CONTRACTS

1. Is there a contract?
a. offer and acceptance?
2. Is the contract enforceable?
a. Consideration?
b. Promissory estoppel?
c. Privity of contract?
i. Is there a third-party beneficiary?
ii. YES  Can’t enforce a contract against someone who is not a party to the contract (Dunlop) BUT can do
injustice, several exceptions:
a. Are they an agent?
i. Was the promisee acting as agent on behalf of the third party in extracting a
promise from the promiser to confer a benefit on the third party?
1. Was there genuine intention from both parties (Dunlop)?
ii. YES  A principle CAN enforce a contract btwn their agent and another party, even
though that party is not part of the contract (ITO). NEXT STEP.
iii. NO  3rd party can’t enforce.
b. Are they a trustee?
i. Was it a beneficiary under a trust OR an administrator of a deceased’s estate?
1. Was there intention to create a trust relationship?
ii. YES  They CAN sue to enforce a trustee’s rights OR sue to enforce a contact
entered into by deceased (Beswick v Beswick).
iii. NO  3rd party can’t enforce.
c. Are they owed a duty of care?
i. Did the contract between A and B impose on A a duty of care on C, retailer,
merchandiser, etc?
ii. YES  BREACH of that duty entitles C to sue A in negligence (White v Jones).
iii. NO  3rd party can’t enforce.
d. Is there a collateral contract?
i. Is there a subsidiary contract that can be implied from the circumstances of the
main contract?
1. Did C (buyer) acquire some rights under a contract between A
(manufacturer) and B (retailer/wholesaler)?
2. Did C rely on a guarantee by A to buy product from B (Hallmark)?
ii. YES  One party has offered to be BOUND by its representation.
iii. NO  3rd party can’t enforce.
e. Is there an assignment?
i. Is there a personal service element?
1. If yes,  no assignment.
ii. YES  Assignee can enforce the rights against the original promisor.
iii. NO  3rd party can’t enforce.
f. Do statutory exceptions apply?
i. Life insurance?
1. Insurance Act
2. YES  Beneficiary has a statutory right to enforce the policy even though
they are not parties to the contract if insurance.
ii. Car accident?
1. Auto Insurance.
 2. YES  Accident victims can sue insurers of the person who caused the
accident even though they are not parties to the insurance contract.
iii. NO  3 party can’t enforce.
rd

g. Contractual provisions limiting liability?

i. Does the contract between A and B limit or exclude liability of A?
ii. If so, do they have agent/servant/employee that might rely on the limitation?
1. YES  MUST PROVE (Scruttons, NZ, ITO):
a. The 3rd party was intended to be protected by the provisions of
the contract (look at clause, is it broad?).
b. A contracted as agent for third party (mostly implied).
c. A had authority from 3rd party to contract as its agent for
relationship between A and B (usually implied).
d. The 3rd party proved consideration (usually performance of work).
iii. YES  Limitation extends to third party.
iv. NO  3rd party can’t enforce.
h. London Drugs/Principled exception?
i. Did the parties to the contract expressly or impliedly stipulate that the benefit of
the clause will also be shared by 3rd parties (usually employees)?
ii. Were the employees/non-employees (Fraser):
1. Acting in the course of their employment?
2. Performing the very services provided for in the contract between their
employer and the customer when their loss occurred?
iii. YES  Exception applies, and third party gets benefit of the contract.
iv. NO  3rd party can’t enforce.
iii. NO  Next step.
3. Is there anything to vitiate the contract?
a. Misrepresentation: Did one party make a statement of fact that is false?
i. YES  Was the misrepresented fact a material fact (Root of the contract/objective - Ennis)?
1. YES  Can the misrepresentee prove the fact was false?
a. YES  Can the misrepresentee prove they were induced to enter into the contract?
i. YES  Was it innocent? Made without intent to defraud?
1. YES  Before performance?
a. YES  Voidable.
b. NO  Rescission (subject to exclusions) (NO damages) or
affirmation.
2. NO  Was it fraudulent? Knew it to be false or reckless (Derry)
(Redgrave)?
a. YES  Before performance?
i. YES  Voidable.
ii. NO Rescission(subject to exclusions) AND
damages (Derry) or affirmation.
2. If ANY ARE NO  not a misrepresentation.
ii. NO  Did one party fail to disclose a material fact?
1. YES  Was there a partial disclosure of true facts creating a misleading impression?
a. NO  Was there active concealment of true fact (Gronau)?
i. NO  Was it a contract requiring utmost good faith?
1. NO  Was there a fiduciary relationship between the parties?
a. NO  Was there a statutory obligation to disclose?
b. If ANY ARE YES  Follow misrepresentation facts/remedies.
b. Duress, undue influence, conscionable transactions?
 i. Was there actual or threatened physical violence regardless of whether it is the sole factor inducing the
contract?
1. MAYBE look to factors (Pau On):
a. Did they protest?
b. Did they have an alternative course open to them such as adequate remedy?
c. Were they independently advised?
d. After entering the contract, did they take steps to avoid it?
2. Did it include threat to the person?
a. YES  Duress to the person.
3. Did it include threat with property rights?
a. YES  Duress of goods.
4. Did it include economic pressure that deprives a person of the freedom of exercising their will?
a. MAYBE  Must pass two-part test (pls see NAV Canada):
i. The pressure must amount to “compulsion of the will of the victim,”
ii. The pressure must be illegitimate (Monrovia).
iii. Mere commercial pressure does not amount to economic duress.
1. “must be pressure which the law does not regard as legitimate and it
must be applied to such a degree as to amount to a coercion of will.”
(Universe Tankships).
5. YES  Vitiates consent. Voidable (Pao) but sometimes it is void (Canadian Life Insurance).
ii. Undue Influence: did one person unconscientiously use their power over another (Morris)?
1. YES  Is there affirmative proof that the wrongdoer in fact extended undue influence?
a. YES  Class 1 - Rescission of the contract.
b. NO  Did the nature of the parties give rise to a rebuttable presumption of undue
influence?
i. Look at Geffen rules:
1. Is a potential for domination inherent to the nature of the relationship
itself?
2. Did the transaction work unfairness (unduly benefitted/unduly
disadvantaged)?
3. Is there evidence for the defendant to rebut the presumption?
ii. YES  Was the relationship of trust and confidence automatically presumed?
1. YES  Prima facie Class 2A – Rescission of contract.
2. NO  Was there proof that there was in fact a relationship of trust
(Duigud)?
a. YES  Prima facie Class 2B – Rescission of contract.
c. Can a third party set aside contract based on undue influence?
i. Did the 3rd party have actual or constructive notice of the UI?
1. Constructive = closeness of parties, manifest disadvantage (Duigud).
ii. YES  If the nature of relationship triggers a presumption of UI then look for
evidence that rebuts the presumption (Geffen)
iii. No  Valid contract.
iii. Unconscionable Transactions: Was the contract made in an unconscionable manner?
1. MAYBE  Plaintiff must prove:
a. There was inequality in the parties, such that the weaker party was in the power of the
stronger party (at time contract made, could be ignorance, need, distress, mental state).
b. The bargain was significantly or substantially unfair to the weaker party.
c. Was the stronger party AWARE of the weakness of the other party (not required but
discuss).
2. MAYBE  Does a statute protect against it?
3. YES  unenforceable contract.
c. Was there a mistake?
i. Mistake in assumption: was there a mistake concerning some matter relevant to the decision to enter into
the contract (Bell), something fundamental?
1. YES  Is the subject matter of the contract essentially different from what it was believed to be?
a. YES  Did both parties make the same mistake?
i. YES  Does the contract preclude relying on common mistake?
1. NO  Common law = void (Bell).
a. Is the party seeking rescission not at fault?
i. YES  Equity – Rescission/Voidable (Solle).
2. YES  Cannot rely on doctrine of mistake. Valid (Miller).
ii. NO  Does not qualify as mistake in assumption.
b. NO  Did both parties make the same mistake?
i. YES  Can the claimant show they were NOT at fault?
1. YES  Equitable remedy - Rescission/voidable.
ii. NO  Cannot rely on mistake in assumption.
ii. Mistake as to terms: Was there a fundamental misapprehension or misunderstanding of the terms of the
contract?
1. YES  Are both parties mistaken (but DO NOT share the same mistake)?
a. YES  Mutual mistake – agreement fails b/c no consensus ad idem (Raffles).
b. NO  Does one party know about the mistake (actual or implied)?
i. YES  Unilateral mistake – no consensus ad idem, void (Smith).
ii. NO  Not a mistake as to terms.
c. Is in the context of tender/bid?
i. Go to cans.
iii. Was there a mistake as to the identity of the contracting party?
1. YES  was it face-to-face?
a. YES  May be voidable (Plillips,Lewis).
b. NO  Generally, courts will void (Cundy, Shogun) – no meeting of the minds.
iv. Non est factum: Did a party mistakenly sign a written document that was fundamentally different that
the one agreed to (Saunders)?
1. YES  Was the party adult and literate (Saunders)?
a. YES  Were they lied to or tricked?
i. YES  Can succeed (Marshall). Negligence precludes. Objective.
ii. NO When a person with full capacity fails to read the contract fully, the court
will deny plead of non est factum (Saunders).
b. NO  Easier to prove (Saunders). Requires person to act subjectively responsible.
v. Can the mistake be rectified?
1. Was the mistake unilateral (one party knew)?
a. YES  MUST SHOW (Performance industries):
i. Prior oral contract with definite and ascertainable terms.
ii. Terms agreed to were not written down properly.
iii. The non-mistaken party knew (objective) of the mistake.
iv. Written document can conform to oral agreement.
b. Does Negligence bar the grant of rectification?
i. Negligence of a party seeking rectification of their want of due diligence does
not bar the grant of rectification unless unjust.
2. NO  Was the mistake mutual (both mistaken, diff mistakes)?
a. YES  MUST SHOW:
i. The common intention of the parties (exact terms) prior to making the
document.
 ii. That the common intention remained unchanged at the date the contract was
made.
iii. That the document, by mistake, does not conform to the parties prior common
intention (Nature Conservatory).
3. Was it common mistake, or non est factum  cannot be rectified cause never a meeting of the
minds.
4. What are the terms of the contract?
a. Express?
i. Terms of a contract are usually stipulated in the contract. What are these?
b. Implied?
i. Presumed intention?
1. Are there terms that could be applied by custom or usage that, if asked, the parties would
unhesitatingly agree to be part of the bargain (Liverpool)?
a. Business efficacy test:
i. Are there terms necessary to give business efficacy to the transaction?
ii. YES  Courts will imply terms to give such business efficacy to the transaction
as must have been intended by all events by both parties (Moorcrock, Wood).
b. Official bystander test:
i. Are there terms which are obvious in light of the facts?
ii. Something that is so obvious it goes without saying, so that if an officious
bystander were to suggest the provision, they would both agree?
iii. YES  Courts will imply terms to give effect to the presumed intention of the
parties (Shirlaw).
2. NO  Next step.
ii. By law?
1. Are there terms that are necessary legal incidents of the contract that are not expressly stated?
2. YES  The court will imply these terms in.
3. YES but no intention  The court, where appropriate, may as a matter of public policy imply a
term into a contract, even when it is clear the parties did not intend it (London Drugs).
iii. By statute?
1. Does the Sale of Goods Act apply?
a. Implied conditions by seller?
b. Sale by description?
c. Implied conditions as to quality or fitness?
d. Implied conditions relating to sale by sample?
2. YES  Statutorily implied term is automatically a term of the contact ( check if explicitly
displaced).
c. Representations?
i. Warranty?
1. Did one party, objectively (Heilbut), make a representation that amounts to an enforceable
undertaking, ie. a warranty?
a. Oscar – Question whether a warranty depends on conduct, words, behaviour.
b. Dick – If the representation was made for the purpose of inducing and an objective
person would understand that, it is a warranty.
2. YES  Enforced as either a collateral contract subsidiary to the main contract, or a term of the
main contract itself.
d. Is there a term expressed such that the parol evidence rule would apply?
i. YES (in supplement to written contract)  External evidence is NOT admissible to add, subtract from,
vary, or contradict terms of a written contract (Hawrish).
ii. Do exceptions apply?
1. Did the parties record an oral agreement incorrectly in a written contract?
 a. YES  Rectification – courts allow extrinsic evidence to rectify contract (Performance).
2. Was the contract only to take effect when an oral agreement condition-precedent was to be
fulfilled?
a. YES  Admissible to show that the contract is in escrow.
3. Was there a distinct collateral contract?
a. YES  Admissible UNLESS in conflict with the written contract (Hawrish).
4. Admissible to show the contract is not enforceable (see below).
e. What type of terms are these?
i. Condition or warranty?
1. Would a breach of the undertaking/term deprive the part not in fault substantially of the whole
benefit which it was intended she should obtain from the contract (Hong Kong)?
2. YES  condition.
3. NO  warranty.
4. UNSURE  innominate.
f. Is the document signed?
i. NO Is there an exclusion clause as one of the terms (or an onerous/unusual clause)?
1. YES  Did they read the exclusion clause?
a. YES  Notice is given.
b. NO  Does the recipient know the document is contractual in nature?
i. YES  Is the term onerous or unusual (broad/wide/destructive of rights).
1. YES  Notice of the that clause must be given to the recipient of the
document at the time they enter into the contract or else the clause is
not part of the contract (Thorton).
2. NO  If they know the document is contractual, they are taken to
have assented to all terms including the exclusion clause, even if they
didn’t read it (Union).
ii. NO  Was notice given?
1. YES  was it reasonably sufficient?
a. YES  The person relying on exclusion clause has a duty to
prove they gave reasonably sufficient notice (Parker). Once
they have knowledge, the recipient is deemed to have
assented to the terms..
2. NO  Not a valid clause (Tilden).
2. NO  Next Step.
ii. YES  Did they know the document was contractual in nature?
1. YES  Was there an onerous/unsuall clause or exclusion term?
a. NO  Absent any vitiating factors, a party who signs a contract is bound by the contract
even if he/she did not read the contract before signing (L’estrange/Karrol).
b. YES  Was reasonably sufficient notice given (Karro)?
i. YES  Tercon Factors?
ii. NO  Clause is not part of the contract (Tilden).
2. NO  Was there an onerous/unusual clause?
a. YES  go through steps.
b. NO  Valid contract.
g. Is there a whole agreement clause?
i. Is it valid?
1. Signed, notice (Houle)?
a. YES  Whole agreement clause is a complete defence to pre-contractual
misrepresentations or warranties (Houle).
b. NO  Not bound by it.
5. Is there a breach? What is the remedy ?
a. Is there a breach of condition?
i. YES  Repudiation of contract UNLESS agreed that a breach of condition will not repudiate, damages.
b. Is there a breach of warranty?
i. YES  Damages UNLESS expressly agreed to breach of warranty leading to repudiation.
c. Does Sale of Goods Act apply?
i. The buyer may waive the condition or elect to treat it as a breach of warranty.
d. Is there a breach of an innominate term?
i. Wait for the breach and determine what the effect is.
e. Was there a valid exclusion clause a party is relying on?
i. Must look at Tercon Factors:
1. Figure out if the exclusion applied to the circumstances – intention, interpretation of clause.
2. If it applied, figure out if the clause was unconscionable at the time it was made.
a. SCC did not specify what this means – look for unequal bargaining power, def’s
knowledge of risks, knowingly defective material, etc.
3. If the clause is valid and applicable, are there any policy reasons the court should bar it?
ii. Is there legislation that applies?
iii. If applies  excludes liability for injury, loss, damage.