WEEK

LECTURE 8

MISREPRESENTATION

• DEFINITION: A false statement of fact that has the effect of inducing someone into a
contrac

1. The law scrutinizes representations made during negotiations (i.e. pre-contract) that
induce a contract and become a term of the contract
2. Not all representations actually end up being a term of the contract. Any remedy will
vary depending on whether the representation became a term of the contract or just an
inducement to enter the contract.
3. We must distinguish between (a) representation (which has legal consequences), and (b)
an opinion (which has no legal consequences). There are 3 kinds of misrepresentations
under the law:

(i) FRAUDULENT: A defendant makes a statement they know is false or they are reckless
with the truth. They intend for the plaintiff to act on such a statement
• FOR EXAMPLE: A party advertises a used car as having “new breaks, new tires, and
a new engine.” In actuality, everything is 5 years old. A buyer relies on the
representation that the car has new parts and buys the car, but she wouldn’t have
paid the price she had if she knew the parts were actually ve years old. In this
scenario, the seller misrepresented the condition of the car

2 TYPES OF FRAUD

1. FRAUD IN INDUCEMENT: This is where the fraud exists regarding the entire
contract. The person is deceived into signing due to the fraudulent circumstances
• EXAMPLE: Suppose that the defendant stated, “I am a licensed Real Estate
Agent. Please sign this contract.” In reality, the defendant is not a licensed
Agent. The plaintiff signs the contract because they believe that the defendant is
a professional. This would be considered fraud in the inducement. The plaintiff
was “induced” to sign the contract because he relied on the facts surrounding
the contract
2. FRAUD IN THE FACTUM: This is where the fraud exists as to a certain fact or
description contained within the contract.
• EXAMPLE: Suppose that the defendant had stated, “Please sign this contract for
the sale of 30 toys.” In reality, the contract is for the sale of 50 toys. The
plaintiff proceeds to sign it because they believe they will only be paying for 30
items. This would likely be considered fraud in the factum. The fraud has to do
with the material subject matter of the contract

(ii) NEGLIGENT: Defendant has special knowledge and makes a statement without
reasonable care and the statement is relied upon to the detriment of the plaintiff.

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 • As in, the person making the representation does not lie (say something that one
KNOWS to be false), but says something when that person has no reasonable
reasons for believing it to be true
• EXAMPLE: A real estate broker tries to sell a house to a buyer, who stresses his need
for peace and quiet. The broker promises that the house is very quiet. In reality, the
house next door is undergoing a very noisy reconstruction. Although the broker did
not know this, her promise that the house was quiet was made without her having
any reason to believe that, that was the case. She simply assumed it. This would be
a negligent misrepresentation (had she known about the construction and lied about
it, however, that would be a much more serious fraudulent misrepresentation).

Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd (EWCA, 1965)

• FACTS: Bentley purchased a car from Smith — relying on the representation that it
had only traveled 20,000 miles after it had been repaired. Subsequent to the
purchase, it became clear that the engine had been driven much further and repairs
were required. Bentley brought an action for breach of warranty and was successful
at trial, being awarded damages of £400, which Smith appealed
• ISSUE: Was the statement about the car’s mileage an innocent representation or a
warranty
• HELD: No. It was a case of negligent misrepresentation.
• There is a prima facie assumption that a representation made in the course of
dealings for a contract for the very purpose of inducing a party into the contract
is a warranty. It was intended to be acted upon, and it was in fact acted upon
• The appellant was a car salesman, and therefore, he should have taken the
diligence to discover how far it had traveled, or, at least, he should not have
made a false representation if he did not know the exact distance. While the
representation was not fraudulent, it was stated as a fact and was a warranty in
the contract for the sale of the car. Therefore, breaching it gives rise to a cause
of action for damages
• R ATIO : (1) A representation made in the course of dealings for a contract for the
very purpose of inducing another party to enter into the contract is presumed prima
facie to be a warranty of that contract, and therefore, a breach of it will lead to a
cause of action for damages — even if it is innocently made; (2) It is an objective
test that is used to determine if a representation was a warranty — if it was intended
to be acted upon, and was acted upon, then it is a warranty.

Bank of British Columbia v Wren Developments Ltd (BCSC, 1973)

• FACTS: Gordon Smith and Gordon Allan were directors of Wren. They wanted a
loan, so they put up shares in another company that Wren owned as collateral with
the Bank. Smith had the bank cash in shares without Allan knowing, who thought
that the shares were still in place. Allan went to the bank to ask about them and they
said they would “get back to you later on the details.” The bank claimed the balance
owing in place of the collateral from Alla
• ISSUE: Was there a misrepresentation of fact

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 • HELD: Allan had labored under the mistaken belief that collateral security pledged
by the company was still at the bank. He had not been informed of any sale or
exchange, his signature was required for banking transactions, and neither he nor
the company had ever authorized Smith to act as agent. He had been materially
misled by the words, acts and conduct of the Bank.
• Satis ed that Allan would not have signed the second loan guarantee if he had
known all the facts, Munroe found he was induced by misrepresentation (failure
to disclose facts) to sign the second agreement. In the circumstances, he is not
liable for repayment of the second agreement
• RATIO: (1) Failures or omissions can qualify as a misrepresentation; and (2)
Negligent misrepresentation permits rescission

Kupchak v Dayson Holdings Ltd (BCCA, 1965)

• FACTS: The Kupchaks bought the shares of a motel company from Dayson
Holdings giving in exchange two properties on Haro Street and North Vancouver
and a mortgage for $64,500 for the motel. In July 1960, the lawyer for the
Kupchaks stopped making payments on the mortgage as they had discovered that
past earnings of the hotel were false.
• On September 16, their solicitor wrote to Dayson referring to “proposed action
against your client.”
• Dayson subsequently (on October 19) sold half of their interest in the Haro
Street Property to Marks Estates Ltd. and the existing building was torn down
and an apartment complex erected. Dayson issued an unsuccessful writ for
foreclosure against the Kupchaks in 1961.
• On 21 November 1961, the Kupchaks commenced their action against Dayson
for rescission; in the meantime they had continued to live in and operate the
motel. At trial the judge found there was fraud but denied rescission and
awarded only damages and the Kupchaks appealed
• ISSUE: Can the plaintiffs claim a rescission and if so, what can they get
• HELD: Looking at the British case of Spence v Crawford, Lord Wright held that
dealings in property obtained by fraud cannot be used to bar restitution — there
must be exible remedies to attempt to restore parties to their original positions.
• Davey holds that a remedy of rescission (accompanied by restitution) is
equitable and its application is discretionary while noting that when applied it
must be moulded to the exigencies of the case. He further notes that in cases of
innocent misrepresentation courts will not be as interventionist as the parties are
not at fault. However, in fraudulent misrepresentation the courts will exercise
their jurisdiction to order rescission to the fullest unless that order would be
impractical or unjust. In the case at bar, to return the property at Haro Street
would be unjust due to the fundamentally altered nature
• Even though equity is not supposed to give damages, it can order compensation
to make good some de ciency in perfect restitution, and so orders rescission
and compensation of the value of property as it was at the time the contract was
signed, plus a 5% per annum interest

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 • RATIO: Monetary compensation may be granted under rescission where it is

impossible or inequitable to restore the original property
• Situations where the misrepresentee is not entitled to claim rescission: (1) When
restitutio in integrum is not possible; (2) When third party rights intervene; (3)
When there is election or af rmation; (4) When there is laches or delay; (5)
When rescission would cause radical injustice to misrepresentor; and (6) When
there is innocent misrepresentation and the contract has been executed

(iii) INNOCENT: Defendant makes a statement they honestly believe is true, but that
statement is false. This is actually much more like an opinion.

Redgrave v Hurd (EWCA, 1881)

• FACTS: Redgrave advertised to sell his business premises and a share in his
business — representing that it brought in between £300 and £400 a year. Yet, in
reality, it truly grossed less than £200 a year. The defendant purchased the property
and a partnership in the law practice on the premises on the basis of this
representation. However, when he discovered that the law practice was ‘utterly
worthless’ he refused to complete his payments. The plaintiff sued for speci c
performance. Redgrave was successful at trial and Hurd appealed.
• ISSUE: Can one rescind a contract because of a misrepresentation
• HELD: Yes
• If it is shown that a representation was made in an attempt to induce a party to
enter into a contract, and the contract was in fact formed, then there is a
presumption that the representation was relied upon. This can only be refuted by
proving that the party hearing the representation had de nite knowledge to the
contrary, or by explicit evidence that they did not rely on the representation.
Where you have neither evidence that he knew the facts showing that the
statement was untrue, or that he did anything to show that he did not rely upon
the statement, the inference remains that he relied upon the statement as being a
material statement (condition) in the contract. Therefore, its being untrue is
suf cient ground for the rescission of the contract. This comes from the courts
of equity; common law takes a different approac
• RATIO: (1) Innocent misrepresentations lead to a contract being able to be
rescinded; (2) There is a presumption that any statement made in an attempt to
induce another party to enter into a contract is relied upon as a condition if the
contract is eventually formed. This can be rebutted by proving knowledge to the
contrary of the statement, or express proof that the party did not rely on the
statement. However, if these cannot be shown then the contract can be rescinded
upon discovery of the fraudulent misrepresentation; (3) In innocent
misrepresentations you can only ask for damages if you cannot rescind the contract;
and (4) No inducement if contract entered for independent reasons.

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 Heilbut, Symons & Co v Buckleton (HL, 1913)

• FACTS: An agent of Buckleton purchased shares from an agent of Heilbut, Symons

& Co. on two occasions based on what the respondent's claim was a representation
that the company was a rubber company. The company turned out to be sour and
Buckleton lost money on the transaction and brought an action for breach of
warranty.
• ISSUE: Did the actions of the appellant constitute a representation
• HELD: No
• The contracts in this case were not contracts of sale, as the defendant was only
an agent of the rubber company and he was to undertake the necessary action to
procure the shares for the plaintiff.
• In order to establish a cause of action in damages for misrepresentation the
statement must have been fraudulent, or it must have been made recklessly. He
clearly states that it is a principle of law that a person is not liable for damages
resulting from an innocent misrepresentation. This case was an innocent
misrepresentation; therefore the appeal must be allowed as no damages can
stem from an innocent misrepresentation.
• R ATIO : (1) Parties are not liable for damages arising from their own innocent
misrepresentations; (2) Damages are only awarded for fraudulent or reckless
misrepresentations, or misrepresentations that refer to a material issue that
fundamentally change the contract; and (3) Innocent representations are only
referred to as warranties if they have clearly been intended to be warranties by the
parties.

Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd (EWCA, 1965)

• FACTS: Charles Bentley purchased a car from Smith, relying on the representation
that it had only traveled 20,000 miles after it had been repaired. Subsequent to the
purchase it became clear that the engine had been driven much further and repairs
were required. Bentley brought an action for breach of warranty and was successful
at trial, being awarded damages of £400, which Smith appealed
• ISSUE: Was the statement about the car's mileage an innocent representation or a
warranty
• HELD: There is a prima facie assumption that a representation made in the course
of dealings for a contract for the very purpose of inducing a party into the contract
is a warranty.
• It was intended to be acted upon, and it was in fact acted upon
• The appellant was a car salesman and therefore that he should have taken the
diligence to discover how far it had traveled or at least he should not have made
a false representation if he did not know the exact distance.
• Denning agrees with the trial judge that the representation was not fraudulent;
however, it was stated as a fact and was a warranty in the contract for the sale of
the car. Therefore, breaching it gives rise to a cause of action for damages
• R ATIO : (1) A representation made in the course of dealings for a contract for the
very purpose of inducing another party to enter into the contract is presumed prima

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 facie to be a warranty of that contract and therefore, a breach of it will lead to a

cause of action for damages — even if it is innocently made; and (2) It is an
objective test that is used to determine if a representation was a warranty — if it
was intended to be acted upon, and was acted upon, then it is a warranty

Smith v Land & House Property Co (EWCA, 1884)

• HELD: An opinion becomes a factual representation in negotiations when the

information upon which it is based is known ONLY to one side and if it turns out to
be a misrepresentation then the contract may be rescinded.

LEGALITY OF OBJECT AND CONSIDERATIO

• An agreement will not be enforced by the court if its object or the consideration is unlawfu
• The object and consideration must both be lawful

Still v Minister of National Revenue (Federal Court of Appeal (Canada), 1997)

• FACTS: Kathleen Still (an American Citizen) was on visitors record to Canada and
came to Canada with the intention to become permanent resident. Pending
consideration of her application for permanent residence status, and acting in good
faith, she accepted employment as a housekeeper without obtaining a work permit as
required under the Immigration Act. Still is then employed as housekeeper from May
1993 to October 1993, and was granted permanent resident status on September 1993.
• Still is laid off in October 1993, and is denied unemployment insurance under the
Unemployment Insurance Act.
• The Une ployment Insurance Commission, the Board of Referees, the Minister of
National Rev nue, and the Tax Court of Canada took the position that Still's failure
to obtain a work permit resulted in the formation of an illegal contract of service
and, correlatively, that such a contract did not constitute insurable employment
within the meaning of the Unemployment Insurance Ac
• ISSUE: Was Still entitled to bene ts when she believed that she was entitled to work,
even though she had no valid work permit which was contrary to the Immigration Act
• HELD: Yes
• (This case is not binding, but is very persuasive)
• Evidence shows that she believed she was entitled to work. She misread the term on
the visitors record
• In this case, we see a contract between the classical illegality doctrine vs the
modern approach
• There is a distinction between a contract illegal in formation and a contract illegal
as performed. In this case, the contract was illegal as performed
• RATIO: Where a contract is impliedly or expressly prohibited by statute, a court may
refuse to grant relief to a party when, in all circumstance of the case, including regard
to the objective and purposes of the statutory prohibition, it would be contrary to the
public policy to do s

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 TYPE OF MISREPRESENTATION REMEDY

FRAUDULENT Rescind contract and award damages

Rescind contract and award damages. However, in
NEGLIGENT cases of negligent misrepresentation, courts
usually award damages
Rescind contract or award damages. In cases of
INNOCENT innocent misrepresentation, courts usually award
damages.

UNLAWFUL AGREEMENTS

1. AN ACT OR AN UNDERTAKING IS FORBIDDEN BY LAW WHEN IT IS PUNISHABLE BY THE

CRIMINAL LAW OF THE COUNTRY OR WHERE IT IS PROHIBITED BY SPECIAL
LEGISLATION OR REGULATIONS MADE BY A COMPETENT AUTHORITY

2. IF THE OBJECT OR THE CONSIDERATION OF AN AGREEMENT IS OF SUCH A NATURE

THAT IT WOULD INDIRECTLY LEAD TO A VIOLATION OF THE LAW, THE AGREEMENT IS
VOID

Napier v National Business Agency Ltd

• FACTS: The plaintiff entered into a contract of service with the defendant by which
it was agreed that the plaintiff should be paid the sum of £13 per week as salary,
and a further £6 per week for “expenses.” In reality, he was paid less than the £6 per
week for his expenses.
• HELD: This provision was merely a device to defraud the Income Tax Authority by
the defendant (National Business Agency Ltd). Two provisions of the contract
cannot be severed and the whole contract was void

3. AN AGREEMENT WHOSE OBJECT IS TO DEFRAUD OTHERS IS VOID

• EXAMPLE: John, Oliver, and Jack enter into an agreement for the division among them
of pro ts that would be acquired by them through Ponzi Scheme. The agreement is
void

4. IF THE OBJECT OF AN AGREEMENT IS TO INJURE THE PERSON OR PROPERTY OF

ANOTHER, IT IS VOID

5. AN AGREEMENT WHICH IS INJURIOUS TO THE PUBLIC OR IS AGAINST THE INTERESTS

OF SOCIETY IS SAID TO BE OPPOSED TO PUBLIC POLICY.

• “Public policy” is not capable of being de ned with suf cient precision
• Janson v Drieftein Consolidated Mines — “Public policy is always an unsafe and
treacherous ground for legal decision”

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 AGREEMENTS AGAINST PUBLIC POLIC

1. TRADING WITH THE ENEMY

• It is a legal principle that an agreement between citizens of two countries at war with
each other is void

2. AGREEMENTS INTERFERING WITH THE COURSE OF JUSTICE

• Agreements for sti ing or hushing up prosecutions are bad. When an offense has been
committed, the guilty person must be prosecuted and any agreement which seeks to
prevent the prosecution of such a person is opposed to public policy and is void.

(i) MAINTENANCE

• When an of cious person encourages a lawsuit by, for example, paying for
someone else’s lawyer. This must be accompanied by champerty.

(ii) CHAMPERTY

• While the of cious persons paid for the litigant’s lawyer, that same person agreed to
pay for the lawyer ONLY IF the litigant paid the person a portion of the recovery

• An agreement of champerty is void in law because it is against public policy to

promote litigation

3. AGREEMENTS TENDING TO INJURE THE PUBLIC SERVICES ARE VOID AS BEING

AGAINST PUBLIC POLICY

• EXAMPLE: Promising someone a job in the Military, Civil Servant, or the Police for a
sum of money is a void agreement

4. IF A PERSON ENTERS INTO AN AGREEMENT WHERE HE WILL HAVE TO FOLLOW A

COURSE OF ACTION, WHICH IS AGAINST HIS PUBLIC OR PROFESSIONAL DUTY, THE
AGREEMENT IS AGAINST PUBLIC POLICY

• EXAMPLE: Asking the Chief Justice to rule in the favor of the Government

5. AGREEMENTS UNDULY RESTRAINING PERSONAL LIBERTY HAVE BEEN HELD TO BE

VOID AS BEING AGAINST PUBLIC POLICY

KRG Insurance Brokers (Western) Inc v Shafron (SCC, 2009)

• FACTS: Morley Shafron was employed by KRG in Vancouver as an insurance

salesman. He left KRG in 2001 to work for a competitor in Richmond, a
neighbouring city. KRG commenced an action to enforce the restrictive covenant

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 signed by Shafron which stated he would “not for a period of three (3) years
thereafter, directly or indirectly, carry on, be employed in, or be interested in or
permit his name to be used in connection with the business of insurance brokerage
which is carried on within the Metropolitan City of Vancouver.”
• The trial judge found that the restrictive covenant was neither clear, certain nor
reasonable because it used the term “Metropolitan City of Vancouver.” The
Court of Appeal held that the restrictive covenant was enforceable, even though
the term “Metropolitan City of Vancouver” was ambiguous
• I SSUE : When can the doctrine of severance be used to resolve an ambiguous term in
a restrictive covenant
• HELD: The restrictive covenant was uncertain and ambiguous. There was no
evidence that the parties unquestioningly would have agreed to remove the word
“Metropolitan” without varying any other terms of the contract or otherwise
changing the bargain.
• Furthermore, there was no indication that the parties agreed on something and
then mistakenly included something else in the written contract and recti cation
could not be invoked to resolve the ambiguity in this case.
• The Court of Appeal erred when it rewrote the restrictive covenant in this case
to substitute the term “City of Vancouver, the University of British Columbia
Endowment Lands, Richmond and Burnaby" for the term "Metropolitan City of
Vancouver.” It was inappropriate for the Court of Appeal to rewrite the
geographic scope in the restrictive covenant to what it thought was reasonable
• R ATIO : (1) A restrictive covenant is prima facie unenforceable unless it is shown to
be reasonable with respect to the parties and reasonable with respect to the interests
of the public (Nordenfelt test); and (2) An ambiguous restrictive covenant can only
be enforced if the ambiguity can be resolved

VOID AGREEMENTS

1. EVERY AGREEMENT BY WHICH ANYONE IS RESTRAINED FROM EXERCISING A LAWFUL

PROFESSION, TRADE, OR BUSINESS OF ANY KIND, IS TO THAT EXTENT VOID

Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd (HL, 1894)

• FACTS: The appellant — Thorsten Nordenfelt — was a Swedish gun manufacturer

with a valuable, world-wide business. He sold the business to a company (the
respondents ) and agreed to enter into a restrictive covenant not to work for any
rival business for a 25-year period in an unlimited geographical area. Later, he
worked for a rival business. The respondents brought an action to enforce the
covenant by inunction. The case came to the House of Lords. 
• ISSUE: Was the covenant that said Mr. Nordenfelt could not work in any
geographical area for 25 years reasonable?
• HELD: Yes
• RATIO: Generally, restraint of trade clauses were prima facie void at common law,
but they may be deemed valid if three conditions are met: (1) The terms seek to
protect a legitimate interest; (2) The terms are reasonable in scope from the

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 viewpoint of the parties involved; and (3) The terms are reasonable in scope from
the viewpoint of public policy

NEGATIVE STIPULATIONS IN SERVICE CONTRACTS:

• EXAMPLE: If a doctor is employed at a hospital, one of his conditions of
employment may be that he cannot do private practice. This is a negative
stipulation and it is valid

2. AN AGREEMENT, WHICH PROHIBITS A PERSON FROM TAKING JUDICIAL ACTION, IN

RESPECT OF ANY RIGHT ARISING FROM A CONTRACT IS VOID

• An agreement which wholly or partially prohibits any party from enforcing his rights
under any contract is void
• An agreement which curtails the period of limitation prescribed by the law of limitation
are void (because their object is to defeat the provision of law)

EXCEPTIONS:

(i) An agreement by which parties to a contract refer future disputes to arbitration is

valid and binding. As in, this takes the proceeding away from court and takes it
into being arbitrated by a neutral third party;
(ii) Even if the contract never said that both parties would go to arbitration to resolve
a dispute, but since the arising of a dispute, one party suggests that they arbitrate
the matter — if the other party agrees, it can be arbitrated.

3. AGREEMENTS WHOSE MEANING IS NOT CERTAIN IS VOID (AN AGREEMENT CANNOT BE

ENFORCED UNLESS THE OBLIGATIONS CREATED BY THE CONTRACT ARE CLEARLY
UNDERSTOOD BY ALL THE INVOLVED PARTIES)

• EXAMPLE: A person agrees to sell to another “one hundred tons of oil.” This would be a
void agreement because there is no certainty as to what kind of oil would be sol
• EXAMPLE: A person agrees to sell “all of the grain in his granary” to another person.
There is certainty as to the amount of grain being sold. Thus, this would be a valid
agreemen

AGREEING TO AGREE

• An agreement to enter into an agreement in the future is void for uncertainty unless
all the terms of the proposed future agreement are agreed expressly or implication

Empress Towers Ltd v Bank of Nova Scotia (BCCA, 1990)

• FACTS: Empress Towers and Bank of Nova Scotia had a twelve-year lease
agreement, which was about to expire. The agreement stated that the price of
rent for a renewed contract would be the prevailing market rate, conditional on

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 the “mutual agreement” of landlord and tenant, and that in the absence of
agreement, the contract could be terminated by either party.
• Unfortunately, an employee of Empress Towers had been robbed in a branch
of Bank of Nova Scotia of $30,000 and Empress Tower’s insurance had paid
only $15,000. This robbery was no fault of the Bank of Nova Scotia.
• During negotiations, Empress Towers demanded $15,000 cash and the right
to cancel Bank of Nova Scotia’s lease with a 90-day notice (which is
unreasonable). Bank of Nova Scotia refused.
• Empress Towers brought a petition for writ of possession against the Bank
of Nova Scotia for its of ce-space. This was all at the end of the lease, with
little response from Empress Towers to Bank of Nova Scotia’s reasonable
rent offers
• I SSUE : (1) Was the renewal clause valid or void for uncertainty; and (2) Did it
contain an implicit obligation to bargain in good faith
• HELD: Cites Brown v Gould, where three categories of “promises to negotiate”
were listed: (1) Agreement to agree on price, which is too vague to be enforced;
(2) Rent to be established by formula but “no machinery (as in, no third party)
is provided for applying the formula” in which case the judge typically provides
it; and (3) The formula is set out but is defective, even though machinery exists
to produce a rental rate.
• “In those cases the machinery may be used to cure the defect in the formula.
In this case, the ‘agreement to agree’ clause exists to prevent either party
from being compelled to pay a rate he feels does not re ect the market rate.”
• But this clause has the additional effect of imposing a duty to negotiate in
good faith: “Those terms are to be implied under the of cious bystander and
business ef cacy principles in order to permit the renewal clause, which was
clearly intended to have legal effect, from being struck down as uncertain.”
The landlord breached his duty to negotiate in good faith
• R ATIO : The courts will try, whenever possible, to give the proper legal effect to
any clause that the parties understood and intended was to have legal effect

Mannpar Enterprises Ltd v Canada (BCCA, 1999)

• FACTS: The parties entered into a contract for the extraction of sand and gravel
from an Indian Reserve. The permit was originally effective for ve years.
Under the permit, Mannpar was obliged to pay a modest yearly rental on the
working area plots on the reserve, as well as a royalty on the materials removed.
It was also required to do reclamation work on the area from which sand and
gravel were extracted.
• The permit provided for a right to renew for a further ve years, subject to
satisfactory performance and renegotiation of the royalty rate and annual
surface rental. The Band Council substantially agreed to the terms and
conditions of the agreement between Mannpar and the Crown.
• Mannpar gave written notice of its intention to renew the permit for an
additional ve years. However, the Band became less satis ed with the
permit arrangement. Neither the Crown nor the Band were prepared to

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 renegotiate the royalty rate for the purpose of renewal. The Crown failed to
renew the permit.
• Mannpar took the position that the Crown had repudiated its obligation to
renew, and elected to accept the repudiation and commence an action for
damages. At trial judge held that the renewal clause was void for
uncertainty, which Mannpar appealed
• I SSUE : Was the renewal clause void for uncertainty
• HELD: No
• The language in the renewal clause allowed the Crown considerable
exibility. There was nothing in the clause to suggest an enforceable
agreement. Rather, it conveyed only an option to renegotiate if the Crown
wanted to. Given their duty to the aboriginal band, it would have been
reckless not to preserve such exibility
• RATIO: There is no common law obligation to negotiate in good faith; it must
be in the contract, either expressly or impliedly

Wellington City Council v Body Corporate 51702 (Wellington) (CANZ, 2002)

• FACTS: The Council entered into a ‘process contract’ with Alirae (Body
Corporate 51702 (Wellington)), which obliged the Council’s of cers to
“negotiate in good faith” with Alirae for the sale of the Council’s interest in the
premises at 20 Brandon Street, Wellington (which Alirae was leasing).
Negotiations broke down and Alirae sued for breach — alleging that they failed
to conduct the negotiations in good faith.
• The trial judge found for Alirae and assessed damages of $580,209 on the
basis that if the Council had not been in breach, a substantive contract for
sale and purchase would probably have resulted and Alirae had lost the
pro t it would have achieved from developing the premises in the manner it
had in mind.
• ISSUE: Is an agreement to “negotiate in good faith” enforceable
• HELD: No
• “The essence of the theory of contract is consensus. It follows that for there
to be an enforceable contract, the parties must have reached consensus on all
essential terms; or at least upon objective means of suf cient certainty by
which those terms may be determined. Those objective means may be
expressly agreed or they may be implicit in what has been expressly agreed.
Taking price as an example, for a contract to be enforceable the parties must
have agreed upon the price, or at least they must have agreed upon objective
means of suf cient certainty whereby the price can be determined by
someone else, or by the Court. If the price is left for later subjective
agreement between the parties, the contract is not enforceable”
• RATIO: An agreement to negotiate in good faith is unenforceable for
uncertainty.

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 ANTICIPATION OF FORMALIZATION

Bawitko Investments Ltd v Kernels Popcorn Ltd (ONCA, 1991)

• FACTS: At a meeting in April 1984, the parties agreed orally to amend Kernels’
standard 50-page franchise agreement to change several provisions along
speci c lines to Bawitko’s advantage. They also agreed that time would be of
the essence.
• Bawitko subsequently was consulted as to store layout while construction
was underway. He began making payments according to Kernels’ schedule
and invested $10,000 in a similar franchise in another city.
• Two months later, Kernels wrote to Bawitko advising they wanted to
execute his franchise agreement as soon as possible, as the store opening
was about a month away. Bawitko did not reply.
• About two weeks later, having again fruitlessly sought execution, Kernels
informed Bawitko that as the store was to open in eight days, he had four
days to sign.
• One day before the deadline, Bawitko sought relevant documents from
Kernels’s lawyer — who forwarded the franchise agreement, application for
trademark use, sublease, shareholders’s covenants and the like.
• The agreement was in the form offered to the second franchise, but not in
the form the parties had agreed upon at the April 1984 meeting.
• On the deadline day, Bawitko asked for an extension of time, remarking he
was willing to execute whatever agreement the second franchise executed.
Kernels refused and returned his deposit, and Bawitko sought damages for
breach. He was successful at trial, which Kernels appeale
• I SSUE : Can the oral contract in itself constitute a complete and legally
enforceable contract, or was it subject to and dependent upon a formal written
franchise document being settled, approved, and executed by the parties?
• HELD: It was subject to and dependent upon a formal written franchise
document being settled, approved, and executed
• As a matter of normal business practice, parties planning to make a formal
written document the expression of their agreement, necessarily discuss and
negotiate the proposed terms of the agreement before they enter into i
• When they agree on all of the essential provisions to be incorporated in a
formal document with the intention that their agreement shall thereupon
become binding, they will have ful lled all the requisites for the formation
of a contrac
• The fact that a formal written document to the same effect is to be thereafter
prepared and signed does not alter the binding validity of the original
contract
• However, the original agreement must be complete. Here, the evidence
does not establish agreement on the terms to be embodied in the formal
written document. Rather, it establishes that the terms, other than those
speci cally agreed to, were to be settled and agreed to late

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 • RATIO: When the original contract is (1) incomplete because essential

provisions intended to govern the contractual relationship have not been settled
or agreed upon, or (2) the contract is too general or uncertain to be valid in itself
and is dependent on the making of a formal contract, or (3) the understanding or
intention of the parties is that their legal obligations are to be deferred until a
formal contract has been approved and executed, the original or preliminary
agreement cannot constitute an enforceable contrac

4. AN AGREEMENT TO DO AN IMPOSSIBLE ACT IS VOID

• EXAMPLE: If someone agrees to discover treasure by magic, it is a void transaction

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