Misrepresentation - trusls.org file · Web viewTo determine if something is a term or a...

CONTRACTS FRAMEWORK, 2016 -2017:EMILY SMEATONTABLE OF CONTENTSMisrepresentation.......................................................................................................1Parol Evidence Rule & Terms of Contract...................................................................4Standard Form Contracts & Exemption Clauses.........................................................6Frustration..................................................................................................................8Mistake....................................................................................................................... 8Duress........................................................................................................................ 8Undue Influence.........................................................................................................8Unconscionability.......................................................................................................8Illegality...................................................................................................................... 8Remedies....................................................................................................................8

MISREPRESENTATIONMisrepresentation occurs where Party A makes a false statement to Party B at the time a contract is being formed. The false statement induces Party B to enter the contract. Party B later realizes that the statement was false and wants to rescind the contract. However, the statement is not actually part of the contract, and Party B is unable to sue for breach of the contract.

The court in Redgrave v Hurd set out the basic test for misrepresentation:

A misrepresentation is a positive statement of fact [representation], which is made or adopted by a party to the contract [inducement] and which is untrue (or false).

The first thing that needs to be determined is if the representation was a statement of fact or a statement of opinion. Smith v Land & House determined that a statement of opinion from a knowledgeable party to one who is not knowledgeable is a representation. If the representation is false it is then actionable for rescission and damages. However, when both sides equally know facts then statements are generally considered to be opinions. (Smith) The court must adduce this from the expertise of the party and the monopoly of information available to the court.

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[There is an exception if it is an opinion because sometimes what looks like an opinion can be a statement of fact. This occurs when the information is going from a knowledgeable party to a non-knowledgeable party. (Smith) Instead, this could be an implied statement of fact.]

A representation is different than a term of the contract. A representation is a statement of fact which induces the representee to enter into a contract, and is not a part of the actual contract. The remedy is to this is rescission. A term is a promise within the contract that has legal obligations tied to it. The remedy for a term is to sue for breach of contract and receive damages that puts the party back in the same position they would have been in had the contract been fulfilled. Differentiating between the 2 is important because court action will lead to different remedies.

To determine if something is a term or a representation you must use the objective reasonable person test and determine if the parties intended for the thing to be a term. (Heilbut, Leaf) There are several factors that are used to determine the parties’ intentions, including: importance of the term to the subject matter (Bentley), monopoly of information (relative expertise) (Leaf), and whether the oral statement was put into writing (the most determinative factor). (Heilbut)

Mere silence is not misrepresentation, but may amount to one where it distorts a positive assertion (e.g., a half-truth), contracts founded on utmost good faith (e.g., insurance), or where a fiduciary relationship exists between the parties.

In these circumstances, (Party A) (had/not) given a representation based on (facts of case).

Next, the court must determine if the statement induced the second party to enter into the contract. A false statement, whether made innocently, negligently, or fraudulently does not per se give rise to a cause of action. To be actionable, a misrepresentation must induce the representee to enter into the contract and it must be material. A misrepresentation is legally harmless if the representee never knew of its existence, did not allow it to affect his judgment, or was unaware of its truth.

There is a presumption of inducement if the false statement was material to the contract. (Redgrave) The presumption applies if the party intended to induce the other party into the contract. Materiality, in this case, means that the representation be one which would have influence over the judgment of a reasonable mind. If the court finds that a statement was material, the presumption of inducement will arise.

If the presumption of inducement can be proven, then the burden shifts to the defendants to rebut this assumption by either proving the party had definite knowledge of the contrary, explicit evidence showing that they didn’t rely on the

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representation, or by showing that the party entered the contract for a different reason. (Redgrave)

In this case, (Party B) (was/not) induced by the representation because it (was/not) a material fact.

Third, the representation must be untrue/false to be actionable. A representation as to a matter of fact is deemed to be true if it is substantially correct. A representation may be true without being entirely correct, provided it is substantially correct and the difference between what is represented and what is actually correct would not have been likely to induce a reasonable person in the position of the claimants to enter into the contract. (Avon Insurance Plc & Ors v Swire Fraser Ltd)

Thus, in this case, the representation was deemed to be (true/untrue) because it (was/not) substantially correct.

The court then must consider what type of misrepresentation has taken place. There are 3 different types of misrepresentation: fraudulent, negligent, and innocent. Different types of misrepresentation have different remedies. However, regardless of the type of misrepresentation, the effect is the contract becomes voidable (the contract is valid until it is set aside by the representee).

Fraudulent misrepresentation means a false statement of fact ‘made knowingly, or without belief in its true, or recklessly, careless as to whether it be true or false’. The remedy for fraudulent misrepresentation is rescission in contract and damages in tort for deceit. Negligent misrepresentation is a false statement made by a person who had no reasonable grounds for believing it to be true or founded on a failure by the representor to take reasonable care to ensure that the representation made is true and reliable. The remedy for negligent misrepresentation is rescission in contract and damages in tort for negligent misrepresentation. Innocent misrepresentation means a false statement in which the representor honestly believed to be true. The remedy here is rescission and indemnity (a monetary award, not calculated on the same basis but created by obligations deemed necessary by the contract). There are no damages for innocent misrepresentation unless the representation was regarded as a term of the contract.

Here, the facts indicate that this is a (type of misrepresentation). This is due to (facts).

Finally, the court must establish what the remedy to the misrepresentation is and if any bars apply. Rescission is the principle remedy for misrepresentation and it is available to all 3 types of misrepresentation. Rescission means the unwinding of the contract to put the parties back in the position they would have been had the contract not been formed in the first place.

A party can be prevented from being able to sue and rescind the contract if the bars to rescission apply. The bars to rescission act like defences, and if one of the bars

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apply, then rescission is no longer a possible remedy. The real practical difference is that in fraudulent and negligent misrepresentation you can turn to damages in lieu of rescission if any of the bars apply, but in innocent misrepresentation rescission is the only remedy available. (Kupchak)

There are 4 bars to rescission: affirmation, restitutio ad integrum, lapse of time, and effect on third parties.

The affirmation bar occurs when the representee, with full and complete knowledge of the misrepresentation, either declares his intention to proceed with the contract, or does an act that indicates his willingness to proceed with the contract. If a party affirms the contract, they cannot later change their mind and try to sue for rescission and/or damages. In Kupchak, the court said that you could have express or implied affirmation. An express affirmation occurs when the innocent party explicitly says that they are accepting the misrepresentation and will still continue on with the contract. A very extended delay could itself amount to implied affirmation. If you discover the defect and then do not do anything for a great amount of time it will suggest implied affirmation by the non-action. (Kupchak) A party may be able to get around the affirmation bar by showing that there was a reason why it was affirmed for so long. (Kupchak)

Restitutio ad integrum bars rescission if one of the parties has changed something in a material way that makes it impossible to go back to the original circumstances because the thing is different. (Kupchak) “Restoration is essential to the idea of restitution … Though the defendant has been fraudulent, he must not be robbed, nor must the plaintiff be unjustly enriched, as he would be if he got back what he parted with and kept what he has received in return. The purpose of relief is not punishment, but compensation.” (Spence v Crawford)

The lapse of time bar is when you find out the defect by the innocent party you start delaying to protest and the other party relies on the delay and changes his position so that now it would be unfair to rescind the contract.

The effect on third parties bar occurs only when there are adverse effects on third parties, barring recission.

In our case, (facts and conclusion).

PAROL EVIDENCE RULE & TERMS OF CONTRACTThe Parol Evidence Rule is where the agreement of the parties has been reduced to writing and the document containing the agreement has been signed by the parties, it is well established that the party signing will ordinarily be bound by the terms of the written agreement – it does not matter that he has not read it or is ignorant of the precise legal effect. (L’Estrange v F Graucob Ltd)

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When a transaction has been reduced to or recorded in writing by agreement of the parties, extrinsic evidence is, in general, inadmissible to contradict, vary, add to, or subtract from the terms of the document.

The Parol Evidence Rule only applies for terms, not misrepresentations, so it is important to distinguish between the 2. There are also other exceptions to the Parol Evidence Rule that need to be considered. There is a common-law rule exception that if there is an ambiguity in the contract, then oral statements are admissible to clear up the ambiguity, or where the written documents was not intended to contain the whole of the parties’ contract. Additionally, s.187 of the Business Practices and Consumer Protection Act states that if there is a consumer transaction, then you can look at oral evidence to explain what the contract means.

The Parol Evidence Rule exists in order to limit the scope of contractual relevance to the four corners of the contract. This helps provide certainty for the parties and bars the consideration of extrinsic evidence.

In this case, the Parol Evidence Rule (does/not) apply based on the (facts).

There are 2 types of terms, express and implied terms. Express terms are embodied in the written document. Implied terms must be inferred since the parties cannot foresee everything and there may be certain aspects that have been left out because it was not foreseen.

Thus, in this case, the term at bar was an implied term.

You can imply terms into a contract in 3 different ways: implied in fact, implied in law, or implied in custom. Each type has its own test. There should be no ambiguity about an implied term. A term cannot be implied into a contract that would be inconsistent with the express terms.

Terms implied in fact can be determined based on 1 of 2 tests. (Energy Fundamentals Group Inc v Veresen Inc)

Business Efficacy Test: ‘The law is raising by implication from the presumed intention of the parties, with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have. In business transactions such as this, what the law desires to effect by implication is to give such business efficacy to the transaction as must have been intended at all events by both parties.’

Officious Bystander Test: Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if while the parties were making their bargain an officious bystander were to suggest some express provision for it in the agreement, they would testily suppress him with a common, ‘Oh, of course’. (Shirlaw v Southern Foundries)

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Only one test need be fulfilled, but usually if you have one you satisfy both. The tests reflect the principle of necessity and must contain a certain degree of obviousness.

Terms implied by law may be conceived of as incidents which attach to certain standardized contractual relationships. These are not based on the presumed intention of the parties. Examples of terms that may be implied by law are common-law or statute (Sale of Goods Act, 1996; Homeowner Protection Act; Property Law Act). One can argue that terms implied by law are an affront to the freedom of contract, but you can expressly exclude implied terms in your contract.

Terms implied by custom only apply to a very narrow stream of contracts. Custom can be parties, industry, or the nature of the contract. Here, the test is one of necessity. An obligation implied by custom is read into the contract as the nature of the contract itself requires. In order for a practice to be regarded as a custom capable of being implied into a contract, it must be: certain (in the sense that the practice is clearly established); notorious (in the sense that it is well-known in the market in which it is alleged to exist, that those who conduct business in the market contract with the practice as an implied term); reasonable; not contrary to law; and it must exist at the time the contract was made.

In these circumstances, the implied term was implied by (term) based on the (facts).

Aside from express and implied terms, terms may be classified in 3 different ways: conditions, warranties, and indeterminate/innominate terms. Conditions tend to be the most important and go to the root of the contract. A breach of a condition deprives the innocent party substantially of the entire contract. A warranty is less important and is subsidiary terms (not vital terms that go to the root of the contract). The contract can still be performed as the substantial part is still there. Innominate terms fall somewhere in between conditions and warranties depending on the circumstances. (Hong Kong Fir Shipping) The hallmark of an innominate term is that it defies prior classification because it is a complex term that can be breached in a variety of ways. (Hong Kong Fir Shipping) An innominate term is when it is not possible to determine at the creation of the contract whether the parties intended the term to be a condition or a warranty, and now have to wait for the breach to occur to see how serious the breach was and then determine what type of term it is. For conditions and warranties it is a matter of the parties intent. For innominate terms the intent cannot be ascertained, so you must wait for a breach to then determine what kind of breach it is.

Where parties have not so classified their terms, it is a matter of construction whether a term is a condition, warranty, or an innominate term. The basic test to determine classification of terms is based on the intention of the parties. Did the parties intend, at the creation of the contract, for the breach of the term to lead to

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the repudiate the contract? If yes, then it is a condition. If no, then it is a warranty, as warranties only give expectation damages, but not the right to repudiate. In order to determine the intentions, one must look to the language of the contract, and the importance of the contract. Explicit use of the word “condition” is not a magic word, and the intention of the parties still needs to be considered. (Wickman Machine)

Thus, in this case, the terms are classified as a (term) based on (facts).

STANDARD FORM CONTRACTS & EXEMPTION CLAUSESStandard form contracts are non-negotiated contracts that are presented to a succession of contracting parties (e.g., buyers) on a take-it-or-leave-it basis. The advantage of standard form contracts is they bring costs down as there is no need to make a new contract every time. They are also much faster which promotes economic efficiency. However, there is no negotiation process, so the meeting of the minds of the parties may come into conflict. Also, practically speaking, standard form contracts will be completely one-sided agreements in favour of the drafter.

An exemption clause is a clause that excludes or limits liability for breach of contract or other sources of liability, such as tort. It is a unique contractual term in the sense that rather than impose an obligation – as is the case with conditions, warranties, and innominate terms – it seeks to regulate the consequences of non-fulfilment of contract obligations or breach.

In order to determine whether or not an exemption clause is binding, it must fulfill 3 requirements. (Tercon Framework) The first issue, is whether as a matter of interpretation the exclusion clause even applies to the circumstances established in evidence. If the exclusion clause applies, the second issue is whether the exclusion clause was unconscionable at the time the contract was made. If the exclusion clause is held to be valid and applicable, the Court may undertake a third enquiry, namely whether the Court should nevertheless refuse to enforce the valid exclusion clause because of the existence of an overriding public policy that outweighs the very strong public interest in the enforcement of contracts.

First the court will look to see if the exclusion clause applies to the circumstances established. Only terms incorporated into a contract are binding on the parties. Notice of the term and acceptance thereof (including signing) will incorporate a term into a contract and makes the term binding on the parties. The court will examine 4 aspects to determine if the exemption clause is incorporated into the contract.

Is the clause part of the contract?

Is it worded so as to cover the breach which has occurred (construction)?

Is the clause affected by legislation?

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Can the party claiming protection from it rely on the clause?

Whether the exclusion clause applies also depends on the court’s assessment of the intention of the parties.

The general rule is that once you sign a contract you are bound by it and it is wholly immaterial whether the document has been read or not. (L’Estrange) However, a signature may not be sufficient for incorporation when there are the exceptions of fraud, misrepresentation, or onerous and unusual terms. There is no general requirement that a party tendering a document for signature take reasonable steps to inform the party signing of onerous terms or to ensure that they read and understand them. It is only where the circumstances are such that a reasonable person should have known that the party signing was not consenting to the terms in question that such an obligation arises. (Tilden, Silver Star)

If a contract is not signed and you want to prove an exemption clause has been incorporated, you can say that it was subjectively brought to the party’s attention before the contract was formed. (Thornton) You need not demonstrate that they know all the specifics, but that they are subjectively aware of the general character of the clause. (Thornton) If you cannot prove incorporation subjectively, you can incorporate a clause through an objective standard that the company did what was reasonably sufficient to bring existence of the clause to the customer’s attention. (Thornton) The more powerful the clause in a right dispensing sense, the more effort there needs to be to bring it to their attention. (Thornton) An exemption clause may also be implied based on prior dealings. (McCutcheon) This can occur where parties have made a series of similar contracts, the practice is consistent, each contain the same exemption clause, and there is no evidence to the contrary that the party did not want it this time. (McCutcheon) It is a considerably high threshold to meet and generally only operated in circumstances where there has been honest oversight.

Thus, in this case, the exemption clause (was/not) incorporated due to (facts).

Once a clause is incorporated, we will have to analyze whether the party was given sufficient notice of the clause. An exemption clause will not bind a party if it can be shown that the party did not have notice of the clause at the time it was made. In order to assess whether there was notice and whether or not it was sufficient we must look at the following criteria: notice is a question of fact; notice must be sufficient, fair, and reasonable; notice must exist before or at the time the contract is concluded; and surprising or onerous terms require extra notice.

Thus, in this case, the party (was/not) given notice based on (facts).

Therefore, based on the incorporation of the exemption clause and notice give to the party, we can determine that the exemption clause applies to the circumstances at hand.

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The second step is assuming the exemption clause does apply, the courts will then look to determine whether the clause was unconscionable at the time the contract was made. In general, 2 elements must be established before a contract can be set aside on the grounds of unconscionability

The first is proof of inequality in the position of the parties arising out of some factor such as ignorance, need or distress of the weaker, which leaves them in the power of the stronger.

The second is proof of substantial unfairness in the bargain obtained by the stronger person.

Under the doctrine of unconscionability, a limitation of liability clause will be unenforceable where one party to the contract has abused its negotiating power to take undue advantage of the other.

Therefore, in this case, the exemption clause is deemed to (not/be) unconscionable based on (facts).

The third step is if the clause is valid and applicable, to determine whether the court should nonetheless refuse to enforce the valid exemption clause because of the existence of an overriding public policy. This recognizes the residual power of the court to decline enforcement of exemption clauses on grounds of overriding public policy. This residual power is rarely or seldom exercised “in the interest of certainty and stability of contractual relations”.

In this case, there (is/not) a public policy that overrides the valid exemption clause based on (facts). Thus, the exemption clause is deemed to (not/be) applicable as it is (fill in results of prior steps).

FRUSTRATIONThe doctrine of frustration has progressed from the theory that no event was catastrophic enough to frustrate a contract, even war (Paradine), to the idea that a contract could stop on the basis of an unforeseen event. Frustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. (Davis Contractors)

There are 3 factors that must be present before the court will hold that a contract is frustrated

There must be a frustrating event.

The occurrence of that event must not be due to the fault of either party, especially the party invoking the doctrine.

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The frustrating event should not have been foreseen or provided for in the contract.

Before one examines each factor, one must look to see if the risk associated with the frustrating event has not been allocated to one of the parties in the contract. If the risk has already been allocated to one of the parties then the doctrine of frustration does not apply. The Sea Angel is a recent case which explains what foreseeability means in the context regarding risk allocation. In those circumstances, the courts will work very hard to allocate risk to one of the parties.

In this case, there (is/no) risk allocated to (the party) within the contract.

The first step is to examine whether there has been a frustrating event. A frustrating event is an event that renders performance of a contract radically different to that which the parties hitherto agreed. The frustrating event must render performance of the contract radically different to what the parties originally undertook; mere commercial inconvenience or expense is not enough.

In this case, there (is/not) a frustrating event based on (facts).

The next step is to examine whether the occurrence of the vent was due to the fault of either party. Fault precludes the application of the doctrine of frustration. Maritime National Fish Ltd v Ocean Trawlers Ltd provides an example of fault in the frustration context: a fisherman rented 2 fishing boats and was then denied fishing licenses for them. He claimed the contract was frustrated. The court rejected his claim because he had 3 other boats that he owned and he chose to apply the fishing licenses that he was approved for to the other boats. By not applying the license to his rented boats he caused the contract to be frustrated.

In this case, the frustration is due to (no/fault) of either party based on the (facts).

The final step is to determine whether the event was foreseeable or provided for in the contract. The doctrine of frustration is concerned with unforeseen, supervening events, not with events which were anticipated and provided for in the contract itself. If the contract itself makes provision for the supervening event, then the doctrine of frustration will have no role to play. It is a question of construction whether the terms of the contract cover the situation that has arisen. Parties will sometimes expressly deal with unforeseen contingencies (e.g., through the use of force majeure clauses), but the mere fact that you have a force majeure clause does not necessarily negate the doctrine of frustration. It may not cover all the possibilities. The degree of foreseeability required to exclude the doctrine of frustration is a relatively high standard.

In this case, the event (was/not) foreseeable or provided for in the contract based on (facts). Thus, the doctrine of frustration (can/not) apply.

If the doctrine of frustration does apply, the contract is ended forthwith and the parties are discharged (prospectively) from future performance under the contract.

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Where there is a legal right to receive payment prior to the frustrating event, the sum may be recovered. A party can recover money paid under the frustrated contract as long as they have received no part of the performance which they bargained for in exchange for the payment.

Therefore, in this case the parties can (apply potential remedy).

The Frustrated Contracts Act is available when a contract is frustrated at common law. This statute only deals with contracts that are frustrated already, not in determining whether it has been frustrated or not. The Act governs how a frustrating event gets resolved and entitles every party to restitution and releases them from fulfilling future obligations.

In this case the Frustrated Contracts Act (does/not) apply because of (facts).

MISTAKEThe doctrine of mistake must exist at the time of contract to be effective. When applicable, the doctrine of mistake makes a contract void ab initio (make as if it never existed) at common law and voidable in equity. The first step is to identify whether a mistake is unilateral, mutual, or common. Unilateral mistake occurs when only one party is mistaken. Mutual mistake occurs when the parties misunderstand each other. Common mistake occurs when both parties make the same mistake.

UNILATERALThe general rule at common law is that if one party has made a mistake as to the terms of the contract and that mistake is known [or ought to have been known] to the other party, then the contract is not binding. The reasoning is that although the parties appear, objectively, to have agreed terms, it is clear that they are not in agreement. However, if one party has made a mistake about a fact on which he bases his decision to enter into that contract, but that fact does not form a term of the contract itself, then, even if the other party knows that the first is mistaken as to this fact, the contract will be binding. (Smith v Hughes) The implications of a unilateral mistake make the contract void ab initio.

There are 3 key questions when addressing unilateral mistake at common law

What, objectively, are the terms of the parties’ agreement?

What was the state of mind of the 2 parties at that time?

Have the parties reached consensus on the terms of the contract?

First, the parties must actually be mistaken as to terms of the contract. (Smith) There is a distinction between a mistake as to a term, and a mistake as to an assumption. (Smith) Therefore, you must be able to say that a party was mistaken as to a term and not just that they assumed they were getting something. Smith v Hughes gives the example of purchasing a horse: there is a difference between

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buying a horse believed to be sound and buying one warranted to be sound. Distinguishing between terms and assumptions is therefore based on the objective reasonable person looking at factors such as market price, context, conduct of the parties, industry standard, language, etc.

In this case, the parties (were/not) mistaken as to the terms of the contract based on (facts).

Second, one party must subjectively know that the first party is mistaken as to terms and decides to snap up the offer regardless. (Smith, Hartog) The difficulty here is in proving the subjective knowledge of one party. This may entail looking to objective criteria and the reasonable person standard in order to divest the party with subjective knowledge. (Hartog) McMaster University v Wilchar also indicates that a promisor is not bound to fulfill a promise in a sense in which the promisee knew at the time that of the promise that the promisor did not intend it.

In our case, (Party A) (did/not) know that the party was mistaken as to the terms of the contract based on (facts).

Third, did the parties reach consensus on the terms of the contract? There are examples of this within mistaken identity (Shogun Finance v Hudson) and mistake as to other contractual terms. (Hartog, Smith) You have to be mistaken about what is being offered to you in the sense of the term. Assumption is not enough.

In our case, the parties (did/not) reach consensus on the terms of the contract based on (facts).

It is important to note that the test for deciding whether a contract can be rescinded in equity for unilateral mistake remains unsettled.

[Mistakes as to identity are a special species of unilateral mistakes and therefore the remedy is the same and the contract is void ab initio. Factually speaking, mistakes as to identity involve situations where A and B purport to contract and B is a fraudster pretending to be someone they are not.

As per Shogun Finance v Hudson, there are now 4 steps that must be proven on a balance of probabilities by the person who is mistaken in order to show mistake as to identity.

That they intended to contract with a specific person (as opposed to contracting with the world)

That the other party knew or ought to have known the first party was mistaken as to identity.

That, at the time of the contract, they regarded the identity of the other party as being crucially important. Put another way, it mattered crucially to the deal that the person was who they said they were.

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They must have taken reasonable steps to verify the identity of the other party. The standard you reach depends on the nature of the transaction.]

MUTUALIn cases of mutual mistake there is an outward appearance of a contract, but one party alleges that their mind was affected by a fundamental mistake of fact and they never intended to make that precise contract. It arises in situations where the parties are operating at cross-purposes and the question is whether they have, in fact, reach an actual agreement.

In cases of mutual mistake, the course must decide what a reasonable third party would infer from the parties’ words or conduct. The test is objective and if the reasonable person’s ‘sense of the promise’ cannot be determined then there is no binding contract. (Staiman Steel) If, from the whole of the evidence, a reasonable person would infer the existence of a contract in a given sense – sense in which A or B understood it or another sense – the court will hold the contract binding in that sense, notwithstanding the allegation of mistake.

In this case, the parties (were/not) at mutual mistake because (facts).

Equity follows the law in holding that a mutual mistake does not, as a matter of principle, nullify a contract. The court will determine the sense of the promise. Equity may, however, refuse specifc performance of contract against a mistaken party.

COMMON In cases of common mistake both parties make the same mistake. Each party clearly knows the intention of the other and accepts it, but each party is mistaken about some underlying and fundamental fact. Common mistake renders the contract void.

However, in Canada, if the mistake is found valid at common law there is still a chance to find the mistake voidable in equity. This is different as to how the courts have approached this issue in England where in Great Peace Shipping the House of Lords got rid of the equitable doctrine as per Solle v Butcher.

The common law common mistake doctrine was first set out in Bell v Lever Brothers and then redefined in Great Peace Shipping. The assessment of whether or not it is a common mistake has to be done at the time the contract was made. In order to establish that there is a common law common mistake, there must be

A common assumption (mistake) as to the existence of affairs.

There must be no warranty by either party that the state of affairs exists.

The non-existence of the state of affairs must not be attributable to fault by the party claiming common mistake.

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The non-existence of the state of affairs must render performance of the contract impossible. (Great Peace)

The first step is to establish that there was a common assumption (mistake) as to the existence of affairs. The state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible. This is determined based on the facts and occurs when “the mistake of both parties”. (Bell)

In this case, (conclusion).

The second step embraces the idea of risk allocation and risk assessment. In other words, if it can be said factually that one of the parties has expressly or impliedly assumed the risk that the state of affairs will be a certain way, then common law common mistake will not apply. (McRae)

The court in Miller Paving and Lee took a rather broad application of risk allocation which factored in commercial reality. (McRae) Seeing as this operated as a complete bar to mistake it produces some significant issues. (Miller) For instance, in Miller the court determined that the commercial reality in supply contract is that the supplier bears the risk (whoever provides the release bears the risk). Similarly, the court in Lee determined that the principle of caveat emptor (buyer beware) put the onus on the buyer to make inquiries about the purchase. Therefore, the court judicially imposed the risk in the absence of an implied promise.

By implying caveat emptor, and taking it literally, there would never be a common mistake. One party would always be assuming the risk. Therefore, if Lee is to be taken as a literal approach, the effect would be to eradicate common mistake entirely. It is likely this is not what the court wanted or else they would have just eliminated mistake altogether or chose to follow Great Peace Shipping. Therefore, when it comes to caveat emptor, it must mean something more nuanced: what this is however, is up to debate.


Third, if the contract did not deal with the problem at hand, you must turn your attention to the parties. If one party generated the mistake (causally) in circumstances where they were careless or reckless, then they are disentitled from arguing mistake. (Great Peace) If one party is responsible for this, then being at fault is what is used for risk allocation. This embraces the idea of fault set out in McRae.


Fourth, the non-existence of the state of affairs must render performance of the contract impossible which embraces the essentially different test in Bell v Lever Brothers and impossibility of performance is simply another way of determining that something is essentially different. (Great Peace) Therefore, “the mistake [must

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be] as to the existence of some quality which makes the thing without the quality essentially different from what the thing was believed to be”. (Bell) This means that what the parties assumed they contracted for is “different in kind” from what it was believed to be. (Bell) This is not about inconvenience but about impossibility.


If we come to the conclusion that there is a common mistake at common law based on the above factors, then the contract is rendered void and would also be void in equity.

[In Miller, the plaintiff was barred from claiming common mistake because he created the mistake factually and did it in a careless manner because he was not responsible in keeping up with his books. In Lee, however, the court attributed fault to the plaintiff because he did not take reasonable measures or mention to the other party anything about zoning. In this sense, Lee is based on an omission to be thorough.]

A mistake, which does not make a contract void at common law, may give rise to relief in equity to help correct the harshness of the common law. For example, the court could grant discretion to refuse specific performance; the court could order rectification to fix the mistake that has been made; or the court can order to set aside the contract (on terms).

In England, if you come to the conclusion that the contract is valid in common law, then you cannot rely on equity to intervene. (Great Peace) In Canada, Miller Paving has shown that both common law mistake and equitable mistake can still be used (although still uncertain in BC).

A contract is also liable in equity to be set aside if the parties were under a common misapprehension either as to the facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault. (Solle v Butcher)

First, the parties must be under common apprehension where there is a mistake on both of their behalf.


Second, the misapprehension must be fundamental to a contract where it is objectively important to the parties. (Solle) Unlike the common law common mistake doctrine, a significant difference in value is fundamental. (Solle) In Solle, the mistake was fundamental to the contract because he would not have even considered renting the flat if it meant he could only charge the lower legislated rent.


Therefore, the parties are (not/able) to rely on the doctrine of common mistake in equity.

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*If the question is specific to common-law or equity then only do that type, but if it doesn’t specify what type you have to start with common-law*

DURESSA contract between A and B may be set aside if it was made under duress. There are Canadian cases supporting both 1 or 2 requirements for duress. For the purpose of this exam we will discuss both requirements: coercion of will and illegitimacy of pressure.

Coercion of will requires that the victim must have been under some sort of pressure that was a significant cause or the reason he entered into the contract. It refers to a trait that leaves the victim with no practical alternatives but to submit. In this case, the victim must demonstrate that he was induced to enter into the contract by virtue of the conduct of the wrongdoer (a causal relationship between the threat and the victim’s decision to enter into the contract).

Pao On also considers other factors to assess if there was coercion of will such as protest, presence or lack of reasonable alternative courses of action open to the victim, independent advice, and subsequent steps to avoid the contract. The existence or the lack of protest is not conclusive, but is important to consider. It is not enough that there are alternative courses of action, but rather hinges on whether the alternative courses of action were reasonable. However, this is not an exhaustive list of factors to consider. (Bell)


When using the Universe Tankship test you must also consider illegitimacy of pressure. This requires that the source of pressure comes from A or his agent or a source that A is aware of and tries to take advantage of. The factors to consider include the nature of the pressure and the nature of the demand to which the pressure is applied to. Generally speaking, a threat to do anything unlawful is illegitimate. However, a threat that is lawful does not necessarily make it legitimate (because of the nature of the demand).

There are 3 forms of illegitimate pressure: threat to person, threat to goods, and threat to economic interest.


If a contract is formed under duress a contract becomes voidable, not void. The principle remedy for duress is rescission. Damages here are not recoverable.


UNDUE INFLUENCEUndue influence is an equitable doctrine that seeks to protect parties who have entered into a contract based off a relationship of abuse. Undue influence may be

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defined as some unfair and improper conduct, some coercion from outside, some overreaching, some form of cheating and generally, though not always, some personal advantage obtained by the wrongdoer. To prove undue influence, you need an established relationship either one that is actual or presumed.

ACTUALActual undue influence is the use of influence by A on B to bring about the contract is clear and deliberate, sometimes in the nature of a threat. There is no need in actual undue influence for a pre-existing relationship. A person relying on a plea of actual undue influence must show that

The other party to the transaction had the capacity to influence the complainant;

That the influence was exercised

Its exercise was undue

That its exercise brought about the transaction.


If undue influence is actually proved it is not necessary to prove that the transaction was manifestly disadvantageous in order to obtain relief. Additionally, actual undue influence can be shown by the presence of coercion or actual pressure, or that the stronger party exercised such a degree of domination of control over the mind of the weaker party that the latter’s independence of decision was substantially undermined.

If undue influence is proven, then the contract is made voidable and rescission is the primary remedy.

*Insert rescission paragraph + bars to rescission from misrepresentation*


PRESUMEDPresumed undue influence exists when the influence of A on B exists as a feature of their relationship (e.g., doctor – client, parent – child, lawyer – client etc.). It has to be established at in the first instance that it is a confidential relationship (a relationship of trust and confidence and a relationship of influence). Additionally, there must be a transaction not readily explicable by virtue of the relationship.

A relationship of influence may be established as a matter of law, or on the basis of the facts.


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A transaction not readily explicable by virtue of the relationship is also required.


Once both are established a presumption of undue influence is raised. The burden shifts to the wrongdoer to prove that the complainant entered into the transaction freely. In other words, the wrongdoer has to rebut the presumption. In order to rebut the presumption, evidence must be lead to satisfy the court that the victim was acting independent from any influence of the wrongdoer.

If undue influence is proven, then the contract is made voidable and rescission is the primary remedy.



THIRD PERSONWhere one party seeks to avoid a contract on the ground of undue influence by a third person, it must appear that either the third person was acting as the other party’s agent, or that the other person had actual or constructive notice of the undue influence.

UNCONSCIONABILITYThe doctrine of unconscionability is derived from equity and allows a party to escape the deal where there is an inequality of bargaining power at the time of formation and an exploration of this inequality that results in an unfair deal.

A person claiming relief on grounds of unconscionability may succeed where

There is an inequality of bargaining power between the parties resulting from or created by a special and significant disadvantage by reason of some condition or circumstance that provides an opportunity for the other party to take advantage of the party suffering from the disadvantage; and

The other party unfairly or unconscientiously (in the sense of lacking conscience takes advantage of that opportunity). (Downer v Pitcher)

The first step is inequality of bargaining power. This will arise from the facts. The advantage resulting from the inequality of bargaining power need not be a financial advantage. (Downer, Morrison Coast, Marshall)


The second step is the deal must be substantially unfair. (Downer, Morrison Coast, Marshall) In order to ascertain this, you may look to certain elements such as the benefits that one party gets in relation to another. (Morrison Coast)

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If unconscionability applies then a contract is rendered voidable. This will be granted unless the other party can rebut the elements or one of the bars applies. The principle remedy is rescission, but equitable compensation and statute may afford specific or additional remedies.



ILLEGALITYThere are 2 types of illegality that can affect contracts: statutory and common-law. A statute may make the creation of a particular type of contract illegal or unlawful. A statute may also make performance of the contract illegal. Common-law illegality may occur when certain contracts are deemed unenforceable on grounds of public policy.

STATUTORYStatutory illegality takes into account the purpose of the statute and whether, in light of all the surrounding circumstances, declaring the given contract illegal advances the objects of the statutes. This considers factors such as the serious consequences of invalidating a contract; social utility of such consequences; and the class of people for whom the statutory prohibition was directed.


If statutory illegality applies, the effect depends on the terms of the statute. In general, the basic effect of illegality is to render the contract unenforceable. In other words, no action can be founded on the contract. It is a fundamental legal principle that no action can be founded on a base cause (ex turpi causa non oritur action).


COMMON-LAWCertain contracts are deemed unenforceable at common-law on grounds of public policy. These include: contracts in restraint of trade (restrictive covenants), contracts to commit a crime or perform a legal wrong, contract prejudicial to good public administration or the administration of justice, contracts prejudicial to good foreign relations, contracts which involve or encourage immorality, and contracts affecting marriage.

Contracts in restraint of trade means one person agrees not to do something. In order to establish if a contract is in restraint of trade there are 2 approaches: the functional approach, and the formalist approach. The functional approach focuses

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on the effect/function of the clause in practice over its form. The formalist approach requires that the clause be structured as a prohibition. If a contract is in restraint of trade, then it is unenforceable unless reasonable in the interest of the contracting parties and reasonable in the interest of the public.


If common-law illegality applies, the basic effect is to render the contract unenforceable. In other words, no action can be founded on the contract. It is a fundamental legal principle that no action can be founded on a base cause (ex turpi causa non oritur action).

In general, property, including money that has been transferred under an illegal contract cannot be recovered. The courts may, however, allow a party to recover property transferred under an illegal contract where

Both parties are not equally blameworthy (in pari delicto).

The party seeking to recover repented of the illegality before execution of the contract (locus poenitentiae).

The party seeking recovery is able to base the claim without relying on the illegal contract (e.g., in tort, restitution, trust).

The illegal clause may also be severed. There are 2 forms of severance: notional and blue pencil severance. Notional severance involves interpretation – reading down a clause in such a manner that it avoids the illegality. Blue pencil severance involves removing part of the contractual obligation that renders it illegal.


REMEDIES*List losses, decide which get damages, figure out which is too remote*

The right to damages is a secondary obligation in contract law. A plaintiff can recover damages for losses that he has suffered, and not profit which the defendant has made. In principle, the plaintiff has a free choice whether to quantify his loss on an expectation or reliance basis. It is possible for a plaintiff to claim for both expectation and reliance loss. The damages are not about profit, but rather about compensation. The rationale is to put the victim in the position that you would have been, had the contract been performed.

A claim for damages raises 2 important questions, namely remoteness of damages and measure of (assessment) of damages. Remoteness of damages deals with what kind of damage the plaintiff is entitled to recover. Measure of damages deals with the principles upon which damages must be evaluated or quantified in terms of money. It is important that one applies the test of remoteness first before one turns to assessing or measuring damages. “Before one can consider the principle on

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which one should calculate the damages to which a plaintiff is entitled as compensation for loss, it is necessary to decide for what kind of loss he is entitled to compensation. A correct description of loss for which the valuer is liable must preceded any consideration of the measure of damages.” (South Australia Asset Management v York Montague)

Remoteness functions to prevent unfair surprises to the defendant, ensure the fair allocation of the risk of the transaction, and to avoid any overly chilling effects on useful activities by the threat of unlimited liability. Where 2 parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. (Hadley v Baxendale)

Victoria Laundry v Newman and The Heron II are both subsequent developments of this test with reasonably foreseeability and reasonable contemplation, respectively. It is enough that the loss claimed ought to have been contemplated. A loss is not too remote simply because the amount or the extent of the loss (kind) could not have been anticipated.


If losses are found to not be too remote, we then assess them (quantify). “The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.” (Robinson v Harman)

The basic aim of damages is to put the plaintiff in the position he would have been in had the contract been performed. Assessment of damages is not an exact science, but the court must make an award. Court can use objective factors (e.g., market price of goods). Court may also rely on precedent to get the sense of what to award. Damages will then be assessed at the date of trial. (Semelhago v Paramadevan)


A wrongdoer is not relived of its obligation to pay damages on the basis that damages are difficult to assess and cannot be calculated with certainty. A plaintiff must take all reasonable steps to reduce or contain his loss. A plaintiff must also not act unreasonably so as to increase his loss. A plaintiff must be aware of the breach before they can mitigate.

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