CASE

Hughes

High Trees

RATIO

CAN

When A agrees not to enforce their strict rights against B, A should not
be allowed to retract that promise as far as it would be inequitable to
do so.
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.

If the variation is intended to be temporary or conditional, it may expire

John
Burrows

D. & C.
Builders

If a contract includes an ongoing scheme of payments and the payments

are defaulted on but the contract re: breach is not enforced, then the
parties may not rely on any indulgences made re: breach to enforce a
defence of equitable estoppel
For equitable protection, need As intention to alter legal relationship and
Bs reasonable reliance on appearances of relaxed enforcement
Creditor is barred from legal rights only when it would be inequitable for
him to insist on them
o Where there has been true accord, under which the creditor voluntarily
agrees to accept a lesser sum in satisfaction, and the debtor acts on that
accord by paying the lesser sum and the creditor accepts, then it is
inequitable for the creditor afterwards to insist on the balance
General rule of estoppel: relief from strict enforcement of K
o Exception: variations to terms brought about under duress

Saskatche
wan River

The formal elements of estoppel dont always matter it is a more

flexible, contextual approach based on fairness concerned with the
equitable balance between the parties
TEST: The waiving party must
o Have full knowledge of their rights, and
o Demonstrate an unequivocal and conscious intention to abandon
those rights
Waiver occurs where one party to K foregoes reliance on some known
right or defect in performance of other party

Internation
al Knitwear

The Post
Chaser

Waiver may be revoked by giving reasonable notice to the party in whose

favour the waiver was given (unless no reliance)
If a party waives a right under K, then to resume the right they must
provide reasonable notice
o allow parties to prepare for return to original terms of the contract
When terms are waived, parties are estopped from going back and
claiming what is waived (no arrears)
If Party A waives their rights under contract and Party B relies on that
waiver but not in such a way that prejudices them, then Party B cant
raise a defense of estoppel to prevent Party A from revoking their
waiver

Reliance on the waiver must be to the partys detriment

o

If they rely on it, but theyre not prejudiced, then the waiver
becomes irrelevant

CASE

Combe

Robichau
d
Kornerup

CAN

RATIO
If a promise is made without consideration, then equity may not be
used to enforce that promise
Equity cant be used to create a K/legal relationship equitable
doctrines only apply to already formed contracts
If the purpose of raising an estoppel argument is to enforce a
contract that has been relied upon, then estoppel may be raised
whether the party is the P or D to an action
If Party A makes a unilateral offer and then subsequently withdraws
it without giving explicit notice, then Party B may not enforce the
offer if Party Bs consideration for the unilateral offer is the same
as the consideration in place for a separate agreement

Variations only crystallize if theres consideration

Waltons
Stores

Unconscionable conduct that induced detrimental reliance may give

rise to promissory estoppel to enforce a gratuitous promise
o Sword to give rise to new legal relations/cause of action.
Test to establish equitable estoppel:
1) Party A assumed/expected that a legal relationship exists and that Party
B is not free to withdraw
2) Party B has induced Party A to adopt that assumption
3) Party A acts or abstains from acting in reliance of that assumption
4) Party B knew or intended for Party A to do so
5) Party As action will occasion detriment if the assumption isnt fulfilled
6) Party B has failed to act to avoid that detriment
Unconscionability is key

M. (N.)

NOTE: U.S. has adopted this approach (expectations enforced if thats the
only way to avoid injustice) this has not been adopted in Canada (ssee
M.(N.) case)
If no evidence is presented to demonstrate that either party
intended for the promise to create legal relations, then the
promise will not be enforced
For promissory estoppel to be applied, there must be reliance on a
promise

Beswick

Jackson

Rejection of Waltons principles no contemplation of creating legal

relations
o Note the very different factual circumstances in this case perhaps
Waltons is still open for application in the right fact scenario
General rule 3rd parties to a K cant bring an action.
If the result would be grossly unjust to the party who is not privy,
specific performance can be ordered
Where a Kis made with A for the benefit of B, A can sue for the
benefit of B, and recover all that B could have recovered if the K

had been made with B himself

If aK is substantially for the benefit of a 3rd party, the contractor

CASE

Wimpey

N.Z.
Shipping

London
Drugs

Edgewort
h

CAN

may sue for lost benefit of the 3rd party

RATIO
Privity rules arent altered there are specific narrow exceptions for
third parties in certain kinds of Ks.
Can only sue on behalf of 3rd parties if:
o K gives such right
o Fiduciary relationship exists between contracting party and 3 rd
party (i.e. agent or trustee), or principal party to contract
o Contracting party suffered loss
TEST: An Agency relationship exists if (Lord Reid):
1) K makes clear that the agent is intended to be protected by the exclusion
provisions
2) K makes clear that the contracting party, in addition to contracting for the
provisions on his own behalf, is also contracting as agent for the Agent
and that these provisions should apply to the Agent.
3) The contracting party has authority from the Agent to contract on its
behalf
4) Agent provided some consideration: exclusionary clause is a unilateral K
and any of who step in to perform the K are acceptors and bring
themselves into the clause. Performance of service is for the benefit of
shipper
If K is in place to carry out an activity and there is immunity from
liability written into the contract, then the immunity will extend to
any 3rd party that carries out that activity
o K must cover the activity rather than the parties contracting to have the
activity performed
TEST: Employees are able to use their employer`s limitation of liability
clause as a shield if the following requirements are met:
1) The limitation of liability clause must, either expressly or impliedly, extend its
benefit to the employees seeking to rely on it;
2) Must have been acting in the course of their employment; and
3) Must have been performing the services provided for in K when the loss
occurred
If A has contracted with B and has included a limited liability clause,
and B sustains a loss due to the negligence of the employees of A,
but that negligence was done during the course of the activities
contracted for, then the employees will also be covered under the
limited liability clause.
Application of London Drugs
If A contracts with B and the parties rely on the work of a 3 rd party C,
and neither A nor B guarantee the work or assume the risk of error
by C, then C will be found liable for any negligent work done
The 3rd party must have been clearly contemplated in K to be covered

by a limitation clause
Look at the circumstances of the case combined with the wording of
the exclusion clause when applying the employment exception
CASE

Can-Dive

CAN

RATIO
Privity exceptions now rest upon:
o Intention to include 3rd party
o 3rd partys performance contemplated in general
o Policy considerations
Having contracted in favour of 3rd party as within the class of
potential 3rd party beneficiaries, contracting parties cannot
revoke unilaterally the 3rd partys right once they have
developed into an actual benefit.
Modified TEST (London Drugs):
1) Did the parties to the contract intend to extend the benefit in
question to the third party seeking to rely on the contractual
provision?

Machtinge
r

2) Are the activities performed by the third party seeking to rely on

the contractual provision the very activities contemplated as coming
within the scope of the contract in general, or the provision in
particular, again as determined by reference to the intentions of the
parties.
K terms can be implied:
o By Fact:
What were the intentions of the parties?
If the parties had been aware of they would have included in
K
Have the parties acted as if this term was included in K?

Necessary to give business efficacy to a K.

o By Law:

Legal incidents of a particular class or kind of K- by statute or

CL
Is the term necessary for the very existence of K?
A matter of practical necessity to ensure fair functioning of K,
given the relationship between the parties
o By Custom Or Usage:
Parties to a K would have understood such a custom or usage
to be applicable
Presumed intention based on officious bystander
How do you find the implied term?
o Officious bystander test would they have thought term part
of K?
Statute > Contract > Common Law

Hawrish

Parol Evidence Rule :

A collateral agreement cannot be established where it is

inconsistent with or contradicts the written agreement.
If there is an unambiguous written K, oral evidence that varies
or contradicts the written terms is not allowed
o

Gallen

CASE

Ahone

Heilbrut

Warranty vs. collateral K

o Warranty I promise [good/service] has [characteristic/quality]
o Collateral K If you buy [good/service], I promise to
Parole rule is not absolute
Presumption in that written K is complete (rebuttable)
Elements for relaxation of strong presumption:
o Oral and written terms are not in contradiction
o Specific oral addition/warranty against a general written
exclusion
o Standard form agreement
CAN

RATIO
If the oral agreement doesnt contradict the written agreement,
then it will be accepted as a collateral agreement to the written
agreement
Where it contradicts, written K prevails
Collateral K:
o P has high onus to prove collateral K exist
o P must prove terms of K & intention to contract of all of the parties to
K
Warranty:
o Statements or assurances that go into future
o An affirmation at the time of sale is a warranty, provided it was so
intended
Innocent Misrepresentations:
o D not liable
o Representations insufficient to make collateral K: mere statements of
facts to questions, representation prior to K relating to subject matter,
mistaken belief
Damages available when misrepresentation is fraudulent or
reckless

Dick
Bentley

Hong
Kong Fir

Intention of parties deduced from totality of evidence

Intention of Warranty (objective test)
o Depends on conduct of parties (words and behaviour) -- officious
bystander test
Prima Facie Warranty:
1) Representation made to induce other party into deal and the other party
WAS induced (officious bystander)
2) Did they intend to be bound by representation? (Heilbrut)
D can rebut prima facie warranty by showing innocent
misrepresentation
TEST FOR REPUDIATION: Does the breach deprive the innocent party
of substantially the whole benefit of K?
o Look at surrounding circumstances of K and breach
o If Yes, two remedies available:

Recission (repudiate cease performance under K)

Continue the deal and collect damages at the end.

When the event occurs as a result of the default of neither party,

each can repudiate

Krawchuk

CASE

CAN

Party in default cannot rely on their own default to get out of deal
o Possible election to end the deal is for the innocent party only
Clarifies Hong Kong Fir TEST for Repudiation:
1) Is the K a condition, a warranty or an innominate term? Determines
gravity of breach
o If condition continue with the K and sue for damages or repudiate
o If warranty damages only
o If innominate (intermediate) term court has discretion
party can elect to rescission OR continue and receive damages
Determine by looking at K in light of the surrounding circumstances
intention of the parties
2) If unable to determine warranty or condition does the event depriv
the innocent party of substantially the whole benefit? (breach @ core
of deal)
o If no, damages only.
o If yes, can elect to rescind or continue and receive damages.
RATIO

MEASURE OF DAMAGES
Uncertainty will not be bar to damages
McRae

Bowlay

Expectation damages is the default remedy.

o Burden on P
o If good is non-existent/value cant be assessed, cannot show
damages.
Where you cannot assess value of expectation, damages will be
based on reliance (prima facie case if P relied to their
detriment)
Losing K Damages will only be awarded for losses accruing from
the breach itself
Court will not put parties in a position that K completion would not
have provided
o The onus is on D to show that K completion would have
resulted in loss for P
Where Ds breach causes greater damage (but for the breach I
would have lost less) the difference would be compensable

Peevyhou
se

Nu-West

If the expected outcome is determinable, use as a basis for

damages over reliance
Diminution in Value vs. Cost of Performance
o No person can recover greater amount in damages for breach than
he would have gained by full performance.
Courts will usually enforce Cost of Performance unless:
o Breach was incidental and
o
Economic benefit of performance of work is grossly disproportionate
to cost of performance (social waste)
If breach is not trivial and innocent P is entitled to act

reasonably in mitigating effect of breach and can claim damages

if reasonable and not disproportionate/social waste.
Disproportionate reactions will not be compensated
o P cannot expect perfection from D (should accept innocent & trivial
deviations)
Not all responses of P will be held against D (P just have to act reasonably)

CERTAINTY
Loss of a Chance
Can Recover for Loss of Chance (as long as not trivial) dont need proof
Chaplin
on balance of probabilities to allow recovery
Hicks
The fact that damages cannot be assessed with certainty does not relieve
the wrong-doer of paying damages for breach (or causing the loss of a
chance).

REMOTENESS OF DAMAGE
Damages for breach are limited to those consequences that:
Hadley

(1) arise naturally in the usual course of things (for such a K and its breach),
or In the reasonable contemplation of both parties at the time K was
formed (at formation); or
implicit, objective contextual
(2) if special circumstances were communicated to the other party and both
parties know that the injury from breach would follow under special
circumstances (more serious). If special circumstances are unknown, can only
calculate generally.
Specific and explicit

Victoria
Laundry

reasonable contemplation depends on knowledge possessed by

parties, or party who committed the breach
o Knowledge = imputed or actual
o Based on reasonable person- serious possibility or real
danger
P can recover damages for breach of K that causes loss of a kind
that D, when he made the K, ought to have realized was not
unlikely to result from a breach

The Heron
II

CASE

CAN

Serious possibility= not unlikely (probably >50% chance)

o D is not responsible for ALL foreseeable loss
o Must be reasonably foreseeable + reasonably likely
RATIO

INTANGIBLE LOSSES
If the core of Kis intangible/subjective, damages for breach of K can
Jarvis
Fidler

extend to intangible losses (i.e. expectation and anticipation)

TEST Intangible Loss can be compensated when:
(1) That an object of the contract was such that it brings intangible loss
upon breach within the reasonable contemplation of the parties;
and
(2) degree of intangible loss caused by the breach was not trivial
For punitive damages to be awarded, need to have an additional

breach (usually good faith)

MITIGATION
Asamara

An innocent party must take steps to mitigate his or her losses.

 When there is a reasonable replacement duty to mitigate

When a reasonable person wouldnt have mitigated by re-entering
the marketplace or Ps particular circumstances prevent them from
mitigating duty to litigate
A party who fails to mitigate or litigate will not be able to recover the
proportion of his or her losses which mitigation/ swift legal
resolution would have prevented
Do not need to take all possible steps, depends on circumstance
(reasonable person)

EQUITABLE REMEDIES
SPECIFIC PERFORMANCE
Specific Performance is available when P shows that the subject of K
John
is unique
Dodge
Unique quality makes it particularly suitable for Ps intended
purpose at time of breach
Duty to mitigate doesnt arise if the innocent party is entitled to specific
performance
o

PERSONAL SERVICE
Negative Covenants in personal service K will be enforced through an
Warner
injunction provided that it does NOT amount to:
Bros
(a) Positive covenant
- Cant force someone to be work for another
(b) Choice of idleness (doing nothing) or performance of the positive
covenants
Cant stop from someone from doing any work
Injunction only available when damages are not an appropriate
remedy.
o Discretionary Remedy
o Court is limited to what it considers reasonable in the circumstances

4. STANDARD FORM CONTRACTS AND EXCLUSION CLAUSES

INCORPORATION
UNSIGNED DOCUMENTS
Customers may assume that condition(s) are general & dont take
Thornton
away rights
Actual knowledge of conditions content is never required, just its
existence
Extreme/Unusual (esp. reg. rights) conditions require more explicit
notice
Conditions listed elsewhere are binding ONLY if:
1) Acceptor knows there is writing on the ticket and the
writing contained conditions, or
2) Acceptor knew that there was writing on the ticket and had
reasonable notice that the writing contained conditions.
CAN
CASE
RATIO

Interfoto

Where a condition is particularly onerous or unusual the party

seeking to enforce it must show that other party had fair
notice

 When is additional notice requirement triggered?

o Industry norm is less onerous than the condition
o Would a reasonable person know that there is a condition like this
in the deal

McCutche
on

What is the appropriate remedy for this type of situation?

o Could replace onerous terms with industry norms if acceptor fails
to show that there was reasonable notice
Past dealings will not act in place of notice.

Terms can be included without notice based on past dealings

ONLY when P can demonstrate the party had knowledge of the
terms, actual and not constructive and assent to them.
SIGNED DOCUMENTS
If party seeking to enforce K knew or had reason to know that
Tilden
the other party did not have knowledge/assent to all of the
terms, K not enforced

Karroll

Adoption of Thorton for Signed standard form K Enforcing

party must take reasonable measures to draw attention to
particular stringent or onerous provisions (especially if made in
haste, or made to discourage reading)
LEstrange still applies: Binding unless fraud, misrep. or non est factum- not he
act
To bring it into realm of Thorton (draw attention to onerous) P must
prove:
(1) A reasonable person would have known that P did not intend to agree to the
term in these circumstances; and
(2) D failed to take reasonable steps to bring the content of the release to Ps
attention

Cornell

Factors to consider (open):

o Effect of the clause (contrary to deal)
o Length/format of contract
o time available to read (haste)
Situations where reliance on other party is justified:
1. Past course of dealing
2. Explicit assumption of advisory responsibilities
3. Relative positions of the parties, particularly in their access to
information and in their understanding of the possible demands of
the dealing
4. The manner in which parties were brought together and the
expectation that could be created in the relying party
5. Whether trust or confidence has knowingly reposed by one party
on the other
Failure to read K before signing it is not legally acceptable basis
for refusing to abide by it, nor is the fact that the clause was
not subject to negotiations
The more commercial a transaction, the less notice is required of
onerous terms

FUNDAMENTAL BREACH
Hunter
Engineeri
ng

Tercon

CASE

CAN

3 Stage TEST:
1) Does exclusionary clause even apply to the type of loss/facts?
2) Is an applicable clause the product of unconscionability?
3) Public Policy overrides? (Strong Presumption against itfreedom of K)
RATIO

5. CONTRACTS INDUCED BY MISREPRESENTATION

Redgrave

In equity, a material representation intended to induce a party into K,

if later found to be untrue, entitles the induced party to rescind
If representation relevant & significant to K formation presume
induced K
o Subject to D showing that P didnt actually rely on
representation
Carelessness is not a bar to recission
o Induced party doesnt HAVE to make further inquiries if D
provides information, as long as it is reasonable for P to have
relied

Smith
Land

If the induced party does investigate and find out the truth, there is
no reliance on Ds misrepresentation D not liable
If the facts arent equally known to both parties, then statements
made by one of the parties will be taken as fact and, if they are
misleading, may be the basis for a claim in misrepresentation.
Materiality + inducement + opinion about info. only known by 1 party
= misrepresentation if objectively false/unreasonable

REMEDIES
Whittingto
n

Remedies for innocent misrepresentation:

o No common law remedies.
o Equitable remedies:
Rescission
Costs under K can be collected (indemnity)
NOT costs by reason of K
P can only choose either rescission (rewind K) or damages (continue
with K but get damages) cant have both

BARS TO RESCISSION
AFFIRMATION LAPSE OF TIME
Issues of quality of a good 4 potential levels of disappointment
Leaf

1) Mistake the good was not as promised

o For mistake of quality recission available until execution
o For recission to be available for a mistake, must have a difference in kind that
goes to the core of the deal (i.e. good is something completely different than
promised)

2) K condition
o For conditions, recission is available at CL if:

Condition goes to the core of the deal

Before execution or a reasonable time after execution

o If beyond reasonable time, option to rescind expires limited to damages only
3) K warranty
o If warranty recission unavailable, can only get damages
4) Equity
If mistake of quality was innocent misrepresentation recission OR indemnity

RESTITUTION IMPOSSIBLE
If rescission is impractical or inequitable equitable damages NOT rescission
o Time passed
o Involvement of 3rd party
o Alterations to property
Defences to rescission may exist, despite misrepresentation
o Doctrine of Laches:

If you want to exercise an equitable remedy (e.g. rescission) you must not
delay or through doctrine of latches you will lose out.
You must not sit on your rights.
o Defense of Election (Affirmation):

Did the person who knew there was fraud elect to continue w/ K anyway?
Election may be implied (if so, no rescission).
No rescission for innocent misrepresentation ( no going back once K is
executed)

CASE

CAN

RATIO

EXECUTED CONTRACT
If Party A is induced to purchase by an innocent misrepresentation
Ennis v
and executes K, then rescission may be still be available postKlassen
execution if:
o Item is a chattel/good
o Innocent misrepresentation
o Party A hasnt implied election (reasonable time period
allowed for inspection)
o Misrepresentation was at core of deal (not quality)
For land, rescission is only available until execution

6. CONTRACTS CONCLUDED UNDER MISTAKE

COMMON LAW
Bell v.
Lever

Void
o Mistake negates consent to K from the outset
o K never formed so no lingering enforceability
Voidable
o Void after formation
o Something results in K being unenforceable.
If there is a mutual mistake and one party is deprived of essentially
the whole of K
MISTAKE K is void
If there is a mutual mistake that means one party cant enforce K
K is voidable (breach of condition or warranty)
If there is a mistake about quality Condition/Warranty K
cannot be voided

McRae
EQUITY
Solle v
Butcher

Cannot rely on mutual mistake when:

o Mistake is not based on reasonable grounds
o Mistake is used to induce other party into K
Results for mistake:
1) Void no K
2) Voidable have K, but unenforceable due to mistake
Mistake is material
Parties both make same mistake about facts or their
relative/respective rights
Party seeking to set it aside was not at fault
Would not do injustice to 3rd parties
3) (NEW!) Avoidable between the two parties the K is
offensive, it can remain but is avoidable
Apply when it would be unconscientious for it to be
void
Both parties make same mistake about facts or about
their relative and respective rights
Mistake was fundamental
The party seeking to set it aside was not himself at fault