Misunderstandings
(1) Mistake of Identity
(2) Uncertainty
(3) Ambiguity (mistake of terms)
(4) Unsuccessful attempts to accept an offer
(5) Non Est Factum (mistake as to the nature of the transaction)
Mistake Of Identity
A wants to contract with C. But in fact its B who is part of the contract, not C. B sells the goods to D. There are two innocent parties – A and D. Where should the loss lie?
Ingram v. Little (1960, CA)
- FACTS: little old ladies are selling their car. A man, calling himself Hutchinson, buys car at a decent price. The ladies verify his address. He pays by cheque and he gets the car. He then sells the car to another party. The original cheque to the little ladies bounces and the ladies want their car back.
- COURT: Held for little old ladies. There was no contract between the ladies and the man. The ladies get their car back from the innocent party.
Lewis v. Averay (1971, Court of Appeal, Denning)
- FACTS: Man calling himself (with ID) Robert Green bought the car from the P and then sold it to a third party.
- COURT: Held for D. If the P got suckered into the deal with the rogue, then of the two innocent parties, the P should suffer the loss. Denning likes to protect third parties.
o At equity, the initial contract was voidable and court can impose terms. Court said that it was not void in order to protect innocent third party. Common law would have not produced a satisfactory answer because the initial K would’ve been void.
o you are always intending to deal with the person in front of you. Doesn’t overrule Ingram, but just confines it to its fact.
Shogun Financial v.
- Presumption that you are dealing with the person in the room with you
Uncertainty
- if there has been part performance, the courts tend to say that there is a contract
o may v. butcher, hillas v. arcos
- Estok v. Heguy (1963)
Ambiguity - Mistake of Terms
Misunderstanding as to the meaning or scope of certain terms of the contract.
K will be void ab initio if: (Raffles)
(1) there is true ambiguity
(2) that goes to an important term
(3) there is not reason to prefer one reading over another
** objective test - what would a reasonable man think the term meant (Smith, Hobbes, Stainman)
Factors to determine if there was a mistake:
- price, knowledge and skill of parties, ease of avoidance (who is in best position to avoid mistake), trade custom, knowledge of the ambiguity by either party (all from Stainman)
Raffles v. Wichelhaus – the Peerless (1864, Exchequer)
- FACTS: The buyer (D) order cotton, to be delivered to
- COURT: We don’t know which Peerless the cotton was supposed to be on, therefore there is no contract. There was no meeting of the minds. This is a subjective test.
o It becomes an objective test in Smith v. Hughes.
Smith v. Hughes (1871 – Queen’s Bench)
- FACTS: negotiating the sale of oats. D thinks he’s buying old oats. P knows that the oats are new. D agrees to buy some thinking that they were old oats. D wants out of K.
- COURT: If the P had warranted that the oats were old, then hold for D. But he didn’t warrant. So hold for P.
o This was an inoperative mistake: doesn’t void the contract
o Objective standard – what would a reasonable person understand K to mean?
o No obligation to disclose or correct mistake
o This was a mistake in assumption
Hobbes v. Esquimalt & Nanaimo Railroad (1899, SCC)
- FACTS:
- COURT: Held for P
o Applies objective test –what would the ordinary man understand the sale of land to include? That man would say that it included the minerals. If the railway wanted to reserve the mineral rights, they should have explicitly said so. This was not a mistake of assumptions, this was a mistake of terms.
- DISSENT – would’ve taken the Raffles approach – parties were not ad idem
Staiman Steel v. Commercial & Home Builders Ltd (1976,
- FACTS: auctioneer said “all the steel in the yard”. D said that it intended to buy everything, including a bundle of new steel. P said it didn’t intend to sell that new steel.
- COURT: held for P. Applies objective test. Reasonable man wouldn’t have included new.
Unsuccessful attempts to accept an offer
- FACTS: P bought store from original owner. The D ordered some goods from the original owner on the day that he was bought out. The P, the new owner, sends the goods as usual. D refuses to pay because he said that he wanted to buy goods from dude, not from P. D got the exact goods that he wanted, but it appears that he only wanted to deal with dude.
- COURT: there is no contract. The only party that can accept an offer is the party to which the offer was made.
o P can get benefits back in restitution
Ron Engineering (dealt with earlier in semester)
- FACTS: The bids were due at 3pm. At 4pm the mistake was recognized
- COURT: This was a unilateral mistake, and D did not know about it. If D had known the price was mistaken and gone ahead, there would have been no contract (Smith v. Hughes). But, the tender is a unilateral contract, and it was executed as soon as D accepted it. P intended to make this offer. It’s a valid contract.
- CRITIQUE: the D snapped up the offer – D didn’t rely on offer because the mistake was noted an hour after it was submitted!
o the industry also had big problems with this decision…. now there is a rule that tenders can be withdrawn if reasonable prompt notice is given (ie: before the other party starts acting in reliance on the tender)
- FACTS: parties are dealing to buy 10 acres of land for $15,000. Vendor says that she meant $15,000 per acre. Purchaser thinks that she meant $15,000 in total for the 10 acres.
- COURT: purchaser knew, or ought to have known, that the seller meant $15,000 per acre and not $15,000 for the total. On that analysis, Smith v. Hughes should apply and void contract. Instead, the court made it voidable in equity. Recognized that voidable is much more flexibile and can protect third parties.
MISTAKE IN NATURE OF TRANSACTION – non est factum
- non est factum = “it didn’t actually happen.” The test is if it is fundamental
Marvco Colour Research Ltd. V. Harris (1982, SCC, Estey) p. 762
- FACTS: D negligently signed a document for a mortgage on their house (they thought it was documents for something else). The P held the mortgage. The D claimed non est factum.
- COURT: Held for the P. As between the two innocent parties, the D acted with negligence and should bear the costs
o In
o Non Est Factum is still relevant where the court wants to void the contract as if it didn’t happen.
o In
Rectification - Typo
- When there has been a typo when putting the agreement into writing. There is a strong presumption that the written document will prevail (caveat emptor and parole evidence)
- Nonetheless, courts will fix an obvious typo when one party tries to take advantage of it
- The courts are not engaged in re-writing the contract for the parties but are just correcting an error that has happened in transmission. Its not making better deals out of bad deals, but simply correcting the errors.
- Rectification is a doctrine of equity.
To get rectification (Performance Industries):
(1) must prove that written agreement is inconsistent with prior oral agreement
(2) P must show that the D knew or ought to have known of the error
(3) prove what the precise wording should be
(4) must show convincing proof for rectification (higher than balance of probabilities)
(5) must show that to not rectify would lead to equitable fraud (an unconscionable result)
Performance Industries v. Sylvan
- FACTS: the property is described in feet in the contract. The parties had agreed in yards. One of the parties deliberately put that mistake into the contract.
- COURT – bending over backwards to note that this will not open the floodgates for litigants trying to re-write bad contracts. There are a series of conditions that have to be met in order to get rectification:
o rejects the D’s argument that this was carelessness (as in non est factum).
o Court rectified the contract and then declared it to be in breach. Also awarded expectation interest for breach of contract. What would the profit have been less the costs. No punitive damages
Frustration
A mistake with respect to a future fact. The breach is the fault of neither party and so both are excused from further performance. The contract is torn up at that point (Not ab initio)
(1) may make performance factually impossible
a. k will be frustrated if the subject matter of the K is destroyed (Taylor v. Caldwell)
b. generally relief is granted here
(2) may be factually possible, but would impose substantial undue hardship or burden
a. courts are hesitant to grant relief: future risks in executory K’s are allocated on formation, risks should lie where they fall
b. K will be frustrated if the commercial purpose is destroyed (Krell v. Henry)
c. We assume foreseeable risks are assigned, but mistakes in forms may be frustration (Alcoa)
Test:
- Was there a fundamental frustrating event, like Bell v. Lever test
- Based on an objective test – would a reasonable person see this as a frustrating event
Factors:
- the court will generally defer to the K. But the court must interpret if a risk allocation clause actually covers the event that happened. Court will look at:
o price – was the risk allocated and thus price lower/higher?
o Relational or discrete contract
§ Discrete contracts, the seller takes the risk that the price may go up. (Eastern Airlines)
§ Where goods are to be delivered at a particular point, the shipper takes the risk that the price of shipping may go up.
- what about benefits conferred before the frustration event?
- Fibrosa – benefits conferred should be returned (Fibrosa)
i. Fibrosa overrules
- What about benefits DUE before the frustrating event?
- The benefits due do not have to be paid (Frustrated Contracts Act). Legislation overrules the second branch of
- What about reliance expenses?
- Frustrated Contracts Act (
i. Reliance will be protected up to the limit of the deposit (i.e. deposit is $1000, reliance is $5000. I can get reliance back up to $1000)
- Frustrated Contracts Act (BC)
i. Reliance is protected – no limitation on what you can get back as in
Could be frustration (further performance excused) when:
- Destruction of the subject matter
- If the contract involves personal services à illness or death
- Illegality, war – i.e. you have a contract to deliver goods to
- Farmer promises crop but then bad weather.
Not frustration
- Land. Because land doesn’t get destroyed. The risk of land going up or down in value is a risk that you take.
o There are a few recent decisions that have held that frustration is applicable when developers buy land for development and then the zoning permission doesn’t come thru or there is a change in zoning.
- Contractor can’t build house on time because of bad weather – that is a risk that the contractor assumes
- Can’t go to opera because you get sick – that is a risk you take
- FACTS: rented of a music hall for the summer of 1861. The hall burned down.
- COURT – K is frustrated (K stops – no further performance)
o If they had addressed the issue, the contract would’ve governed.
o Imply a condition into the contract. Imply what they would have agreed to if they had thought about it. But who would’ve borne the risk of fire?
o Nothing had been paid in advance.
Eastern Airlines v. Gulf Oil (1975,
- FACTS: Long term contract for jet fuel. Oil embargo by OPEC sends gas prices up. Price scheme is a mess. D argued frustration – the embargo has made the contract unreasonable.
- COURT:
o Follows the precedence of discrete contracts – where you are selling goods at a fixed price, the seller takes the risk of a price increase.
o Maddog – relational and discrete contracts should be treated differently.
§ In long-term relational contract, you can’t foresee all the problems that may arise. The possibility of something unforeseen happening is greater because of the long time. The consequences could be severe.
Alcoa (1980,
- Alcoa is supplying aluminum to the P on a long term basis. Price is determined by a complicated formula. The oil embargo throws price formula off. The potential loss to Alcoa was $60million.
- COURT – analyzed the problem in terms of mistake. The parties had worked out a formula that they thought would take into account any problems they may encounter. What happened was outside the parameters of the price scheme. The court considered this a mistake in assumptions.
o This is a relational contract. The court rewrites the contract, inserting their own price provision. This process is called reformation.
- FACTS: P rents a room, the king gets ill. P paid $100 down payment, $50 payable before the event. The P wants his $100 back, the D wants his extra $50.
- COURT: Everything up to the frustrating event is valid. Any benefits conferred up to that point can be enforced. The P owes the D $50 and cannot get back the $100 down.
o extend the frustration doctrine to where the very purpose of the contract is frustrated. The underlying purpose of that rental is gone.
o (1) Any benefits already conferred are valid
o (2) any benefits OWING BEFORE the frustrating event are valid
Krell v. Henry – Coronation Case
- FACTS: P pays $25 down, balance of $50 is payable after the event.
- COURT: P doesn’t get his $25 back, but doesn’t have to pay the $50 balance because it was due after the frustrating event.
- $100 deposit was paid. It was paid after the King got ill, but before it had been announced.
- COURT: P got the $100 back - benefits were conferred after the frustrating event
Fibrosa Spolka Akcyijna v. Fairburn Lawson (1943, Lord Wright)
- FACTS: machinery was to be delivered to Poland (P) by a British company (D). WWII started, legislation says that you cannot deliver goods to the enemy. P paid a deposit of $1000 and wants its $1000 back. D says that they spent money to build the machine.
- COURT – this is about restitution. It seems unfair that the English company gets $1000 and the Polish company gets nothing. Overrules
o Problem #1 of this case: Total Failure of Consideration doctrine
§ Can only recover a benefit at common law if there has been a total failure of consideration. In this case, the Polish company got nothing so there was a total failure of compensation and they got their money back.
§ Maddog doesn’t like this rule. It is not the rule in
· If there has been a little bit of benefit on the other side, then the court will deduct that. Won’t deny recovery.
o Problem #2 – doesn’t address liabilities that have accrued but are unpaid?
§ Doesn’t deal with the issue of payments due BEFORE the frustrating event. In
o Problem #3 – doesn’t deal with the reliance loss at all.
§ The British company sustained loss in making the machinery – court didn’t address that.
- One year later, legislative response to problems - Frustrated Contracts Act
- It doesn’t lay out when frustration has occurred – that is left to common law.
- No mention of the issue of total failure of consideration
- Overrules second branch of Chandler v. Webster (first branch was overruled in Fibrosa)
- If Fibrosa was decided under this act:
o $1000 was paid by Polish company as a deposit. What if the English company spent $5000 in reliance on the contract?
o Legislation -- The Polish company would not get their deposit back. The deposit serves as a cap to what the British company can recover. This is silly!
Parsons Bros Ltd v. Shea (1965, NF Supreme Court)
- FACTS: contractor is moving a furnace and putting in heating ducts into a hotel. There is argument as to the degree of completion. The hotel burns down. Court noted that nothing was payable until the contract was fully completed. Frustrated Contracts Act is used
- COURT – this is an entire contract – nothing was payable on the contract until everything was finished. In Frustrated Contracts Act, you can split a contract into parts if it looks like there are separate elements. Court does not apply this – whole contract that is inseparable.
o the D had received no benefit. Benefit is anything that survived. Nothing survived in this case, so there was no benefit. (Doesn’t take into consideration that work was done on behalf of the D – that was a benefit too. BC Act would’ve held different)
o Maddog – where the benefit is a payment of money, that is always a benefit.
§ Benefits other than payments of money – if it was requested by the other party, then it was a value to that party.
BC Frustrated Contracts Act
- doesn’t talk about what is a frustrated contract either – leaves that to common law
- the parties are always free to allocate the risk amongst themselves and that will govern. The act applies where the parties have not addressed the problem.
- S. 5(1) Benefit – the benefit means something that was done in fulfilling a contractual obligation, regardless of whether the person received the benefit or not.
o Addresses the weakness of the
- If the loss cannot be allocated, it will be split 50-50
- S.6 – directs the court to look at whether the parties have allocated the risk.
o If the parties have taken out insurance
o If its industry standard to take out insurance
- Maddog – there is one defect. The act contemplates only an allocation of risk to the party performing the contract. Ex. Parson. The hotel owner is the logical person to get fire insurance for his hotel.
Gamerco v. ICM Fair Warning (1995,
- a concert is to be put on in
- COURT: they could apportion the expenses, but they didn’t in this case. Both parties had not incurred many expenses. GNR had failed to quantify their expenses adequately
Interpretation
- Court is not concerned with finding out the intent of the parties but about what their reasonable expectations were.
Federal Navigation (p.575)
- FACTS: Parties are all experienced shippers who have dealt with each other many times. They have standard contracts that they use. There was a delay in shipping. The party is seeking damages for delay.
- COURT: there was a delay, but you have a contract that speaks to the delay. You assumed that risk. Court will not change the meaning of the forms to suit the problem. It is essential that the forms have consistent interpretation
o Policy
§ Allows for efficiency.
§ Allows for comparison between deals.
§ Encourages reliance.
§ If the courts will consistently interpret these clauses in the same manner, then businessmen can rely upon them in their planning and dealings.
Scott v. Wawanesa Insurance (1989, SCC, L’Heureux-Dube 4-3 majority)
- FACTS: husband and wife are owners of a house. They take our insurance. Their son is added as a party to the insurance contract as an additional insured. Son’s possessions are thus covered. The son intentionally burns down the house.
- COURT: held for D (insurance company)
o what were the reasonable expectations of the parties in this case? The policy said that it does not cover criminal acts done by the insured and so this doesn’t cover the son’s setting of the fire.
o This clearly covers the son, even despite the argument of joint or several liability.
- DISSENT (La
o Must interpret this on the lines of public policy . People do not expect to be responsible for the wrongs of others unless they are expressly and clearly told that it’s the case. Insurance company should have made the liability of parents more expressly and clearly.
Re: Brissette Estate (1992-1993, SCC)
- the insurance company explicitly said that the criminal acts of everyone were not covered, and so the insurance was void
Parol Evidence
Parole Evidence Rule (PER):
- the written contract represents the whole bargain
- especially true if there is a whole contracts clause – says that everything is in the document
- If, after hearing all the evidence, you conclude that the whole agreement is in writing, then other evidence will not be allowed.
Collateral Warranties:
- If we accept that the oral warranty is a second contract, we don’t engage the parole evidence rule because they are separate contracts. If we take the one contract theory (this is just a term of a single contract) then we seem to engage the parole evidence rule.
- COURT: it would be ridiculous if we came to different results just because of how the court characterized the warranty. (Bauer)
Parole Evidence Rule is a presumption that can be rebutted (Gallen)
- If the oral agreement is adding, then PER is a not strong presumption
- If the oral agreement contradicts the written, then PER a strong presumption
- If it was a negotiated agreement, the PER is stronger than if it was a general contract
- If there is a specific provision, PER is stronger than a general presumption
Exceptions to Parol Evidence Rule (PER doesn’t apply if parties can show:).
- this wasn’t the full contract, but that there was oral agreements as well
- contract was unenforceable because of mistake of unconscionability
- misrepresentation
- fraud
- mistake in the integration of the oral agreement into a written agreement (aka. wrote down $50 when really meant $50,000.)
- what the parties meant by using a particular expression
- establish that there was a separate warranty outside of the contract (EXCEPT: where that collateral contract would be inconsistent to the written contract. Bauer)
Goss v. Lord Nugent (1883)
- “where a contract has been reduced to writing, extrinsic evidence is inadmissible to add to, vary, or contradict that writing.”
Bauer v. Bank of
- FACTS: oral agreement between bank and P. Written contract said something different. Which was valid?
- COURT: can’t hear about the oral agreement because of the parol evidence rule.
o The oral agreement would vary or contradict the written agreement and so the oral evidence cannot be admitted.
§ Maddog thinks that the SCC didn’t believe the facts from the P about the bank managers statements. As an appellate court, the SCC cannot overrule fact. The parol evidence rule was a way to get around this.
Carmen Construction (1982, SCC, Martland)
- FACTS: CPR representative says that there is 7000 tons to be removed. Carmen bids based on that. In fact, there is 11,000 tons, extra cost of $32,000. Contract said that bidders can’t rely on anything said by CPR and P knew of that clause
- COURT: parol evidence rule. Cannot allow the evidence of how much rock there was
o MADDOG – this was rightly decided, but its not about parol evidence
§ The evidence was given by an unnamed employee who probably didn’t have authority
Gallen v. Allstate (1984, BCCA, Lambert JA)
- FACTS: D sold seeds to P. D said that there would be no problem with weeds. P uses the seeds. The crop is a failure because its all choked out by weeds. Clause 23 of the agreement says that Allstate will not be responsible for the productivity of the crop. D argued parol evidence rule – that the oral agreement should not be admitted.
- COURT: clause 23 is not inconsistent with the oral representation. The only things that was being warranted in clause 23 was the quality of the seed crop. Crop here means the amount that would be grown. The oral promise that there would be no weeds was not within clause 23 and so the oral representation and the written contract stand together.
o Even if we conclude that the oral representation and clause 23 were incompatible, its OK. The SCC always looked at the evidence before saying that its not OK. If there is an inconsistency, then we presume that the written agreement governs. In this case, the P had rebutted the presumptive case.
Is the Parole Evidence Rule a rule of evidence or a rule of substantive law?
- Maddog thinks that it is not a rule of evidence, although it does have evidentiary consequences. The laws of evidence wouldn’t allow it because its irrelevant because the laws of contracts say that extrinsic factors don’t apply.
o Contracts can be created orally, part orally, in writing, or by conduct. The rule is only engaged when the contract is COMPLETELY in writing before the court. If the writing only forms part of the ultimate contract, then its essential to see that other evidence so to see what the whole contract is about.
o If the argument is mistake – must be able to bring evidence before the court to show mistake. That evidence will be from the negotiations. Its crucial to know if the other party knew that I was mistaken and just let it slide.
Unsigned Standard Form Contracts
Rules of unsigned standard contracts:
(1) where there is actual knowledge of the condition, the contract stands absolutely (Parker)
(2) where there is not actual knowledge of the condition, the enforcing party must prove:
a. actual knowledge of the particular condition (
OR
b. reasonable steps were taken to give notice that there were conditions (Parker)
i. if the clause is particularly unusual, there must be very explicit notice of it – proportionate to the severity of the condition (
(3) If ticket is given after the K is formed, the limitation clause will not be binding (
(4) If the breach goes to the heart of the K, the exclusion clause will not work (Heffron)
Advantages
- reduction in cost. Its cheaper to have a standard form rather than negotiate each contract. Economies of scale
- gains from past experience. Can address problems in past contracts
- courts attribute a fixed meaning to the contract – an element of certainty. Judicial risk is reduced
- exercise some control over agents. So much of business is carried on by people without authority (the partner or owner).
- For routine tasks, like mortgages or bank loans, it would be silly to always re-write the contract
o Mortgages are protected by legislation
Disadvantages
- standard forms are not usually read
- there is no bargaining for the terms. It’s a take it or leave it basis
- parties may be in an unequal bargaining relationship and can impose their contract on the other. This is called a contract of adhesion
- expectations can be disappointed. A junior person may promise something that is overridden by the standard form
Ticket Cases
- good examples of standard forms that are not bargained for, pre-printed tickets, where there are limited liability clauses.
Parker v. South Eastern Railway (1877, Mellish)
- FACTS: bag gets lost at coatcheck. There was a limited liability clause on ticket. Parker says that he neither read the ticket nor the signs.
- COURT: sent back to trial
o objective test. Has the railway given sufficient notice to people in general (not just to Parker, but to people in general)
§ If P did not see or know of the writing – P not bound
§ If P knew of the writing and knew that it contained conditions – P bound
§ If P knew there was writing but not that it contained conditions – P not bound
§ If P knew there was writing and ought to have known that the writing was conditions – P bound. Has the other party taken all reasonable steps to let the public in general know that there are conditions on this ticket.
- Bramwell’s decision – The conditions must be reasonable.
**note McCutcheon – doesn’t matter if you’ve used the contract a hundred times, if you didn’t use the form on this one occasion, then the form and its conditions are not binding.
- FACTS: P parked car and then he was personally injured due to D’s negligence. There were signs and on the ticket saying no liability for any injury to the customer.
- COURT: parking garage is 50-50 liable with P
o Technical problem: contract formed before P sees notices, because ticket comes out of machine as enter parking garage
o Rule from Parker – requires greater notice because this was an unusual condition of a contract. The more unusual the clause, the greater effort has to be made to bring it to the attention of the D
Heffron v. Imperial Parking (1973,
- FACTS: car in parkade left after hours. Car is lost without a trace. Conditions printed on the ticket and posted in the parking garage. The D adequately made the conditions known. (in
- COURT: held for P
o Exclusion clause does not cover fundamental breach – D did not bring car back.
o This was a bailment. Bailee has a duty of care to protect the goods. If he can’t produce the goods when the bailor demands, the onus is on the bailee to show why they cannot produce the goods. In this case, the parking garage could not show why the goods are not there.
o As a second ground, failure to produce the keys is negligence.
- Maddog -- There is not necessarily a bailment here. This could be a license.
o Heffron insured this car for theft. Why is imperial parking given the loss. This is the wrong allocation of risk.
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