Solution Manual for The Law and Business

Administration in Canada Plus Companion Website

without Pearson eText — Package, 14/E – J.E.
Smyth, Dan Soberman, Alex Easson & Shelley McGill

To download the complete and accurate content document, go to:

https://testbankbell.com/download/solution-manual-for-the-law-and-business-administ
ration-in-canada-plus-companion-website-without-pearson-etext-package-14-e-j-e-sm
yth-dan-soberman-alex-easson-shelley-mcgill/
Solution Manual for The Law and Business Administration in Canada Plus Companion Website wit

CHAPTER 9

GROUNDS UPON WHICH A CONTRACT MAY BE SET ASIDE:

MISTAKE AND MISREPRESENTATION

Students should again be reminded of the distinction between void and voidable
contracts: a void contract was never really formed at all whereas a voidable contract is
valid unless and until set aside, as covered with good examples on pp. 186-187.

MISTAKE
Courts may afford relief when a party enters into a contract under a basic
misunderstanding, although not in every case. The maxim "mistake of law is no defence"
applies because all parties are presumed to know the law. Furthermore, a mistake in
judgment is not a basis for escaping contractual liability, for example, that a contract
proves to be more onerous than anticipated will not give that party a basis on which to
have the contract set aside.
Remedies may be available to a party who makes a factual error, but a party cannot
escape contractual obligations for all factual mistakes. Contracts negotiated on the basis
of a factual mistake may be void, voidable, or, in certain cases, valid depending upon the
type of mistake.
A distinction is made between three types of mistake: (1) mistakes about the terms of the
contract; (2) mistakes about the subject matter of the contract; and (3) mistakes as to the
identity of the party – p. 186
There are three main kinds of mistakes about terms:
 Words used inadvertently
 Errors in recording an agreement
 Misunderstandings about the meaning of words
With errors in recording an agreement, note the conditions required for rectification of a
contract improperly recorded, as set out on p. 181, and in the Sylvan Lake Golf and
Tennis Club case.
Mistakes about the subject matter usually involve goods which are not in existence, or
about the value of the subject matter.
If there is a mistake about the identity of a party to a contract, there may be an issue of
fraud – see cases 9.4, 9.5 and 9.6, pp. 192.
Where one or both of the parties change their position or forego an opportunity because
of a mistake in a contract, the court affords relief where it can achieve results reasonably
fair to both parties. Solutions may require ingenuity or imagination in the exercise of
discretion. Where no remedy appears available, the loss will often be left to lie where it
fell.

Copyright © 2016 Pearson Canada Inc. 9-1

Visit TestBankBell.com to get complete for all chapters

Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation Chapter 9

MISTAKE ABOUT THE NATURE OF A SIGNED DOCUMENT (Source p. 189)

Since the decision of the Supreme Court of Canada in Marvco Color Research Ltd. v.
Harris, [1982] 2 S.C.R. 774, discussed in the text, a signer can avoid the consequences of
a document he or she has signed only if (a) the mistake is a serious one, and (b) the signer
has not been careless of his or her own interests. Blind and illiterate people and those
who are unable to read the language of the document are usually protected since these
people must ultimately rely on the integrity of other people. However, it is now unlikely
that other people who sign documents can avoid liability to innocent third parties, except
in extraordinary circumstances.

MISREPRESENTATION (Source p. 190)

A contract resulting from fraudulent misrepresentation is voidable at the option of the
victim, who is also entitled to damages for deceit. The English decision of Derry v. Peek
(1889), 14 App. Cas. 337, contains the test for whether or not a misrepresentation is
fraudulent. The court stated that the test for fraud is whether or not a statement was made
knowingly, without belief in its truth, or recklessly.
At that time, the courts did not recognize the intermediate category of negligent
misrepresentation. Negligent misrepresentation does not require intent to deceive but
only a breach of the duty of care. The negligent party is liable in tort for damages
covering the loss suffered by the injured party, and any contract reached on the basis of
the misrepresentation is voidable.
Finally, there is the category of innocent misrepresentation. Since a contract resulting
from an innocent misrepresentation is voidable, the victim may repudiate the agreement
provided he or she acts promptly after becoming aware of the truth and provided no
innocent third party is adversely affected. Rescission is the only remedy available; a
victim of an innocent, non-negligent misrepresentation is not entitled to damages.
Most misrepresentations occur during the bargaining that precedes formation of a
contract. However, sometimes a misrepresentation becomes incorporated into the
agreement itself as a term of the contract (Source p. 194). The remedy for breach of
contract is contractual damages; these may well be a more effective remedy than
rescission or even than damages for deceit or negligence. (Remedies for breach of
contract are discussed in Chapter 13 of the text.) Alternatively if the contract limits the
damages then negligent misrepresentation may be the better choice. Consider Queen v.
Cognos Inc. [1993] 1 S.C.R. 87 (discussed in Chapter 5 of the manual) where the
misrepresentation took place during the recruitment of the employee but the notice
provisions of the resulting employment contract effectively limited contract damages.
Misrepresentation can occur by omission, where the contract is one of utmost good faith.
With insurance contracts the insured has information the insurer needs to assess the risk,
and failure of the insured to disclose all information relevant to the risk is a
misrepresentation which will result in the insurance policy being void. The sale of
securities also requires, under legislation, that promoters and directors who have details
unknown to the public to reveal this information in a prospectus. Consumer legislation
and the Sale of Goods Act set out the need for disclosure. To omit pertinent information

Copyright © 2016 Pearson Canada Inc. 9-2

Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation Chapter 9

will allow a consumer to rescind a contract, the omission or silence considered a

misrepresentation.

UNDUE INFLUENCE (Source p. 196)

For the court to find undue influence, the mental domination of one party by the other
must be of such a degree as to rob the former of her free will. A contract reached through
undue influence is voidable at the option of the victim provided she acts promptly upon
being freed from the domination. Undue influence is presumed if there is a special
relationship between the parties such as accountant and client or teacher and student. The
"stronger" party may rebut the presumption by showing that no undue influence was
exerted. Cases 9.7 and 9.8 on p.197 provide for a discussion on the law of undue
influence as it relates to a marital arrangement.

UNCONSCIONABILITY
Where one party is at a disadvantage, perhaps due to age or education, such that the
bargaining power between the contracting parties is unequal, a contract may be set aside
as being unconscionable. The issue of payday loans, discussed on p. 198, is an example
of unconscionable contracts.

DURESS (Source p. 199)

Duress is the use of actual or threatened violence as a means of coercing a party to enter
into a contract, conduct that may well amount to a criminal offence such as extortion or
assault. As far as the contract is concerned, the agreement is voidable at the option of the
victim. Here again, it is up to the injured party to repudiate the contract promptly once
freed of the violence or the threat of that violence.
In discussing undue influence, unconscionability, and duress, it will become apparent to
students that the concepts overlap. It may be a worthwhile exercise to go through a list of
common contracts, such as an elderly patient who sells a family recreational property to
her family doctor for 25% of the value, or a grandchild who obtains a loan from an
elderly grandparent, or an employer who threatens dismissal if an employee does not lie
for him or her, and then determine if the event that took place was undue influence,
unconscionability or duress.

STRATEGIES TO MANAGE THE LEGAL RISKS (Source p. 200)

Reviewing the chapter and the risks that businesses face is important for students to bear
in mind. Setting up an ongoing risk management plan is a good exercise for students.
With each chapter students can add to their plan. In this chapter, students look at the
importance of carefully preparing documents; ensuring the identity of the parties one is
dealing with; training staff to be sure that representations made to clients are fair and
accurate; recognizing special relationships and understanding the need for independent

Copyright © 2016 Pearson Canada Inc. 9-3

Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation Chapter 9

legal advice; and the need to familiarize oneself with the consumer protection legislation
that applies to one’s business.

ETHICAL ISSUE (Source p. 194)

Employment Resume

Question 1 - For the most, it is acceptable to omit past employment from one’s resume,
particularly if it isn’t relevant to the position in question. Employers are generally only
interested in past employment that can provide skills and experience relevant to the job
being applied for – no one is interested in the paper route an applicant had when they
were twelve years old, unless they invented a new delivery method/business model that
revolutionized the paper delivery industry. If students still have ethical qualms about the
notion of omitted past employment, raise the question as to whether or not adding
“Recent or Relevant” to the heading “Work Experience” on their resume acts as an
adequate sign to the potential employer that the information contained in the resume is
only a snapshot of what the candidate considers to be relevant to the job applied for. In
terms of omitting past employment an applicant was fired from, the issues of
trustworthiness, respect, fairness, and responsibility certainly come into play. A job a
candidate was fired from is certainly something a potential employer might want to know
about. However, employers have a responsibility as well – most employers won’t rely on
a resume alone – they will perform reference checks, hold an interview, etc. Significant
gaps in an applicant’s resume (holes left by employment omitted) will usually raise red
flags. In these cases, it is probably okay to omit past employment a candidate was fired
from because the potential employer has the opportunity to ask about these gaps during
an interview. Ask the students whether they think it might be a better strategy to include
the employment they were fired from and take ownership of the issue, using it to
demonstrate to their potential new employer that they learned from the experience, rather
than trying to hide the fact and being called on it during an interview.

Question 2 - If the inaccuracies are material to the decision to enter into the employment
contract in the first place; that is, the candidate claimed to have skills and experience they
do not possess and if these skills and experience were the reason they were hired, an
employer should be able to terminate the employment contract. The really thorny issue
arises when trying to determine whether these skills and experience were material to the
decision to hire. Employers will likely be in a stronger position in cases where the job
posting/job description specifically and clearly enumerates the skills and experience the
employer is seeking.

Question 3 - The way students answer this question should depend on how they’ve
approached questions 1 and 2 above. Was the degree material to RadioShack’s decision
to hire Mr. Edmondson? Was it even relevant? (Typically, the further away from one’s
university graduation one gets, the less important the degree becomes relative to skills
and experience). RadioShack clearly failed to perform due diligence to check whether
Mr. Edmondson’s claim to have a degree was genuine (note: most employers to whom a
degree is a material consideration will require proof during the application process that

Copyright © 2016 Pearson Canada Inc. 9-4

Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation Chapter 9

the degree was granted). While this question raises valid ethical concerns for Mr.
Edmondson (considering the values of trustworthiness, respect, fairness, and
responsibility) regarding whether he ought to accept the compensation package, it raises
other issues for RadioShack; do they want to fight a long court battle with Mr.
Edmondson and face further public embarrassment? In light of the discussion in question
2, would RadioShack even be able to win such an action? Students should be prompted to
approach this question from both an ethical and legal perspective – based on the material
in this chapter, is the “correct” ethical answer the same as the “correct” legal answer? If
students come to differing outcomes they should be asked to discuss what implications
situations like this might have for their ideas of “justice”.

INTERNATIONAL ISSUE (Source p. 198)

Regulating Payday Loans
Depending of the ideological proclivities of the class, this issue might raise discussion
about how far government can and should go to protect people from themselves vs. the
wisdom of an economic model in which so many people have a pressing need for so-
called payday loans. Any such discussion should be encouraged in order to expose
students to the complexities of these issues and, hopefully, to the need for solutions that
strike a pragmatic balance between these competing perspectives.
Question 1 - Students should be encouraged to brainstorm in order to come up with a list
of pros and cons for the idea of capping the cost of borrowing on a fixed as opposed to a
percentage basis. Fixed costs provide a level of transparency and certainty for the
borrower who, let’s face it, probably isn’t very good with numbers to begin with or they
wouldn’t be in need of payday loans in the first place. A fixed cost allows a borrower to
know exactly what their liabilities will be without resorting to calculations and
independent advice. Since most payday borrowers are likely facing some form of
economic duress, it also places lenders in a better position when trying to recover in cases
of default.
Question 2 - The rationale for the limit on the number of renewals could partially be an
attempt to protect people from themselves and from unethical and predatory lenders – to
basically prevent people from digging themselves a hole they can’t climb out of. Students
should be prompted to discuss this issue in the larger context of the health of the North
American economy more generally. If the crash of 2008 has demonstrated anything, it is
that the North American economy is basically financed on credit; limiting the number of
renewals can help borrowers by limiting the easy credit available to them and, perhaps,
serve as a wake-up call as borrowers have to reevaluate their financial lifestyles rather
than continue to live a life on the edge of financial disaster. Is it worth the short term pain
that will be felt by those who rely on payday loans for the long term gain of a more
robust and less precarious financial lifestyle?
Question 3 - There is a balancing act here: the explosive growth of the industry indicates
a clear and pressing demand for payday loan services. On the other hand, people in
economic duress need to be protected from predatory and unethical lenders. Transparency
is a good first step. With regard to the criminal rate of interest, payday loan companies
are arguably correct; payday loan borrowers are bad credit risks, otherwise they wouldn’t

Copyright © 2016 Pearson Canada Inc. 9-5

Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation Chapter 9

be seeking payday loans and lenders need to be adequately compensated for assuming the
risks involved with making these loans. That said, most students will probably agree that
the current criminal rate of interest is already exorbitantly high, and three hundred
percent is bordering on insane. Ask the students whether they think the high default rate
on payday loans is a function of borrowers being bad credit risks or whether the high
default rate is, in fact, a product of the insanely high rates of interest charged. How can
government regulation strike a balance between the needs of the lenders (compensation
high enough to keep a needed industry going) with the more pressing need to allow
people to borrow when needed without indebting themselves in perpetuity: if payday
loans are meant to be a short term fix for people in difficulty, what is a reasonable rate of
interest that will make it profitable for lenders without these loans becoming
insurmountable for borrowers?
Question 4 – This question appears to be a simple one on the surface as there are few
other options available for people who are in desperate need of funds. Students should be
asked to look at the issue from an objective point of view. In an open market system,
should the government step in to ban a commercial enterprise that fills a need in society?
Are the consumers who use these types of services, so vulnerable, that they need
protection from themselves? Is it the government’s place to save people from
themselves? While there is a need for regulation to prevent abuses in a system where the
consumer is vulnerable, is it the right decision to remove the rights of the consumer by
banning a service he or she finds useful or even necessary? If Payday Loan services were
banned, what other venues or opportunities would there be for persons in need of those
services?
Question 5 – This question relates to how businesses develop in general. Most companies
will move their services to where there is a need for their product or service; where costs
to provide that product or service are lowest; where rates of return are highest; and where
regulation is least onerous. Onerous regulations may discourage lenders from moving
into areas where their services are required.

QUESTIONS FOR REVIEW

1. Errors in judgment alone do not justify avoiding one’s obligations under a contract.
To excuse performance so easily would undermine certainty in contractual
arrangements. (Source p. 186)

2. A court is likely to grant a remedy when it should have been clear to one party that
the other party used a term by mistake, as when the price is absurdly low or is quite
unrelated to the range of prices quoted during negotiations. (Source p. 188)

3. The court will decide which meaning is the more reasonable in light of the
circumstances, including those things each party ought to have known about the
subject-matter of the contract and about the intentions of the other party. (Source p.
189)

Copyright © 2016 Pearson Canada Inc. 9-6

Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation Chapter 9

4. A court will not order rectification unless the following conditions are met: (a) the
court is satisfied that there was a complete agreement between the parties, free from
ambiguity and not conditional on further adjustments; (b) the parties did not engage
in further negotiations to amend the contract; (c) the mistake in the written document,
may have, but does not have to have, occurred as a result of fraud; (d) when the
written document was signed, the defendant knew or should have known of the
mistake and the plaintiff did not; and (e) any subsequent attempt to enforce the
inaccurate written document would be equivalent to fraud. (Source p. 189)

5. A void contract is not a contract at all. A voidable contract is one that may be set
aside. An innocent third party (for example, a person who buys goods from a
fraudster who acquired the goods under a void contract) cannot obtain a good title to
the goods. By contrast, an innocent third party can acquire title to goods that have
passed under a voidable contract. (Source p. 187)

6. The Supreme Court of Canada has held that a car-rental company had “consented” to
the rental of a car to a rogue who gave a false identity. On this basis it would seem
that Klemper would have difficulty reclaiming the watch from Larry. Klemper would
have likely succeeded if he could show that Larry was aware—or should have been
aware—of Jameson’s fraud. (Source p. 192)

7. Innocent misrepresentation is not an action in tort, however, it does provide for the
right of rescission in contract law. An innocent misrepresentation can become
negligent or even fraudulent, where the party fails to correct it where in a position to
do so. If the misrepresentation is made a term of the contract, then it will give rise to a
breach of contract claim and much broader remedies. (Source p. 194)

8. Marital relationships often give rise to a presumption of undue influence. The bank
would be wise to have the wife seek independent legal advice prior to signing the
contract; that is, the wife should be sent, along with all of the relevant documents and
information to an independent lawyer to be advised of the risks in agreeing to the
transaction. Failing to do this, the bank runs the risk of having the mortgage declared
void due to undue influence. (Source p. 197)

9. Consumers are considered a protected class of purchasers due to the inequality of

bargaining power present between the parties to a transaction. Where the bargaining
power is unequal, and the contract is disadvantageous to the weaker party, the
contracts are considered unconscionable and are voidable. Some of the forms of
protection available include: rescission in cases of undue pressure; cooling off
periods; and maximum interest rates. (Source p. 198)

CASES AND PROBLEMS

1. A standard form contract excludes any outside terms – parties are bound by the
terms of the contract. Here Ashley may be bound by the contract she signed. However,

Copyright © 2016 Pearson Canada Inc. 9-7

Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation Chapter 9

she can try to argue that a mistake was made – a unilateral mistake in that the wrong
number was placed on the order. The contract could be voidable if it is obvious that the
chairs are not the same price as the ones Ashley wanted. Here the company stands to
benefit from the mistake. But the price of the chairs is quite different , being $100 for an
order of 16-50, compared to $125 for a similar order. The price is therefore below what
was stated in negotiations. Ashley may succeed in asking a court for rectification.
(Source p. 189)
2. This question is somewhat similar to the case of King’s Norton Metal Co. v. Edridge
(1879), 14 T.L.R. 98 (England – Court of Appeal). The legal issue in this case is who,
between two innocent parties, should bear the loss. The courts have determined that it
depends on whether the contract between the first two parties is considered to be void or
merely voidable. If the contract is void, then there never was a contract, and therefore, no
title could have passed. If the contract is deemed to be voidable, then there was a contract
and title successfully passed to the fraudster and on to the second victim.
In the King’s Norton case, the court held that the contract was merely voidable, as the
plaintiff had meant to contract with someone and as the other party was fictitious, that
someone could only be the writer of the letter. In this case, the title was passed to the
innocent third party purchaser and the plaintiff had to bear the loss.
In this case, the Publisher as plaintiff would have little chance of recovery from Joan.
Joan would argue that the Publisher had intended to contract with someone, and if the
person was fictitious, as in this case, then the “someone” must have been the writer of the
email, Paul. If Joan is successful in demonstrating that the contract should be held to be
voidable, then title would have successfully passed to her through Paul. If the court holds
that the contract is in fact void, then Joan would have to return the book to the Publisher.
Either way, the party who is not successful would still have recourse against Paul in
breach of contract or fraud.
3. Who has the onus of proof when undue influence is alleged? As always, the onus
begins with the plaintiff, but later it may shift to the defendant. Hull must persuade the
court that the circumstances placed Smart in a dominant position and Hull relied on him.
Since the relationship between Smart and Hull is that of lawyer and client, Hull can
satisfy his onus as plaintiff quite easily: the courts presume that there is very likely undue
influence when a lawyer makes such a contract with his client.
Accordingly, the onus then shifts to the defendant, Smart to show that he did not exercise
undue influence. He must persuade the court that the terms of the contract were "fair, just
and reasonable"—the only circumstance in which Smart would appear not to have
exercised undue influence. A finding that $8,500 was significantly below a fair market
price for the boat would result in a conclusion that Smart failed to meet the onus of proof.
The contract would not be fair, and Hull's action to recover the boat would succeed.
4. The facts of this case are an adaptation of those in Tilden Rent-A-Car Co. v.
Clendenning (1978), 18 O.R. (2d) 601.
Tilford would wish to argue that the exemption clause in the contract should stand as it
was an accepted term of the contract and therefore Tilford should be allowed to recover
the cost for repair from the defendant, Clemson.

Copyright © 2016 Pearson Canada Inc. 9-8

Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation Chapter 9

Clemson, on the other hand, would argue that the failure to point out the clause on the
back of the pre-printed form was a misrepresentation by omission; as per Dubin. JA, in
the Clendenning case:
In modern commercial practice, many standard form printed documents are
signed without being read or understood. In many cases the parties seeking to rely
upon the terms of the contract know or ought to know that the signature of a party
to the contract does not represent the true intention of the signer, and that the party
signing is unaware of the stringent and onerous provisions which the standard
form contains. Under such circumstances, I am of the opinion that the party
seeking to rely on such terms should not be able to do so in the absence of first
having taken reasonable measures to draw such terms to the attention of the other
party, and, in the absence of such reasonable measures, it is not necessary for the
party denying knowledge of such terms to prove either fraud, misrepresentation or
non est factum. (at pp. 408-409)
Where the maker of a standard form contract fails to point out unusual, unexpected, or
onerous terms in the contract, at the time of formation, then the terms can be struck out
on the grounds of misrepresentation by omission.
5. The facts of this case are drawn largely from those of a well-known case, Re
Gabriel and Hamilton Tiger Cats Football Club (1975), 8 0.R. (2d) 285 (Ontario High
Court of Justice). In that case, Gabriel (the football player) sought to have his salary
renegotiated because of a failure on the part of the football club representatives to
disclose to him all the material facts (in particular, the increase in the number of games).
The court concluded that there was no special relationship of trust that would make
Gabriel especially dependent upon the other party for complete disclosure of all pertinent
information: the football club was entitled to assume that the length of the season was a
matter of common knowledge. The court emphasized the fact that the contract did not
make reference to a specific number of games and also that it contained a term entitling
the Tiger Cats to trade Gabriel to the Western Football Conference, which had had a
schedule of sixteen games for several seasons. As O'Leary J. wrote in his decision,
"When the contract is examined, and when what transpired at the meeting...is
considered...a third party would reasonably conclude that Gabriel had agreed to play all
the scheduled games, no matter whether their number was fourteen or sixteen."
Accordingly, the court found that the contract was binding on Gabriel.
Whether, apart from the legal aspects of the problem, the football club was wise in not
agreeing to some salary adjustment in the circumstances raises a matter of business
practice. Relations with Gabriel could hardly have been congenial; he was subsequently
traded to the Ottawa Roughriders, where he performed well.
6. In order to get out of the contract, at common law Mary would need to plead
mistake, misrepresentation, undue influence or duress. The only possibility she has in this
instance, is to attempt to demonstrate that the advertisement was a representation that was
not true and that it was a material statement that caused her to enter the contract. The
advertisement was not made a term of the contract, and so what Mary would be asking
for is rescission. The problem Mary faces is in demonstrating that the statement that the

Copyright © 2016 Pearson Canada Inc. 9-9

Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation Chapter 9

product is “Canada’s fastest wireless network” is a material representation and the reason
for entering the contract. At common law, this may not be easy to prove.
Mary may also have recourse in Consumer Protection legislation. She may have a cooling
off period available to her, or other options available under legislation protecting against
deceptive business practices. We would need to know where Mary resides in order to
determine what legislation would apply to her.

CASE SUMMARIES
Armstrong v. North West Life Insurance Co. of Canada (1990), 72 D.L.R. (4th) 410
(British Columbia Court of Appeal)
Armstrong obtained a life insurance policy on a person who was indebted to him. That
person filled out the application form and misrepresented two of the answers; that is, he
claimed that he had no other life insurance applications pending and under-reported the
amount of existing life insurance in force. The court held that the insured knowingly
made the misrepresentations and they were material to the risk. Also, the
misrepresentations were “not so conspicuously false as to put the insurer on notice of
them.”

Angevarre v. McKay (1960), 25 D.L.R. (2d) 521 (Ontario Court of Appeal)

Angevarre agreed to sell McKay a new Mercedes Benz for $3,842. McKay refused to
accept the car that Angevarre tried to deliver. The court found as a matter of fact that
McKay thought he was buying a car identical to the demonstration model he had been
shown. It had white wall tires and reclining leatherette seats. Angevarre, on the other
hand, thought he was selling the standard model with black wall tires and fabric
upholstery; neither interpretation was more reasonable than the other, and so no contract
had been formed.

Bank of Montreal v. Duguid (2000), 185 D.L.R. (4th) 458 (Ontario Court of Appeal)
See Case 9.8 at p. 197 in the text.

Barclays Bank plc v. O’Brien, [1993] 4 All E.R. 417 (England – House of Lords)
See Case 9.7 at p. 197 in the text.

Brisebois v. Chamberland et al. (1990), 77 D.L.R. (4th) 583 (Ontario Court of

Appeal)
This case illustrates the complexity of misunderstandings and mistakes that are left for
the courts to sort out, but the facts are too detailed to review in class:

Copyright © 2016 Pearson Canada Inc. 9-10

Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation Chapter 9

In 1949 and 1951, respectively, the respondent's uncle sold two adjacent lots, the
north and south lots to a purchaser, the owner of a cheese factory situated across the
street from the two lots. The purchaser went bankrupt in 1952 and a trustee in
bankruptcy was appointed. The respondent agreed with the trustee to purchase her
uncle's former house and property. The trustee wrote her a letter confirming the
agreement to sell her the house and two lots opposite the cheese factory. As
directed, she paid the purchase price to one of the bankruptcy inspectors and
received a receipt stating that the estate sold her the uncle's house and the two
related lots. Unfortunately, the contract of sale only referred to the south lot and not
the north lot. The border of the north lot was a stream, and a letter written by the
trustee to the respondent in 1954 stated that her boundary extended to the middle of
the stream; this suggested that the parties assumed both lots were included in the
sale. Over many years, a number of confusing and inconclusive transactions and
arrangements occurred, with different parties having some awareness of the
mistake but relying on their new arrangements.
The respondent brought an action for a declaration that she had a right to possession of
the north lot and for damages for nuisance. The trial judge granted the declaration and
the damages sought, but directed a forced sale to the second appellant, because of
valuable improvements to the north lot made by him.
On appeal, the majority stated that a party seeking rectification of a contract must show
that the parties had a common intention antecedent to the contract, that the common
intention was evidenced by an outward expression of accord, that the common intention
continued unchanged until the contract was signed, and that the contract did not conform
to the common intention because of a mutual mistake… The correspondence and other
evidence proved beyond a reasonable doubt that there was a mistake in the contract of the
kind alleged by the respondent. It was clear that the trustee had actual knowledge of the
mistake—and others either knew or should have known of the respondent’s claim.

Bulut v. Carter, 2014 ONCA 424

p. 193 footnote 21

Campanaro v. Kim (1998), 112 O.A.C. 171 (Ontario Court of Appeal)

Kim bought a vehicle and later gave it to his brother. His brother insured the vehicle
claiming that he was the registered owner when his brother actually was. When he was
involved in a car accident with Campanaro, State Farm claimed the insurance policy was
void because it was obtained based on a misrepresentation. The court found that the
misrepresentation did not result in the policy being void.

Coronation Insurance Co. v. Taku Air Transport Ltd. (1991), 85 D.L.R. (4th) 609
(Supreme Court of Canada)
Taku, a small commercial air carrier in northern British Columbia, obtained compulsory
insurance from Coronation when it began operations in 1978. During its first year, Taku

Copyright © 2016 Pearson Canada Inc. 9-11

Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation Chapter 9

had three accidents and Coronation refused to renew the policy. Taku then obtained
coverage from another insurer. Between 1979 and 1986 Taku was involved in six more
accidents and the second insurer terminated its policy. Taku began a new search for
coverage and applied again to Coronation.
The name Taku apparently "rang a bell" with the agent for Coronation, who asked for a
ten-year accident history from Taku. Despite the "ringing bells" the agent did not check
his own company's files, but asked only that Taku disclose its record. Taku deceived the
agent, reporting but one accident. Coronation calculated the risk on the basis of the false
information received from Taku without checking its own records, contacting the second
insurer or making inquiries at the Canadian Aviation Safety Board. Coronation drafted a
policy containing a term that the policy would be void if the insured "concealed or
misrepresented any material fact" (including, of course, its accidents).
A crash occurred and five passengers were killed. Their families sued and Coronation
refused to pay, relying upon the insured's fraudulent misrepresentation and concealment.
The Supreme Court of Canada held that a reasonably competent insurer would have
discovered the carrier's accident record by searching the records of the Aviation Safety
Board or at least by searching its own records. Where the object of the insurance was, as
here, to protect innocent third parties (the passengers) the insurer was bound to make an
independent investigation of an applicant's accident record before issuing a policy and
could not be excused from liability on the basis of Taku's failure to disclose its record.
Surprisingly, however, the Court held that the insurer was entitled to rely on Taku's
further misrepresentation that the aircraft would carry only four passengers (instead of
five), because this information was available only to the insured. Accordingly, the Court
held the policy to be void and the insurer was not liable. The result leaves the law in a
perplexing state in terms of protecting the public—and leaves the deceased passengers'
family without recovery.

Cundy v. Lindsay (1878), 3 App. Cas. 459 (England – House of Lords)

See Case 8.5 at p. 188 in the text.

Dick Bentley Productions Ltd. v. Harold Smith Motors Ltd., [1965] 2 All E.R. 65
(England – Court of Appeal)
The plaintiff bought a car from the defendant after the defendant made certain statements
about the good quality of the car. The plaintiff subsequently had considerable trouble
with the car and had to have the defendant service it several times. The plaintiff sued for
breach of warranty. The court held that if a representation is made in the course of
negotiations to induce the other party to act on it, and if the other party actually acts on it
by entering into a contract, there is a prima facie ground for inferring that the
representation is a warranty. However, the party who made the statements may rebut the
presumption by showing that it made an innocent, non-negligent misrepresentation. In
this case, the defendant did not rebut the presumption since it ought to have known the
true quality of the car.

Copyright © 2016 Pearson Canada Inc. 9-12

Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation Chapter 9

Ennis v. Klassen, [1990] 4 W.W.R. 609 (Manitoba Court of Appeal)

The plaintiff entered a contract to purchase a model 733 BMW from the defendant. Not
until after the sale was completed and the monies paid, did the plaintiff realize that the
car was a model 728 BMW; a model that was illegal in Canada. The plaintiff
immediately requested rescission from the defendant. The Court held that this was a
proper case for rescission as the defendant misrepresented the type of car. Even if the
misrepresentation was innocent rather than fraudulent, it went to the root of the contract;
a fundamental breach of contract gives rise to the right of rescission.

Esso Petroleum Co. Ltd. v. Mardon, [1976] 2 All E.R. 5 (England – Court of Appeal)
The plaintiff wished to open a gas station and found a suitable location. The plaintiff
made a forecast of the estimated sales for the location and purchased the property. The
planning authority, however, would not allow them to place the gas station fronting the
main street. The entrance to the gas station was now off a side street. The plaintiff then
sought a tenant for the station. The defendant made an offer to lease the station based on
the forecast of estimated sales prepared by the plaintiff. The plaintiff did not obtain the
necessary sales to pay for the gasoline supplied by the plaintiff. The plaintiff shut him off
and effectively put the defendant out of business. The plaintiff then sued for possession
of the station and monies owed on gasoline provided and not paid for. The defendant
counterclaimed for negligent misrepresentation. The Court held that there was a negligent
misrepresentation and that the defendant was entitled to recover for his losses.

Garland v. Consumer’s Gas Co., [1998] 3 S.C.R. 112 (Supreme Court of Canada)
The defendant charged a late fee to customers that did not pay their gas bills on time. The
plaintiff sued for a declaration that the “late fee’ was an interest charge and that it
exceeded the criminal rate of interest allowed to be charged. The Supreme Court agreed
that the fee violated the criminal code and ordered the matter by remitted to the Ontario
Court.

Gold v. Rosenberg. [1997] 3 S.C.R. 767 (Supreme Court of Canada)

The plaintiff and the defendant received a share of property under an estate which
included commercial properties held by two companies. The plaintiff signed a power of
attorney, permitting the defendant to continue managing the companies. Several years
later, one of the companies wished to borrow funds. The bank agreed, however required
guarantees to be signed as well as a collateral mortgage on the defendant’s property and a
postponement of an earlier mortgage held by one of the estate companies. The conditions
were met, and the plaintiff’s signature was obtained on the directors’ resolution. The
bank advanced the loan. Subsequently, the defendant revoked the power of attorney and
sued the defendant, the bank and the bank’s lawyer. The Court held that there was no
undue influence; the bank did all that was appropriate and that independent legal advice

Copyright © 2016 Pearson Canada Inc. 9-13

Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation Chapter 9

in this case was not necessary. The plaintiff was highly educated in business and had had
everything explained to him.

Goldthorpe v. Logan, [1943] 2 D.L.R. 519 (Ontario Court of Appeal)

The defendant placed an advertisement in the newspaper offering electrolysis and
guaranteeing removal of facial hair. The plaintiff responded to the advertisement, but the
treatment failed. The court held that while the general assumption is that advertisements
are invitations to treat, in this case the advertisement was an offer to the public. The court
looked at the surrounding circumstances and the actions of both parties in making the
determination.

Hepburn v. Jannock Limited (2008), 63 C.C.E.L (3d) 101 (Ontario Superior Court of
Justice)
Hepburn worked for Jannock for over twenty-one years. Hepburn entered into an
agreement with Jannock stating that he would be paid a supplemental pension in addition
to his regular pension in the event that parts of Jannock were sold and Hepburn’s
employment was terminated. It was clear that this was the intention of both Hepburn and
Jannock; however, the language of the contract did not clearly state that Hepburn would
receive the additional pension. The court found that ordering rectification of the contract
was appropriate because Hepburn was able to prove that there was a prior oral agreement
that was clear, Jannock should have known of the mistake in the written agreement, the
written agreement was capable of expressing the prior intention, and it would be unfair
and unconscionable to enforce the written agreement.

Hyrsky et al. v. Smith (1969), 5 D.L.R. (3d) 385 (Ontario High Court of Justice)
The plaintiffs purchased land for future commercial development. The plaintiffs
neglected to have the title of the property investigated by a professional. Sometime later,
when they were ready to develop the property, they discovered that a large percentage of
the property had not been owned by the vendor; the remaining parcel of land was too
small to commercially develop. The plaintiffs sued to have the contract rescinded. The
court held at p. 392 that, “if the mistake as to quantity is so substantial that in essence it
changes the quality of the subject-matter, then a proper case of rescission may exist.” In
spite of the error by the plaintiffs in not searching title, the court granted rescission;
however, refused to grant costs to the plaintiff.

King’s Norton Metal Co. v. Edridge (1879), 14 T.L.R. 98 (England – Court of Appeal)
See Case 9.5 at p. 192 in the text.

Leaf v. International Galleries, [1950] 1 All E.R.693 (England – Court of Appeal)

See Case 9.3 at p.191 in the text

Copyright © 2016 Pearson Canada Inc. 9-14

Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation Chapter 9

Lewis v. Averay [1971] 3 All E.R. 907 (England Court of Appeal)

The plaintiff had a car for sale. He sold the car to a person who claimed to be a television
actor; this person had identification to support this claim. The purchaser paid by cheque.
The cheque was not honoured. In the meanwhile, the purchaser resold the car to the
defendant, this time claiming to be the plaintiff. The plaintiff then sued the defendant to
recover the car. The court followed the case of Ingram v. Little [1964] 1 QB 31; that is,
that because the transaction was made face to face, a valid contract existed and the title
did in fact pass to the defendant. The appeal was allowed and judgment entered for the
defendant.

Lindsey v. Heron & Co. (1921) 64 D.L.R. 92, 98–9 (Ontario Court of Appeal)
The plaintiff asked the defendant if he would be interested in buying shares of Eastern
Cafeterias of Canada. The defendant looked into prices and then offered the plaintiff
$10.50 per share for the “Eastern Cafeteria” shares. The plaintiff agreed and delivered the
shares. The defendant paid by cheque. The defendant then realized that Eastern Cafeterias
Ltd. and Eastern Cafeterias of Canada Ltd. were different companies; he stopped
payment on his cheque. The plaintiff sued. The defendant argued that his offer to buy was
ambiguous, as he could have meant either company. The court held that the “words used
by the defendant manifested an intention to offer the named price for the thing that the
plaintiff was selling.” The mistake on the part of the plaintiff was in using ambiguous
language. The plaintiff did not use ambiguous language in describing the shares for sale;
the ambiguous language of the defendant then, could only refer to that which the plaintiff
was selling.

Marvco Color Research Ltd. v. Harris, [1982] 2 S.C.R. 744 (Supreme Court of
Canada)
The defendants executed a mortgage in favour of the plaintiff as collateral security for a
guarantee of $15,000 owed by Johnston to the plaintiff. The defendants did not read the
document but were assured by Johnston that the mortgage was for $15,000 when in fact it
was for $55,000. The plaintiff sued on the mortgage after Johnston defaulted on his debt
and the defendants pleaded non est factum.
Noting that Carlisle v. Bragg, which formed the basis for the majority decision in
Prudential Trust Co. v. Cugnet, had been overruled in England by the House of Lords,
the court followed the dissenting opinion in Prudential Trust Co. v. Cugnet. The court
held that carelessness may well disentitle a signor from relying on non est factum against
an innocent party. Here, the defendants had been careless and had thereby contributed to
the plaintiff's risk of loss: they could not therefore rely on non est factum and were bound
by their guarantee for $55,000.

McLean v. McLean, 2013 ONCA 788

Copyright © 2016 Pearson Canada Inc. 9-15

Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation Chapter 9

p. 188 footnote 3

Mira Design v. Seascape Holdings, [1982] 1 W.W.R. 744 (British Columbia Supreme
Court)
The respondents purchased property from the petitioners. As a part of the purchase
agreement, the petitioners provided a mortgage to the respondents to be repaid in one
month’s time. The amount borrowed by the respondent’s was $84,000; the mortgage was
for $100,000. It was a term of the mortgage that if the respondent’s paid the $84,000 plus
interest of Royal Bank of Canada prime + 2% per annum by August 15th the mortgage
would be discharged. If the mortgage was not paid by August 15th, the petitioner would
be entitled to demand full payment of the mortgage plus interest; that is, $100,000 plus
interest calculated at Royal Bank of Canada prime + 2% per annum. The court held that
the additional $16,000 amounted to a criminal rate of interest. The court ordered that the
additional payment be severed from the mortgage term.

Murray v. Sperry Rand Corp. (1979), 96 D.L.R. (3d) 113 (Supreme Court of Canada)
The plaintiff bought a forage harvester from a dealer. The dealer and the distributor had
made representations to the plaintiff about the quality of the machine; the sales brochure
of the manufacturer (Sperry Rand Corp.) also made representations about the quality of
the machine. The machine never performed anywhere near the standard set by those
representations, even when the dealer and the distributor tried to run it. This failure
delayed the plaintiff's harvest; part of his crop was lost entirely and much of what was
harvested was overripe and therefore of little value. Ultimately the plaintiff sold the
harvester, gave up farming, and sued the dealer, the distributor and the manufacturer for
breach of warranty. The court held that the dealer made representations to induce the
plaintiff to purchase the harvester: such statements were warranties the breach of which
entitled the plaintiff to damages. The manufacturer was not a party to the contract of sale
but did publish the sales brochure with the intent to induce purchasers to buy its product:
it too therefore had made warranties. Notwithstanding the apparent lack of a contractual
relationship between the plaintiff and the manufacturer, the manufacturer was liable for
breach of warranty. The court's reasoning was as follows: the manufacturer impliedly
warranted the quality of its product in return for the plaintiffs buying that product from
one of the manufacturer's dealers. The distributor, while liable as an agent of the
manufacturer, was also directly liable to the plaintiff in the same fashion as the
manufacturer for the representations it made to the plaintiff.

Pao On v. Lau Yiu Long, [1980] A.C. 614 (Hong Kong – England, Privy Council)
The plaintiffs, owners of shares in a private company, contracted to sell their shares to a
public company in return for a new issue of shares in the public company. The
defendants, who were majority shareholders in the public company, were worried that a
quick sale of the new issue might push down the market price of the public company's
shares. They persuaded the plaintiffs to agree not to sell sixty percent of their newly
acquired shares for over a year.

Copyright © 2016 Pearson Canada Inc. 9-16

Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation Chapter 9

Subsequently, at the plaintiffs' request, the defendants agreed orally to indemnify the
plaintiffs for any losses they might suffer from retaining the shares. Later the parties had
a disagreement and the plaintiffs refused to complete the share exchange contract with
the public company unless the defendants promised in writing to indemnify them for any
losses. The defendants so agreed, the main transaction was completed and the plaintiff
retained the shares as originally promised.
The shares lost value while the plaintiffs retained them, but the defendants refused to
indemnify the plaintiffs for the loss, claiming that their promise to do so was gratuitous
and not binding. The court held that the plaintiffs' promise to retain the shares, although
made before the defendants' agreed to give a guarantee, was valid consideration if:
(a) done at the defendants' request;
(b) the parties understood that the act of retaining the shares was expected to be "paid
for" (that is, was not a "gift");and
(c) the guarantee, had it been bargained for in advance, would have been a binding
arrangement.
The court found that the promise to retain the shares met these requirements and thus was
sufficient to bind the defendants to their guarantee.

Phillips v. Brooks [1918-19] All E.R. 246 (England)

See Case 9.6 at p. 192 in the text.

Raffles v. Wichelhaus (1864), 159 E.R. 375 (England –Exchequer Division)

See Case 9.2 at p. 190 in the text.

Rose v. Pim, [1953] 2 All E.R. 739 (England – Court of Appeal).

Pim received an order from a customer for a supply of "horsebeans described here as
feveroles." Pim asked Rose what feveroles were and Rose replied that feveroles and
horsebeans were the same thing, not knowing that feveroles were a special medium sized
variety of horsebeans. Pim then made an oral agreement with Rose for the purchase of
five hundred tons of Tunisian horsebeans which was incorporated into a written contract.
Pim subsequently brought an action for the rectification of the contract by the addition of
the word "feveroles" after the words "Tunisian horsebeans." The court held that the oral
agreement was for the sale of horsebeans. Notwithstanding the shared mistake as to the
meaning of "feveroles", the written contract correctly expressed the oral agreement and
could not be rectified.

Royal Bank of Canada v. Hussain (1997), 37 O.R. (3d) 85 (Ontario General Division)
The Royal Bank brought an action against H and his wife, A, to recover on personal
guarantees signed to guarantee the indebtedness of four family companies. The Bank's
claim was for $7,160,667.20. H denied liability on the grounds of misrepresentation and

Copyright © 2016 Pearson Canada Inc. 9-17

Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation Chapter 9

non est factum. These grounds were not made out on the facts. H was well-educated,
proficient in English and an experienced and sophisticated businessman and dealt directly
with the Bank's representative. A also denied liability on the grounds of
misrepresentation, non est factum, and unconscionability. She was born in Iraq, her first
language was Arabic and she had difficulty with both spoken and written English. She
had the equivalent of a grade seven education, and had not worked outside the home. The
documents that she signed were brought home by H for her signature. She testified that in
her culture wives did not question their husband's authority, and she signed documents
when asked to do so. She did not read the guarantees or any other documents that her
husband had asked her to sign.
The Court held that there should be judgment against H but the action against A should be
dismissed. The court noted that the defence of non est factum is available when an
individual signing a contractual document is mistaken as to the nature and character of a
document. The defence, however, may not be available if the person is careless in signing
the document. Whether carelessness will bar a party from the defence depends upon the
circumstances. Here, given the real danger that A did not understand what she was
signing, and that she could be subject to undue influence by her husband, the Bank
should have inquired into her understanding at the time she signed the documents and
suggested the need for independent legal advice. In the circumstances, it would be
unconscionable for the Bank to enforce the personal guarantees against her.

Saunders v. Anglia Building Society [1971] A.C. 1004 (England – House of Lords)
The plaintiff was an elderly woman who owned a property. Her nephew was in financial
difficulties and she had wished to make a gift of the property to her nephew with the
proviso that she would have life tenancy. The nephew owed money to his ex-wife and so
did not wish to transfer the property into his name, but he did wish to borrow against the
property for his business. He concocted a scheme with his friend, Lee whereby, the
property would be transferred to Lee’s name and then Lee would borrow the money and
give it to the nephew. The documents were prepared and presented to the plaintiff. She
did not read the document, nor did she ask her nephew to read it to her; she trusted in
what Lee told her, and signed the document. Lee proceeded to borrow the funds from the
defendant Building Society, but kept the money to pay down his own debts instead of
giving it to the nephew as agreed. The plaintiff brought the action to have the property
restored to her name, claiming non est factum. The Court held that a careless signer could
not avoid liability by claiming non est factum. The plaintiff had the opportunity to read
the document, or have it read to her and she chose not to.

Schoff v. Royal Insurance Company of Canada, [2004] 10 W.W.R. 32 (Alberta Court

of Appeal)
The plaintiffs were injured in a car accident and sued the other driver’s insurance
company. The defendant was the insurer of Mrs. Goyan; it was her son who injured the
plaintiffs. The defendant appeals on the basis that they are allowed to deny coverage to
Mrs. Goyan due to misrepresentations made by her. Mrs. Goyan claimed that she was the

Copyright © 2016 Pearson Canada Inc. 9-18

Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation Chapter 9

sole licensed driver in her household and would be the sole driver of the vehicle in
question. She further stated that she owned three vehicles and that she had no prior
insurance claims. These statements turned out to be false. At the time of her application,
Mrs. Goyan lived with four of her sons; all were licensed to drive (although one did have
his license suspended at the time); she owned five cars, not three; and she had had prior
insurance claims. The court agreed that as an insured owed a duty of utmost good faith to
her insurer, the claim could be denied. The court held that the insurance company was
only liable to pay the statutory minimum required ($200,000); it was not liable for the
excess claim above that amount.

Sevidal v. Chopra (1987), 64 O.R. (2d) 169 (Ontario High Court of Justice)
The defendants owned a home for sale. They were aware of radioactive material in the
area, but did not disclose this to the purchasers. Later the defendants learned, prior to
closing, that their own house was contaminated, but again did not disclose this to the
purchasers. The court held that the amount of radioactive material was sufficient to pose
a potential danger and such should have been disclosed to the plaintiffs. The failure to
disclose acted as a misrepresentation; deceit is an established exception to caveat emptor.

Shanahan v. Turning Point Restaurant Ltd. 2012 BCCA 411

p. 188 footnote 3

Staiman Steel Ltd. v. Commercial & Home Builders Ltd. (1976), 71 D.L.R. (3d) 17
(Ontario High Court of Justice)
The plaintiff purchased some bulk steel at an auction. The purchaser believed that the
steel purchased included some pre-fabricated building component members (“the
building steel”) also in the yard. The vendor had never intended to sell the building steel
as it was not the owner of that steel. This was a case of mutual mistake. The court held
that there was a valid contract, but that the reasonable third party would not have
included the building steel in the contract. The defendant owed the plaintiff for the non-
delivery of the other bulk steel purchased, but not received.

State Farm Mutual Automobile Insurance Co. v. General Accident Assurance Co. of
Canada (1995), 127 D.L.R. (4th) 648 (New Brunswick Court of Appeal)
A mother obtained auto insurance from General Accident claiming she owned the vehicle
when her son actually owned and drove the vehicle; the son did not have a driver’s
license. The son was in a car accident and injured a person insured by State Farm.
General Accident claimed that they were not liable for the claim because the policy was
issued as a result of a misrepresentation and was therefore void. The court found that
General Accident was liable and that the policy was not void because the son was driving
with the mother’s consent.

Copyright © 2016 Pearson Canada Inc. 9-19

Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation Chapter 9

Stott v. Merit Investment Corp. (1988), 63 O.R. (2d) 545 (Ontario Court of Appeal)
See Case 9.9 at p. 199 in the text.

Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd. (2002), 209
D.L.R. (4th) 318 (Supreme Court of Canada)
The two parties entered into an oral agreement to develop some land near a golf course.
The agreement was drafted by the lawyer of the defendant. The agreement allowed for
the development of properties on an area with a width of one hundred and ten yards, but
when the document was reduced to writing the measurement was changed to one hundred
and ten feet. The court held that there was fraudulent misrepresentation on the part of the
defendant and that the plaintiff was entitled to rectification. The Supreme Court affirmed
the decision with respect to rectification.

Terry v. Vancouver Motors U-Drive Ltd. and Walker, [1942]1 W.W.R. 503 (British
Columbia Court of Appeal)
Walker rented a car from Vancouver Motors U-Drive Ltd. using the license of a man
named Hindle. While negligently driving the car, Walker injured the plaintiffs who sued
Vancouver Motors. Under s. 74 of the Motor Vehicle Act, R.S.B.C. 1936, c. 195,
Vancouver Motors' liability depended on whether or not Walker was driving the car with
Vancouver Motors' express or implied consent. That question in turn depended on
whether the rental contract between Walker and Vancouver Motors was void. The court
held that even though Walker was fraudulent about his identity, the company intended to
contract with the person who appeared before them. Therefore the contract was not void,
Walker had been driving with Vancouver Motors' consent, and the company was liable
for the injuries caused to the plaintiffs.

Tilden Rent-A-Car Co. v. Clendenning (1978), 18 O.R. (2d) 601 (Ontario Court of
Appeal)
Clendenning signed a written contract with Tilden to rent a car He opted for additional
insurance coverage as suggested by the rental agent to exempt him from any liability. He
did not read the conditions of the contract nor was he given notice of the conditions. He
was in an accident with the rental car, as a result of which he pleaded guilty to impaired
driving. Tilden sued for the damage done to the car, claiming that Clendenning had
breached one of the terms of the rental contract; that is, the customer would not operate
the vehicle after having consumed any amount of intoxicating liquor. The court accepted
Clendenning's evidence that he had not been intoxicated while operating the vehicle,
despite his guilty plea under the impaired driving charge. Further, the court held that even
where a party has signed a contract, that party will not be bound by surprising or
unreasonable terms if sufficient notice was not given of the terms. In this case, the court
found that the term in question was unreasonable and that Clendenning had not received
sufficient notice.

Copyright © 2016 Pearson Canada Inc. 9-20

Solution Manual for The Law and Business Administration in Canada Plus Companion Website wit

Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation Chapter 9

Webster v. Cecil (1861), 54 E.R. 812 (England- Chancery Division)

See Case 9.1 at p. 188 in the text.

Whittington v. Seale-Hayne (1900), 82 L.T. 49 (England – Chancery Division)

The plaintiffs were breeders and exhibitors of valuable, prize poultry. They entered into
oral negotiations with the defendant's agents for the lease of a house and premises. The
plaintiffs alleged that in response to their inquiries, the defendant's agents represented
that the premises were very clean and in good repair. (The defendant later denied that any
such representations were made but the court found that they were made, although
innocently). The plaintiffs agreed to lease the premises for twenty-one years, and the
parties then executed a lease which the plaintiffs did not read. The lease made the tenants
responsible for any repairs to the property required by public authority.
The plaintiffs set up their manager and his family in the house, and stocked the premises
with poultry. The property's water supply turned out to be poisoned; the manager and his
family fell ill; the poultry died or became valueless for breeding purposes; and the local
Council declared the house unfit for human habitation. The Council required that the
drains be fixed and the house be made fit to live in. The plaintiffs sued for rescission of
the lease and for compensation for the injuries caused by the bad water. The court held
that the plaintiffs were entitled to rescission (including return of rent and taxes paid as
well as the cost of the repairs) because of the innocent misrepresentations made to them,
but they were not entitled to compensation for the injuries sustained because that would
amount to damages, which do not flow from an innocent misrepresentation.

Copyright © 2016 Pearson Canada Inc. 9-21

Visit TestBankBell.com to get complete for all chapters