expectation value will
       amount to taking money away from plaintiff (if taken literally)
     Q = whether plaintiff can avert in alternative to award of reliance damages?; A = NO
                                                                                                48


 Bowlay Logging v Domtar (832)
Facts:
     D contractual right to log certain amount of land and produce 10,000 cunit of timber
     D enters contract with B to cut, skid and load timber at $15/unit
     D to haul logs; failed to provide enough trucks to haul logs
     At time of breach, 8029 cunits cut but some not skidded/loaded b/c trucks not supplied
     Had all 8029 been skidded and loaded, then B would have been paid $120K for work
       (contract price); at time of breach, B paid $108K by D
     At time of breach, B spent $233K in reliance; B claiming $125K (= FULL reliance costs)
     BUT also need to know how much more would have made had contract been completed;
       NET LOSS at end of job would have been exactly same as what would have been upon
       breach; continuing of performance would not have earned any more net profit
Issue: What amount of damages if any should be awarded to B
Decision/Analysis:
     HELD cannot recover reliance costs b/c did not arise from breach; causation problem,
       cannot say that but for breach, would have had $233K in pocket
 PRINCIPLE re ―bad bargain‖ - Where it can be seen that the plaintiff would have incurred a loss on
 the contract as a whole, the expenses he has incurred are losses flowing from entering into the
 contract, not losses flowing from the defendant‘s breach. In these circumstances, the true
 consequence of the defendant‘s breach is that the plaintiff is released from his obligation to
 complete the contract – or in other words, he is saved from incurring further losses.‘
       Capital cost ISSUE – B ARGUED when court calculated losses would have suffered if
        contract completed, including in total loss certain capital expenditures should not include
        as loss because expenditure that lives on
    PROBLEM with argument – B arguing on one hand cannot include capital as losses and
        B had included it in $233K loss it was claiming; B‘s REPLY breach made capital
        expenditure wasted
    B‘s ARGUED purchased machines with view to entering into further contracts with D;
        continuing value only in so far as used for further contracts with D BUT b/c of breach not
        likely to get further contracts
    COURT REJECTED argument because too uncertain, too remote; cannot say with any
        degree of certainty that would have succeeded in obtaining certain contracts
Ratio: reliance costs not recoverable if arise from entering contract not from breach; costs must
have degree of certainty/remoteness to be included in damages calculation

6. Limits on the Protection of the Expectation Interest
     NOT apply literally in every case (see Hamilton v. OWB) and includes general limitations
     Rare for plaintiff to successfully plead breach and actually put in position but for breach
     Three general limitations:
       o Causation – plaintiff only succeed in recovering losses caused by breach  if
           difficult to discharge onus of proof can revert to reliance costs
       o Remoteness – plaintiff cannot succeed if loss TOO REMOTE from breach of duty
       o Mitigation – plaintiff not recover for losses reasonably avoided; onus to save self

7. Remoteness
(a) The Tale of the Gloucester Miller
 Hadley v Baxendale (885)
Facts:
     Mill shaft at H‘s mill breaks; B carrier hired by H to deliver broken shaft
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     B to serve with due haste; delays unreasonably causes mill to be stopped
     H claims £300 for loss profits; B argued damages too remote and therefore, not liable
Issue: Whether damages can be claimed for loss profits or whether too remote
Decision/Analysis:
     Lays down PRINCIPLE when consequential loss recoverable: damages for breach
        should be fairly and reasonably considered either arising naturally (i.e. according to
        usual course of things) from such breach OR reasonably in contemplation of both parties
        when contract formed
     PRINCIPLE commonly separated into TWO discrete principles (limbs):
            o Foreseeable – Losses recoverable if arise naturally from breach; if loss
               reasonably foreseen by defendant then recoverable
            o Special – arises from special circumstances of plaintiff defendant aware of; loss
               recoverable b/c other party apprised of them
     Loss NOT recoverable; applied first limb, loss NOT flow naturally from breach b/c not
        foreseeable mill not have spare mill shaft; Apply second limb, fact not have spare
        (―special circumstances‖) not communicated to carrier
Ratio: breaching party liable for all damages: 1. arising naturally from actions (reasonably
foreseeable or within parties contemplation as arising as result of breach) AND 2. arising out of
any special circumstances of which specifically notified

(b) A Modern Restatement
 Victoria Laundry Ltd. v Newman Industries Ltd. (887)
Facts:
     V entered contract with N to buy boiler to be used in laundry/dye business
     Damaged when installed so removed and badly damaged; delay of 5 months of delivery
     N knew launderers; V expressed intention to put boiler to use in shortest length of time
     V brings action for damages for losses suffered b/c of breach
     TRIAL HELD loss too remote
Issue: Whether V can recover loss of profits for 5 months delay AND loss of highly lucrative
profits from contract with Ministry of supply
Decision/Analysis:
Court lays down SIX principles by putting Hadley into modern context:
1. Governing purpose of damages = put injured in same position, so far as money can do,
    so, as if his rights observed; provide complete indemnity for all loss de facto resulting from
    particular breach, however improbably/unpredictable – recognized as too harsh rule
2. In breach of contract, injured party only entitled to recover such part of loss actually resulting
    at time of contract reasonably foreseeable as liable to result form breach
3. What was at that time reasonably so foreseeable depends on knowledge then possessed by
    parties
4. Knowledge ―possessed‖ of two kinds – imputed and actual
     FIRST RULE = everyone, as reasonable person, taken to know ―ordinary course of
         things‖ and consequently what loss liable to result from breach
     SECOND RULE = special circumstances outside ―ordinary course of things‖ of such that
         breach in those special circumstances would be liable to cause additional loss
5. To make breaching party liable under either rule, not necessary should actually have asked
    himself what loss liable to result from breach
6. NOT need to prove that upon given state of knowledge defendant could as reasonable
    person foresee breach necessarily result in loss; enough if could foresee likely to result
     HELD can recover for general losses but not special circumstances of profit from
         ministry of supply because was too unforeseeable
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       Even if not expressly state delay necessarily lead to loss of profits V made clear delay in
        delivery likely to lead to loss of business generally and reasonable that N aware
    BUT V must given specific and express notice delay led to loss of special government
        contracts for this amount recoverable as damages
Ratio: confirms Hadley, for breaching party to be liable for damages, damages must have been
reasonably foreseeable ask likely at formation of contract and had actual knowledge in case of
exceptional or special damages

(c) Laced Up in Formulae: Who Should Bear the Loss?
     Victoria Laundry TEST that loss must be reasonably foreseeable as liable to result from
       breach seems to be higher threshold than mere foreseeability
     Courts equate test of remoteness in contract with test of remoteness in tort (=
       reasonable foreseeability)
     Conflation rejected by House of Lords in Heron II – HELD that if Victoria Laundry stand
       for principle that tort/contract have same test of remoteness than wrong; test in tort
       higher; In UK – tort and contract distinguished as regards foreseeability test
     Canada much more unlikely to split in language applied to test; way test formulated little
       practical significance in determining outcome
     When Courts determining whether loss should result, asking on which party should loss
       fall reagrding foreseeability; court look at all circumstances should apply when apply rule
     In reality Courts apply standards of fairness  governing term is reasonable and what
       is reasonably foreseen or reasonably contemplated is a matter to be determined by a
       Court … Courts attempt to find some fair measure of compensation
     As result of realistic recognition that courts NOT rules determining outcome, Cdn courts
       affirmed that in tort and contract remoteness test same
     Suggest RULE just speaks to level of foreseeability that acquires; BUT another factor in
       equation – nature of loss must be foreseeable; NO indication that must define nature of
       loss to determine if it is foreseeable  turns on how define breach and consequences

8. Mitigation of Loss
(a) Introduction
     Duty of mitigation arises upon breach; plaintiff not succeed in recovering for loses could
         have avoided with reasonable effort (= positive obligation on plaintiff)
(b) The Basis of the Mitigation Principle
     Injured party may not hold contract breaker responsible for losses which injured party
         may have avoided; BUT expenses reasonably incurred in avoiding or minimizing loss
         due to breach may be charged to contract breaker
     ―Duty to Mitigate‖ = misleading; because NOT legal duty so much as breach of it gives
         rise to right to damages for defendant; if do not mitigate plaintiff cannot recover
     Creates philosophical problem because but for breach, losses would not have occurred;
         at what point do say breach ceases to be irrelevant and inaction of plaintiff to mitigate
         becomes relevant; causation justification for rule wanting
     Sometimes breaches confer benefits and plaintiff would not have those benefits but for
         breach so should not be able to recover more damages on top of benefit conferred
(c) The Asamera Case – leading CDN case on mitigation (SCC)
 Asamera Oil Corp. v. Sea Oil & General Corp. (899)
Facts:
     Baud loaned Brook 125,000 shares in Asamera
     Shares not returned when contract stipulated
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       Value of shares fluctuated widely during period (1960 = 29 cents; Mid-1967 = $4.30;
        End-67 = $7.25; 1969 = $46.50; 1971 trial = $22)
     FOCUS = action by Baud against Brook to recover in species (specific performance) or
        damages for breach of contract of loan
Issue: What recovery Baud entitled and quantum of damages? What is relevant date of
assessment of thing lost?
NOTE: doctrine of mitigation informs the date of assessment rendered
Decision/Analysis:
 Why specific performance not granted?
     Shares sold by Brooks‘ broker so precluded action of specific performance because very
        shares no longer in Brooks‘ possession to be returned
     Share = ―chose in action‖ confers rights on people and that can bring action on basis of
         court cannot compel someone to deliver something cannot see (rights)
     Specific performance only granted where subject matter is unique and damages NOT
        suffice (ie: cannot be replaced)  shares NOT unique
 Baud claiming damages for loss suffered because not returned
     Q = at what point in time loss to Baud crystallize so market value represent actual loss
     Baud had duty to mitigate so must replace thing loss on day of breach
     RULE = date of breach is date of assessment prima facie; injured party is expected to
        replace loss on date of breach
 What factors went into conclusion that not reasonably expected to replace on date of breach?
     Fluctuation of market made unreasonable to ask injured party to replace shares at point
        at which Asamera were so low in price and Asamera being run by Brook; not good time
        to purchase shares; reasonable plaintiff have held back and watch market
     Brook imploring Baud not to go ahead and sue because performance forthcoming –
        NOT reasonable to expect plaintiff to replace b/c not clear in plaintiff mind that loss;
     PRINCIPLE = only require to mitigate for loss when clear to plaintiff suffered loss
     ARGUED NO obligation to mitigate if have reasonable basis for claiming have genuine
        legal claim; if can show from outset had proprietary interest in thing (genuine grounds for
        specific performance) then ridiculous for plaintiff to consider replacing in order to mitigate
     BUT SCC said mere logic of claim for specific performance not sufficient; must show
        genuine grounds for specifically enforcing performance; court inquire if is genuine belief
        something lost
 LITIGATION VS. MITIGATION – litigation considered mitigating action
     If can be shown expeditious in bringing action to court and some of losses could have
        been avoided, another mechanism available to avoid losses (mitigation)
     ―at least some losses claimed by Baud could have been avoided by taking reasonable
        step of moving with reasonable speed to institute and proceed with legal action‖ - NOT
        principle that drove case; broader principle that when all things considered, reasonable
        to be substituted; one of factors in determining reasonable time period to litigate
     Main factors that went into crystallization date:
        o assurances of Brook that performance was forthcoming
        o share price started to recover SO objection to mitigate at 29cents no longer
            reasonable
        o became clear action for specific performance not proceed because actual shares
            wanted back sold
Ratio: case links idea of crystallization of date of assessment and principle of mitigation

9. Equitable Remedies for Breach of Contract - GOAL = COERCION
(a) Specific Performance
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       Remedy that compels somebody to keep promise;
       Common law will enforce contracts with one exception, promise to pay money
       Discretionary – if contract breached, do not ever acquire right to specific performance
       Basic PRINCIPLE = will damages suffice to do justice? If so, then no specific
        performance awarded; If not, then may be awarded
    In order to make out claim damages inadequate, must show subject matter or right lost
        unique cannot be replaced by money
    Traditionally land considered unique and attracted specific performance BUT SCC
        changed in authoritative obiter  now burden on plaintiff to show land unique - no
        longer appropriate o maintain distinction in approach to specific performance as between
        realty and personality
―Bars‖ to specific performance – NEVER awarded:
    Contract requiring supervision – court not want to be deluged with applications by
        plaintiffs after awarded  SO establish distinction b/w terms in contracts that specify
        mode of performance and contracts that set up objective of performance
    Contracts of personal service – contracts require person to work in some close personal
        way with other party (ie: employer-employee relationship); b/c would require constant
        supervision and smacked to law of
    Want of Mutuality – equity likes equality; if plaintiff request specific performance, not
        successful if other party not enforce contract against him through specific performance

(b) Injunctions
     Promise not to do something; specific performance of negative type
     Injunction will injoin someone for doing something promise to do
     Warner Bros v. Nelson [1937] 1 KB 209
            o N contracted to give acting services to WB alone (exclusive dealing)
            o Breached by working for someone else
            o WB succeeded in injoining her from working for someone else
     If injunction has ultimate effect of creation of award of specific performance in favour of
        plaintiff, not granted

								
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