ADMS 2610: Elements of Law Review Notes Week 1
Action: action of one party against the other
- An action is a claim brought in court by people (or entities who have legal rights, such as a company)
against one or more people/entities
- begins with a claim and ends in a decision of the court
- Synonyms: law suit, case, legal proceeding
Case: same thing as ‘action’but refers to the decision of a court… usually sets out the type of case, the facts on
which a decision will be made, the legal principles used in making the decision and the decision itself
- Decisions of the case are identified by name(s)
- Plaintiff: person bringing law suit …defendant : person against whom the action is brought
- Example: Stewart Jones v. Bank of Montreal. Aka Jones v. Bank of Montreal.
Legislation: written law passed by particular level of government, determined by Canadian Constitution
- Federal government = federal legislature/ house of commons
- Provincial government = provincial houses/ legislatures
- To enact/make legislation = when a level of government passes legislation..it then becomes law
- Presented in the form of a bill (the written law to be considered by federal/provincial MP)
o When passed , the bill becomes a piece of legislation/legislation/ a statute/enactment/act
- Synonyms: statutes, enactment (of) , acts
- Will say whom it applies to…codified in writing
- Example: Income Tax Act, Canada, is a statute or Act or enactment or piece of legislation or
simply legislation made, passed or enacted by the federal government (federal parliament or House of
- Example: Libel and Slander Act of Ontario is an example of statute or Act or enactment or piece of
legislation or simply legislation made, passed or enacted by the Ontario government.
Jurisdiction: 2 meanings
1) The power of a level of government or a court over something and/or the right of the federal or
provincial government to make laws in a specific area.
JURSIDICTION :Sections 91 + 92 + the paramountcy rule
In sections 91 and 92 of the Canadian Constitution, the power or authority over specific areas of law or to
make law in a specific area is divided between the federal and provincial governments. - Section 91: the areas of law under the control of the federal government or the areas in which the federal
government can make laws such as criminal law ( has exclusive jurisdiction over it)
- Section 92: the areas of law under the control of provincial governments or the areas in which the
provincial governments can make laws, such as property and civil right (has exclusive jurisdiction over
- the jurisdiction of the federal government is set out in section 91 of the Constitution and
the jurisdiction of the provincial governments is set out in section 92
- Concurrent Jurisdiction: both federal and provincial governments have control over same area of law or
there is an overlap in the ability to make laws over the same area (91 +92)
o Conflicting laws made by federal and provincial governments cause problem
o Solved by using Paramountcy Rule
Paramountcy rule: where there is a conflict between a law made by the federal and provincial governments or
where the federal and provincial governments make similar laws or legislation which conflict with one another,
the federal legislation will prevail over provincial legislation
Delegation: passing legislation + power on to someone else ( delegating jurisdiction over an area of law by
provincial governments to lower levels of government
- Provincial government may delegate a form of power/control over certain area of law to municipalitites /
cities, thereby giving them the power to make laws in a given area. (delegated its jurisdiction to the
municipality or city.)
- Aka bylaws
2) Jurisdiction: has to do with the power or authority of a court or other legal body such as a tribunal
established by either the federal or provincial governments
- in regards to the courts, jurisdiction = the power, authority, control and/or ability of a court to make
decisions over or in a given area or areas of law…the court has jurisdiction to make decisions over an
area or areas of law
- Tribunal: lesser bodies that the power is passed down to deal with issues
o power that they have is given or granted or delegated to them by a particular level of
o federal government can delegate decision-making power over matters concerning privacy to a
federal tribunal such as the Privacy Commission
o provincial government can delegate power over liquor licensing to the Ontario Liquor Licensing
- The superior court of record can hear any area of law it wants to ..provincial court cant - The house of commons has jurisdiction over all smaller courts
Parties: plaintiffs and the defendant or defendants is/are called the parties to the law suit or action
Plaintiff: The person who brings or commences a law suit or action at law
Defendant: person against whom the law suit or action at law is brought
THE CANADIAN LEGAL SYSTEM is comprised of 3 branches of government:
1. Legislative Branch: made up of the federal legislature or provincial legislature
- prepares and creates codified (written) law in the form of enactments/statutes.
- in order to determine which government has the right to enact a statute or legislation, you must refer to
the Canadian Constitution which is comprised of both the British North America Act, 1867 (now called
the Constitution Act, 1867); and the Canadian Charter of Rights and Freedoms.
- ConstitutionAct 1867: sections 91 and 92 set out the division of powers between the Federal
Government (section 91) and the Provinces (Section 92)AKAthe jurisdiction of the Federal
Government and the provinces.
- the federal government has exclusive jurisdiction over criminal law, navigation and shipping,
bankruptcy and insolvency, national defence and currency etc…,
- provincial governments have jurisdiction over property and civil rights, matters of a local or private
nature in a province, the solemnization of marriage, administration of justice (the court system) etc
- concurrent jurisdiction may occur: ex)public health issues…the doctrine of paramountcy applies
(where there is a conflict or inconsistency between federal and provincial legislation, the federal
2. Executive branch: makes and executes or puts into force government policy, as well as administers all
departments of government.
- Made up of the prime minister (federal)/premier (provincial) and their Cabinets (made up of ministers of
various governmental departments)
- Responsible for making regulations for particular statutes
- Regulations: provide procedures and rules under a given statute and/or fill in blanks left in the statutes.
o Regulations and the making of rules form the basis of Administrative Law (area of law that
relates to the various boards, agencies, tribunals and commissions who exercise some form of
governmental function provided for by legislation and the regulations that apply to them.)
3. Judicial branch: This branch is composed of judges who are appointed by either the federal or provincial
governments. .. preside over civil disputes and criminal proceedings and dispense or administer justice
in the courts of the provinces.
In Ontario and most provinces, the system of courts, is divided as follows (ascending):
1.Small Claims Court: In Ontario (Ontario Small Claims Court) matters up to $ 25,000.00 2. Superior Court: In Ontario (Ontario Superior Court of Justice) where civil and criminal actions are tried;
3.Divisional Court: In Ontario, (Ontario Divisional Court) it is comprised of 1-3 judges of the Superior Court
and usually hears appeals from Small Claims court and from certain types of matters arising out of Superior
4. Court of Appeal: In Ontario (Ontario Court of Appeal) is comprised of up to 3 judges of the Superior Court
and deals with appeals from civil and criminal decisions of the Superior Court.
5. Supreme Court of Canada: the Judges are federal appointments. ..Deals with appeals from provincial courts
of appeal on matters of public importance only, which requires that permission or leave to appeal a matter
from a provincial court of appeal must first be
Obtained from the Supreme Court of Canada.
The Role of Common Law
Private law: laws relating to the rights of individuals is founded in what is called Common Law
Common Law: legal principles which were established first by feudal lords and later by courts over centuries in
England, and which today embody rules relating to custom and usage, Mercantile Law (the law of the sea), the
Law Merchant (commercial law), Canon or religious law, and rules or principles of fairness known as the law
- Not codified…based on following earlier decisions in similar cases, something we now call precedent
(form basis for decision).
- Precedent: Decisions of previous cases + decisions used to make decision on case
o b/c theres s many different civil courts, precedent important in understanding the degree to which
a decision of a particular court is valued.
Rules of Common Law:
1. For a given set of circumstances or facts, a lower court is bound by (must follow) the decision of a
higher court within the same jurisdiction.
- not necessarily of a higher court in another province. Supreme court of Canada decision is binding on
any lower court.
- whenever a matter is argued before a court, lawyers will look for applicable cases of higher courts to
help them succeed. (precedent)
- the Supreme Court of Canada is the highest court in the country, it has the right to decide a case in any
way it wants to.
- For example, in Ontario, the Ontario Superior Court of Justice is bound by a decision of the Ontario
Court ofAppeal, if there is no decision of the Supreme Court of Canada on the point, but is not bound
by a similar decision of the Ontario Superior Court of Justice. Similarly, the Ontario Court ofAppeal is
bound by a decision of the Supreme Court of Canada if there is one.
Public Law is law that relates to or regulates matters as between people and governments at all levels. For
example Constitutional Law, Criminal Law, Tax Law andAdministrative Law.
Private Law relates to individuals and their dealings, such as Tort Law and Contract Law.
When two or more people have a legal dispute, = they are parties to the dispute 3 ways to resolve a legal dispute:
1) Negotiation: the people on each side of the dispute together with a representative (usually a lawyer) sit
down together and attempt to find a solution suitable for everyone.
a. normally involve compromises on the part of one or both of the parties and there is little cost
involved ..only the time invested in the negotiations.
2) Alternative Dispute Resolution: when negotiation fails/ not attempted
Mediation: meeting of the parties to the legal dispute before a Mediator
- an expert in the area of law involved and agreed on in advance by the parties
- tries to help parties resolve dispute by reviewing material prepared by each party contained in the
- All parties to the dispute must be present at the mediation w/ representative (usually lawyer)
- Mediator listens to each side + says which one he/she feels is better position
- Meets goes back and forth b.w parties to suggest + discuss other methods to resolve dispute
- Mediator doesn’t make binding decision ..just tries to help resolve by suggesting
- Everything said in mediation must be kept private and not as evidence if go to trial
- Fees: parties pay equal share
- Mediation is relatively inexpensive, ranging from perhaps $ 500.00 to not more than $5,000.00 for a
legal dispute that is not complex in nature, and increasing where the dispute becomes complex or where
there are many parties to it.
Arbitration. results in a decision that usually binds the parties..Arbitrator agreed on by the parties
- the parties agree to submit to theArbitration and be bound by theArbitrator’s decision, and the parties
let theArbitrator decide the dispute.
- less formal than the procedure involved in a law suit using the Court process.
- A brief of materials (an Arbitration Brief) is prepared by each party for review by the Arbitrator who
hears evidence from each party and their respective positions based on existing law in the area.
- no appeal of theArbitrator’s decision, unless theArbitrator does something that he did not have the
authority to do(exceeded jurisdiction)
- the cost of an Arbitration is often shared
- Parties today often use mediation as opposed to arbitration…arbitration more common in int’l legal
3) Litigation: aka law suit
- Parties look to the courts to resolve legal dispute.. plaintiff..defendant..party
- Third party etc: other parties who become involved in law suit when defendant pushes responsibility of
suit onto other
The 10 Normal Steps in anAction where the amount claimed is more than 50,000.00 or the procedural
rules of court require it: 1. Plaintiff commences the action with something called a Statement of Claim: a legal document prepared by
the plaintiff’s lawyer, which sets out the names of the plaintiff and defendant and any other party(ies) - (the
parties to the law suit); the relief sought by the plaintiff from the court; and a statement, in paragraph form, of
the circumstances that make up the plaintiff’s claim.
2. Plaintiff’s lawyer delivers the statement of claim on the defendant(s). This process is called service on the
defendant of the statement of claim.
3. The defendant’s lawyer prepares a Statement of Defence and delivers it to (serves it on) the plaintiff.
- The statement of claim and statement of defence, are called pleadings and delivery of pleadings to the
opposite party(ies) = first real step in litigation
4. These days, within a certain period of time after the defendant delivers the statement of defence, the
parties must go to a Mediation in an attempt to settle/resolve the action
5. Examinations for Discoveries or Discovery :2 forms:
- documentary discovery: each party produces the documents in their possession which they believe are
relevant to their claim or defence.
- oral examinations: the lawyer for one party gets to examine and ask questions of the other party.
- example: the plaintiff’s lawyer has the right to examine the defendant on anything relevant to the litigation
and similarly, the defendant’s lawyer has the right to examine the plaintiff.
- usually held in a special office.. with a court reporter present to record the oral examination and
transcribe it or set it out in words into something called transcripts
- transcripts :for review by the parties, their lawyers and the court…present at trial
- purpose of the Discovery process is to enable each side/party to know the other parties case/position.
6. Once discoveries are complete, the action is made ready for trial by a process called setting the action down
7. Pretrial Conference: a conference held before a judge of the court in which the action has been brought,
but not the judge who will hear the trial.
- For example, if the action has been brought in the Ontario Superior Court of Justice, a judge of that court will
preside over the Pre-trial Conference, but will not hear the trial, which will be heard by a different judge of the
Superior Court of Justice.
- Pre-trial Conference Briefs prepared by lawyers: set out the positions of the parties and are reviewed by the
pre-trial judge who then gives his or her opinion as to what the outcome at trial is likely to be (i.e. who will win
and who will lose).
- Both parties must be present to know opinon and try and settle/resolve
8. no settlement= go to Trial and subject to compliance with procedural rules, the trial will be presided over
either by a judge alone or by a judge and a civil jury composed of 6 individuals.
- the evidence is heard and a decision (judgement) is pronounced in favour of one of the parties.
- just judge= judges decision alone
-judge and jury = the jury gives its decision or judgment. 9. parties satisfied w/ outcome = next stage of enforcement, where the party who succeeds at trial will enforce
the judgment against the party who lost, to recover whatever was awarded at trial.
10. If one party is not satisfied, then that party has the right to Appeal the judgment to a higher court. In this
case, normally the Ontario Court of Appeal.
Costs of Litigation: unless theres a contingency agreement between a party litigant and his/her lawyer, that
party will have to pay his lawyer’s fees and costs.
- where a party succeeds at trial, that party will be awarded costs based on scales of costs developed by
3 types of cost awards:
1. Partial indemnity cost: (called party and party cost). gives the party to whom it is awarded between
one-half to two-thirds of that party’s legal fees together with all reasonable disbursements(travel
2. substantial indemnity costs( solicitor and client costs):gives the party to whom it is awarded about three-
quarters or a little more of his/her legal fees together with all reasonable disbursements.
3.solicitor and his own client costs; punitive in nature.
- meant to punish a party.. perhaps for some form of conduct during the action or trial or perhaps for wasting
the court’s valuable time
- Here the party who is awarded such costs is principally reimbursed his/her legal expenses penny for penny
so as to recover them in full. ..rare
More on costs lecture summary 3 paragraph after this one.
Parties ToALaw Suit and Pleadings: there can be more than one party to a lawsuit + different claims
asserted by different types of pleading b/w the parties to dispute
- For example, assume thatACompany sues B Company to recover $ 60,000.00 being the price for goods
sold byA. Company to B Company. Given these simple facts, ACompany will be the plaintiff and B
Company the defendant. That is, A Company will proceed by Statement of Claim and B Company will
defend by Statement of Defence.
Counterclaim: a form of pleading that allows a defending party to sue the plaintiff back
- though B company hasn’t paid Acompany, B company worked forAcompany 80, 000 and was
- since B company has a claim againstAcompany for the 80 000 work done, This would give B Company
the right to sueACompany back
- counterclaim incorporated into the statement of defence so that this pleading now becomes a statement
of defence and counterclaim… the action will be framed: Statement of claim by A Company against B
Company claiming $60,000.00; Statement of Defence and Counterclaim by B Company in which B
company will deny it owes the $ 60,000.00 to ACompany and will claim that, in any event, Acompany
owes it $80.000.00.
Third Party Claim: shifting blame
- For example, assume thatAis injured by B’s car. NormallyAwould sue B so thatAis the plaintiff and
B the defendant. However, now assume that B’s car hitA, only because it was struck in the rear by C’s
car. In the context of an action brought byA, as plaintiff, against B, as defendant, B will want to sue C and to do this will prepare something called aThird Party Claim, in which B will say that B is not
responsible forA’s injury, rather C is. Alternatively, B will say that if B is responsible forA’s injury, so
is C. C is the Third Party. In both cases B will also want to sue C for any damage to his car or injuries
he sustained because C’s car hit him. Thus, the action will be framed Statement of Claim by A against
B; Statement of Defence by B, and Third Party Claim by B against C.
Crossclaim: used where one defendant feels that the other defendant is totally or partially responsible for the
- occurs in actions where there are more than one defendant
- in the example above of A’s injury caused by B’s car which was rear-ended by C’s car, instead of simply suing
B,Acould have sued both B and C for his injuries, leaving it to a court to decide who is responsible.
- In this situation,Awill recover from either B, C or both B and C, but will not care so long as he recovers for
- Thus, Abecomes the plaintiff, and B and C both become the defendants.
- Since, however, B believes that C is fully responsible, B will assert a claim against C saying that first C, not B
is responsible forA’s injury and secondly, that even if B is technically responsible, C is really responsible and
should reimburse B. In much the same way, C will probably assert that even if C was responsible for the
accident, B also has partial responsibility. Each of the assertions by B and by C will be done by way of a
document/pleading called a crossclaim. Thus, the action will be framed as follows:
Statement of claim byAagainst both B and C. This will be met with Statements of Defence by both B and C,
but incorporated into B’s Statement of Defence will be B’s Crossclaim against C. Similarly, incorporated into
C’s Statement of Defence will be C’s Crossclaim against B. The result is, Statement of Claim by A, Statement
of Defence and Crossclaim by B, Statement of Defence and Crossclaim by C.
PART 1: UNDERSTANDING FORMATION OF CONTRACTS - INVITATION TO TREAT, OFFER,
EVENTS BRINGING OFFER TOAN END, CONNSIDERATIONANDACCEPTANCE,APPLICABLE
Contract: an agreement made between two or more persons that is enforceable at law..not tangible.a legal
concept. Exists when all elements of a valid contract established:
- Intention to create a legal relationship
- Capacity to contract
Contracts mist have elements to be binding + must be free if misrepresentation, mistake, or undue
Contract law differs from tort law: if parties comply with principles laid down for creation of an enforceable
contract, they are free to create specific rights and duties of their own that the courts will enforce.
Intention to create a legal relationship: meeting of the parties mind on the terms and conditions that will form
their agreement with each other.
Intention to be bound: the assumption at law that strangers intend to be bound by their promises
- Agree to do , or refrain nfrom doing things in return for promise of the other to do certain things in
- Must establish particular elements of contract frst
- Consensus ad idem: agreement as to the subject oof the contract by both parties.
- Intention ofApromisor to be bound by a promise made in the contract - Presumption that promises made show intent to start a legal relationship (not really in family or
friends)..no obligation there …
Offer: a tentative promise subject to a condition
- Only a promise made with the intention of creating a legal relationship may be enforced
- Not binding on offering party bc still waiting on other party to accept conditions and bind themselves
- Only when valid acceptance takes place do the parties become bound by offer.
- First rule for offer and acceptance: an offer must be communicated by the offerer to the offeree before
acceptance may take place
- Second rule: only the person to whome the offer is made can accept the offer
Invitations to treat: meant to open up neotiations to get to the offer
1. Offer vs. Invitation to Treat:
Example 1: A says to B, “would you like to but my car” or “I am interested in selling my boat”, or B says to A,
“are you interested in buying my car?”
- All of these statements are invitations to treat, meant to open up negotiations to get the next step which
is an offer.
Example 2:A goes onto a department store, where the clothes are displayed on the racks with the prices on
them. A takes an article of clothing from the rack priced at $ 6.00 and takes it to the
cashier. A hands $ 6.00 to the cashier. The cashier, who has the ability to accept or reject
the money, takes it.
- Here, the display of goods on the racks, is merely an invitation to treat. The offer (which is an offer to
purchase by A made to the cashier) is made by A when takes the goods off the rack to the cashier. Then
the cashier accepts the offer, when the cashier rakes the money fromA.
Example 3: A and B are discussing the purchase of A's car which is 3 years old. During the
discussions, A says to B, "I am happy to sell you the car", or "here are copies of my work
orders for repairs and upkeep to the car."
- In this case, both of A's statements are merely invitations to treat.
Example 4: A says to B, “I will sell you my car for $500.00. This is another way of A saying to B, I
promise to sell you may car for $ 500.00 or “I offer to sell you my car for $ 500.00.
- Each form of statement is an offer, because it is a promise made by A intended to have legally binding
consequences if B accepts. Note that both the subject matter (the car) and the price must
be contained in an offer.
2. Termination of Offer:
A: By Rejection:
Example 1: Aoffers to sell his car to B for $ 500.00. If B says no, or I am not interested simply
walks away, or remains silent, saying nothing, he has rejectedA’s offer.
B: Revocation: termination of an offer by notice communicated to the offeree before acceptance.
Option: a separate promise to keep an offer open for a period of time Example 1: A offers to sell his car to B for $ 500.00, but before B has a chance to accept, A says to B, I am
revoking (withdrawing or taking back) my offer. This is a direct revocation of A’s offer by A and
the offer is over.
Example 2: On June 10, A delivers to B a written offer to sell his car for $ 6,000.00. The offer states that it
will be open for acceptance until 9 a.m. on June 12. On June 11, B hears that A is agreeing to
sell his car to C. On the evening of the 11th, B goes to A’s house and delivers a written
acceptance of A's offer. On the following morning, B personally tells A he accepts. However, A,
refuses the acceptance saying, you are too late. I have sold the car. B now sues A alleging that
there is a contract between them under whichAhad to sell the car to B.
Here, at common law, although the offer stated that it would be open for acceptance until 9 a.m.
on the 12th, it was not binding on A, who did not have to (or was not required to) keep the offer
open to 9 a.m. on the 12th. For this reason, A could revoke his offer at any time before
acceptance. Also, at common law the offer had been effectively revoked (withdrawn or taken
back) by A, because B had learned in advance that A was selling to someone else. In other
words, A’s revocation came through and was communicated to B by a third party and was
Please note that if A had made his offer to B irrevocable to 9 a.m. on the 12th, (meaning that it
could not be revoked until that time) then A would have had to keep his offer to B open for B’s
acceptance until 9 a.m. on the 12 so that so long as B communicated his acceptance to A before
that time, the acceptance would have been enough to create a contract betweenAand B.
Example 3: On August 1st, A sends an offer to B which says I will to sell you my car for $ 6,500.00 and my
offer will be open for acceptance until August 15th. A receives no other offers between August
1st and 15th, and on August 17th B decides to acceptA's offer.
Here, because the offer specified a time for acceptance, once the time for acceptance by B had
expired (was not accepted within that time) there is no contract. The offer was had been revoked
because of B's failure to accept within the specified time period
c: Lapse: Lapse in an offer: termination of an unaccepted offer b the passage of time, a counteroffer, or the
death of a party.
There are fours kinds of Lapse:
1. Rejection (see above)
2. Death of the offeror after making the offer, but before acceptance. The offer has lapsed, because there is
no one for B to communicate his acceptance to.
3. Death of the offeree before he accepts the offer. The offer has lapsed because the offeror B, being dead,
cannot communicate acceptance to the offeror.
4. Failure to accept the offer within a reasonable time, based on the subject matter of the goods being
offered. See below: Example 1: On June 1st, A offers to sell 40 bushels of grapes to B. B waits until June 22nd to accept A's
offer. However, by this time, A has sold the grapes to C. B now sues A saying they have a
contract. In this case we will assume that the storage period for perishable grapes is 2 weeks after
which they cannot be sold for their full value.
Here and leaving aside the ability of A to accept another offer, given the assumption above about
the storage period for grapes, a court would probably hold that the offer had lapsed around June
14th if not sometime before that date, so that A was free to sell to someone else after the offer
had lapsed. Common law says that A must have the right to sell his perishable goods to someone
else if B does not accept within a reasonable time before they go bad and can no longer be sold.
Example 2: Instead of perishable goods,Aoffer to sell steel beams to at 1,000.00 per steel beam.
Here given that the subject matter of the offer will last a long time, a reasonable time for
acceptance might be a month to a number of months, depending on the marketability of the steel
D: Counter Offer:
Example 1: A offers to sell his car to B for $ 6,000.00 and B says I will buy the car from you for $ 4,000.00.
B has made a counter offer which is actually two things, a rejection of A's offer and a new offer
In this situation A was the original offeror and B the offeree. However, the moment that B
made hiscounter-offer of $ 4,500.00, it broughtA’s offer to an end (it can never be accepted) and
making B the offeror and A the offeree. If A accepts B's offer of $ 4,500.00, there is a contract.
However, assume that A's response to B's counter offer is simply "I will not sell it for less than $
5,000.00”. Here, A's statement is a new counter-offer, ending B’s counteroffer and making A,
once again, the offeror and B the offeree. If B agrees to pay the $ 5,000.00 amount, there is a
3: Communication of Acceptance:
- only the person to whome the offer is made can accept the offer
- Acceptance: a statement or act given in response to and in accordiance with an offer
- Rule of acceptance: acceptance of the offer must be communicated to the offeror in the manner
requested or implied by by the offerer in the offer
- Rule for acceptance by post: the acceptance of the offer takes place wheb letter of acceptance, properly
addresses and postage paid is places in the postbox or post office
- Acceptance not complete until offerer made aware of acceptance
- Page 124: summary of types of acceptance
- Until offer is accepted, no legalobligations arise…death prevents formation of contract
Example 1: Aoffers to sell his car to B for $ 6,000.00. Since no method of communication of acceptance is specified, B can accept A's offer in a
number of ways:
(i) by orally accepting it.
(ii) by acceptance in writing;
(iii) by acceptance by fax, phone, e-mail etc...
(iv) in ordinary circumstances, by mailing his acceptance to B.
Example 2: Aoffers to sell his car to B for $ 6,000.00 and the offer specifies that acceptance must be by hand
delivering a written acceptance toA. However, B decides to sendAa fax acceptingA's offer.
Here there is no contract, because the manner of acceptance has been specified.
PART 2:ANOTHER LOOKAT CONSIDERATION
CONSIDERATION: something that has value in the eyes of the law, and which a promisor receives in return
for a promise.
- Can take the form of moneey, performance of service, promise not to do something by a promisor,
delivery of property, promise in return for a promise. Etc
- Consideration must be something done with respect to the promise offered by the promisor…
- Gratituitous promise: when promisor doesn’t get anything in return for a promise
Seal: a formal mode of expressing the intention to be bound by a written promise or agreement.
- Usually takes the form of signing or affixing a wax or gummed paper wafer beside the signature …
making engraved impression on document itself
- Enforces promise, validates contract
Tender: govt example discussed later..
Adequacy of consideration: courts don’t really care..more concerned with that the consideration is legal..do
care if error is made
- Selling 30,000 mistakenly stating 300 300 offer doesn’t apply and cannot be accepted by offeree
- Consideration has to be something of value received..cannot be what they are already entitled to or
already have gotten.
- Consideration must be something of value that promise will pay, do, orprovide at time promise is
made(presental presentation), or at later date (future consideration)
- Past consideration: if person has received benefit of the promise before, then nothing is given in
received for promis, gratituitious and in the past.
Legality of consideration: public policy dictates that the contract must be lawful and consideration legal in the
sense that promises do not violate any law.
Example 1: Aoffers to sell his car to B for $ 6,000.00. Here, if B accepted, the consideration given by A would be the car and the consideration to be
given by B would be the money.
Example 2: Aagrees with B to provide B his services as a body-guard for 1 month at a price of $ 2,000.00.
Here the consideration paid by A is the performance of his services as a bodyguard for 2 months
and the consideration paid by B is the $ 2,000.00.
Example 3: Aagrees with B thatAwill repair B's fence in return for B paintingA's house.
The consideration given by A is the repair of B's fence and the consideration given by B is the
painting ofA's house.
Example 4: Aagrees in writing to build a shed for B. Aaffixes or attaches his seal to the written agreement.
Here since the agreement is under seal, consideration is unnecessary and A must build a shed for
Example 1: On January 1st, a municipality calls for tenders on a contract to repave a highway for the
municipality. The due date for tenders is 5 p.m. January 20th. There is nothing in the call for
tenders that requires that an offer made in response to the call for tenders cannot be revoked
(taken back) or that the offer must be under seal. On January 16th, after realizing that the price
in its offer contained an error, A Company advised the municipality that it was withdrawing its
In this situation and because the tender has not been accepted and has not been made
“irrevocable”, ACompany has the right to withdraw/revoke its tender before acceptance.
Example 2: Same as example 1 except this time the call for tenders specifically provides that the tender
is irrevocable (cannot be withdrawn).
In this case,A Company cannot withdraw its tender.
C: The Doctrine or Rule Regarding Past/Fresh Consideration:
Example 1: A, at the request of B, enters into a contract to buy a horse from B for a certain price. Just after
entering into the contract, B tells A that the horse is extremely healthy. Later, A discovers that,
in fact, the horse is in ill health and about to die. Anow sues B for breach of contract.
B's promise about the condition of the horse (its excellent health) was made after the contract of
purchase and sale of the horse was made and it was not supported by fresh or new consideration.
Acould show nothing but past consideration.
Example 2: A repairs a fence for B while B is away for a one week vacation. When B returns from his
vacation, he sees the repaired fence and promises to payA$ 300.00 for doing this. Here A has performed a gratuitous act for B. Because the repair was done before B made his
promise pay A the $ 300.00, there is no fresh or new consideration for B's promise. The
consideration byAcame before B's promise and is past consideration.
Example 3: B asksAto repair his fence during his vacation and at that time promises to payA$ 300.00.
Here there is a contract. If A repairs the fence while B is on vacation, B will be obligated to pay
Athe $ 300.00.
Example 4: A simply promises to repair B's fence, but later changes his mind (before repairing the fence). B
is now upset and wants to makeAdo what he promised.
A has made a gratuitous promise to B, nothing more. Accordingly, B cannot now enforce it.
There is no consideration flowing from B to A. In other words, A has made a promise
unsupported by consideration.
Example 5: On January 1st, A and B enter into a contract under which B will renovate A's house by
September 1st, for $ 60,000.00. By June 2nd, B has not yet started the renovations and A is
getting worried, so A tells B that he will give him an extra $ 5,000.00 if B completes the
renovations on time. B completes the contract on time and now asks Afor $ 65,000.00.
Here there is an existing contract which requires B to complete the renovations to A's house by
September 1st, and the consideration for that contract has already been agreed on or fixed. There
is no new or fresh consideration for A's promise to pay the extra $ 5,000.00 and as a result, A is
not required to pay B more than $ 60,000.00.
C: Debtors and Creditors:
Example 1: In June 1st, A loans $ 5,000.00 from B to be repaid by December 31st. Here A is the debtor and
B the creditor. On November 1, B says toA, rather than pay me the full $ 5,000.00 just pay me $
3,500.00 and your debt will be cancelled. A pays the $ 3,500.00, but B changes his mind and
tells Ahe wantsAto pay the balance of $ 1,500.00. Arefuses and B now suesA.
In this situation you must distinguish between the approach taken by common law and the
approach now legislated by statue in the provinces. At common law, the rule was that "payment
of a lesser sum, before the due date, in satisfaction of a greater sum is no payment at all."
This is because there is no fresh consideration to support the promise to accept a lesser sum in
full satisfaction of a greater one. Accordingly, at common law B would succeed in recovering
the balance of $ 1,500.00 fromA.
NOTE: However, by statute today, this rule has been modified so that B's agreement to accept
the $ 3,500.00 would be binding on him so long as Apaid it on time.
- When a debtor pyays the debt when it is due, the debtor creditor relationship ends bc debtor has fully
satisfied the obligations under contract…creditor has no rights under contract once they have received
payment in full - Law relating to Consideration applies when: When the debtor and creditor agree that the amount payable
on the due date should be less than the full amount actually due
o Gratituitous promise of creditor to accept lesser amount..not enforceable..so even when lesser
aoiunt is received, creditor can still sue and get remaining funds
o One method to solve: if parties write agreement in written form and signed and seal it by
creditor..eliminates problem of lack of consideration
Other method : creditor can accept something other than moneyin full satisfaction of debt
Like his assets…car home
o Final exception to consideration: when a third party pays the lesser sum for the debtor to the
creditor in satisfaction of the full deb
D: Avoiding the Doctrine of Past/fresh Consideration:
A: Quantum Meruit:
Example 1: On January 1st, A, a builder, promises to build an addition to B's house. A completes the
addition on June 1st. A now decides that A wants to be paid for his work and services. B
takes the position that A's promise and subsequent work were unsupported by
consideration and that B owes Anothing.
In this example, the first thing to recognize or understand is that B has been unjustly
enriched at the hands of B (he has got a benefit of the addition ot the house without
paying for it.) This is unfair, so common law now regards says A's promise and work is
such that any reasonable person would imply an obligation on the part of B to pay A a
reasonable amount for B’s work in building the addition to B's house. If A and B cannot
agree on a reasonable amount, the law will imply a reasonable amount by reference to the
building trade and the normal cost of such an addition. In other words, A can make
a quantum meruit claim for the work and services supplied.
Quantum Meruit:a quasi- contractual remedy that permists a person to recover a reasonable price for services
andor materials requested, where no price is established when the request is made (plumber )
- Implied promise of payment for reasonable price
- Parties agree on price after services rendered= agreed price prevails
- If cannot agree, courts decide based on goods and area in which service rendered
B: Promissory Estoppel or Estoppel:
Estoppel: a rule whereby a person may not deny the truth of a statement of fact made by him or her when
another peron has relied and cted upon the statement…
- Cases of equitable estoppel: where it is deemed fair to enforce graituitous promises…aka promissory
- Promise relies on promise for their later loss
Example 1: NOTE: Please refer to the example of the High Trees decision referred to in the lecture which I have
paraphrased below and is cited as Central London Property Trust, Ltd. v. High Trees House Ltd. (1947)
In England 1941 Landlord and tenant enter into a contract whereby the tenant will rent an apartment form the
landlord for $100 (it was really 100 pounds) a month for 5 years. England enters WW2 in 1942 and Landlords
says to tenant, so long as England is at was, no rent is payable. Tenant, taking the landlord at his word, pays no
rent during the war. The war ends in 1945 and now landlord sues tenant for all rent from 1942. Here the contract is tenant rents an apartment for 5 years at $100 an month and the new promise is during the
was no rent is payable. However, at common law, there is no new or fresh consideration for the promise and so
the promise would fail and the tenant would owe all rent form 1942. To get around this the doctrine of
promissory estoppel was created which basically said that where there is a contract and then a new promise is
made (by the landlord) on which the tenant relies to his harm or detriment, then if the Landlord sues the tenant
on the contract, the tenant can raise the promise “during the war no rent is payable” as an absolute bar or
defence to the landlord’s law suit. In other words when the landlord sued on his promise, the tenant could raise
the promise as a complete defence to the landlord’s action saying having made your promise, you are now
estopped from enforcing it.
Thus the doctrine of promissory estoppel was a way of getting around the Rule regarding payment of a lesser
sum before the use date in satisfaction of a greater sum and also the rule or doctrine relating to Past/Fresh
On March 1stA and B agree that A will deliver goods to B for an agreed on price by June 1st. In the agreement
is a provision that A will pay $1,000.00 a day for each day A is late in delivering the goods. Just after entering
into the contract, A realizes he may not be able to deliver the goods on time, so he contacts B and tell B this. In
response B tells A not to worry and he will have a full week after June 1st to deliver the goods without any
penalty. Relying on what B tells him, A, instead of ensuring to get the goods delivered on time, delivers then 3
days late. The next day B sues Afor $ 3000.00.
At common law, the contract was to deliver the good by June 1 , failing which 1,000.00 was payable for each
day late. The second promise “not to worry and that A will have up to a week after June 1 to deliver” is not
supported by fresh consideration. Thus, at common law B would succeed. However, since B has suedA,Awill
now defend, raising the promise of the extra week to deliver without penalty as a complete defence to B’s
action. A will argue that the promise of the extra week was an inducement to A not to ensure delivery on time
and that A therefore relied on the promise to his detriment. Thus B by his words is estopped from arguing
otherwise and is held to his promise.
Learn generally about contracts for necessaries goods and contracts for non-necessaries goods.
LEGAL CAPACITY TO CONTRACT:
Infant/minor: a person who has not reaced the age of majority
- Among the classes of promisor to be protected as a matter of public policy bc they are to oyoung,
- Infant at common alw= under 21..canada 19
- Public policy: minors should not be bound by their promises pages 151-155
- Liable for necessaries not unnecessaries
The parent- infant relationship:
- Parents are not always liable for at common law for the debts incurred by their infant children
o Family – law legislation obligates parents to support child until 16yrs of age…liable for any
necessities supplied to the child by merchants
o Bound by minors actions B: Drunken and Insane Persons:
Same as for Minors
Drunken and insane persons:
- In mental institution: not liable to any contract
- Person who have little mental impairmaent from physical damage or drugs alcohol : liable for any
contract for necessaries negotiated by them…obliged to pay reasonable price for the goods bought
- Unnecessaries:if person is insane or drunk at the time of negotiating contract ..doesnt realize actions for
non necessary good or service, then the contract is voidable when the person comes aware of their
- Contract must be repudiated immediately soon as possible after awareness and goods returned or
liabilirty avoidance coud be lost
C: Corporations, Labour Unions:
Learn generally…all rights a person has
- Limited …limiting contractual powers..if enter into contract with limited powers, contract is void and…
- Ultra vires: an act that is beyond the legal authority or power of a legislature or corporate body
E. Licenced persons:
F. Contracts void for public policy:
See my posting on Void, Voidable and unenforceable contracts which will be put on the course website
after we deal with Mistake, Misrepresentation, Duress and Undue Influence.
Bankrupt persons legal capcity: limited capacity to contract
- Cant enter into contract until discharged unless for necessaries
- All contracts entered into before bankruptcy become responsibility of trustee in bankruptcy
- Before entering credit arrangement or bsuness transaction over 500 dollars, bankrupt must declare that
they are undischarged
LEGALITY/ REQUIREMENT OF LEGALITY:
- Agreemnts that offend publid good are not enforceable
- Parties amy be liable to a fine if entering into agreement that is illegal and nenforceable…
o Contracts like this are rendered void by public policy
Legality: pages 159 – 163+ common law and public policy
THE REQUIREMENTS OF FORMAND WRITING ETC…
For your purposes there is no distinction between a formal contract and a simple contract. For exam
purposes simply consider that a contract can be oral, written or implied. A: The Statute of Frauds:
Note: This statute imposes a stringent requirement that the contract must in writing for certain types of
contracts. If the contract is not in writing, although a contract exists, it will not be enforceable by the
courts unless an exception to the written requirement can be found.
For your purposes, please learn the sections on the Guarantee and Contracts Concerning Land. Review
generally the other sections which we have reviewed or will shortly in the lectures.
B: Requirements for a written agreement:
Generally speaking the important requirements of any written agreement are:
(a) a description of the parties (they must be identified);
(b) the subject matter of the contract or agreement (which should also be set out with clarity); and
(c) the consideration or price to be paid by one or both parties, whether it be money or an act to be
C: The Parole Evidence Rule:
This is a rule that is usual applies to a written contract/agreement which is said to contain all of the terms
of the contract. The rule states that parol evidence (evidence outside of, but relating to the written
agreement) will not be admitted to add to, vary or contradict the terms of a written agreement.
Example 1: A, a home owner, and B, a painter are negotiating the painting ofA’s house. Aasks B how much
he will charge and B says $ 500.00. Ais hesitant to accept because he thinks the price is too
high. When B sees this, he immediately says toAif you agree to the $ 500.00, I will use top
quality paint. NowAagrees. However, when the written contract is made, it says simply: Aand
B agree that B will paint A’s house for $ 500.00.
Obviously, the term top quality paint which inducedAto enter into the contract is missing from
the written contract and the parol evidence rule prohibits Afrom giving any evidence to alter
vary or change the written agreement. So at common law,Ais stuck with the written contract.
However, the equity side of law allowed judges to find different ways around the rule to as to
somehow get the term “top quality paint” before the court and possibly into the written contract.
WAYSAROUND THE PAROL EVIDENCE RULE
(1) Evidence may be admitted to prove previous dealings between the parties, or a custom or trade
usage and thus to "add" terms which do not appear on the face of the document and which alone
give it the meaning that the parties wished it to have.
Example 1: Aand B enter into an agreement wherebyAis to supply steel ingots to B.
Unfortunately the quality of the steel is not set out in the contract. However,A
has been selling steel ingots of the same quality to B for 10 years now. Based on
the previous dealing between the parties a court would imply a term as to the
quality of the steel thatAnormally supplies to B and is acceptable to B. Example 2: Same example as Example 1, but this time the price is not set out in the contract.
The court may imply a price based on custom or trade usage.
(2) Evidence of a Condition Precedent is admissible to show that there is a requirement before the
contract comes into force.
Example 1: Aagrees to buy a share in B's invention on the condition that C first approved the
invention. The contract however, made no reference to C's approval. C never
gave his approval and B then suedAfor the purchase price.
Here evidence that C's approval was first required would be admissible since C's
approval is a condition precedent to the contract of purchase. That is, it must be
fulfilled first before there is a contract. In this case there never was an
agreement at all.
Example 2: Aand B have just signed a written agreement of purchase and sale. During their
negotiations,A,the purchaser, made it clear to B, the seller, that his purchase was
conditional on him conducting a building inspection of the property within 5 days
of the date of the agreement which he found satisfactory. However, this condition
was not contained in the written agreement.
Here evidence of the condition would be admissible and ifA’s conducts his
building inspection within the 5 days, the the condition precedent has been
fulfilled and there is an agreement. However, if within 5 days Ais not able to
conduct a building inspection then the condition precedent has no been fulfilled
and there is no agreement. In this case the parties are restored to their pre-
Example 3: A, a home owner, and B, a painter are negotiating the painting ofA’s house. Aasks
B how much he will charge and B says $ 500.00. Ais hesitant to accept because
he thinks the price is too high. When B sees this, he immediately says toAif you
agree to the $ 500.00, I will use top quality paint. NowAagrees. However, when
the written contract is made, it says simply: A and B agree that B will paint A’s
house for $ 500.00. Of course B paintsAs house with the worst paint he can find
and sues Afor the money.
HereAwould argue that “top quality paint” was a condition precedent to the
contract and that, having used the worst quality paint, the condition precedent was
not satisfied and therefore there was no contract and the parties would be put back
to their pre-contract positions, allowingAto successfully defend B’s action.
(3) If the promise to be enforced is contained in a separate or collateral agreement.
Example 1: A, a home owner, and B, a painter are negotiating the painting ofA’s house. Aasks
B how much he will charge and B says $ 500.00. Ais hesitant to accept because
he thinks the price is too high. When B sees this, he immediately says toAif you
agree to the $ 500.00, I will use top quality paint. NowAagrees. However, when the written contract is made, it says simply: A and B agree that B will paint A’s
house for $ 500.00. Of course B paintsAs house with the worst paint he can find
and sues Afor the money.
Here the inducement “top quality paint” madeAenter into the written contract to
have B paint his house for $ 500.00 is considered to be a collateral agreement.
That is, “top quality paint was the consideration forAentering into the written
contract B will paintA’s house for $500.00. If this argument succeeds, then the
term top quality paint will become a part of the written contract which will not
read B will paintA’s house for $500.00 using top quality paint. Now Awill have
the right to defend any action by B or to sue B for damages for breach of contract.
Example 2: Aagrees with B to paint B's house. B then says toA, if you agree to paint my
house I'll give you $ 200.00.
Here the first agreement does not include the price, but the second agreement
does. In such a case the promise to pay $ 200.00 is collateral to the first
agreement to paint and together they form one whole contract. The entering into
the main contract is the consideration for the collateral contract.
(4) Intention of the parties:
Example 1: A, a person, was negotiating with B, to rent an apartment in B's house. During
their negotiationsAtold B that if he took the apartment, he also wanted to use two
basement rooms for the storage of some of his furniture and he also wanted to use
the garden. After B agreed, a written lease was drawn up for the lease of the
apartment, but it made no reference to either the storage rooms or the garden.
If Awanted to get the terms about the basement storage rooms and the garden into
the contract, he would argue that when you looked at the negotiations betweenA
and B the intention was that the contract was supposed to contain the missing
D: Reduction of Agreements to Writing
Example 1: Aand B are negotiating a contract orally (or by faxes back and forth etc...) During
their negotiations, they agree on the subject matter of the contract, the date of
performance and the price. However, both agree that once the negotiations are
complete, a formal written contract will be prepared and signed by them.
Here the question is whether the agreement ofAand B is a condition precedent to
the formation of the contract, or a term of the agreement. This will depend on
the intention ofthe parties. In the example above, given that all of the essential
terms have been agreed on and the identity of the parties (Aand B) is established,
there is a good argument to be made (in fact it is the better argument) that there is
a contract betweenAand B and that it need not be put into writing signed by
them. If, however,Aand B were to agree that the preparation of formal contract
to be signed by both was a condition precedent to the formation of the contract,
then a court would probably hold that the negotiations by themselves are not enough. The condition must be satisfied before there is a contract. In a case such
as this, you must consider each side of the argument.
UNDERSTANDING THE CONCEPT OF MISTAKE
Contract can be void or voidable depending on mistake.
Void: never existed
Vodable: can be set aside
THE TYPES OF MISTAKE
MUTUAL/common MISTAKE: a mistake made by both parties to the contract, usually having to do with the
subject matter of the contract or the consideration for it ..consider the contract void.
1. Aand B are negotiating the sale byAto B ofA’s stamp collection. BothAand B believe that it is an
ordinary stamp collection with a value somewhere around $ 5,000.00, so they agree on a price of $
4,700.00, while unknown to either of them, the collection contains a stamp worth $ 100,000.00, making
the stamp collection really worth $105,000.00. Here,Awould be able to set aside the contract, because
there really was no contract at all. That is: both parties were mistaken as to the true nature/value of the
collection; or in other words, both parties were mistaken as to the subject matter of the contract and thus
the contract is void.
2. Aand B are negotiating the purchase by B of shares in a company. Asays to B, “ What will you give
me for 75 shares of Eastern Cafeterias of Canada.” and B replies “I shall look into it and let you know.”
After making some inquiries, B telephonesAback and says, “I will give you $ 10.50 a share for your
Eastern Cafeterias” andAreplies, “ I accept your offer.” Later B says that he made a mistake and meant
to buy shares of a company called Eastern Cafeterias Limited. What B is trying to argue is that he andA
were never in agreement about the company whose shares Awas selling and B was buying. Acourt,
however, would likely hold that there was no mistake: B agreed to buy the shares thatAwas offering for
sale i.e. Shares in Eastern Cafeterias of Canada.
What is important here is the principle that both parties have to be of the same mind and agree upon
the subject matter of the contract (there must be a consensus ad idem) or else there will be mistake.
3. Aand B are negotiating the purchase byAof B’s 1998 Honda Civic car. Eventually, they agree on a
price of $ 3,500.00 and B pays it. However, unknown to bothAand B at the time of the negotiations
and before agreeing on the price so as to form a contract, the car is demolished by a tractor trailor which
plows into it. In this case, both parties are mistaken about the existence of the subject matter of the
contract, namely the existence of an undamaged 1998 Honda Civic car. Hence the contract
is void (although a court would say that B can set the contract aside).
NORMALUNILATERAL MISTAKE: requires only one party to be mistaken or to make a mistake.
normal Unilateral Mistake: one party makes an innocent mistake about either the subject matter of the
contract or something related to the contract + the other party knows that the innocent party has made a mistake
(and is taking advantage of it). If both requirements are met, the contract will be considered voidable at the
option of the innocent party.
1. Let us revisit the first example of the stamp collection given under Mutual Mistake. Now in this case,
assume thatAdoes not know that there is a stamp in the collection worth $ 100,000.00, but B does and
regardless of this knowledge, takes advantage ofAby agreeing to a price of $ 5,000.00 for the collection. Later, however,Afinds out the truth about the $100,000.00 stamp. In this case,Awill
succeed in setting the contract aside, because of his unilateral mistake, since the law will not allow B to
take advantage of A. In essence, there was never an agreement as to the true subject matter of the
contract or in other words, there was no consensus ad idem, and the contract isvoidable at the option or
request of A.
2. Aoffers to sell his 1958 antique Corvette Stingray car to B for $ 65,000.00, which is the approximate
value of the car. However, whenAsends a written offer to B, instead of $ 65,000.00, he writes $
6,500.00 and B who knows the value of the car is around $ 65,000.00, realizes thatAhas made a
mistake, but accepts the offer taking advantage ofA. Here a court would find thatA has made a
unilateral mistake, because it is somewhat obvious, and atA’s rquest would set aside the contract. In
other words the contract would be voidable.
3. Same example as number 2, however, this timeAsends an offer of $55,000.00 instead of $ 65,000.00
and when B accepts it, Atakes the position that he has made a unilateral mistake. In order to determine
whether there is a contract, you look at the difference between the approximate value of the subject
matter and the allegedly mistaken offer. In this case, unlike the first example, the difference between $
65,000.00 (the intended offer) and $ 55,000.00 (the actual offer made) is not significant. Thus, a court
would probably find that there was no real mistake made byAat all (i.e. the contract is not voidable),
since B could assume that $ 55,000.00 was within the range of price of an antique Corvette Stingray.
NOTE: Examples are given in your text of situations in which there is a call for tenders and one company
submits a tender which is accepted and then alleges that it made a unilateral mistake. Here, as in examples 2 and
3 above under Unilateral Mistake, you look to the approximate value of the job or contract, and if there is a
great or substantial difference in the tender price and the job/contract price or price range for the
job/contract, then most likely the argument of mistake will succeed. However, if there is only a small or
slight difference between the tender price and the actual price or price range for the job/contract, an
argument of unilateral mistake will not succeed.
Secomf type of unilateral: UNILATERALMISTAKEAS TO IDENTITY: one party wants to contract with
a specific individual or entity, such as a company. ,.. someone else represents themselves as the individual or
entity in question and, by doing so, is committing the tort of deceit or fraud. …the innocent party is misled into
believing that the other party is the person or entity he/she intends to contract with. the innocent party makes a
unilateral mistake as to identity. Consider the following example:
1. Aowns a very valuable painting, but needs money. So he decides to sell the painting to B, a renowned
collector of valuable paintings, becauseA believes from having researched B, that B will take very good
care of the painting. Acontacts B by phone and offers to sell B his painting for 1 million dollars. B
accepts A’s offer, because the price is somewhat low, and they arrange that B will come by on Friday at
12 o’clock noon to payAand pick up the painting. B, who is a very wealthy man, has a servant, Mary,
who overhears B’s conversation withA. Realizing that the price B is going to pay is low and that if she
were to buyA’s painting, she could sell it for twice as much (i.e. 2 million dollars), Mary contacts her
boyfriend, Fred, a money launderer, and Mary and Fred arrange that Fred will show up atA’s place a
half hour before B is supposed to arrive, pretend to be B, buy the painting and then leave, beforeA
realizes his error. On Friday morning at 11:30 a.m. Fred arrives at B’s house pretending to be B. He
gives A1 million dollars andAgives him the painting. Fred, immediately leaves. About 15 minutes
later, at 12 noon, B arrives atA’s place to buy the painting and it is at this time thatArealizes his
mistake. The mistake made byAis as to B’s identity and remember thatAonly wanted to sell the
painting to B. Assuming thatAcould track down Fred and Mary with the painting,Awould succeed in
getting the painting back by arguing, among other things, Unilateral (his,A’s) Mistake as to Identity. In
other words the contract is voidable atA’s option. ANOTE ABOUT MISTAKE OF FACT: similarity bw mistake of fact and unilateral mistake to
- When it comes to identity, however, the Mistake of Fact is made by one party who thinks her/she/it is
contracting with a specific party, while the other party knows he/she/it is not the party with whom the
first party wants to enter into the contract. We know this Mistake of Fact as Unilateral Mistake as to
Identity. Yet, what about the normal type of Unilateral Mistake where the innocent party makes a
mistake about the subject matter of the contract or something else in the contract and the other party who
knows that the innocent party has made a mistake, takes advantage of it. In this case, the mistake of
fact, if you will, is made by the innocent party, and common law provides recourse, because the other
party knows that the innocent party has made a mistake.
- consider that there is always a Mistake of Fact in Mutual Mistake and Unilateral Mistake whether
normal or as to identity.
Mistake of Law: Mistake of Law has now been merged or joined with Mistake of Fact and occurs when one
party does something in the context of a contract, erroneously believing that what he/she/it is doing is proper
and in accordance with law, when, based on either the law or the terms of the contract itself, the party should be
doing something else. By way of example consider the following:
Aman takes out a life insurance policy. At the time he takes it out, he is a widower and so he
designates his children as the beneficiaries of the policy. Afew months later, he marries and
intends to substitute his new wife in place of the children as his beneficiary. However, before he
has a chance to do this, he is killed in a car accident. When advised of the man’s death by the
children, the insurance company cannot find the form designating the children as beneficiaries of
the policy and, based on law, believe that the wife is the beneficiary. Although the wife tells the
company that she does not believe she is the beneficiary, again based on law, it pays her the
insurance proceeds/monies anyways. Later the children present to the insurance company a
copy of the designation of beneficiary form making them the beneficiaries, and the company is
forced to pay the proceeds to them. Now it wants back the monies paid to the wife, but the wife
refuses. In this situation, the insurance company would have argued successfully Mistake of
Law. However, since Mistake of Law has now merged with Mistake of Fact, today, it would
simply argue Mistake of Fact – the mistake being who the proper beneficiary was.
REMEDY FOR MISTAKE :r emedy is called rescission.
Recission: the court attempts to restore the parties to the position they were in before the contract .
- So where there is a mistake in a contract/agreement for the sale of a car, the seller will get back the car
and the buyer will get back his/her money. However, where the court cannot restore the parties to their
original positions, the party seeking to set aside the contract will also ask for and probably
- for mutual mistake and normal unilateral mistake, the remedy will always be rescission, subject to what
is said above about restoring the parties to their original positions. However, by its very nature,
Unilateral Mistake as to Identity opens the door to rescission in contract and damages in tort.
MISREPRESENTATION Misrepresentation : a statement of fact made before or during the negotiations to a contract that induces
a party to enter into the contract. That is: it is a statement of fact which is not true made by one party and
relied on by the other party to whom it is made.
There are three types of Misrepresentation: Innocent, Fraudulent and Negligent.
innocent misrepresentation : a statement of fact made by a party to another where the party making the
statement believes the statement to be true and the other party relies on it and enters a contract.
- Here the remedy is rescission. The innocent party has the option to terminate the contract. Consider the
following two examples.
1. Acompany, after submitting plans to the Board of trade, applied for a specialAct of Parliament to run
trams (carriages) in Plymouth, England by steam power. TheAct which was ultimately passed provided
that the trams could be moved by animal power or, if the consent of the Board of trade were obtained, by
steam or mechanical power. The directors of the company submitted the plans for moving the trams by
steam power to the Board of Trade and receiving no objection, believed that this consent would be given
and issued a prospectus saying that the company had the right to use steam power instead of horses. The
plaintiff took shares in the company on the faith of this statement. However, the Board of trade refused
their consent, and the company was ultimately wound up (went bankrupt). The plaintiff sued the
company for damages for fraudulent misrepresentation, but the Court held the action failed because the
company honestly believed that it would be able to use steam power to move the trams. The plaintiff
was entitled to rescission of the contract for shares.
2. Lakeside Land Development Ltd. (LLDL) and High Rise Construction Ltd. (HRCL) entered into
negotiations for the purchase by HCRL of a building lot owned by LLDL. During the negotiations the
president of HRCL asked the president of LLDL if the land was suitable for the construction of s small
apartment building. Afew months before, the president of LLDL had made inquiries of the
Municipality and determined that the land was if fact suitable and approved for the proposed use, so he
replied “Yes.” Unknown to LLDL the lands had subsequently been rezoned single-family dwellings and
the construction of apartment buildings was prohibited. On the strength of the president’s statement,
HRCL entered into an agreement to purchase the land. Ashort time later, HRCL discovered that the
land had been rezoned and it could not build an apartment building on it, so HRCL refused to go ahead
with the purchase of the land and went to court asking for rescission of the contract. The court found
that the statement by LLDL’s president was an innocent misrepresentation, and granted rescission.
fraudulent misrepresentation is a statement of fact which is made “(1) knowingly, (2) without belief in its
truth, and (3) recklessly, careless whether it be true or false.”
- he remedy is both rescission in contract (the right to terminate the contract) and damages in Tort (the
damages in tort is or the fraud or deceit). Consider the following example:
1. Ais interested in purchasing a franchise from B Co.. B Co. provides Awith financial statements of one
of its franchises which show the franchise to be running a profit when, in fact, B co. knows that it has
been running a loss. On the basis of the financial statements Aenters into a contract to buy one of B
Co.’s franchises. After a few monthsAfinds that he cannot make a profit and then he finds out that the
financial statements B Co. gave him were falsified. HereAwill successfully seek rescission of the
contract as well as damages against B Co. for fraudulent misrepresentation. B Co. had falsified the
financial statements (knew the financial statements were false) and in so doing had committed a fraud on
negligent misrepresentation: a statement of fact made between two parties who are in what the law calls a
“special relationship”. The most common special relationship is where one party is an expert or professional and the other is not. Here the expert or professional has a duty to ensure that the statement is as accurate as can be
(by researching it etc…).
- the expert or professional must do his/her or its due diligence(proper research needed). If the
expert or professional makes the statement without doing his/her/its due diligence, and the statement is
untrue, then we say that the expert or professional has made a negligent misrepresentation. Like
fraudulent misrepresentation, the remedies are rescission in contract (the right to terminate the contract)
and damages in Tort. Consider the following example:
1. The plaintiffs entered into contracts on behalf of Eisapower on terms under which they themselves
would be liable if Eisapower defaulted. Wishing to check Eisapower’s credit, the plaintiffs asked their
bank to inquire of the defendants, Eisapower’s bankers who said Eisapower’s credit was fine, although it
did not check Eisapower’s credit. Relying on the reply of Eisapower’s bankers, the plaintiffs continued
to place their orders and suffered substantial loss when Eisapower went into liquidation (went
bankrupt). The House of Lords held that an action for negligent misstatement (negligent
misrepresentation) would lie against Eisapower’s bankers, because a special relationship existed
between the plaintiffs and the defendants because the plaintiffs were relying on the expertise of the
bankers who had not checked Eisapower’s credit.
2. Ais a stock broker who acts for his customers in buying and selling stocks/shares in companies. Part of
his job is to research the companies thoroughly to ensure that the companies and their stocks are good
investments. Today, Ameets with B, an investor interested in buying some good and stable stocks.
During their meeting, B tells Athat he has heard that X Co. is a good company to invest in and wants to
buy only X Co. stocks. Ais unfamiliar with X Co., but not wanting to lose commission on a purchase of
X Co.’s stocks, he tells B that X Co. is a good and stable company and that its stocks are a good
investment. On the strength ofA’s statement, B buys $20,000.00 worth of X Co. stocks. Amonth later,
X Co., which had been having financial difficulties for months, goes bankrupt and now B has lost his
investment. Here B will successfully sueAfor rescission and damages, becauseAshould have fully
researched X Co. before telling B it was a good investment. HadAdone his “due diligence and
researched X Co., he would have found out that X Co. was having financial difficulties and then told B
not to buy X C. stocks. A’s statement that X Co. was a good company to invest in and that its stocks
were a good investment, is a negligent misrepresentation.
THE REMEDY OF RESCISSION:
rescission is a remedy in contract that gives the innocent party (the party to whom the misrepresentation is
made) the option of terminating the contract. /// restoring to positions prior to contract being formed. This
means that the innocent party returns what he got as does the party who commits the representation. For
example, assume that B entered into a contract withAfor the purchase ofA’s car for $500.00 and B was
induced to do so by a misrepresentation. Restitutio In Integrum will be allowed so long as B can give back the
car toAin the same condition as purchased andAcan return B’s $500.00 to B.
Misrepresentation by Non-Disclosure :arises out of the failure to disclose something material that would have
made the innocent party not enter the contract. Such contracts require the utmost good faith on the part of one
of the parties. That is, there is an active duty by one of the parties to disclose all material facts. This applies to
special types of contracts: contracts of Insurance and contracts of Partnership. Thus, when a person wishes to
enter into a contract of insurance or partnership he or she must disclose all material facts. The failure to
disclose all material facts allows the innocent party to terminate the contract or alternatively not to honour the
VOID, VOIDABLEAND UNENFORCEABLE CONTRACTS void contract is one where no contract exists
- usually result of two circumstances.
o the contract is against public policy:/// when there is an express provision in a statute that
says/provides that a specific type of contract is void (usually again because of some sort of
public policy matter).
o The second type is when Mistake occurs in the contract, so that there is no consensus ad idem or
meeting of minds on or agreement of the parties as to the subject matter or the price/quantity. In
this regard, for your purposes, a contract is void for mutual mistake. Again, you have examples
given to you in the notes on Mistake and in your text.
A voidable contract is one where there is a contract, but for some reason one of the parties (the innocent
party) can ask the court to set the contract aside. For example, contracts entered into by minors for non-
necessary goods, and contracts entered into by drunken persons, or where there has been some kind of
misrepresentation by one of the parties.
An unenforceable contract is one where there is a contract, but by reason of a provision in a statute, the
court will not enforce it. By way of example, consider that an oral guarantee or an oral contract/agreement in
respect of land is unenforceable by virtue of The Statute of Frauds which specifically says it is unenforceable.
ABOUT THE DOCTRINE/CONCEPT OF PRIVITY OF CONTRACT
ONLY PARTIES TOACONTRACT CAN ENFORCE IT
Consider the example of a contract made betweenA, a builder, and B a parent, whereby, for $300,000.00Ais to
build a house for C, B’s daughter. Another way of looking at this is that this is a contract not for the benefit of
B, but rather for the benefit of C. (C gets a house built for her without being a party to the contract). Now
assume thatAbuilds a great house and C moves into it, but B becomes bankrupt and thus, cannot payA the
$300.000.00. The question becomes what, if anything, canA do about getting paid. Strict common law says
that sinceAand B are the parties to the contract,Ahas no rights against C, that is: there is no privity of
contract between B and C. Another way of saying this is that only the parties to a contract can enforce it.
This last statement is the doctrine/concept or rule of privity, and it was strictly enforced by Common Law
courts. In consequence, at common law,Acannot ask for or sue for the money from C, the daughter, who is not
a party to the contract. The rule of privity prohibits this.
Now assume the same contract as above, but that this time the house thatAbuilds is very poorly built and C
moves into it. Also assume that B is away for an extended vacation. Can C assert a right or claim againstA
because of the poor state of the house. Once again, at Common Law, C has no rights, because she is not a party
to the original contract betweenAand B. OnlyAcan enforce the contract against B (by forcing him to correctly
build the house or by suing him in damages for his failure to build a good house).
The two examples above demonstrate the Common Law Rule/Doctrine of privity of contract which provides
that only the parties to a contract can enforce it.
GETTINGAROUND THE PRIVITY RULE:
1. Novation: a re-writing of the contract to add as a party to the contract, the person who was not originally in
– in the above examples that party is C.. In a novation,Aand B would consent/agree to amend or re-write the
contract so as to include