BU 651 - Law Midterm Notes.doc

BU 651 MIDTERM REVIEW CHAPTER 2 Canadian courts system Stages of a civil action Class actions ADR CHAPTER 5 Offer & Acceptance Counteroffer Contractual exclusions Termination of offer Uncertainty CHAPTER 6 Consideration Equitable estoppel Quantum meruit Contracts under seal Intention to create legal relations Elements of a valid contract CHAPTER 7 Burden of proof Capacity to contract Minors Diminished capacity Legality of contracts Void contracts Illegal contracts CHAPTER 8 Mistake Void vs voidable Mistake as to terms Errors in recording agreement Mistakes in assumptions Mistake & 3rd parties Non estfactum Overperformance Misrepresentation • (Innocent, Fraudulent & Negligent) Omission Undue influence Status of parties • (spouses, superior knowledge, unequal bargaining power) Duress CHAPTER 9 Requirement of writing • land & one year rule Memorandum of contract Part performance Family Law Act Consequences of unenforceability CHAPTER 10 Contra proferentum rule Parol Evidence rule Exceptions to parole evidence rule (4 of them) Implied terms • by custom, by reasonable expectation & statute CHAPTER 11 Vicarious performance Trusts Exceptions to privity of contract (5 of them) Assignments • choses in action, choses in possession • why the assignee should notify the promissor of any assignment by operation of law CHAPTER 12 Discharge of contracts (5 ways) Discharge by agreement CHAPTER 13 Major vs minor breaches Conditions & warranties Breach • Repudiation & anticipatory breach • Options of the innocent party Installment contracts Doctrine of substantial performance Risk minimization (3 methods were discussed) Exemption clauses & fundamental breach Remedies Types of damages (5 of them) Plaintiff’s duty to mitigate Damage measurement problems Equitable remedies (5 of them) Loss of equitable remedies Enforcement of judgments (5 steps)

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Examples of Questions – Multiple Choice & Short Answer 1. A genuine estimate of damages contained in a contract as a term of the contract can best be described as a. nominal damages. b. reliance damages. c. liquidated damages d. consequential damages. e. expectation damages. 2. Which of the following will discharge a contract automatically? a. Frustration b. mistake c. breach of condition d. substantial performance e. fundamental breach 3. What is the effect of making a promise under seal? a. The promisor’s obligation is now optional with respect to the promisee b. It validates illegal contracts c. The promisor is now under a moral duty to perform d. There is no need for the promisee to give consideration since the seal makes the contract binding e. It overrides any mistake in contract terms or assumptions 4. Joe buys two tickets to a baseball game. Two days after that the game is cancelled. Joe then sells one ticket to Mary. Which of the following is NOT true: a. Mary can set aside the contract because of frustration. b. Mary can have the contract set aside because of mistake c. A contract did not arise between Joseph and Mary regarding the sale of the ticket d. Mary may sue Joe for breach of contract e. Joe made an offer and Mary accepted the offer 5. Vicarious performance is where: a. an employer performs an obligation in place of its employee and it remains liable for proper performance b. a third party performs an obligation on behalf of a party to the contract who remains liable for proper performance. c. an employee performs an obligation for another employee and the performing employee is liable for proper performance d. a third party derives enjoyment from seeing the contract performed e. parties to a contract agree to terminate the contract and substitute a new contract in place of the old one 6. A party wishing to introduce oral or written evidence which has the effect of changing the written agreement will have to overcome the a. plain meaning approach to interpretation of express terms b. principle of stare decisis.

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c. defendant's argument that those words would form a collateral agreement and should, therefore, not be allowed. d. parol evidence rule. e. rules regarding quantum meruit 7. Tim was drunk last night when he signed a paper that sold his five acre country lot. The next morning he realizes what happened and so wants to get out of the deal. Of the following, what's Tim's best strategy? a. Cash the down payment check for proof of legal intention, b. Repudiate before the closing date of this land sale. c. Immediately repudiate and establish that the other party knew he was incapable of a rational decision at the time of the agreement d. Obtain a psychologist's assessment of his behaviour last night, e. Entirely depend on the sworn statements of two or more witnesses. 1. 2. What is the difference between a contract of guarantee and a contract of indemnity? 2 marks What do following terms mean? (3 marks) a. non est factum b. vicarious liability c. contract warranties 3. Give two reasons why an assignee should give notice of the assignment to the promissor. (2 marks)

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Chapter 2: MACHINERY OF JUSTICE 2 Types of Jurisdiction Common Law – Statute & Precedent Decisions Civil Code – Statute Only Substantive Law Establishes the Rights & Duties for all member of society Procedural Law Deals with protection & Enforcement of Rights & Duties – eg. “Due Process” Public Law Law that regulates the relationships between government & people and the conduct of government Constitutional, Criminal & Administrative Law Private Law Law that regulates the relationship between individuals & groups in society Courts of Equity & Law – pg. 544 Common law developed based upon court interpretation of statute law – stare decisis A separate system known as courts of equity were established to provide remedies that the common law does not –eg. Habeas corpus, injunction, rescission & equity of redemption Fused into a single court system in 1865 Sources of Law in Canada Canada is a Federal system Legislative authority is divided between the central government and the provinces Intent was that Ottawa was to be more powerful than the provinces but court decisions have all but reversed this Judicial interpretation of statutes are used as precedents for future decisions Administrative bodies make their own decisions & set their own precedents – but they may be reviewed by the courts Canada’s Court System Provincial – Trial Level Small Claims – Civil cases of limited monetary value Provincial Division – Criminal & Family Courts

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Superior Court – Ontario Court of Justice Divisional Court (Ontario Only) Provincial – Appeal Level Court of Appeal Federal Courts Federal Court of Canada – It has both a trial division & an appeal division Supreme Court of Canada – The court of final appeal in Canada since 1949 Who may sue? Individuals – over age of majority Other legal entities – Corporations, Partnerships Unincorporated Collectives – Varies by jurisdiction Standing Generally you must have an interest in the matter that is greater than that of the average person Class Actions An individual represents a group and the decision is binding on all members of that group Common facts, common injury, etc. Avoids multiple actions on the same matter Avoids contradictory decisions SIX STAGES IN A CIVIL ACTION 1. PLEADINGS • • • • Statement of Claim Statement of Defence Counterclaim Third Party Notice

2. DISCOVERY – to narrow & define the issues • • • Oral Examination Discovery of Documents Electronic Discovery

3. PRE-TRIAL • • • 4. TRIAL Settlement meetings & discussions Pre-trial before a judge Mediation

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PLAINTIFF PRESENTS CASE FOLLOWED BY DEFENDANT & PLAINTIFF HAS A RIGHT OF REPLY (limited to rebutting evidence led in defence) 5. JUDGEMENT & COSTS WINNER IS USUALLY ENTITLED TO COSTS OF THE ACTION NOT A FULL INDEMNITY TWO SCALES – substantial indemnity & complete indemnity AWARD OF COSTS MAY BE DIVIDED BETWEEN THE PARTIES OR MAY BE DENIED TO THE WINNER 6. ENFORCEMENT or APPEAL TIME FOR FILLING AN APPEAL IS LIMITED ENFORCEMENT VIA FILING WRIT OF EXECUTION WITH SHERIFF’S OFFICE CONTINGENCY FEES RECENTLY ALLOWED IN ONTARIO LAWYER ONLY RECEIVES A FEE IF CLIENT WINS THE CASE APPRORIATE FOR CLASS ACTION LAWSUITS INCREASES ACCESS TO COURTS – a 3 day trial costs $41k & contingency fees ease burden on Legal Aid but THEN THE LAWYER BECOMES A PARTY TO THE ACTION ALTERNATIVE DISPUTE RESOLUTION - ADR USE PRIVATE PROCEDURES TO RESOLVE DISPUTES MEDIATION – mediator tries to settle the dispute ARBITRATION & AJUDICATION E-COURT ADVANTAGES OF ADR 1. 2. 3. 4. 5. SPEED COST CHOICE OF DECISION MAKER CONFIDENTIALITY MAY PRESERVE THE RELATIONSHIP BETWEEN THE PARTIES

Splitting cases can save time, avoid restrictions of court process Monday, April 02, 2012 | Written by Judy Van Rhijn | The flexibility of the arbitration process invites parties to split up or bifurcate their cases into parts, ensuring that issues that don’t need to go to trial aren’t the subject of wasted time and attention. It’s a practice now gaining the attention of judges looking for more efficient ways to manage their cases but it’s not an option that’s right for every matter, even in arbitration. “It speaks to the power of arbitration that the parties can decide the process,” says mediator and arbitrator Barry Fisher. “Courts generally don’t like it. They like to hear liability, mitigation, and damages all at once, which takes up unnecessary court time. In arbitrations, we can proceed in stages. . . . If you do it in chunks, there’s less work for everyone.”

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Stanley Tessis, a partner at Laxton Glass LLP, believes arbitration is the perfect forum to bifurcate. “As long as everyone is in agreement, you can do it any way you want. You choose who is going to hear it, when you will sit, which issues you will determine, and what order to decide the issues. Arbitration is much more flexible than the courts.” Tessis believes it’s possible to adopt the practice successfully in a courtroom arena. “If there are certain distinct issues or it is strictly a legal issue, you can use a summary judgment motion or a motion on an agreed statement of facts. If the case involves any factual determination, usually it’s all over in one shot.” Mediator and arbitrator Kathleen Kelly says there are numerous factors to consider in determining the appropriateness of bifurcating arbitration proceedings. “In some cases, the issues of determination of liability and damages are so interlinked that the determination of one cannot reasonably be determined without making a finding about the other. You should also consider whether the same persons, witnesses, and experts are required for both aspects of the claim. If the amount in dispute is small and the issues are uncomplicated, the time and costs of two processes cannot be justified.” Fisher has recently adopted the approach in some commercial arbitration matters by using what he calls a decision tree. “There were a couple of key issues to decide to determine liability. We tackled one discrete issue at a time. It seemed the natural way of doing things. For example, we had to determine the interest rate on a certain date. The spread was huge. It was a concise point that was argued in two hours. Once that was determined, the remaining parts of the case fell into play. Looking back, it was the most important thing we determined.” Fisher suggests that in commercial arbitration, there’s a natural bifurcation between liability and damages. Tessis also sees its application in insurance arbitration where there’s bifurcation between the questions of whether one company is entitled to be indemnified and the quantum to be indemnified. “There’s no point going through quantum if there is no liability,” he notes. Tessis also says that in insurance matters, there are always a lot of preliminary issues. “For example, where one insurance company is trying to get back statutory accident benefits that it paid to another insurance company, you must first determine the question of whether there is a limitation period. If they started their claim too late, that can be the end of it. You don’t get to the damages issue, so you don’t waste days and days.” Tessis feels bifurcation is especially useful if there’s a legal issue at stake in the matter. “You just present briefs of documents and legal submissions.” Meanwhile, Kelly says the process can help create a range of damages that will limit the risks of the decision going below an acceptable and agreed-upon lower limit and going above an acceptable top amount. Sydney Baxter, a mediator and arbitrator based in Ottawa, doesn’t see the process used much in labour and employment arbitration.

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He recalls declining a request for bifurcation in a case involving the introduction of computers in the Ottawa Public Library that had resulted in staff being exposed to pornographic images accessed by the patrons. “They requested that I bifurcate the case against the employer on the merits and the Charter issues. I declined because the Charter arguments would have been hanging like the sword of Damocles over everyone’s head during the merits hearing.” Baxter also felt it would have amounted to two costly hearings. “It’s not like the court where you set a matter down for trial and it goes until it’s finished. If an arbitration doesn’t finish, the parties may have to reconvene several months later.” Kelly agrees that it’s not always time- or cost-effective to split the proceedings up. “When the evidence and expert opinions are such that the issues cannot be separated, economies of time, direct costs, and opportunity costs cannot be achieved. The adoption of procedural steps or an arb-med process might create efficiencies that would render bifurcation uneconomical.” Fisher acknowledges that the process can take a little bit longer but still insists it can remain more cost-effective. “In one case, I felt bad that the process took so long, but the lawyers said that it was still so much better than court proceedings. It allows them to set the timing. The parties might not want to go to court straight away. As long as they are choosing the period of time when it happens, the certainty of the scheduling helps them.” Arbitration becomes more like litigation Gap between two models of dealing with disputes narrowing Monday, October 10, 2011 | Written by Julius Melnitzer “There has been a kind of merger in the processes so there’s no longer that much to choose between litigation and arbitration,” says John Laskin of Torys LLP. “People now realize more that some of the asserted advantages of arbitration were not real or at least a bit overblown.” On the other hand, litigation-related horror stories are legend and continue to proliferate. But close examination also reveals a growing number of successes for the court system. Still, arbitration has lost its lustre as a panacea for lengthy and drawn-out litigation. As many disappointed parties have discovered, arbitration can be slow and expensive, so much so that there aren’t many proponents left who base their case for arbitration solely on cost saving and efficacy. “In many cases, arbitration is not cheaper and not quicker,” Laskin says. “One reason is that the people we hire as arbitrators tend to have other things to do, and in cases involving threemember panels, scheduling is a nightmare that can really slow things down. Also, the discovery process can be much the same as in court because when it comes down to it, counsel are reluctant to give up the knowledge that comes with discovery.” There’s also the fact that arbitrators must get paid and the parties have to absorb the cost of all of the things that the public system provides for free such as a venue and a stenographer.

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Nowadays, boosters of arbitration rest their case on a number of perceived advantages. “The primary reasons for arbitration are choice of decision-maker, a more business-like approach to dispute resolution, and tailoring the rules to suit the parties and the disputes,” says Joel Richler of Blake Cassels & Graydon LLP. But the 2010 international arbitration survey, sponsored by White & Case LLP, found that 50 per cent of respondents were disappointed with arbitrator performance. What the survey doesn’t pinpoint is whether the 50 per cent were composed solely of the losers. If that’s the case, the results might not be very different if a similar poll studied the attitude of litigants. But if that’s not the case, 50 per cent is a remarkably high dissatisfaction rate given that choice of decision-maker so often comes up as a reason to arbitrate. As for tailoring the rules to suit the parties, litigation is much less formal and structured than it used to be. That’s not to say that arbitration doesn’t have considerably greater scope in this regard, but it does point out that the issue isn’t entirely one-sided. “However flexible the judicial system tries to be, it never has the flexibility of ad hoc arbitration where parties can design their own process, choose their own judge, have a much greater influence on when things will happen, and have the same decision-maker organize each step in the process, including the supervision of discoveries if necessary,” says Wendy Earle of Borden Ladner Gervais LLP. The argument is that arbitrators, seized of a case in its entirety, have greater scope to keep the parties in check. “Arbitration can get down to the same kind of fighting that occurs in litigation, but arbitrators have more room and more motivation to rein in the process,” says Barry Leon of Ottawa’s PerleyRobertson Hill & McDougall LLP. The problem is that they don’t always do so. “The arbitration process breaks down when people choose arbitrators who let counsel run the arbitration process like a private trial,” Richler says. What arbitration does do, however, is ensure confidentiality, something that’s a very limited commodity in the courts. “Confidentiality can be important in a variety of settings, particularly where the parties have a relationship and want to keep its terms confidential,” Laskin says. Arbitration is also preferable when big business meets the underdog. “My view is that companies should favour arbitration in David versus Goliath situations,” Earle says. “Those are the situations that businesses want behind closed doors, out of the public eye, and out of the courts where a judicial decision might set a precedent.” What the survey revealed, however, was that while confidentiality was important to users of arbitration, it wasn’t the essential reason for resorting to it. Whatever the reasons justifying arbitration, there’s no doubt that it’s the preferred avenue for many lawyers. By way of example, Richler has two favourite stories that he relies on to back up his fondness for arbitration. One relates to a Vancouver case with some $25 million involved and presided over by a retired judge and two senior lawyers.

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“The hearing took less than two days, and the whole thing took a year overall,” says Richler. “But the loser went to the courts to seek leave to appeal. The hearing on the application took two days to argue, as long as the argument on the merits before the arbitrator, and the judge reserved for five months before denying leave. Now the other side is appealing the decision denying leave.” The second involves an $85-million case between two brothers before a retired judge sitting as a single arbitrator. “The matter was bitterly contested with many motions,” Richler says. “But we were done in less than a year, and again, the hearing took two days.” According to Richler, these aren’t exceptional instances. “I have never had an arbitration where I thought that the court process would take less time,” he says. “I would say that arbitration is always faster than litigation, where procedural rules are written to suit the lowest common denominator of cases that might come before the courts, so much so that I have done multimillion-dollar cases in a number of weeks by resorting to arbitration.” But not all domestic arbitration goes so smoothly. “Domestic arbitration is much more likely than international arbitration to resemble litigation, particularly because many domestic arbitration [cases] use the Rules of Civil Procedure as their framework,” says Michael Schafler of Fraser Milner Casgrain LLP. Then there’s the question of whether the arbitration process encourages settlement. Lawyers seem to be all over the map on this question with responses ranging from very low settlement rates to estimates that approximate litigation’s record on the issue. Because arbitration is confidential, meaningful statistics are few and far between. But at least one arbitrator believes the settlement rate in litigation is much higher than in arbitration. His explanation is most interesting. “An arbitrator who does virtually only domestic arbitration told me that 90 per cent of cases to go to hearing, whereas 90 per cent of litigation settles,” Richler says. “He believes arbitrations don’t settle more frequently because the parties don’t get fed up with the process as often as litigants do.” For his part, Laskin offers another explanation. “It’s not unusual for arbitration clauses to have provisions for pre-arbitration conciliation and mediation,” he says. “So in custom-built arbitration, parties may be reluctant to settle because most likely they have already tried to do so.” Despite the convergence of litigation and arbitration, the greatest divide between the two may be psychological in nature. Alternatively, it may just be that old habits die hard. “Once they get into the courtroom in a civil litigation context, counsel tend to put on their flak jackets and batten down the hatches,” says Lisa Constantine of McCarthy Tétrault LLP. There’s also the argument that arbitrations tend to go more smoothly because they’re consensual in nature. “When the parties have agreed on how to resolve a dispute, there tends to be far less procedural messing about,” Earle says. “The mere fact that they’ve decided to send something to arbitration means that they envisage an efficient process.”

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Chapter 5: CONTRACT FORMATION Offer & Acceptance An Offer is a tentative promise to do or pay for something Not all offers are accepted Newspaper Ads are generally not Offers – they are merely invitations Exceptions – Rewards, Fixed price limited number goods See p 113 & case 5.1 on p 114 Communication - Offer must be communicated in words or gestures 5.1 @ p 114 Offer must come to the attention of the Offeree Gratuitous work – no obligation for consumer to accept unsolicited goods or labour unless consumer acknowledges it Query: Quantum meruit & unjust enrichment Standard Form Contracts – page 115 Commercial expediency Standard interpretation Used to exclude liability Contra proferentem rule Contractual Exclusions – page 117 Must be brought to Offeree’s attention Unexpected terms require the clearest communication Lapse & Revocation – page 118 Lapse occurs when: 1. Time limit in the Offer expires 2. Expiry of a reasonable time (if no limit is stated) 3. Either party dies/becomes insane prior to acceptance Revocation – Offeror may revoke offer any time prior to its acceptance. See Illustration 5.2 @ p 119 Options - An option is a contract to keep an offer open for a specified period of time in return for a sum of money Rejection & Counter-Offer See Illustration

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A Counter-Offer acts as a rejection of the original offer & it brings the original offer to an end Illustration 5.4 @ p 120 There is no contract until an offer is accepted without any additional qualifications Acceptance Must be positive in form May by words or conduct -- See Illustration 5.5 @ p 121 Must be communicated -- See Case 5.4 @ p 122 Tenders Used in commercial contracts to solicit offers Lowest bid may not necessarily win Duty to negotiate in good faith See Ethical Issue @ p 108 Standing offer – an offer that may be periodically accepted as needed Termination of Offer – page 124 1. Lapse due to expiry or reasonable time or stated time limit 2. Offeror revokes prior to acceptance of offer by Offeree 3. Offeree rejects offer or makes a counter-offer 4. Offeree accepts before any of the first 3 occurs Distance – page 124 Offeror should specify terms - fax, email, ordinary post & “deemed receipt” Email – deemed to be received when it is capable of being retrieved by the recipient Otherwise the “ordinary usage” test - mailing equals communication See Illustration 5.6 @ p 113 Jurisdiction Common Law rule: Jurisdiction is where acceptance occurs Always specify jurisdiction in your offers/acceptances Unilateral Contracts Acceptance is affected by performing some act See - Carlill v Carbolic Smoke Ball - Case 5.3 @ p 109 See Illustration 5.7 @ p 114 Includes a subsidiary promise – an implied promise - that offeror will not revoke once offeree begins performance Bilateral Contracts Offeror and Offeree exchange promises and both are bound by contract to perform Internet Contracts – page 128 Governed by legislation on ecommerce and consumer protection

See

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Must be an express opportunity for the consumer to accept or decline the agreement Internet advertisement is not an invitation but is regarded as an offer to the consumer who is the offeree Regulated by international agreement but subject to Canadian consumer protection laws Uncertainty – page 129 Offer and acceptance may be too vague Consensus ad idem -- Offeror and Offeree must be of one mind All things being equal, courts will try to uphold the contract Discuss Cases 1, 2 & 3 Can you sell your home by email? November 11, 2011 Mark Weisleder Be careful what you say in an email about the purchase or sale of a house. Shutterstock Over the course of three days last October, Marc Girouard and Kelty Druet corresponded by email about the sale of Druet’s condo in downtown Moncton, N.B. After a series of emails and an offer and counter offer, Druet agreed to sell unit 203 at 850 Main St. for $155,000, or so Girouard thought. But Druet changed her mind and the case landed up in court. There a judge decided that even though a formal agreement of purchase and sale was not ever signed, a deal was a deal. Since Ontario has similar laws to those relied on in New Brunswick, the same result could happen in Ontario. Here is what happened: October 22, 2010: Girouard was looking on Kijiji for a condo to rent and found the unit listed there. He spoke to the tenant who passed him on to Druet. They spoke and discussed the possibility of him buying the condo and agreed to carry on their discussions through email. October 24, 10:56 a.m. Druet sends Girouard this email: “After giving the idea of selling my condo some more thought, I have come to a decision. I would sell it to you for $160,000, conditional that you take over the mortgage and pay the legal fees associated with the purchase. (I estimate at $800.) Please let me know your decision. October 24, 12:16 p.m. Girouard replies: “Thank you Kelty. I will meet you half way @155,000.00 and pay legal fees and assume existing mortgage.” October 25, 2:57 p.m. Druet: “Sorry for the late reply — I’ve been thinking about it. I will accept your offer. How would you like this to go?” October 25, at 3:33 p.m. Girouard: “Great, are you in Moncton any time soon? I can have a sales and purchase agreement drafted for your review. Is a November 15 closing acceptable so not interfere with your tenants, that I am told are vacating on that date? Is the mortgage holder a Moncton or Halifax bank?” October 25, 6:37 p.m. Druet: My partner has been in Peru the last few days and I just got to speak with him. He was not agreeing with the price so I am sorry but I cannot sell to you. Girouard replied he had a deal and would not release Druet from the contract. The case went to court in Moncton and the decision was given on August 9, 2011. The judge decided that if these emails were actually written and signed, they would constitute a binding agreement. He noted that the Internet and emails have become a way of life for business and individuals. Even though such things as the closing date had not been settled, he still found that there was a basis for a legally binding agreement.

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In Ontario, the Electronic Commerce Act, which governs the electronic signing of documents, is confusing when it comes to the legality of signing agreements for the sale of land, so it is possible that in Ontario the result of this case may have been different. I am not so sure. The lesson here is clear. Be very careful what you write in an email regarding any sale or purchase of a home. Also, if you are sending any notice in a real estate deal via email, always ask for confirmation of receipt from the other side. You may not find out that the email has hit someone’s spam file until you have missed an important time deadline. Remember to always have the advice of an experienced real estate agent or lawyer before doing anything by yourself. In this case, the seller did not want to sell their condo but had to do so, based on this very simple exchange of emails. Do not let this happen to you. Mark Weisleder is a lawyer, author and speaker to the real estate industry. Contact Mark at [email protected] Chapter 6: CONTRACT FORMATION Consideration – page 135 Consideration is the price paid for the promise or action of the other party In a bilateral contract the consideration is the promise given by the offeree In a unilateral contract the consideration is the act of the offeree Gratuitous Promises – page 135 A gratuitous promise is a promise made without accepting anything in return does not create a contract – but it may give rise to other claims -- tort, unjust enrichment, quantum meruit -- if it is partly performed See Case 6.1 @ p 136 Adequacy of Consideration Although the consideration must have some value, the general rule is hat the court will not look into the adequacy of the consideration Query: Claims for unjust enrichment Past performance is not consideration and cannot form the basis of a new contract Where A has an existing contractual duty to B, a later promise by B to pay more money to A to get A to perform that obligation is not binding -- See Illustration 6.3 @ p 139 Gratuitous Reduction of a Debt – page 141 Not enforceable at common-law – See Foakes v Beer cited as Case 6.3 @ p 141 This has been reversed by statute in Ontario – i.e., gratuitous reduction of a debt is a binding agreement in Ontario even though there is no consideration given for the promise Equitable Estoppel – page 142 This doctrine developed to provide some recourse against hardships caused by the strict common law contract rules

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Innocent parties who, in good faith, relied on gratuitous promises were denied a remedy by the law of contracts When one party makes a statement of fact and a second party relies on that statement to his/her detriment, the first party is estopped from denying the truth of what he/she said. See Case 6.4 @ p 143 – Hughes v Metropolitan Railway 1. Some form of legal relationship must exist between the parties 2. One party promises to release the other from his/her obligations 3. he other party relies on that promise and alters his conduct accordingly Conwest Exploration v Letain – SCC suggests equitable estoppel could be used as the basis of a claim, not merely as a defence @ page 144 In the US a claim may be made based upon injurious reliance Quantum Meruit – page 146 This is another doctrine developed to relieve against the restrictions imposed by contract law When one party requests the goods or services of another party, the law deems that there is an obligation to pay the reasonable value of those goods or services There is an implied obligation to pay fair market value for goods or services that have been requested. Just because there is a contract price does not mean that the court cannot make an award based on quantum meruit if the contract is set aside for some reason Contracts Under Seal – page 147 The use of a seal developed as an alternative to consideration. A contract under seal was one that the promisor had adopted as a binding obligation or covenant Intention to Create Legal Relations – page 148 Both parties must intend to create a legally enforceable agreement The law will generally presume this intention if it is obvious but either party may try to rebut this presumption RECAP – Requirements of a Valid Contract 1. Offer and acceptance 2. Consideration or a seal 3. Must be of the same mind – consensus ad idem 4. Must be an intention to create a binding agreement – the parties must intend to be obligated to do what they have promised to do Discuss Cases 1 & 2

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Chapter 7: CONTRACT FORMATION Burden of Proof page 155 Plaintiff must prove offer & acceptance and that there was consideration Court will presume Defendant had capacity to contract and that the contract is legal It is up to the defendant to rebut these presumptions Capacity – page 155 Capacity is the legal competence to make a binding contract Where capacity is lacking, courts will excuse performance Minors – page 155 Age of majority varies by jurisdiction – in Ontario it is age 18 General rule is that a contract cannot be enforced against a minor but may be enforced by the minor An exception is made for contracts for necessaries -- essential goods and services – of which the minor does not have an adequate supply These contracts for necessaries are enforceable against a minor -- as is a contract to lend money to a minor to buy necessaries In such cases the price is not the contract price but quantum meruit -- i.e. fair market value for the goods or services Attaining Majority – page 158 Contracts entered into by a minor become voidable upon reaching the age of majority Continuous contracts – if not immediately repudiated or if the benefit continues to be taken, the former minor becomes liable on the contract Non Continuous contracts – these contracts do not bind the minor unless they are ratified – i.e., acknowledges the contract and promises to perform it Diminished Capacity – page 159 Persons of unsound mind and those incapacitated by drugs etc are treated the same as minors They are liable for contracts for necessaries but all other contracts are voidable or may be enforced by the incapacitated person Burden of proof is that you must prove incapacity and that the other party was aware of it Upon regaining capacity you must repudiate within a reasonable time and not take any more benefits under the contract

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Corporations – page 159 Must act within the limits of the statute under which they were created Corporate officers and agents must be authorized to act for the company – indoor management rule protects 3rd parties Corporate seal is often used on contracts– not all companies have a corporate seal Labour Unions – page 160 Status varies by jurisdiction Unions bring actions via a representative – i.e., one or more persons act as plaintiffs on behalf of the common interest Unions may be held liable but collection of the debt may be problematic – varies by jurisdiction Enemy Aliens – page 162 Contracts with enemy aliens may be void as being contrary to public policy Contractual rights are lost when war is declared Aboriginal Peoples – page 161 Aboriginals on reserves enjoy special status & are regulated by statute Non reserve natives may contract as can anyone else Bankrupt Debtors – page 161 Right to contract is restricted until a discharge is granted Legality of Contracts – page 162 Contracts must not offend public policy and must not violate any statute Contracts are presumed to be legal but if a defendant can rebut this presumption, the contract will be void – that is it will be deemed never to have been made at all In some cases the court will go further and will find it to be unenforceable Voidable Contracts Voidable contracts may be terminated by one or either of the parties to the contract, but such contracts are in force until one party acts to terminate the contract Void Contracts Void contracts are a nullity from the beginning and cannot be enforced by either party No binding agreement is created

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Court will try to restore parties to their pre contract status – e.g. money may be repaid, property may be transferred back Court may be able to just sever the void term and maintain the contract Illegal Contracts If the contract is both void and illegal, it is unenforceable This means the court will not assist either party by restoring them to pre contract status Rule is that where both parties are wrong, the defendant’s position is the stronger and the plaintiff will not succeed No severance is allowed in illegal contracts Statutory Restrictions Statute may restrict the freedom to contract – e.g., WCB, Bankruptcy Act, Fraudulent Debtor’s Conveyance Act Wagering contracts are illegal except for: insurance – where there is an insurable interest stock market – futures & options trading future delivery of goods & price fluctuations Statutory Illegality Where the object of the contract is illegal – drugs, smuggling etc – the contract is illegal and unenforceable Contracts Illegal at Common Law & by Public Policy – page 168 Contracts that involve the commission of a tort are illegal – damages may be awarded for the tort – e.g., inducing breach of contract, slander, libel, fraud (deceit) trespass See Case 7. 7 @ p 169 Payment for testimony is illegal Rewards for return of stolen goods are illegal & are a criminal offence Contracts to promote litigation are illegal A 3rd party promise to pay forfeited bail is illegal Confidentiality agreements & public policy – See Ethical Issue @ p 171 Contracts in Restraint of Trade – page 171 Usually it takes the form of a restrictive covenant within a contract that can be severed Restrictions may be allowed if they are reasonable and do not adversely affect the public good and developed to relieve against the restrictions imposed by contract law Vendor & Purchaser Contracts – page 172 Non compete clauses are used to protect goodwill

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Restriction must be reasonable in view of the nature of the business – court will consider duration & geography as criteria Parties have an equal bargaining position Higher price may have been paid to obtain the non compete clause The clause will either be found to be enforceable or void – the court will not try to rewrite the contract Public interest will be balanced against the interests of the parties Employment Contracts – page 174 Issue may be unequal bargaining power There are 2 types of non compete clauses; 1. Not competing Post employment 2. Not competing during employment Public policy is that post employment restrictions are harder to enforce Issues: 1. 2. 3. 4. 5. Is the non compete clause injurious to the public? Are there corporate secrets or client lists to protect? How broad is the restriction? Is it reasonable to protect the business? Does it preclude the employee from earning a living? Discuss Cases 6 & 7 Chapter 8: Mistake & Misrepresentation Mistake – page 182 There are 2 kinds of “mistake” in contract law 1. Mistakes about the terms of the contract 2. Mistakes in assumptions about facts related to the contract Equity will sometimes provide a remedy where there has been a mistake but this is a discretionary remedy Void vs Voidable – page 182 Depending upon the type of mistake, if court determines that a mistake has been made, the court may make one of three decisions: 1. The contract is valid 2. The contract is void – A finding that a contract is void means that the contract is deemed never to have existed

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3. The contract is voidable – This differs from a contract that is voidable - a voidable contract is one that valid unless and until it is set aside. Mistake About the Terms – page 184 Where words are used inadvertently, the court will look at whether the innocent party was reasonable in relying on them If on all the evidence the 2nd party seemed justified in relying on the inadvertent words and entering into the contract, then the contract is binding in accordance with those terms If the court decides that the 2nd party was aware of the other party’s mistake in expressing the offer, the contract is voidable by the first party since the 2nd party will not be allowed to “snap up” an offer that is obviously mistaken – See Case 8.1 @ page 184 The relief will be based upon the actions of each party and the hardship caused to each party It really goes back to the parties being of one mind – what did the parties intend to contract for – what was the essential nature of the bargain? Errors in Recording an Agreement – page 185 Rectification – equity will rectify a contract where: 1. The parties were in full agreement in the first place 2. There were no further negotiations 3. There was an error made in recording the actual agreement reached between the two parties 4. Plaintiff did not know of the error but the defendant did Mistakes About Meaning of Words – page 185 Disagreement over the meaning of words is a matter of interpretation and the court will decide which interpretation is more reasonable in the circumstances See Case 8.4 Lindsey v Heron cited @ p186 Where the court cannot decide which interpretation is more reasonable, the defendant’s interpretation will prevail See Case 8.2 @ p186 Mistakes in Assumptions (a) Existence of the Subject of the Contract Where parties enter into a contract and are unaware that the object of the contract has already perished, the contract will be held to be void Where a seller tries to sell something he/she knows no longer exists, the seller can be sued by the buyer for the tort of deceit (b) Value of the Subject of the Contract – Risk Allocation If the parties were mistaken as to the value of the consideration, the court will look at what the reasonable expectations of the parties were at the time the contract was made time

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If both parties contracted with the knowledge that the value could fluctuate, the contract will be binding as written The principle seems to be whether a party could reasonably be held to have foreseen the consequences of a particular risk at the time the contract was made If the risk of loss of value could not reasonably be foreseen, the court may find the contract to be voidable and thus allow the injured party to repudiate it See Hrysky v Smith discussed @ p 187 – If the mistake as to quantity is so substantial that it changes the essential nature of the bargain, the court may rescind the contract The buyer is expected to inspect the goods and satisfy himself as to quality and value but where • discovery of the problem is impossible or • the seller has made a misrepresentation or • both parties are mutually mistaken rescission may be available. If the purchaser acts quickly enough, the contract is voidable – See Case 8.4 @ page 187 The court is faced with a problem of being fair to both parties Future Events Until the unforeseen event actually occurs, there is a valid & binding contract between the parties Mistakes in assumptions relate to mistakes as to the actual circumstances when the contract is entered into Where the future event occurs after the contract is entered into and could not reasonably be foreseen by either party, that is not mistake but it could amount to frustration of the contract Mistake & Third Parties Usually the problem is caused by the deceit of one of the parties The first question to be answered is whether the contract is void or voidable Void Contracts Where there are only 2 parties, if the contract is void, the result is they are restored to their precontract positions But what happens if A sells goods to B who in turn sells them to C and then the contract between A and B is found to be void? If the A to B contract is void, it follows that the B to C contract is as well because B cannot sell what he does not own – C would have to return the goods to A and C would be stuck trying to recover his money from B If the A to B contract is not void the B gets good title to the goods which can be sold to C – if B is a crook, C will still get to keep the goods and A’s only recourse will be against B

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See Case 8.5 Cundy v Lindsay @ p 188 Voidable Contracts Equity will often declare a contract to be voidable, meaning that the court will order the contract to be rescinded A and B will be restored to their pre-contract positions So far the result looks the same as that in a void contract BUT when there is a 3rd party involved, equity will not deprive C of the goods it has received under its contract with B INSTEAD, equity will allow C to keep the goods and will leave it up to A to try to recover from B – the loss falls on the original two parties to the contract See Case 8.6 King’s Norton @ page 188 Mistake – Non Est factum – page 189 If one party innocently or fraudulently misrepresents the nature of a document, the other party may plead non est factum It means “It is not my deed” If successful, it is good even against 3rd parties Now largely restricted to blind and illiterate Mistakes in Performance - Overperformance of a Contract Does the innocent party know of the overperformance ? If so, he/she cannot “snap up” the benefit Does it result in unjust enrichment of the innocent party? Misrepresentation – page 190 Misrepresentation is occurs where an untrue statement or an omission is made by one party and is relied upon by the other party. There is a duty to point out unusual terms – silence as to such terms will result in them being struck out of the contract The question really is: What were the reasonable expectations of the parties when they entered into the contract? Usually any misrepresentation occurs in the pre-contract negotiating and never becomes part of the contract. If it does become part of the contract, then it will be a contract term and the innocent party will sue for breach of that contract term. Not all misrepresentations will give rise to a cause of action – the misrepresentation must be material:

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It must be reasonable to conclude that the misrepresentation or omission influenced or induced the innocent party to enter into the contract A misrepresentation may have been made in one of three ways:  Innocently – purely a mistake  Negligently – result of carelessness  Fraudulently – intentionally done in order to mislead Innocent misrepresentations and omissions must be corrected as soon as they are discovered. Failure to do so could result in them being held to be negligent or fraudulent. An innocent misrepresentation or omission is not a tort however negligent and fraudulent ones may be torts. This means that the plaintiff could sue in contract and in tort as an alternative. This is one reason why standard form contracts state that there are no other representations other than those contained in the written contract. Advertising – page 191 Most often advertising claims have been held to be representations not contract terms A false claim is a misrepresentation only if is asserted as a statement of fact Statements of opinion are not considered as misrepresentations unless they are expert opinions Material Misrepresentation in Contract Once the misrepresentation is discovered, the contract is voidable at the option of the victim The victim must act renounce the contract promptly. If the victim does not or if the victim continues to take benefits under the contract, he/she will lose the right to rescind the contract. With rescission, the victim is entitled to indemnity or compensation with respect to any prior expenses incurred or money paid on account of the contract. Misrepresentation by Omission – page 192 Generally, if one party has superior knowledge or expertise, there is a duty on that party to act in utmost good faith Some contracts require utmost good faith  Domestic Contracts – separation, marriage & co-habitation agreements  Insurance Contracts  Sale of Corporate Securities  Sale of Goods Contracts – under the SGA  Contracts with consumers – cooling off periods & statutory disclosure requirements – @ page 194

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Some relationships give rise to a duty of utmost good faith  Continuing business relationship  Partnership  Corporate directors and officers Where there is a duty of utmost good faith, omission or silence could constitute misrepresentation in which case the contract is voidable at the option of the victim Undue Influence Undue influence is the domination by one party over the other such that the weaker party is deprived of the will to make an independent decision Often arises where the parties have a special relationship – if one party has special skill or knowledge Sometimes it results from one party being in dire circumstances Burden is on the victim to prove undue influence and if it is proven, the contract is voidable at the victim’s option. The burden then shifts to the other party to prove that he/she did not exert any undue influence Spouses Ultimate good faith is required between spouses There must be full disclosure If one is to be responsible for the obligations of the other, idependent leagal advice (ILA) is essential Historically there has almost been a presumption of undue influence by the male spouse. This is now gone – See case 8.10 @ page 195 Unconscionable Contracts – page 196 Courts have the discretion to relieve against extremely one sided contracts if the bargaining power of the parties is unequal Duress – page 197 Duress is the use of actual or threatened violence used to coerce the other party into a contract Duress makes the contract voidable at the option of the victim and the burden shifts to the oppressing party to rebut the claim Victim must repudiate the contract immediately once he/she is free of the threat See Case 8.11 @ p 198 Discuss Cases 2, 3 & 4

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Chapter 9: REQUIREMENT OF WRITING Although most contracts may be oral or written or a combination of both, it is prudent to record all contracts in writing for evidentiary purposes Beyond that however, the law requires some contracts to be in writing. For such contracts, the consequence of them not being in writing is that they are unenforceable The result of unenforceability is quite different from a finding that a contract is void or voidable. Void – If a contract is void, it is said to have never existed and the court will attempt to restore the status quo ante i.e. it will attempt to return the parties to their pre-contract positions Voidable – If a contract is found to be voidable, equity will intervene to allow the contract to be rescinded at the option of the injured and innocent party and again the court will try to restore the parties to their pre-contract state Unenforceable – An unenforceable contract is still a contract but the defaulting party cannot sue on it to either enforce contractual obligations but the innocent party can sue to recover money paid or goods delivered The requirement of writing grew out of an effort to limit litigation by forcing the parties to a contract to formally record the nature of their bargain. This was for contracts with important subject matters and it was an effort to reduce trial time. Writing now includes:     CDs Faxed documents PDF documents Email

Because the consequence of unenforceability is so harsh, courts have sought to create exceptions the requirement of writing Statutes Requiring Written Contracts – page 203 The most common ones are:    Statute of Frauds Sale of Goods Act Consumer Protection Legislation

Statute of Frauds – page 204 This ancient statute lists several types of contract that must be in writing to be enforceable. (a) Promise by an executor to pay the debts of an estate (b) Promise to pay for the debt, default or miscarriage of another

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Courts have divided this into 2 categories Guarantee – a conditional promise to pay only if the debtor defaults, i.e., the creditor must look first to the debtor for repayment Indemnity – a promise by a 3rd party to be primarily liable for the debt – i.e., the creditor may look to the debtor and the indemnifier for repayment Courts have held that a guarantee must be in writing to be enforceable An indemnity need not be in writing simply because the indemnifier is really just joining into the contract Courts have further softened the rule by allowing unwritten guarantees to be enforceable where the guarantee is incidental to a larger contract “miscarriage of another” – these words have been given a broad definition and mean the promise to pay for the damages arising from a tort committed by another person (c) Land All contracts that create any interest in land must be in writing to be enforceable – this includes: deeds, mortgages water rights Building contracts and contracts for room & board need not be in writing but it leases must be – L&T legislation now permits oral residential leases EXCEPTION – Doctrine of Part Performance – pages 206 & 207 This doctrine developed as yet another way to relieve against the harshness of the requirement of writing Courts have allowed partial performance of an oral contract for land to stand as evidence of the contract in place of a written memorandum – See Case 9.2 @ page 207 (d) Contracts not to be performed within one year Any contract that is not to be performed within one year must be in writing to be enforceable – See Illustration 9.1 @ page 208 EXCEPTION – Courts now allow indefinite oral contracts to be enforced in the following circumstances: 1. Unless the contract terms specifically state a performance completion that is clearly longer than one year 2. If the contract is to be performed by one of the parties within one year – See Illustration 9.2 @ page 208 (e) Ratification of infants’ contracts Any contracts made by infants that require ratification (non continuous contracts) upon the infant attaining majority must be ratified in writing for the ratification to be enforceable (f) Contingency Fee Agreements (not covered by the text)

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Lawyers are permitted to enter into contingency fee agreements with their clients except in family law or criminal or quasi-criminal matters. See subrule 2.08(3) of the Rules of Professional Conduct and the Commentary. Contingency fee agreements must comply with the Solicitors Act (Act) which requires that these agreements be in writing, and must also comply with the regulations made under the Act. See the Solicitors Act and also Regulation 195/04 dealing with contingency fee agreements. Paralegals are also permitted, within their scope of practice, to enter into contingency fee agreements with their clients except in criminal law or quasi-criminal matters. Memorandum of the Contract The Statute of Frauds requires that the written memorandum of the contract must include all of the essential elements of the contract: (a) Identity of the parties (b) Subject matter of the contract (c) Signature of the party that has to pay – this is the only person who can be sued “essential terms” – See Case 9.3 @ page 209 Defendant must sign Memorandum – The memorandum must be signed by the person who is being sued on it (the defendant) The person claiming enforcement of the contract (plaintiff) does not need to sign the memorandum - Faxes and emails satisfy the requirement of writing – See Case 9.4 @ page 210 Consequences of Unenforceability 1. Although the defaulting or repudiating party cannot sue to enforce an unenforceable contract, the innocent party can sue to recover a deposit or down payment See Illustration 9.3 @ page 211 2. A party who has accepted goods or services under an unenforceable contract cannot retain these benefits without paying for them See Illustration 9.4 @ p 211 3. The written memorandum may be created after the contract has been formed, but it must exist before it can be sued upon See Illustration 9.5 @ p 211 4. Defendant must plead the Statute of Frauds. Any defendant relying on the Statute of Frauds must specifically plead the Statute of Frauds – it can only be used as a shield, not as a sword - @ page 212 5. An unenforceable oral contract can still be effective to vary or dissolve a prior written contract – See Illustration 9.6 @ page 212 Sale of Goods Act – page 213 Since 1994, a contract for the sale of goods need not be in writing and an oral contract for the sale of goods will be enforceable if any one of the following occurs: 5. There is acceptance and receipt of the goods by the purchaser 6. Part payment is made by the buyer and accepted by the vendor

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7. Something in earnest is given to the vendor by the purchaser e.g., a token sum to seal the bargain NOTE: In some situations both the SGA and the Statute of Frauds may apply – See page 215 Domestic Contracts (not in text) The Family Law Act mandates that all domestic contracts must be in writing: • • • Marriage Contracts Separation Agreements Cohabitation Agreements

These are contracts of ultimate good faith and therefore there should be full disclosure between the parties and there should be ILA See LeVan v LeVan Consumer Protection Laws These laws generally require consumer contracts to be in writing See pp 216 & 217 for specifics Executory consumer contracts must be in writing or they are not binding Discuss Cases 1& 2 Chapter 10: CONTRACT INTERPRETATION Courts will either use a strict or a purposive approach and will consider • • • • • Past history between these two parties The standard in the industry Reasonableness of each side’s interpretation Corroboration for the either interpretation Credibility of each party

contra proferentem rule – page 226 If there is doubt as to interpretation, the court will prefer the interpretation that is less favourable to the party that drafted the clause Particularly used in the interpretation of exclusionary clauses Courts want to uphold the contract, if at all possible Parol Evidence Rule – page 229 “Parol” means outside or extrinsic This rule states that the court will not consider matters that are not in the contract Only operates to exclude additional terms not in the contract but it does not preclude evidence as to mistake, duress, undue influence, misrepresentation etc

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Essentially it prevents a party from using the court to order something that he/she could not achieve through negotiation Where the contract terms are clear, parole evidence will not be allowed to assist in interpretation but where there is ambiguity that cannot be resolved, parol evidence may be admitted See quote @ the middle of page 231 Exceptions to the Parol Evidence Rule- pages 230 t0 232 As always the harshness of a legal rule has resulted in the courts finding ways around it Parol evidence will be admitted to prove 1. That the written agreement does not contain all of the terms of the contract between the parties Can you prove the contract was partly oral & partly in writing? 2. The missing term is part of a subsequent oral agreement The parol evidence rule does not exclude evidence of a subsequent oral agreement that amends or rescinds the prior written contract 3. That there is an oral agreement with its own consideration that is collateral to the written contract A collateral contract is a side agreement this is in fact its own contract so that you are really proving that this side contract exists and not really using parol evidence with respect to the main contract 4. The missing term is a condition precedent to the contract coming into force The court will not lightly exclude the parol evidence rule but will do so where there is clear evidence that the written contract is in conflict with the oral terms previously agreed upon IMPLIED TERMS – page 233 Contract terms may be implied by custom, by reasonable expectation of the parties & by statute (g) Implied by custom – these are terms that have become accepted standards in a particular trade and have become standard business practices (h) Implied by reasonable expectation – what did each party to the contract reasonably expect? Terms will be implied only to the extent needed for business efficacy. See Case 10.3 @ p 235 Moorcock Decision – not in text – The classic decision which held wharf owners liable to plaintiff when plaintiff’s ship was grounded at low tide – the court said it was an implied term of the rental contract that the berth was suitable at high and low tide The intention of the parties will be carried out even if the precise contract language is lacking

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Courts will not create a new contract or imply a term that contradicts the expressed intent of the contract (i) Implied by statute – Sale of Goods Act implies warranties of merchantability and fitness for purpose and Consumer Protection Act implies cooling off periods or miscarriage of another Discuss Cases 1, 4 & 5 Chapter 11: PRIVITY OF CONTRACT & 3RD PARTIES Privity of contract means that both parties must be party to the same contract A contract will generally not give benefits to or impose obligations on a 3 rd party because there is no consideration given by the 3rd party See Case 11.1 @ page 244 Consideration is the price paid for a promise that is given in return Tort vs Contract At law product liability in contract is generally restricted to the injured purchaser of the defective product due to the privity of contract rule In tort product liability has been extended to include all those who are injured by the defective product and where there is no intermediate right of examination & inspection at the retail level, the manufacturers have been held liable to the ultimate consumer See Donaghue v Stevenson cited @ p 244 Vicarious Performance – page 245 This term refers to the situation in which a 3rd party performs the contract. Most commonly they are: • • • Non personal services contracts Corporations (they must act though agents & employees) Contracts that inherently involve 3rd party participation

Vicarious Liability in Tort If an employee commits a tort while in the performance of a contract to which the employer is a party, the employer is vicariously liable for the employee’s wrongdoing Note: the proviso that the tort must have been committed by the employee in the course of his/her employment Exemption Clauses & Vicarious Performance – page 246 An exemption clause is one that exempts a party to the contract from liability or limits liability. Such clauses usually exempt a party from liability for breach of contract as well as for any tort (most commonly the tort of negligence) committed during the performance of the contract.

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An exemption clause will also protect employees of the contracting party where the contract breach or tort was committed while they were vicariously performing the employer’s contract Trusts & Constructive Trusts – page 247 A trust is a relationship whereby a person (the settlor or testator) transfers property to a 3 rd party (the trustee) who administers it for the benefit of another (the beneficiary) At common law the trustee was held to be the legal owner but equity views all 3 parties as having ownership interests to varying degrees. Equity will therefore allow a beneficiary to enforce the trust contract between the settlor/testator and the trustee even though the beneficiary is technically a 3 rd party to that contract This has been extended to situations in which the law deems there to have been a trust (called a constructive trust) even where no express trust was created If the benefit of a contract s intended to go to a 3 rd party, that benefit is treaty as a property right that is enforceable by the 3rd party A constructive trust cannot be revoked without the consent of the 3 rd party beneficiary Examples 1. An asset is owned in the name of one spouse but the court may conclude that it was intended to benefit the other spouse as well and deems the asset to be held in trust for the benefit of both spouses. A parent puts an asset into joint ownership with one of his/her children. What was intended? Does the surviving child own the asset by right of survivorship or does that child hold it in a constructive trust for the benefit of all the children of the parent (i.e. for the estate beneficiaries)?

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Other Exceptions to the Privity of Contract Rule – page 248 5. Insurance – 3rd party beneficiaries may enforce the insurance contract 6. Trusts - 3rd party beneficiaries may enforce the terms of the trust that is collateral to the written contract 7. Undisclosed principal – one of the parties may act though an agent and this fact may or may not be known to the other party to the contract 8. Land contracts – when real property is sold the tenants must accept the new owner and pay rents to that new owner. The new owner takes title subject to existing tenancies and leases 9. Commercial necessity – the law has sometimes ruled that 3 rd parties that are closely associated with a contract are subject to the contract. This is achieved via collateral contract that is implied to bind a party that made a representation that induced another party to enter into a contract Discuss – Shanklin Pier (no longer in text) Exemption Clauses – the principled exception – page 249

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Employers and employees are jointly and severally liable for negligence Employers often try to protect themselves from liability for negligence by using exemption clauses in their contracts London Drugs v Kuehn & Nagel held that exemption clauses also protect the employees from liability even though the employees are not party to the contract – See Case 11.3 @ page 249 Exemption clauses have also been held to cover intermediate parties in multiple party shipping contracts Quaere: Should we abandon privity of contract & adopt a 3rd party beneficiary rule? Assignments of Rights – page 251 The benefit of a contract may be assigned to a 3rd party but not the burden i.e. contractual rights may be assigned to a 3rd party but not contractual liabilities This is effectively the assignment of property rights and there are 2 types of property that may be the subject matter of the contract and that may be assigned: choses in possession – this is tangible property of value that may be physically possessed choses in action – these are rights to intangible property and these rights only have value because they can be enforced by action in the courts – e.g., patents, copyrights, stocks, bonds, etc A chose in action is per se without value since its only value is a representative document - a bond or a share certificate has no intrinsic value but what it represents does have value. At common law a chose in possession could be transferred or assigned but a chose in action could not be. This was because the law viewed choses in action as being personal rights NOTE: Negotiable instruments (cheques, bearer bonds & promissory notes for example) are also choses in action but they are treated differently when assigned – they are treated as if they were choses in possession. The reason is that with these instruments only one person can negotiate them, usually whoever may possess them at the time. Equitable Assignments – page 253 Equity took a broader approach and did allow assignments of choses in action Equity would allow the assignee to sue the promisor as long as there was a clear written or oral intention to assign the benefit of the contract to the assignee Equity required that all 3 had to be parties to any action – the promisor, the assignor and the assignee This is because the state of the contract between the promisor and the promise directly affected the value of the rights assigned by the promisee to the assignee Statutory Assignments – page 254

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In an effort to clear up the confusion between law and equity, when the two were combined into a single court system, the law with respect to assignments was amended by statute The Conveyancing & Law of Property Act now permits an assignee to sue only the promisor without joining the promisee/assignor as a party to the action if it meets all 3 of the following criteria: 1. the assignment is absolute (unconditional & complete) 2. it is in writing 3. the promisor received notice of the assignment in writing Notice to the Promisor – page 255 In all cases the promisor must have notice of the assignment but the promisor’s consent to the assignment is not necessary Notice of the assignment should be given to the promisor as soon as possible for the following 3 reasons: 1. Absent notice of the assignment the promissor is entitled to rely on the contract and to fulfill the obligations to the promisee. The promisor will have a full defence to any claim by the assignee 2. If there are multiple assignments, it is the first assignee to give notice who has priority If the promisor is unsure which assignee to pay, the money should be paid into court 3. The promisor has the right to setoff any debts owing to him by the assignor as at the time the assignment is made –until notice of the assignment is given to the promisor that debt may continue to grow to the detriment of the assignee Assignee’s Title – page 256 The assignee can only receive whatever rights and title the assignor has to give so that it is said that the assignee takes title subject to the equities between the promisor and the promise/assignor So if the promisor has any rights against the promissee/assignor, the assignee is subject to those rights as well (a) assignment of a contract for the sale of goods A sells goods to B B is a crook who assigns the contract to C C pays B and accepts the goods A does not get paid by B who absconds C can retain the goods free of any claim by A who must try to recover the loss from B – King’s Norton v Eldridge Here the subject matter of the contract is tangible property, a chose in possession, and possession has already been transferred to B by the time the assignment to C is made. C is taking an assignment of goods that are already in B’s possession and any fraud on the part of B would not be readily apparent to C and any such fraud would render the contract between A & B voidable but not void – meaning that the contract between A&B

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still exists as an enforceable bargain until one party (in this case it would be A) sues to have it set aside. (b) assignment of a contract for choses in action A sells shares to B but B never pays A B assigns the benefit of the contract to C C cannot enforce the rights against A Cundy v Lindsay Here, B does not have any of the rights at the time that the assignment is made – B may have a share certificate but that is merely a piece of paper that has no intrinsic value The share certificate only has a representational value that is dependent upon the ability of the owner to enforce the rights by court action (c) assignment of negotiable instruments A negotiable instrument is a particular type of chose in action because it is a written promise to pay money upon satisfaction of certain terms and conditions – e.g., cheques, promissory notes, money orders Negotiable instruments can be negotiated in two ways • • Bearer instruments can be negotiated by simply presenting or delivering them to 3rd parties In name instruments can be negotiated by endorsement & delivery

This means that they can be assigned by being negotiated and since only one person can get paid under a negotiable instrument, there is no need to notify the promisor since his/her obligation is merely to pay the amount and who gets paid is immaterial Assignment of a negotiable instrument is treated as a sale of goods and not as an assignment with the result that • • The assignee is not subject to any of the defences that the promisor could have used against the assignor (fraud, duress etc) The assignee can sue the promisor directly for non performance

(d) assignment by operation of law Death = an assignment to the estate trustee Bankruptcy = an assignment to the bankruptcy trustee Discuss Cases 2 & 3 Chapter 12: DISCHARGE OF CONTRACTS When a contract is discharged all obligations under it are brought to an end 1. Discharge by Performance – page 268 Adequate performance by both parties will discharge a contract

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Tendering is a process whereby one party tries to show readiness to perform his/her obligations - since it is usually done for evidentiary purposes it should be witnessed and documented In a sale of goods contract, if the tendered goods are rejected, the supplier can sue on the contract If buyer’s tender is refused, there may still be an obligation to pay but the buyer will not be responsible for interest and costs after the date of the tender The onus is on the person owing the money on the contract to find and pay the other party who is owed the contract price 2. Discharge by Agreement – page 269 This occurs where both parties agree not to perform the contract and it may take different forms (a) Waiver This is an agreement not to proceed with performance of an existing contract If the waiver is gratuitous, it must be made under seal to be enforceable (b) Substituted agreement Accord & satisfaction is a compromise by the parties on their contractual obligations Novation refers to either a major change in the subject matter of the contract or a change in one of the parties – effectively this means that the parties agree to terminate the existing contract and to replace it with a new one – @ page 270 Properly done, a novation involving a change in parties must be a contract among all three of the parties. (c) Self discharging condition – page 271 The parties to a contract may stipulate some condition precedent or subsequent that will cause termination of the contract e.g., the rain out of a baseball game Granting the right to approve or disapprove to the other party or to a 3 rd party (e.g., engineer, architect) is risky since there is no obligation thet the discion must be made reasoably A contract may give either party or both an option to terminate 2. Discharge by Frustration – page 275 Frustration of a contract occurs if performance becomes impossible or pointless through no fault of the party who is unable to perform and occurs in very limited circumstances: (a) Frustration must relate to an event that occurs AFTER the making of the contract (b) Performance must be impossible, not just result in an unforeseen hardship (c) Impossibility of performance means that performance is physically impossible or that the nature of the contract has been radically changed – See case 12.4 @ p 277

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(d) Frustration must not be self-induced – if it is self-induced, is a breach of contract not frustration – See Illustration 12.6 @ page 278 Commercial tenants are generally held to their contractual obligations except in cases where the whole purpose of the contract has disappeared – e.g., they still must pay rent for damaged premises Destruction of the subject matter of the contract or very long delays in performance resulting in performance of what amounts to a different contract will result in frustration of the contract Consequences of Contract Frustration – page 278 At common law frustration ended all obligations but this has been softened by court decision to allow refund of the purchaser’s deposit – the seller or supplier may not be as lucky and may lose the value of work already performed – See discussion of Fibrosa v Fairborn @ page 279 Statutory Reform – page 280 Several laws have been passed to try to address the unfairness of frustration (a) Frustrated Contracts Act (FCA) This statute allows for recovery of expenses as against any sums paid or payable Recovery is limited to the quantum already paid or already due to be paid but not the amount of future contract payments The court may also balance out the value of any benefit that has already been received by one party Thus where one party has expended money to perform but has not yet received any deposit and has not conferred any benefit on the other party, he/she will not recover anything if the contract is frustrated (b) Sale of Goods Act (SGA) This statute provides that a frustrated contract for the sale of goods will be void if • • • It is for specific goods The goods perish without the fault of either party The goods are still at the sellers risk

Unless all 3 criteria are met, the SGA will not apply and the Frustrated Contract Act will apply See the Checklist @ page 281 as to analysis needed to determine whether SGA or FCA applies See Illustration 12.8 @ page 282 as to whether SGA or FCA applies Special Contract Provisions – page 282 The FCA directs the court to consider special contract provisions.

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The most common such provisions deal with who shall bear the risk and the point in time at which it transfers Most contracts that require shipment or delivery will specify when risk passes – See Illustration 12.9 @ page 282 4. Discharge by Operation of Law – page 284 A bankruptcy assignment operates a discharge from future obligations under a contract as long as the bankruptcy was caused by misfortune and not by misconduct Limitations Act – this technically does not discharge contractual obligations, it merely means you cannot sue to enforce them 5. Discharge by Breach Breach of contract occurs when either party fails to live up to its obligations under the contract Discuss Cases 3 & 6 Chapter 13: CONTRACT BREACH & REMEDIES Not every breach of contract will discharge a contract Breach does not automatically discharge a contract the way Frustration does – if a contract has been breached the aggrieved party must assert a claim that breach of contract has occurred and must ask the court for a remedy Minor vs Major Breaches of Contract – pages 291 & 292 For a breach of contract to operate as a discharge of all contractual obligations, there must have been a breach of the whole contract or of an essential term of the contract Conditions – these are essential terms of a contract Warranties – these are non essential terms of a contract Minor Breach of a Contract Breach of a warranty in the contract will not excuse the innocent party from the obligation to perform the contract and it will not allow the innocent party to treat the contract as being discharged Breach of a contractual warranty may entitle the innocent party to damages (i.e., monetary compensation) If the breach is trivial, the court may refuse to grant any remedy If an essential term of the contract is breached but in a minor way, it is treated as a minor breach – e.g., if the seller ships a little less than the contract requires, the buyer cannot repudiate the contract and the buyer will only be paid damages compensate for the shortfall in delivery – See bottom of page 291 Major Breach of Contract

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The breach of the whole contract or the breach an essential contract term imposes different obligations on both parties and has different consequences If a major contract breach occurs, the innocent party may be justified in treating the contract as being discharged The obligations of both parties and the will depend on how the breach occurred How Contract Breach May Occur – @ page 293 Contract breach may occur in 3 different ways: 1. Express repudiation One party states that he/she will not perform the contract If the express repudiation occurs before the time agreed for performance, it is called anticipatory breach Parties to a contract have a continuous expectation of performance from the time a contract is formed until it is performed – i.e., the contract exists from the date it was made If anticipatory breach occurs, the innocent party must make an election to either (a) Affirm the contract and insist that the other party perform its end of the bargain; or (b) Accept the breach and mitigate his/her damages (losses) and sue the defaulting party The choice made by the innocent party is an important one that can have unexpected consequences if there is an intervening event that frustrates the contract A major breach that amounts to repudiation and that occurs after performance has started will free the innocent party from its obligation to perform the contract 2. One party’s actions make performance impossible This includes only the willful or negligent actions of the promisor The promisor’s action may occur before or during performance of the contract This includes such things as selling the same goods twice to two different buyers – there is still a continuous expectation of performance See Illustration 13.4 @ page 294 3. Failure of performance This can take the form of failing to perform the contract or defective performance Usually this only occurs at the time of performance, not before There may be a total failure to perform or grossly inadequate performance or a minor failure to perform What options does the innocent party have? • • repudiate the contract and sue honour the contract and sue

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•

negotiate

Instalment Contracts When the promisor in an instalment contract misses a delivery or fails to deliver the agreed quantity, the innocent party will be allowed to repudiate the contract if (a) (b) there is good reason to believe future performance will be equally defective and the real or anticipated deficiency is important to the whole performance of the contract

See Illustration 13.5 @ page296 Doctrine of Substantial Performance – page 296 This doctrine states that a defaulting party may still insist on performance of the contract by the innocent party if the non-performance by the defaulting party is minor In such cases the court will usually order an abatement in the contract price Mistakes in Performance – page 297 Sometimes, a party to a contract may over perform by paying more money or over supplying or by paying the wrong party Does the innocent party know of the over performance ? If so, he/she cannot “snap up” the benefit Does it result in unjust enrichment of the innocent party? Some obligations may arise that are not strictly as a consequence of the contract. This are of the law is called quasi contract Quasi contract has developed the concepts of unjust enrichment and restitution – if the court finds that it would unjustly enrich the innocent party to allow him/her/it to retain the benefit of the over performance, it will find that the innocent party has a duty to repay and it will order restitution Exemption Clauses – page 297 If a potential breach of contract presents a serious business risk to one of the parties, that party will usually try to minimize the risk by • • • Insuring against the risk Self-insuring via a higher contract price Using an exemption clause

An exemption clause is one that allows one party to avoid liability for specified events An exemption clause may be part of the contract negotiations and it may result in a lower contract price and/or a sharing of the risk by both parties More commonly however they are one sided and are non negotiable

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Exceptionally onerous or unusual exemption clauses must be brought to the attention of the other party before the contract s signed Courts have refused to apply exemption clauses in the following circumstances: 1. Interpretation – page 298 Does the clause apply to the facts? Exemptions are usually very broad but courts will interpret them in the context of the contract wording The contra proferentem rule applies and exemption clauses are strictly interpreted -See Case 13.2 @ page 299 Burden of proof is on the party relying on an exemption clause to prove that it the cause of the loss is covered by the exemption clause Exemption clauses are narrowly interpreted – e.g, they may exempt from contract liability but not for torts 2. Unconscionable Clauses – page 299 Where a significant inequality in bargaining power has given one party an unfair advantage that results in unconscionable (or extremely unfair) terms, courts will refuse to enforce such clauses On-line “web click” agreements are binding but they must be fully disclosed and written copies of all restrictions and terms must be provided to consumers 3. Public Policy & Public Interest – page 299 If the exemption clause is found to harm the public good, it will not be enforced by the courts – See Case 13.3 @ page 300 REMEDIES – page 300 There are three types of remedies:    1. Damages This is a monetary award to compensate the innocent party for the loss suffered due to the breach of contract The purpose is to put the innocent party in the same position as if the contract had been performed as agreed Damages are to be compensation, not punishment Damages - monetary Equitable Remedies – non monetary Quantum Meruit - monetary

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See Illustration 13.6 @ p 301 – The better approach would have been for X Company to subcontract with a competitor to supply Y Company – no lawsuit, no damages, no legal costs & everyone gets what they want Contract law is starting to allow recovery for non monetary losses & is venturing into the area of moral culpability – e.g., mental suffering, bad faith, loss of enjoyment & malicious behaviour Prerequisites to Awards of Damages – page 301 1. Loss must flow from the breach This expression means that damages will only be awarded for those losses that were reasonably foreseeable to the parties when they entered the contract – i.e., Were the consequences caused by the breach of contract within the reasonable contemplation of the parties when they made the contract? Court will look at the history and nature of the relationship between the parties A carrier of goods may have limited knowledge as to the purpose of the goods it delivers but a manufacturer of goods is expected to have greater knowledge – See Cases 13.4 & 13.5 @ pages 301 & 302 The critical determination is based on the actual and supposed knowledge of the parties at the time that they made the contract, not at the time the breach occurs Consequential losses must be foreseeable to both parties to be recoverable – if not the loss is said to be “too remote” Damages are not recoverable for losses that are unusual or unexpected 2. Duty to Mitigate Damages This means that the innocent party must take reasonable steps to reduce the extent of his/her loss A plaintiff has a duty to take reasonable efforts to minimize the loss caused by the breach of contract An injured party can only recover for losses resulting from the breach that could not reasonably avoided Measurement of Damages – page 302 In contract, damages are measured as of the date the contract was formed In tort, the damages are measured as of the date that the tort is committed Usually the quantum of damages is up to the court to decide but sometimes the contract will state what the damages shall be Liquidated Damages This is a genuine pre-estimate of the loss that will result from a breach of the contract by one of the parties

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They are negotiated and agreed to in advance and are stipulated in the contract When these criteria are met, courts will enforce a liquidated damages clause – See Illustration 13.7 @ page 303 Penalty Clause This is any contract term that specifies an unreasonable amount and that is not a genuine pre-estimate of the anticipated losses Courts will ignore a penalty clause and will award damages based upon an assessment of the actual loss incurred Loss of deposit is generally not a penalty clause however if it is in the nature of a down payment or a partial payment, courts will examine the clause to determine whether forfeiture amounts to a penalty Nominal Damages On rare occasions courts may order nominal damages (e.g., $1) to acknowledge that there has been a breach of contract but there is no real loss as a result Types of Damages – page 303 Expectation damages This is an amount awarded for loss of expected profits from the failed contract Expectation damages = expected gross benefit of the contract minus the injured party’s costs of performing the contact It will include opportunity cost which is this is the value of a lost opportunity to make a contract with another promisor Each party assumes the risk of a changing market price In sale of goods contracts, the expectation damages may include • • • the lost profit on the breached contract any additional expenses involved in the resale of the goods any price difference if the goods have to be sold for a lower price by the promisor or if they must be purchased by the promisee for a higher price

Consequential Damages These damages are compensation for secondary loss suffered by the innocent party such as the loss of profit on a contract to resell at a profit - See Illustration 13.6 @ page 305 Once again, these losses can only recoverable if they were serious and reasonably foreseeable to both parties at the time the contract was formed General Damages These are damages beyond mere compensation for the economic consequences caused by the contract breach

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They are an attempt by the court to provide fair compensation to the innocent party e.g., for psychological impairment Reliance Damages These are damages lost time effort and expenses incurred in preparation by an innocent party for a contract that is subsequently breached by the other party Punitive Damages On rare occasions where one party has acted maliciously ofr in bad faith, damages may be awarded to punish and deter such conduct Problems in Measuring Damages – page 306 Contract law is bleeding into tort law in its award of general damages for non economic losses Damages may now be awarded for contract breaches that are caused by malicious or otherwise improper behaviour and which result in: • • • • • mental anguish stress loss of vacation inconvenience disappointment

Cost of performance may be much greater than the economic loss that results from the breach of contract See Case 13.8 Peevyhouse v Garland Coal @ p 308 This type of reasoning has led to a business model that measures the cost of breach vs. the cost of performance with the cost of breach being just part of the cost of doing business 2. Equitable Remedies – page 309 These are discretionary remedies that the court may grant if monetary damages are found to be inadequate Criteria for Granting Equitable Remedies Denial of Equitable Remedies Courts will refuse to grant an equitable remedy if any one of the following 5 criteria is not met (a) the plaintiff does not come to court “with clean hands” (b) the plaintiff delays the lawsuit unreasonably (c) the equitable remedy would adversely affect an innocent party (d) substantial consideration has not already been given by the plaintiff – if it is a contract under seal or one with nominal consideration, only damages will be awarded

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(e) the plaintiff is not a party against whom equitable relief could have be granted as well – this is known as the symmetry principle and it states that a plaintiff will only be entitled to an equitable remedy if that plaintiff could have had the same remedy granted against him/her Types of Equitable Remedy Specific Performance This is an order by the court requiring the defendant perform a stipulated act – usually the court orders the defendant to complete the contract Generally reserved to situations in which the subject matter of the contract is unique – e.g., antiques, paintings Rarely is specific performance ordered in the sale of goods The rule used to be that specific performance could always be ordered for contracts for land because each parcel of land was seen by equity as being unique Now however this is no longer the case due to the proliferation of common sized lots with similar attributes on mass plans of subdivision Injunction An injunction precludes or restrains a party from a specified course of conduct – the goal is to prevent the defendant from doing something that would cause harm to the plaintiff For the remedy of injunction to be available, the contract must contain an express or implied negative covenant – i.e., a promise not to do something that is inherent in the agreement Injunctions may be interlocutory (temporary) or permanent Rescission Rescission is an order that sets aside or rescinds the contract for the purpose of restoring both parties to their pre contract status Rescission is not available if the goods been damaged or have diminished in value Rescission may be preferred to damages if the subject matter of the contract is unique and particularly valuable If the cost to complete the contract is greater than the contract price, the plaintiff may ask for rescission and quantum meruit rather than damages Quantum Meruit The court has the discretion to order that an innocent party is entitled to be paid the fair market value of the work done and materials supplied by that innocent party Note that this is not the contract price and it does not allow any recovery of any profit on the contract

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Quantum meruit is calculated based n the value of the benefit received, not the cost of ding the work Rectification (not in text) The court will rectify (correct) an inaccurately drawn written agreement so that it conforms with the agreement the parties intended to make. This remedy is designed to ensure that one party is not unjustly enriched at the expense of the other It is normally only available if the mistake is mutual or common to both parties ENFORCEMENT OF JUDGMENTS – page 311 The granting of a judgment does not automatically entitle the victorious plaintiff to repayment Once a judgment is rendered by the court the winning party (usually the plaintiff) becomes known as a judgment creditor and the party against whom judgment is rendered becomes a judgment debtor Methods of Enforcing a Judgment 1. File a writ of execution – the judgment is registered with the sheriff for any county in which the judgment debtor has property – this will result in a writ of execution being filed in the sheriff’s office The filing of a writ of execution will prevent the judgment debtor from selling or mortgaging any real property without the judgment creditor having priority over any mortgagee or purchaser 2. Judgment debtor examination – the judgment creditor will question the judgment debtor under oath to determine what assets (bank accounts, property, etc) are available to satisfy the judgment 3. Levy execution – armed with the information from the judgment debtor examination you may then instruct the sheriff to levy execution against specific assets owned by the judgment debtor 4. Garnishee order – a garnishee order is used to have any 3rd party that is indebted to a judgment debtor make the payment directly to the judgment creditor If the judgment creditor learns that the judgment debtor is owed money by a 3 rd party, (such as wages owed by an employer or money in the judgment debtor’s bank account), a garnishee order may be obtained which will direct that 3 rd party to make payment to the judgment creditor Banks and their customers stand in a debtor creditor to each other Discuss Cases 1 & 2 Home inspector liable for cost of removing mould Making sure a new home is inspected is essential. By Mark Weisleder | Fri Jun 8 2012 A recent court ruling found a home inspector liable for the cost of removing mould from a house.

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The inspector did not find any mould during his inspection, but the owner had a mould allergy and after she took possession there were problems. She sued and a judge ruled that the inspector should have suspected mould based on his review of the premises. The ruling highlights the importance of checking or identifying mould, especially in older homes. Here is what happened: Glenda and Jennifer Halliwell bought an 80 year old home on Dufferin St. in Toronto in 2006. Glenda told her real estate agent that she was allergic to mould. The agent referred her to a home inspector who found no evidence of a leaky roof or basement and so nobody suspected any problem. The inspector said in his report that the exterior brickwork concrete at the base of the home near the driveway needed repair, as did sections of the driveway itself, but you could probably find this in most old homes. The report had a standard limited liability clause which meant that if the inspector made a mistake, the most the buyer could expect would be the cost of the report. This clause is common in most home inspection reports, mostly due to the fact that the inspector can’t look behind walls or under floors. The Halliwells bought the house and within three months after closing, moisture, mould and mildew presented problems for the allergic Ms. Halliwell. They sued the seller, the home inspector and the real estate agent for the cost to fix the problem. In court, it was revealed that the seller had lived in the house for six years and the house was leak-free. There was no evidence that he tried to cover anything up by building a wall or repainting the basement walls. In a decision in January, 2011, the judge decided that the inspector should have known that the damaged concrete and driveway at the front of the home could result in leaks to the foundation which could eventually cause mould, which would be especially problematic for someone who was allergic to it. The judge decided that the home inspector should pay 50 per cent of the buyer’s loss. Even though there was a limitation of liability clause, the judge accepted the evidence of Ms. Halliwell that it was not explained to her so it had no effect. The judge also decided that the buyer’s real estate agent was 25 per cent responsible for the loss, saying that the agent should have also read the inspection report and come to the same conclusion about the possibility of mould occurring. The buyers were found to be 25 per cent responsible for not reading the report themselves. The sellers were not responsible because they did not know about any leaking. Everyone appealed. In a decision released last month, Ontario appeal court judges decided that the home inspector should pay all of the loss. It was too much to ask a real estate agent or a buyer to make the connection that defects in the concrete and driveway at the front of the house could somehow later lead to mould. I think the buyers were fortunate in the case that the court found that the inspector did not properly explain the limitation of liability clause. Real estate agents are not general contractors, and should not be expected to provide this type of advice to buyers. Still, agents should be suspicious if there is any visible slope in the floor, cracks in the walls or water stains. In addition, any time the seller has done recent renovations or paint jobs, it could be that the sellers are trying to hide an old problem. In all cases, buyers should be warned to conduct detailed home inspections to satisfy these concerns. Mould is becoming a serious issue for buyers. It can cause illness if one is exposed to it over an extended period of time and costs a lot to remove. The problem was that testing for mould once cost over $1,000. Now companies such as Tristar Disaster Recovery with offices in Hamilton, Toronto and Waterloo, can conduct tests for mould for as low as $250, and can assist homeowners with removing mould as well. Since most homes for sale in the GTA are over 50 years’ old, a mould test should be mandatory for every buyer.

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