Contract Law Cases page 80-122.docx

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Management and Organizational Studies
Management and Organizational Studies 2276A/B
Phillip King

Law of Contract Freedom of Contract What kind of deals are we allowed to make? • Mitsui Real Estate paid $610 million for a building that was only listed at $375 just to break the Guinness World Record • Guns N’ Roses makes every reporter and photographer sign a contract stating that they are now employees of the band and that the band owns all rights to whatever they take – they also must receive written approval from the band before publishing anything • US airways will never allow anyone to have a pig on board because of an incident with a man and his doctor approved pig companion Formation of Contracts • A contract is often defined, as an agreement the law will enforce. What elements in particular must be present before the law will enforce an agreement? General Duty of Good Faith • Gateway Realty Ltd. v. Arton Holding Ltd. (Nova Scotia Supreme Court, 1991) o Zellers assigned its lease at Gateway Realty (Shopping Mall) to one of its main competitors Arton o Arton was now responsible for filling the lease at its competitors mall o Gateway sued Arton for breach of their duty of good faith o Judge found that all parties under contract must excerssize their contractual rights, honestly, fairly and in good faith – meaning community standards of honesty, reasonableness or fairness o Arton breached duty of good faith, and therefore their rights as leaseholders are terminated Offer and Acceptance Offer • What test does the court apply to determine if there has been an offer and acceptance? • Campbell v. Sooter Studios Ltd. (Manitoba Court of Queen’s Bench, 1989) o Facts  When a lease expired, the lessor, Campbell sent Sooter Studios a copy of the new lease agreement with a sizeable increase in rent and 3 year term  Sooter, unhappy with the new lease altered terms of the contract, signed it and sent it back without stating that he made any changes  The lessor signed it without realizing and returned it again to Sooter  Now the lessor is suing for double rent, portion of repairs and property taxes o Analysis  Plaintiff argued that there was never a meeting of the minds  An objective test, was there all outward appearance of wanting to create a contract and was there an accepted offer? Court says yes there was  Objectively, and to all outward appearances, the plaintiff accepted the offer and when they returned the lease for seal the defendant had no reason to believe had not accepted  The plaintiff was awarded partial payment for the repair and taxes but otherwise the defendant won, with no charge of double rent and the one year term Revocation of Offer • When is the revocation of an offer effective? • Mlodzinska et ah v. Malicki et al. (Ontario High Court of Justice [Divisional Court], 1988) o Once again a Trial Court acting in appellant capacity o What’s being appeal is a motion o A Motion – is a request on a procedural matter of the court o The motion in this case is to dismiss the case because a settlement had been reached o Ruling – is a decision on a Motion, the decision is called an Order o When an order is appealed, the first appeal moves across to a different judge of the same level of court o Facts  An offer of settlement had been made by the defense with no formal withdrawal  As they walked into court they indicated with a zero symbol that the offer was now “zero” or withdrawn, at the same time plaintiff handed in an agreement stating they would like to accept the offer  The defendant argues they were “first in time” to withdraw before the acceptance  Position of the plaintiff is that the gesture of withdrawal was not unequivocal, and the exchange was virtually simultaneous o Analysis  Basically decided that the actions could not have been simultaneous, and that the offer was withdrawn before the acceptance was given – this includes a disregard for the hand signal as the piece of paper for withdrawal was given before the acceptance papers Rejection and Counter Offer • What is the effect on the offer if the offeree makes a counter offer? • Hyde v. Wrench (1840) o Defendant is a farm owner offering to sell his farm to the plaintiff o The defendant offered 1000 and to keep it open until June 6th, but was countered with a 950 by the defendant o On June 7 the defendant said he could not accept 950, but the plaintiff argued that because he did not state his withdrawal before June 6 , the purchase of 1000 is a binding contract o Judge said there was no contract because the counter offer immediately stuck down the 1000 contract – there is no binding agreement • Scanlon v. Standish (Ontario Court of Appeal, 2002) o Basically proves the rule that a Cunter offer destroys the power to accept a previous offer Acceptance • When is the acceptance effective? • Eastern Power Ltd. v. Azienda Communale Energia and Ambiente (Court of Appeal for Ontario, 1999) o Facts  Determine which venue, Ontario or Rome is appropriate for this hearing – the lower Ontario Court stayed saying that Ontario is not the proper forum  EP and Azienda were trying to create a joint venture agreement – Azienda drafted a co-operation agreement, signed it an faxed it to EP who signed it and faxed it back to Rome  The joint venture fell through and EP sent Azienda an invoice for $478,547 o Analysis  Where a contract is formed when acceptance is communicated through facsimile transmission?  General rule of contract law states in the place where acceptance is received  Postal acceptance rule says when and where acceptance is placed in the mail  There are past cases that support the theory that a contract is formed when and where received when using facsimile transmission – or the general contract law rule  Basically decided that the general rule applies to all forms of instantaneous communication – including fax, and therefore Rome is the proper forum for this contract b/c it is where acceptance was received  The appeal is dismissed • Kanitz v. Rogers Cable Inc. (Superior Court of Justice, 2002) o Motion by rogers to have the case dismissed o Facts  User, Kanitz is suing rogers because his internet use was “intermittently unavailable” yet rogers still collected full payment  Roger is stating that they have an arbitration clause and is asking case to be dismissed because it should be reolved via arbitration  The clause was an amendment made to the original agreement by posting on there website, is this amendment acceptable? o Analysis  Found that the arbitration clause is valid – the method in which they display the amendments to the contract are not unreasonable and therefore the user ought to have known about the changes  Therefore arbitration clause is allowed  They then ask the questions is the arbitration clause unconscionable • Unconscionable must meet 3 requirements o Must be inequality of bargaining power (court says yes there is) o Must be some taking advantage or preying on by the greater power (court cannot entirely conclude) o There must be a resulting improvident agreement – sufficiently divergent from community standards of commercial morality (court found this is not met either)  The decision is that the trial is stayed and arbitration clause is enforceable Consideration • Kholer Canada Co. v. Porter (Ontario Superior Court, 2002) o Introduction  Porter (the defendant) is an employee of Kholer  Kholer seeks an injunction restraining Porter from working for a competitor on grounds that he signed a non-compete clause – this agreement was signed well into his employment at the company and he claims he signed it thinking it was a routine document without knowledge of what it really was o Law of Injunctions  3 part test • Is there a serious issue to be tried? • Will applicant suffer irreparable damage if injunction is not granted? • Which party will suffer the greatest harm from granting or refusing the injunction (where does the balance of convenience lie?)  First part is also modified in some cases to a “strong prima facie case to be tried” o Analysis  Is the agreement binding? • Defendants say the contract is unenforceable because there was no consideration for it • Court agrees that the right to continue work and be paid is not sufficient consideration as it does not change the original agreement in anyway  Is the non-compete valid and enforceable? • Most non-compete clauses of this nature are often viewed as void, even if the agreement was enforceable • Only enforceable if the non-compete clause is reasonable and not contrary to public interest, 3 factors to prove o The employer has proprietary interests entitled to protection o Whether the temporal or spatial features of the clause are too broad o Whether the covenant is against competition generally rather than limited to non- solicitation of costumers • Court says there is nothing to justify the breadth of the non-compete  Did Mr. Porter Breach the employment agreement? • The balance of convenience test heavily outweighs Kholer as it is a large multi-national corporation as apposed to Porter who is the prime source of income for himself and his family o Motion dismissed Promissory Estoppel • Central London Prnnertv Trust Limited v. High Trees House Limited (1947) o Case regarding rent to be paid o Someone acted on a promise and had to pay full rent, page 90 o A promise intended to be binding, intended to be acted on and in fact acted on, is binding so far as its terms properly apply • Med-Chem Health Care Inc. (Re) (Ontario Superior Court, 2000) o The landlord sued for the difference of rent paid, and that set out in the agreement o Found the landlord is estopped from claiming higher rent on the grounds that they accepted the lesser payment for 2 years time without protest Capacity • Re Collins (Ontario Superior Court, 2000) o Case regarding the capacity to enter into a contract, the Collins are looking to make the contract against their 15 year old son o Facts  Ms. Collins divorced Mr. Collins, and lived with their children  Mr. Collins bought them a house in Vancouver and placed it in a trust who’s beneficiaries are the children  Ms. Collins didn’t like this living arrangement so persuaded the kids to sign over all rights as beneficiaries o The Law  The court may grant the infant capacity to enter into a contract as long as it is for the benefit of the infant , and that he is not in need of the protection offered by the law to infants in matter relating to the contract  Court found that this agreement was not in the best interest of the infant, the only benefit to him was to give his mother financial security and came at financial cost to him of over $700,000 (his interest in the trust property)  This petition is dismissed, the property remains to the infant’s benefit until he becomes of consenting age when he can decided for himelf Legality In what ways is a contract or a provision of a contract illegal? If the purpose of the contract is to Defraud • Cerilli v. Klodt (Ontario High Court, 1984) o Action for specific performance of an agreement o Basically Mr. Klodt defrauded Mrs. Klodt so he could receive more money from Cerillli in the purchase of Mr. and Mrs. Klodt’s home o The court found this activity fraudulent and the action (for special performance of sale) dismissed If the person was engaged in illegal Activity • Boyd v. Newton (Supreme Court of BC, 1991) o Action is regarding a drug rip-off, the plaintiff Boyd, was trafficking marijuana at a local billiards arcade o He was injured trying to detain Newton, a customer for not paying him, as a result Boyd was dragged down the street by Newton’s car o Defendant uses the defense of ex turpi causa non oritur actio (From an illegal matter no action can arise) o Action dismissed as the court says they cannot provide assistance to someone who is defying the law If the Contract is contrary to Statute • Contracts thrown out because they were not in writing If the contract or a provision is in restraint of trade • An example could be Kholer and Porter – the restrictive covenants of an employer • When is a restrictive covenant enforced as reasonable in reference to the interests of the parties and of the public? • Button v. Jones (Ontario Superior Court of Justice, 2001) o Issue of whether an interlocutory injunction ought to enforce a non-compete clause o Jones sold Button his dentistry practice for $150,000 and in the agreement agreed to not compete in the same town for 4 years or solicit the customers sold to him o Later Jones took 1400 patients of the 1900 he had originally sold to a new practice in Kitchener o Courts are more likely to enforce a non-compete in the sale of a business than an employment contract o They decide that Jones is in violation of the non-compete and cannot work anywhere in Kitchener/Waterloo area or solicit Buttons patients The Writing Requirement Do all contracts have to be in writing? If there is an oral agreement that the parties want to put in writing, is the written document the contract or just evidence of the earlier oral contract? • Gendis Inc. v. Richardson Oil and Gas Ltd. (Manitoba Court of Appeal, 2000) o Richardson and Gendis agree that Richardson would purchase the shares of Gendis for $39 million – they agree by saying the words “we have a deal” and shaking hands o They both agreed that Gendis would provide Richardson with a written agreement o Gendis sent to Richardson an agreement that had 3 new clauses that the judge agreed changed the nature of the deal, and were not part of the oral agreement o The trial judge found this was a binding agreement regardless of the written agreement, and the court of appeal upheld this decision The Statute of Frauds • What is the significance of the Statute of Frauds? • Booth v. Knibb Developments Ltd. (Court of Appeal of Alberta, 2002) o Introduction  Knibb bought Booth’s land as a friend and agreed to allow him to stay on the land until he was financial stable and could buy it back at the original sale price  Booth alleged that agreement was oral, while Knibb argues that the agreement never took place and Booth was on the land pursuant to an informal tenancy agreement o Decision  The statute of Frauds finds that sale of land must be evidenced in writing  Also found that the doctrine of part performance has sometimes allowed the sale of land without writing if an individual has relied and acted on an oral agreement  Trial judge finds the land should be returned to Booths o Appeal Analysis  For past performance to exclude that statute of frauds, the past performance relied on the acts performed must speak for themselves and must point unmistakably to a contract affecting the ownership or the tenure of the land  In finding that booths satisfied the test for part performance the trial judge relied on the following facts • Payment of taxes, water levies and utilities made by the booths • Fact that booth remained on the land • Mrs. Booth approached Knibb to repurchase the land when they had the funds to do so  These are also unequivicolly consistent with the actions of a tenancy agreement so the trial judge erred when relying on those as actions of a sale agreement o Appeal is allowed, the decision of trial judge is set aside and the action is dismissed Challenges to Contracts • In what instances will the court allow a party to an arrangement to avoid his or her obligations? Mistake • Kassian v. Hill (Court of Queen’s Bench of Alberta, 2002) o Facts  Ms. Kassian is involved in a motor vehicle accident where she was not at fault because of whether  When she stopped to avoid another vehicle she was re-ended by the defendant  She met with the defendant’s insurance adjuster, and signed a release that day in exchange for a $2,000 cheque  Plaintiff claims general and special damages but defendant claims it was settled out of court already o Issue  Is there a legally binding settlement release? If so there is no case  If the release is not upheld, what then are the plaintiff’s damages b/c of the accident o Decision  Law of non est factum will allow the contractual obligations to be thrown out • The burden os on the party relying on non est factum • The document signed must be radically different from what the person believed they were signing • The person must not have been careless in signing the document  The court finds that there is no legal mistake (non est factum) because Kassian knew what she was signing, she knew she was signing a settlement – she was careless in signing the documents and they were not radically different then what she had intended to sign • Marvco ColorResearch Ltd. v. Harris et al. (Supreme Court of Canada, 1982) o Lender Marvco through his agent, the Harris’ son-in-law, asked the Harris’s to sign a document I which they thought was a routine document but was actually a second mortgagae o Harris argued mistake or non est factum but was unsuccessful because of their carelessness, the lender took their hosue Misrepresentation Innocent • RBC Bank v. Chorkawy (Manitoba Court of Queen’s Bench, 1994) o Mr. Chorkawy signed a promissory note for 60,000 with his friend welch o RBC bank told him that Welch had no other debts and therefore Chorkawy signed the note when in fact Welch had many other debts o RBC argued parol evidence rule: that an innocent misrepresentation had been made and is inadmissible b/c of the contradiction to the written agreement Fraudulent • Machias v. Mr. Submarine Ltd. (Ontario Superior Court of Justice, 2002) o Did Mr. Sub misrepresent themselves to Machias inducing him to enter into a franchise agreement? – plaintiff claims recission o Franchisees and franchisors have a duty of utmost good faith meaning community standards of honesty, reasonableness and fairness o Test for fraudulent Misrepresentation  A plaintiff must prove • A false representation was made by the defendant • Which was knowingly false • Was made with the intention of deceiving the plaintiff • Which materially induced the plaintiff to act resulting in damage  Recklessness is enough to make the claim fraudulent – doesn’t need to intend to deceive but simply with disregard for the truth o Recklessness contains 2 elements  Acting in a manner as to create obvious or serious risk  Doing so without any thought or possibility of there being any such risk o This Case analysis  Mr. Sub was aware of the poor gross earnings of that franchise and did not disclose it to the plaintiff  The plaintiff was not only provided with inaccurate information, but was also prevented from obtaining accurate information
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