FORMATION OF THE CONTRACT

ISSUE: WAS THERE INTENTION TO CREATE A LEGAL RELATIONSHIP

1. Was the agreement made between “family”?
a. PRESUMPTION: family members do not intend to contract with legal consequences
– the closer the relationship is between the parties, the stronger this presumption is
[Balfour v Balfour]
i. Presumption applies to variety of extended family relationships [Jones v
Padavattan]
ii. Certain family matters subject to contract, generally stipulated in legislation
[Family Law Act]
b. REBUTTING THE PRESUMPTION: onus of rebutting this presumption rests on the
party alleging that there was intention to contract [Jones v Padavattan]
c. Factors establishing/disproving intention to contract
i. Formal written document = intention to contract [Merritt v Merritt]
ii. Parties not living together in amity = intention to contract [Merritt v Merritt]
iii. Relationship of detrimental reliance, parties changing behaviour based on
promise = intention to contract [Jones v Padavattan]
iv. Involvement of lawyer = intention to contract [Jones v Padavattan]
v. Uncertainty of terms of agreement = less intention to contract [Jones v
Padavattan]
d. Reasonable person test: Would a reasonable person under the circumstances, despite
the presumption, think that there was an intention to create a legal relationship?
[Jones v Padavattan]

2. Was the agreement made in a business context?

a. PRESUMPTION: commercial parties in business relationships intend to contract
with legal consequences [Carlill v Carbolic Smoke Ball Co.; Rose and Frank Co. v
Crompton]
b. REBUTTING THE PRESUMPTION: onus of rebutting this presumption rests on the
party alleging that there was no intention to contract
c. Factors disproving intention to contract
i. Statements that agreement is “binding in honour only” [Rose and Frank Ltd.
v Crompton]
ii. Public policy reason to not grant intention to contract [Rose and Frank v
Crompton]
d. Factors establishing intention to contract
i. Advertisements may intend to give rise to legally binding agreements [Cralill
v Carbolic Smoke Ball Co.]
ii. Monetary deposits as assurance of promises made, or similar actions
indicating sincerity of promise [Carlill v Carbolic Smoke Ball Co.]
iii. Use of formal legal agreements [Rose and Frank v Crompton]
e. Reasonable person test: Would a reasonable person under the circumstances, despite
the presumption, that that there was no intention to create a legal relationship [Jones
v Padavattan]

1
ISSUE: WAS AN OFFER MADE?
1. Was it a store display?
a. PRESUMPTION: a store display is an invitation to treat, not an offer [Pharmaceuticlal
Society v Boots]
b. Offer: goods presented for purchase [Pharmaceuticlal Society v Boots]
c. Acceptance: cashier takes money [Pharmaceuticlal Society v Boots]
d. Was there a collateral contract?
i. Ex. You break it, you but it = “in consideration of you inspecting the product,
you agree to pay for damages to the product”
ii. Note: collateral contracts must be in the reasonable contemplation of both parties
(ex. Have a sign to that effect)
2. Was it a catalogue or price list?
a. PRESUMPTION: price lists are an invitation to treat, not an offer [Boyer and Co v
Duke]; catalogues are invitation to treat, not offer
b. Offer: individual contacts seller, offers to buy
c. Acceptance: seller confirms the sale
d. EXCEPTIONS: given certain terms may constitute offer based on reasonable person test
[Boyer and Co v Duke]
i. Order form – could be offer
ii. Unlimited supply – could be offer
iii. Disclaimer – not an offer
3. Was it a statement of price or price quote?
a. PRESUMPTION: price quote/answer to price inquiry is invitation to treat, not offer
[Harvey v Facey]
b. EXCEPTIONS: price quote may be offer given certain circumstance [Johnston Bros v
Rogers Bros]
i. Volatile Market = presumption that price quote is not offer [Johnston Bros v
Rogers Bros]
ii. Inclusion of phrase “please reply immediately” suggests invitation to treat, not
offer [Johnston Bros v Rogers Bros]
iii. Nature of language used (certainty suggest offer, uncertainty suggests invitation
to treat)
iv. Who started the correspondence? (eg. Purchaser making first contact to get
quote) [Harvey v Gooderham]
4. Was there a request for proposals (RFP)?
a. An RFP is an invitation to treat [MJB Enterprises]
b. Offer: made in the form of a tender [MJB Enterprises]
c. Acceptance: tender accepted, formation of main contract [MJB Enterprises]
d. Collateral unilateral contract: “in consideration of submission of tender, party agrees to
(1) follow terms of RFP, and (2) act fairly and reasonably in selecting a tender [MJB
Enterprises]
5. Was an offer made to the world at large?
a. Offer of unilateral contract may be made to the world at large [Carlill v Carbolic Smoke
Ball Co.]
6. Was there a collateral contract?

2
 a. Contracts may result where parties have agreed to mutual terms for mutual benefit [The
Satanita]
b. Collateral contracts are implied where they are necessary to make sense of the original
contract [The Satanita]

ISSUE: WAS THE OFFER TERMINATED?

c. Revocation
i. An offer may be revoked at any time prior to acceptance [Dickinson v Dodds]
ii. Revocation must be communicated [Dickinson v Dodds]
iii. Revocation may be communicated by credible third party [Dickinson v Dodds]
iv. If there is an offer of unilateral contract made to the public at large, may be
revoked until point of acceptance [Petterson v Pattberg]
1. Must be posted in same manner in which offer was made [Shuey v USA]
2. Once performance has commenced, offeree should not revoke/make
performance impossible, provided that it can be completed within a
reasonable time [Errington v Errington]
d. Rejection
i. Rejection by the offeree negates the offer [Livingstone v Evans]
ii. Counter-offer by offeree is a rejection [Livingstone v Evans]
iii. Rejection of counter-offer does not reinstate initial offer [Livingstone v Evans]
iv. Offer may be renewed by offeror by counter-offeror or restatement [Livingstone
v Evans]
e. Lapse
i. Lapse may be stipulated
1. Offeror can stipulate lapse date, while still able to revoke until time of
acceptance [Barrick v Clark]
ii. Lapse may be implied
1. Implied condition of all offers that they will lapse after reasonable time
[Barrick v Clark] [Manchester DC & General Investments Ltd]
2. In determining reasonable lapse time, consider only what was known to
offeror at time of offer [Barrick v Clark]
3. Consider [Barrick v Clark]:
a. Conduct of parties (ex. Requests for expediency)
b. Circumstances of offer
c. Type of contract (ex. Value of offer)
ISSUE: WAS THERE EFFECTIVE ACCEPTANCE OF THE OFFER?
1. Was acceptance communicated?
a. PRESUMPTION:
i. Generally, acceptance of an offer must be communicated [Felthouse v Bindley]
b. EXCEPTION: Acceptance may be inferred from silence if it is reasonable in the
circumstances
i. Conduct consistent with having accepted the offer [Cole McIntyre-Norfleet v
Holloway]
ii. Industry customs known to both parties [Cole McIntyre-Norfleet v Holloway]

3
 iii. Parties have acted under these conditions in the past [Cole McIntyre-Norfleet v
Holloway]
iv. Terms of offer do not require communication for acceptance (ex. express
implication that it is not required) [Felthouse v Bindley]
v. Postal Acceptance Rule: Non-instantaneous methods are accepted means of
communication, acceptance considered communicated when acceptance is sent,
not when it is received [Household Insurance v Grant]
c. EXCEPTION: offers of unilateral contract
i. Acceptance occurs simultaneously with performance, no formal acceptance
required [Carlill v Carbolic Smoke Ball Co.]
ii. Offeree bound to give notice of completion of performance with reasonable
period of time [Bishop v Eaton]
d. EXCEPTIONS: offers of unilateral contracts – rewards
i. In order to claim a reward for unilateral contract, you must be aware of the offer,
it must be in your contemplation at the time of performance and you must be
motivated by the reward [Williams v Carwadine; R v Clark]
ii. Character is not a factor in determining whether or not individual should benefit
from party of contract, individual must just be motivated by contract [Smirnis v
Sunlife]
iii. Information given must be relevant, helpful, and effective, but it does not have to
be a proximate cause in arrest and conviction (possibility of apportioning the
reward for partial information) [Smirnis v Sunlife]

2. Were there conditions which would alter normal analysis of effective acceptance?
a. PRESUMPTION: Generally, offeror is in control of the mode of acceptance [Felthouse v
Bindley]
b. Offeror may stipulate means of acceptance [Felthouse v Bindley]
i. Offeror cannot place positive duty to act or be bound by the offer [Felthouse v
Bindley]
ii. Offeror can stipulate method of acceptance and so long as it is clear, are bound
only by acceptance by that means unless he chooses to comply otherwise
[Eliason v Henshaw]
iii. If the offer is delivered in a certain fashion, acceptance may be communicated in
that fashion [Henthorn v Fraser]
c. Offeree may send acceptance by a different means
i. If offeror has prescribed method of acceptance but not in terms setting that as
only mode of acceptance, acceptance may be communicated by any other mode
which is no less advantageous to the offeror [Manchester DC v Commer $
General Investments; Eliason v Henshaw]
ii. If method of delivering acceptance was reasonable under the circumstances then
his is acceptable method of communication; circumstances where postal
acceptance would apply (could apply to instantaneous communication):
1. Stipulated in the offer [Henthorn v Fraser]
2. Offer given by mail [Henthorn v Fraser]
3. Past dealings conducted by mail [Henthorn v Fraser]
4. Seen as ordinary usage [Henthorn v Fraser]

4
 iii. Electronic Communications: when not designated means of acceptance,
acceptance only valid when offeror becomes aware of it [Electromic Commcerce
Act]
iv. Offeror may have right to deny acceptance if sent in manner not prescribed
[Manchester DC v Commercial and General Investments]
d. Holwell Clause
i. If offer specifies that acceptance must reach the offeror, or specifically requests
notice of acceptance in writing, then acceptance is good when received [Holwell
Securities Ltd v Hughes]
e. Faults in Communication
i. Non-instantaneous methods of communication
1. GENERAL RULE: apply postal acceptance rule, acceptance good from
time sent [Household Insurance v Grant]; good in form/content as it is
posted [Henkel v Pape]
2. EXCEPTIONS:
a. Fault of offeree causes failure to reach offeror, acceptance good
when received [Entores v Miles]
b. Holwell clauses [Holwell Securities Ltd v Hughes]
ii. Methods governed by Electronic Commerce Act
1. If e-communication (email) designated as accepted means of
communication, electronic information presumed received when capable
of being retrieved [Electronic Commerce Act – section 23(3)]
2. One may rebut this presumption to return to common law
a. Prove acceptance not received [Entores v Miles]
b. Based on reasonable person test [Entores v Miles]
c. Show actions inconsistent with having received acceptance
[Entores v Miles]
3. If e-communicated not designated as means of acceptance then only
valid when recipient becomes aware of it [Electronic Commerce Act]
4. Faxes are instantaneous [Eastern Pwer v Azienda] but not subject tob
Electronic Commerce Act
iii. Instantaneous methods governed by common law (email, phone, fax)
1. Acceptance good when received/communicated [Entores v Miles]
2. Offeror without any fault does not receive acceptance, but offeree
reasonably believes it is received, then acceptance good when received
[Entores v Miles]
3. If both parties are at fault, base rule may apply, acceptance good when
received [Entores v Miles]
4. EXCEPTION: fault of offeror for not receiving and offeree reasonably
believes acceptance received, then acceptance good when sent [Entores v
Miles]
ISSUE: WAS THERE CONSIDERATION?
1. Was there good consideration?
a. Value Exchange
i. Must be something given or promised in exchange for promise [Dalhousie v
Boutilier]

5
 b. Mutuality
i. Contract must be for the mutual benefit of parties, consideration must be given
by both parties, no consideration = contract not enforceable [Tobias v Dick & T
Eaton Co]
c. Sufficiency
i. Consideration needs to be sufficient, not adequate (has value in eyes of law but
does not need to be of equal value) [Thomas v Thomas]
ii. Party promising must gain benefit, remove disbenefit, or party promising myst
suffer detriment [Dalhouse v Boutilier] [Hamer v Sidway]
iii. Consideration must flow from promisee to promisor [Dalhousie v Boutilier]
[Thomas v Thomas]
iv. Must be real and not illusory [Thomas v Thomas]
v. Promise in exchange for promise can be good consideration [Harrison v Cage];
so long as promises are sufficiently certain to be enforceable [Harrison v Cage]
[Dalhousie v Boutilier]
vi. Consideration must be contemporaneous with the promise (past consideration is
not good consideration); promise made after bargain is complete is not part of
original bargain [Roscorla v Thomas]
1. EXCEPTION: Past consideration may be good consideration where the
consideration was proceeded by a request implying future consideration
[Lambleigh v Brathwait]
2. Was the promises made under seal?
a. A bare promise under seal is still good consideration
b. Absent of sealing ring, may include phrase “signed, sealed, delivered” [Linton v Royal
Bank of Canada]
3. Not good consideration
a. Bare promises / Gratuitous – Charitable – Loving Act
i. A bare, voluntary, gratuitous act or promise (or natural love and affection)
unsupported by reciprocal undertaking is not good consideration [Tobias v Dick
& T Eaton Co] [White v Bluet]
ii. Promise to give money/subscribe to charity not enforceable in absence of real
consideration [Dalhousie v Boutilier]
iii. Moral obligation, while binding in conscience, is not binding in law; not good
consideration [Eastwood v Kenyon]
b. Motive is not sufficient consideration [Thomas v Thomas]
c. Consideration in ‘pious respect’ is illusory, not good consideration [Thomas v Thomas]
d. An agreement to not do what you are not legally entitled to do is not good consideration
[White v Bluet]
e. Promise to vary an existing obligation made under duress, extortion, or fraud is not good
consideration [Greater Fredricton Airport v NAV Canada] [Williams v Roffrey Bros &
Nichols]
4. Was there a preexisting arrangement?
a. An agreement to do something one is already bound to do is not good consideration [Stilk
v Myrick]
b. Valid amendments to existing agreements

6
 i. When existing duty has been discharged due to substantial change in
circumstances, agreement to continue to do perform may be good consideration
[Hartley v Ponsonby]
ii. Contractually bound activity is good consideration for a third party outside of the
contract [New Zealand Shipping v Satterhwaite]
iii. If the promising party receives practical benefit or obviates a disbenefit and the
promise was not given out of economic duress or fraud, then the benefit to the
promising party is consideration for the post-contractual variation [Greater
Fredericton Airport Authority v NAW Canada] [Williams v Roffey Bros &
Nicholls]
iv. If the evidence established detrimental reliance by the promisee or the gaining of
a benefit or advantage by the promisor then post-contractual variation in the
absence of consideration should be enforceable [Wind River Ventures v BC]
5. Was there partial performance of the original contract?
a. At Common Law, promise for partial payment is not valid consideration [Foakes v Beer]
i. EXCEPTION – Unless there’s accord and satisfaction:
1. Getting something different
2. Getting money early
3. Getting money somewhere else
b. A promise to accept a lesser amount in satisfaction of payment of a greater amount can be
binding if it expressly accepted by the promiser or rendered pursuant to an agreement.
i. Mercantile Law Amendment Act: Part performance of an obligation, either before
or after a breach thereof, when expressly accepted by the creditor in satisfaction,
or rendered in pursuance of an agreement for that purpose, though without any
new consideration, shall be held to extinguish the obligation.
6. Common Law Estoppel?
a. Party acts in way to make other reasonably believe there is a contract, making the
agreement binding [Cole McIntyre] [Jordan v Money]
b. LIMITS:
i. Does not apply to representations of intention or of future fact, only to
representations of fact
ii. Amending agreements without consideration are representations of future fact,
and therefore do not give rise to contract – no common law estoppel
7. Promissory Estoppel?
a. Equity arises that stops promisor for enforcing original agreement, even though amending
agreement has no consideration
b. Denning- if there is a promise without consideration related to existing agreement, that
promise is intended to be acted upon and person acts to their detriment … equity arises
that does not allow party to go back and insist on initial agreement
c. Requirements [Central London Property Trust v High Trees House]:
i. Existing contract
ii. Promise related to existing duty which amends original contract
1. Promise made voluntarily without economic or other duress [D&C
Builders v Rees]
2. Promise can be inferred from promisor’s behaviour [Crabb v Arun
District Council]

7
 3. Promise a result of negotiations/conduct showing intent not to insist on
strict legal rights [John Burrows v Subsurface Surveys]
iii. Promise has no consideration
iv. Promise is intended to be acted upon and is acted upon [Central London Property
Trust v High Trees House] to the detriment of the promisee (detrimental reliance)
[Ajayi v RT Bristol]
d. If conditions met, promisor estopped from denying existence of the amending promise,
regardless of insufficient consideration
e. Limits:
i. Does not create new causes of action (ie. Cannot sue for breach of estoppel) (a
shield, not a sword) [Coombe v Coombe]
f. Exceptions:
i. Proprietary estoppel
1. Estoppel in relation to the creation of interest in land or the intention to
create interest in land
2. Estoppel can create actionable right on its own [Crabb v Arun DC]
ii. Equitable estoppel
1. Creation or encouragement of an assumption that there would be
contract, party receiving encouragement relies on assumption to their
detriment, estoppel steps in and says there is contract
2. Note: not Canadian law
ISSUE: WAS THERE CAPACITY TO CONTRACT?
1. Was one of the parties a minor (under the age of 18)?
a. GENERAL RULE: Minors do not have the capacity to contract
b. RESULT:
i. Voidable: can be set aside at instance of person lacking capacity
ii. minors may treat contract as unenforceable but the other party cannot
iii. unless minor reaches ago of majority and expressly accepts the contract or acts
consistent with the contract
c. EXCEPTION [Sale of Goods Act (section 3)]:
i. If the contract is for the sale of goods which is necessity even if contract is not
binding on minor still may need to pay reasonable price (not the contract price)
[Nash v Inman]
ii. necessity (good suitable for the life of the infant) can include goods consistent
with needs of infant [Nash v Inman] or services beneficial to the infant for the
whole term of the contract [To ronto Marlborough Hockey Club v Tonelli]

2. Did one of the parties lack mental capacity?

a. TEST: does incapacitated party have enough knowledge to appreciate the nature of the
contract at the time of formation?
b. RULE: One may be temporarily or permanently unable to contract due to lack of capacity
c. RESULT: voidable contract (can be set aside at instance of person who lacked capacity)
i. Note: in instances of temporary lack of capacity, once regaining capacity contract
can be voided or ratified by person who was incapacitated (ratification can be by
expression of continuing to act under contract)
d. EXCEPTION [Sale of Goods Act (section 3)]:

8
 i. contract is for the sale of goods which is necessity even if contract is not binding
still may need to pay reasonable price (not contract price)
ISSUE: IS THERE CERTAINTY OR ASCERTAINABILITY OF TERMS?
1. RULE: A contract is only enforceable if the terms of the contract are:
a. Certain, language that the court can come to understand or ascertain pursuant to a method
that works [Scammell & Nephew v Ouston]
b. Complete or completable pursuant to mechanism that, works [Scammell & Nephew v
Ouston]

2. Is there ambiguity (uncertain terms) in the complete contract?

a. RULE: If the terms are too uncertain and too obscure for any definite or precise meaning,
the court will be unable to attribute any particular contractual intention and no contract
[Scammel & Nephew v Ouston]
b. SOLUTION:
i. Where contractual intention is clear, but contract is silent on some detail, courts
will try to figure out what was actually intended [Hillas v Arcos] [Scammel &
Nephew v Ouston]
ii. In determining ascertainability of terms, consider factors including surrounding
circumstances, custom, industry, past-dealings, plain-meaning of language

3. Is the contract incomplete?

a. Do the parties agree to negotiate to complete?
i. An agreement to negotiate in good faith (an agreement to agree) is not
enforceable [Walford v Miles]
ii. Agreement will be void if mechanism fails, contract will be completed if
successful [Calvin Consolidated v Manning]
iii. Generally no duty to negotiate [Edper Brascan Corp v 117373 Canada Inc],
except in limited fact scenarios [Empress Towers v Bank of Nova Scotia]
iv. Parties may provide for mechanism to fix terms (ex. Agreement to settle terms
through broadly assigned arbitrator) [Calvin Consolidated v Manning]
b. Is there a pre-contractual document (an informal agreement contemplating formal
agreement)?
i. Letter of intent to contract may form a valid contract [British Timber v Elk River
Timber] or may be agreement to agree (no contract) [Bawitko Investment v
Kernels Popcorn]
ii. Treated as valid contract
1. Contains requisite elements of a contract [British Timber v Elk River
Timber]
2. Complex and developed terms
3. Letter of intent to be binding contract
iii. Treated as agreement to agree
1. ROSE AND FRANK CLAUSE: clause stating parties do not intend to
contract
2. Can include clause stating that document is not legally binding until
formal contract developed and signed [Green v Ainsmore]
3. Set condition precedents (ex. Subject to board approval)

9
 iv. NOTE: ‘no shop’ clause or agreement not to negotiate with anyone else can be
binding but must have stipulated termination date
TERMS OF CONTRACT
ISSUE: HOW TO INTERPRET WRITTEN CONTRACTS?
1. GENERAL RULE: Parole Evidence Rule / Four Corners Rule
a. Where there is a written contract, identify the intention of the parties by looking within
the ‘4 corners’ of the document … written document treated as memorialization of
parties’ intentions
b. Words granted normal grammatical meaning
c. Generally, do not look at extrinsic evidence of parties’ intent

2. EXCEPTIONS: Is there an exception to the parole evidence rule?

a. Writing was not an agreed upon memorialization of the contract
b. Document was not a contract or contract was void
i. Submit evidence to the fact (outside of four corners) demonstrating condition
precedent to existence of contract, unconscionability, mistake, invalidity,
misrepresentation [Pym v Campbell] [Raffes v Wihelhaus]
c. There was a collateral contract
i. Demonstrate second, independent collateral contract [Morgan v Griffiths]
ii. LIMIT: collateral contracts cannot modify or conflict with original written
document [Hawrish v Bank of Montreal]
iii. LIMIT: inclusion of “entire agreement” clause
1. saying all agreements between parties contained in the document
2. rebuttable, entire agreement clause is presumptive not determinative
[Gallen v Allstate Grain]
d. Words and terms in document have a ‘special meaning’, not ordinary meaning
i. If there is patent ambiguity…
1. Ambiguity on face, creates exception to parole evidence rule
2. Can introduce outside evidence to show special meaning [Southern
Resources Ltd v Technomin Australia]
ii. If there is latent ambiguity…
1. No ambiguity on face, only may use evidence to identify subject matter
[Southern Resources Ltd v Technomin Australia]

3. Complicating Parole Evidence Rule: Sattva Capital v Creston Moly Corp

a. Arbitrator looked outside of contract for evidence despite no ambiguity (ignored parole
evidence rule)
b. SCC – historical approach should be abandoned, contract interpretation should not be
matter of pure law, interpret contracts in light of factual nature (factual matrix)
c. Prior to this case, could have still challenged parole evidence rule by claiming exception,
now don’t need to jump through these hoops just start off as if you had proven ambiguity
from the start

10
ISSUE: ARE THERE IMPLIED TERMS OF CONTRACT?
1. Terms implied in fact
a. Terms which were intended of must have been intended for the contract to make sense
[Codelfa Construction v State Rail Authority]
b. TEST: [Codelfa Construction v State Rail Authority]
i. Equitable and reasonable
ii. Necessary to give business efficacy to the contract [Moorcock] [Gabriel v
Hamilton Tigercats]
iii. So obvious as to go without saying
iv. Capable of clear expression
v. Cannot contradict express terms of contract
2. Terms implied in law
a. Terms implied by the nature of a contract of this type (not a reflection of intention)
[Liverpool City Council v Irwin]
b. TEST:
i. Implied term must be necessary to make contract make sense
ii. Implied term does not need to be obvious, but needs to be
1. Reasonable and equitable
2. Minimum terms for business efficacy
3. Capable of clear expression
4. Not conflicting any express term of contract
c. Can contract out an implied term in law, by clearly addressing it in way that implied term
would contradict with written contract, allowing for parole evidence rule
3. Terms applied in statute
a. Certain terms are implied and cannot be contracted out (voids contract)
b. Sale of Goods Act
i. Warranty of title
ii. Warranty of merchantable quality
iii. Warranty of fitness for purpose
4. General Doctrine of Contract Law: Duty to Perform in Good Faith [Bhasin v Hyrnew and
Heritage Educational Funds]
a. Not treated as an implied term in fact or in law, rather as a general doctrine of contract
law
b. Minimal standard of honest contractual performance
c. Requirement not to lie or mislead other party about one’s contractual performance
d. Operates irrespective of intentions of parties
ISSUE: WAS THERE AN EXCLUSION CLAUSE?
1. Types:
a. Clauses excluding all liability for breach (exclusion clause) [McCutcheon v MacBrayne]
b. Clauses limiting liability for breach (limitation clause) [Parker v South Eastern RY]
c. Clauses limiting types of remedies for breach [Tercon Contractors v BC]
d. Clauses limiting rights to claim under statutory implied remedies
2. Generally, courts do like exclusion clauses (though they can work well given equal bargaining
power, insurance against risks, etc, can act very unfairly
3. Is the exclusion clause part of the contract?

11
 a. If party signs document, assumed that they are aware of its contents [L’Etrange v Ilcove]
i. Signing document containing exclusion clause presumes acceptance of clause
[McCutheon v MacBrayne Ltd]
ii. Does not matter if party actually knows about clause (except in cases of fraud)
b. If party does not sign document, but assents to contract
i. If party knows there is an exclusion clause even if they didn’t read it, still applies
[Parker v South Eastern Railroad]
ii. Party may demonstrate that not reasonably aware of clause
c. If party takes reasonable steps to notify other party of exclusion clause, clause is good
even if not actually known [Union Steamship v Barns] [Thompson v London Midland v
Scottish RY]
d. Notification of exclusion clause must be contemporaneous with formation of the contract
[Parker v South Eastern Railroad] [Olly v Marlboro Court]
4. How is the exclusion clause constructed?
a. Construe the exclusion clause in light of contract as a whole to determine whether it
should apply to the facts [Swiss Atlantique]
5. Is there a fundamental breach?
a. If there is a fundamental breach, exclusion clause may not apply [Karsales Harrow Ltd v
Wallis - Denning] [Harbutt’s Pastacine v Wayne Tank]
b. Is it fair and reasonable for exclusion clause to apply? [George Mitchell v Finney Lock
Seeds] [Hunter v Sincrue] [Fraser Jewellers v Dominion Electric Protection]
i. Is it a standard form or is it negotiated? [George Mitchell v Finney Lock Seeds]]
ii. Is there equal bargaining power between the parties? [George Mitchell v Finney
Lock Seeds]]
iii. What is the nature of the breach? (ex. Egregious, intentional)[George Mitchell v
Finney Lock Seeds]]
iv. Is there a balance between risk and reward? [George Mitchell v Finney Lock
Seeds]]
6. Modern law in Canada combines rule of construction and fundamental breach [Tercon
Contractors v BC]
a. Does the exclusion clause include the breach in question, applying the principle of
‘contra proferentum’ (construe words against party relying upon clause) and strict
interpretation?
b. Is the application of the exclusion unconscionable, based on
i. Whether it is standard form,
ii. Whether there is equal bargaining power,
iii. Whether there was a balance of risk and reward, and
iv. The nature of the breach
DEFECTS IN CONTRACTUAL RELATIONS
ISSUE: WAS THERE ACTIONABLE MISREPRESENTATION?
1. If there is actionable misrepresentation, then contract is voidable
a. Contract is good contract, property passes, continues until party with recission rights
elects to set the contract aside
2. Misrepresentation:

12
 a. Representation of information which is material to the formation of the contract, but
information not included in the contract as terms
b. Elements of misrepresentation to be actionable
i. Material
1. Must be an inducing factor to the formation of the contract (reasonable
person would take it as an inducing factor) [Redgrave v Hurd]
2. Does not need to be only inducing factor
3. Rebut: show plaintiff knew, but did not rely
ii. Positive Statement
1. Must be a positive statement, not a failure to say something
2. EXCEPTIONS:
a. Fiduciary relationship = duty to disclose
b. Directors of officers of company in relation to buying or selling
property of company = duty to disclose
c. Contracts of utmost good faith = duty to disclose
iii. Fact
1. Not just a statement of opinion [Bisset v Wilkinson]
2. EXCEPTION:
a. Statement of opinion by person who purports to be an expert or
purports to have special knowledge or purports to be in
possession of all the facts, considered to be statement of fact
b. Statement of law made by non-lawyer is not a statement of fact,
it is a statement of opinion
3. Three types:
a. Fraudulent misrepresentation
i. Fraudulent misrepresentation when statement is: [Redgrave v Hurd]
1. Knowingly false
2. Made recklessly without belief of truth
ii. Remedy:
1. Tort damages (tort of deceit)
2. Rescission rights (voidable contract)
b. Negligent misrepresentation
i. Negligent misrepresentation when statement [Hedley Byrne & Co v Heller &
Partners] [Esso Petroleum Co v Mardon]:
1. Made by someone purported to have specialized knowledge and skill
(special relationship)
2. Represented to the other party (individual or part of group)
3. In the area of special skill
4. Known that it will be relied upon or reasonable to assumed it would be
relied upon
ii. Remedy:
1. Tort damages
2. Rescission rights
c. Innocent misrepresentation
i. Misrepresentation that is not fraudulent or negligent, remaining instances
ii. Remedy:
1. Rescission rights

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 iii. No right to damages unless can prove collateral contract [Heilbut Symons v
Buckleton]
4. LIMIT: Bars to rescission rights? (note: apply to other voidable contracts)
a. Inability to make restitution
i. Rescission is an equitable remedy, must be able to return property
ii. Restitution doesn’t need to be perfect, just substantial: if property is in the same
or approximately same condition, and it is fair in circumstances, right of
rescission allowed [O’Flaherty v McKinley]
iii. In instances of fraudulent misrepresentation, may allow for rescission with
compensation
b. Intervening third party rights
i. Recall, voidable contract is still good contract so property legitimately
transferred
ii. If property rights transferred to an innocent third party purchaser for value, bar to
rescission
c. Completed contract for the sale of an interest in land [Redican v Nesbitt]
i. Expectation that before closing land deal, will satisfy yourself that property is
what you expect
ii. Once land transaction closed, bar to rescission
iii. EXCEPTION: fraud
d. Passage of a reasonable time under a sale of goods contract
i. Provided reasonable time to examine goods, after reasonable time lose rescission
rights, but can still sue for damages [Leaf v International Galleries]
e. Affirmation
i. After learning of misrepresentation, if continue to act in accordance with the
contract, said to be affirming contract
5. OPTION if there is bar to rescission: demonstrate collateral contract, can then seek remedy in this
way… LIMITS:
a. Proof of intent
i. Evidence to support there are two contracts
ii. Must be the real inducing factor for the contract
b. Cannot conflict with main contract
c. Cannot conflict with an entire agreement clause (if there is one, possible to prove it is a
boiler plate clause)
ISSUE: WAS THERE AN ACTIONABLE MISTAKE?
1. If there is an actionable mistake then contract is void
a. Not a good contract, no property rights transfer
2. Mistake
a. Something incorrect incorporated into terms of the contract
3. Types
a. Common mistake (shared mistake)
i. Mistake common to both parties
ii. Common law common mistakes
1. Mistake as to substance of contract versus the quality to the subject
matter [Bell v Lever Bros Ltd]

14
 2. Must be very significant factor, almost on a level where performance of
the contract would be impossible [Cooper v Phibbs] [Couturier v Hastie]
3. Compared to US case law, higher standard in Canada for common law
common mistake [Sherwood v Walker]
4. ELEMENTS [Great Peace Shipping v Tsavlviris Salavage]:
a. Mistake goes to vital attribute of subject matter
b. Renders performance impossible
c. Not the fault of the party pleading the mistake [McCrae v
Commonwealth Disposal]
d. Neither party accepted risk at time of formation of contract (no
warranty)
iii. Equitable common mistakes
1. Was the mistake fundamental, would the parties have made the contract
but-for the mistake? [Solle v Butcher - Denning]
2. Equitable remedy, contract voidable not void
3. NOTE: bars to rescission
4. Rejected by English Court of Appeal [Great Peace Shipping v Tsavliris
Salavage]
5. Doctrine of equitable common mistake not completely abandoned in
circumstances where there would be unjust results [Miller Paving v
Gottardo Construction]
b. Mutual mistake
i. Both parties have different view of fundamental (material) term of contract and
both hold those views reasonably not knowing of mistake [Raffles v Wickelhaus]
[Smith v Hughes]
ii. If mutual mistake, contract is void
iii. EXCEPTION: if one party has unreasonable view of the facts then contract exists
on terms of individual with reasonable perception [Smith v Hughes]
c. Unilateral mistake
i. Only one party is mistaken and the other party knew, or ought to have known
1. ELEMENTS:
a. Party knew of mistake
b. Mistake was fundamental, incidental to formation of contract
[Cundy v Lindsay]
2. Unilateral mistake means void contract
ii. Mistake not caused by party, but they should have known
1. If knew or ought to have known of other party’s mistake, offeree cannot
“snap up the mistaken offer”, contract is void [Hartog v Collins &
Shields]
2. One may agree in collateral contract to be accountable for their own
mistakes [Ron Engineering v R]
iii. Mistake caused the mistake, took advantage of the mistake (fraud)
1. Mistake in identity – unilateral mistake as to the real identity of the other
party of the contract will make contract void if facts are fundamental
[Cundy v Lindsay]
a. Mistake in correspondence (see above rule) [Lindsey v
Glencairn]

15
 b. Mistake in personal negotiation (face-to-face negotiations)
i. Presumption that parties are not fundamentally mistaken,
rebuttable by showing level of due diligence and identity
of fundamental importance [Ingram v Little] [Lewis v
Avery]
2. Denning – mistaken identity makes contract voidable not void (bad law
in Canada)
d. Mistake as to document (non est factum)
i. Document so radically different from what one party thought it was, they are
given right to walk away from contract
ii. Very difficult to establish – want to preserve sanctity of contracts, if you sign a
contract you agree to its terms
iii. Old rule:
1. Show document signed was of different class than what was intended to
sign, not just different content [Thoroughgood]
2. No negligence in signing the document, took reasonable care [Prudential
Insurance v Cugnet]
iv. Newer rule (loosening of rules):
1. Document fundamentally different [Gallie v Lee] [Sanders v Anglia
Building Society] (Denning- rejects distinction between class and
content, thinks makes contract voidable)
2. CANADA: Not careless in signing document [Marvco Colour Research
v Harris]
ISSUE: IS THE CONTRACT AN ILLEGAL CONTRACT?
1. GENERAL RULE: illegal contracts are unenforceable (not void or voidable), cannot assert
property rights
2. Contract can be illegal as contrary to public policy
a. These are unenforceable (not void or voidable)
b. INCLUDES
i. Contract to commit a crime [Oldfield v Transamerica Life]
ii. Contract to defraud revenue [Alexander v Rayson]
iii. Contract which promotes corruption in public office [Parkinson v College of
Ambulance]
iv. Contract for immoral purpose (note standards change)
c. Contracts in restraint of trade: non-competes
i. Restriction cannot be to broad, as there is public policy consideration that person
should be able to carry on their trade
ii. Non-compete clauses must be clear and unambiguous, and should be minimally
restrictive as it cannot be read down [Shafron v KRG Insuarnce Brokers]
iii. Non-competes must be reasonable between parties, not more broadly drawn than
necessary to protect business interests, and lack of public policy issue [Gordon v
Ferguson]
d. Tied selling agreements
i. Must be reasonable between parties, not more broadly drawn than necessary, and
no public policy issues
e. Expanding areas of public policy

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 i. There is room for new areas of public policy [Enderby Town FC v Football
Association]
ii. Public policy should reflect governing principles which community as a whole
has adopted formally/informally [Wilkinson v Osborne]
iii. Judges thoughts on what is contrary to public policy may vary and lack
consistency [Baby M]
3. Contract can be illegal as contrary to statute
a. Illegal in formation
i. Statute expressly prohibits certain types of contract
1. These types of contracts are unenforceable [St John Shipping Corp v
Hoseph Rank Ltd]
ii. Statute may also indirectly prohibit certain types of contract
1. Test for indirect illegality [Yango Pastoral Co v First Chicago Australia
Ltd]:
a. What was the purpose of statute?
b. What was the statute meant to protect a group of people which
the defendant is part of?
c. What is the penalty? Is it related to the contract?
2. These types of contracts may be unenforceable, but not automatically
b. Illegal in performance
i. If any time performance of contract was contrary to statute it was unenforceable,
would be very few contracts that are actually enforceable [St Johns Shipping]
ii. Illegality in performance leads to unenforceable contract when [Ashmore,
Benson, Pease & Co v Dawson Ltd]:
1. Party knowingly engaged with illegality
2. Party must-have-known that other party would perform illegally

ISSUE: WAS THERE UNCONSCIONABILITY AND UNDUE INFLUENCE?

1. Was there duress?
a. Involves one party inducing other to enter into contract under threats of physical violence
to one’s person of the person of their family (has now expanded to include economic
duress)
b. RESULT: Contract is set voidable
2. Was there undue influence?
a. PRESUMPTION: Special relationships give rise to undue influence (categories of special
relationships may be expanded given proof of trust and confidence)
b. REBUT: show that party was capable of looking after self OR deal was fair
c. RESULT: Contract is voidable
3. Was there unconscionability?
a. TEST:
i. Gross inequality in bargaining power
ii. An unfair bargain
b. Party does not need to know about disability of other party, its existence is sufficient
[Marshall v Canada Permanent Trust Co]
c. Independent legal advice

17
 i. Independent legal advice not required, but indicates ability to take care of self
and no gross inequality in bargaining power
ii. Ontario Court of Appeal decision - Independent legal advice has to be
independent [goes against Royal Bank of Scotland v Etridge]
d. RESULT: Contract is voidable, rescission rights
ENFORCEMENT, BREACH AND REMEDY
ISSUE: DOES PARTY HAVE RIGHT TO ENFORCE CONTRACT (PRIVITY)?
1. GENERAL RULE: Only person who has given consideration can enforce a contract
a. Third party cannot sue, even if contract is expressed for third party’s benefit [Tweddle v
Atkinson]
b. Third parties to contract do not derive any rights from that agreement, nor are they
subject to any burdens imposed by it [Tweddle v Atkinson]
2. EXCEPTIONS
a. Party to contract may sue
i. PROBLEM: what then are the parties damages? (may need to sue for specific
performance)
b. Use trust law
i. provide in contract that benefit of contract is held in trust with the intention that
beneficiary can enforce [addressed briefly in New Zealand Shipping, but not fully
developed]
c. Use law of agency
i. Four requirements [New Zealand Shipping v Satterthwaite & Co]
1. Contract must contemplate third party benefits
2. Contract must be clear that contractor is contracting in two capacities
3. Contractor must have authority or third party must ratify
4. Third party has to give consideration for new contract
d. Principled exception, extension to employees
i. Employees may be impliedly beneficiaries of exclusion clauses [London Drugs v
Kuehne & Nagel Ltd]
ii. Two requirements:
1. Limitation clause must expressly extend to employees
2. Employees must be performing exact duties under the contract
[Greenwood Shopping Centres v Beattie]
ISSUE: WAS THE CONTRACT FRUSTRATED?
1. Frustration results from mistake as to future matter. Contract valid at time of formation,
unanticipated event occurs making further performance impossible/extremely difficult.
2. Not a matter of implied terms of contract [old approach in Taylor v Caldwell]
3. Matter of construing the contract in circumstance that existed at time of contract formation to
determine [Davis Contractors v Fareham UDC]:
a. Fair to assume one of parties assumed risk of future event, or
b. Is required performance so different from what was contemplated that parties should be
excused?
i. Performance under new circumstances must be fundamentally or radically
different than what was contemplated

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 4. REMEDY: Frustrated Contracts Act
a. Act does not provide for when contract will be frustrated, only tells what to do if no
remedy is stipulated
b. Sums paid to be returned subject to deductions/expenses occurred before the frustration
i. Deposits returned less money spent on performance
c. If benefit is conferred, you must pay the fair market value of the benefit (not the contract
price)
d. If whole performance is severable (or where part has been performed), may treat part
performance as if were separate contracts
i. Main contract divisible into chunks
5. REMEDY: Forced major clauses
a. Party assumes risk so contract may not be frustrated
b. May stipulate what to do when contract frustrated (if not, resort to Act)
ISSUE: WHAT ARE THE REMEDIES FOR BREACH OF CONTRACT?
1. Damages
a. GENERAL RULE: Courts will grant damages (money award) for breach of contract.
Damages should put plaintiff in same position as if contract had been performed [Victoria
Laundry v Newman Industries]
b. Measurement of Damages
i. Plaintiffs must demonstrate that have suffered a loss [Thompson Ltd v Robinson
Ltd]
ii. Personal performance
1. Damages extend to cost of full performance [Groves v John Wunder Co],
unless amount is unreasonable.
2. Generally, does not matter how plaintiff chooses to use damages
awarded [Ruxley Electronics Ltd v Forsyth]
3. Sometimes courts find performance so important that damages are
granted to obtain performance, even if value of performance outweighs
value of benefit [Groves v John Wunder Co]
iii. Commercial performance
1. May recover loss stemming from breach, that is the difference beteween
the market value of the performance and its current value given breach of
contract [Groves v John Wunder Co]
iv. Loss of chance
1. Damages may be awarded for loss of chance, even if actual loss is
uncertain [Howe v Teefy]
v. Sale of goods/property
1. Difference between contract price and market price [Sale of Goods Act]
2. Damages from lost profit can be recoverable even if profit could have
been obtained later on [Thompson Ltd v Robinson Ltd]
c. Mitigation
i. Plaintiff must take reasonable steps to mitigate damages [Payzu v Saunders]
d. Remoteness
i. Damages subject to test for remoteness, damages out to be [Hadley v Baxendale]
1. Such as may fairly and reasonably be considered either arising naturally,
or

19
 2. Such as may reasonably be supposed to haave been in contemplating of
both parties at time contract was formed as the probable result of a
breach of it
ii. Special circumstances are not contemplated, need to be communicated as to
recover damages
iii. Only can recover reasonably foreseeable damages (based on qualification and
knowledge, actual and imputed)
iv. Reasonable time of notice required
v. New equipment purchases may be too remote until plaintiff communicates them
vi. Contract damages don’t need to be certain, but must be serious possibility
[Victoria Laundry]
e. Intangible injuries
i. Awarded rarely for intangible losses (ex. Loss of enjoyment [Jarvis Swan Tours])
(ex. Mental distress [Fidler v Sun Life])
ii. Still must pass remoteness test
f. Punitive Damages
i. Awarded rarely
ii. Must be ‘marked departure from standards of decency in terms of failure to
perform the contract’
iii. Must be something more than simple breach of contract
2. Specific Performance
a. Damages may be an ineffective remedy (impossibility of calculating damages, unique
property)
b. Involves court order to perform positive covenant under the contract
c. EXCEPTION: Employmet contracts not granted specific performance for policy reasons
to prevent servitude [Warner Bros v Nelson]
d. Note: damages ‘in rem’, can be enforced against property anywhere in world. Equitable
remedies are ‘in personam’, can only be enforced in jurisdiction.
3. Injunction
a. Court for performance of negative covents under contract, so long as this does not
amount to forcing performance of positive covenants
b. Restraining from acting in breach of contract
c. Should not render the defendant entirely idle, should be a limitation on time, an
enforcement will not compel party to perform contract [Warner Bros v Nelson]

20