Cases and Materials on Contracts

 Bentley (Dick) Productions Ltd. v Smith (Harold) (Motors) Ltd.

• 
  If the representation was made in the course of dealing for a contract for the very purpose of inducing the other party to act on it, and it actually induces him to act on it by entering into the contract
  
  • 
    That is prima facie ground that it was meant as a warranty, it was intended to be acted upon and in fact was acted upon
    
• 
  This claim of warranty can be rebutted if the maker of the representation can show that it was an innocent misrepresentation, in that he was in fact innocent of fault in making it, and that it would not be reasonable in the circumstances for him to be bound by it.
  

• 
  Plaintiff brings action against defendant for damages for breach of warranty on the sale of a car
  
• 
  Plaintiff had dealt with defendant for several years, was looking for a well vetted Bentley car
  
• 
  Defendant found one and bout it for 1500
  
  • 
    Found out some history too,
    
  • 
    Engine and gearbox only had 20,000 miles on it
    
• 
  Defendant would sell for 1850 and guarantee the car for 12 months (including parts and labour)
  
• 
  The car turned out to be a hunk of junk
  
• 
  Plaintiff took it back and eventually brought the action for breach of warranty
  

• 
  Was the representation that the car only had 20,000 miles on it an innocent representation or a warranty?
  

• 
  For plaintiff, the statement was found to be a warranty that could not be rebutted
  

• 
  Whether a warranty was intended depends on the conduct of the parties, on their words and behaviour, rather than on their thoughts.
  
  • 
    If an intelligent bystander would reasonably infer that warranty was intended, that will suffice.
    
• 
  If the representation was made in the course of dealing for a contract for the very purpose of inducing the other party to act on it, and it actually induces him to act on it by entering into the contract
  
  • 
    That is prima facie ground that it was meant as a warranty, it was intended to be acted upon and in fact was acted upon
    
• 
  This claim of warranty can be rebutted if the maker of the representation can show that it was an innocent misrepresentation, in that he was in fact innocent of fault in making it, and that it would not be reasonable in the circumstances for him to be bound by it.
  
• 
  This looks like promissory estoppel
  

• 
  In this case:
  
  • 
    The inference is not rebutted:
    
    • 
      The defendant could have gotten the history of the car but did not do so until later
      
    • 
      Upon inspection of the history of the car it was shown the claim was quite wrong
      
      • 
        The defendant made a claim regarding the state of the car not based on truth in order to get the plaintiff to purchase the car
        

 Redgrave v. Hurd

• 
  A party is not to receive benefits from false statements, regardless of whether they knew the statement was false or not.
  
• 
  If a material representation is made to induce someone to enter into contract, it will be assumed that that representation was relied upon when they entered into the contract, it is then the burden of the opposing party to give evidence shows that they did not rely upon the representation
  
  • 
    If the representation is false it will be grounds for rescission
    

• 
  Plaintiff, a lawyer, advertised for a lawyer to be his partner and buy his house
  
• 
  Defendant entered into an agreement for the purchase of the house
  
  • 
    Defendant then discovered the law practice was worthless
    
• 
  Defendant gave up possession and refused to complete purchase
  
• 
  Plaintiff brought action for specific performance
  
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  Defendant brought counterclaim for rescission
  
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  At trial, judge held for plaintiff and dismissed counterclaim
  
• 
  Appealed.
  

• 
  Can the contract be rescinded based on the plaintiff's false representation
  

 Reasons:

• 
  Judge examines the rule in equity regarding rescission of a contract
  
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  It is not necessary to prove that the party who made the material misrepresentation knew at the time when the representation was made that it was false
  
  • 
    States two scenarios in equity in which a contract may be rescinded due to misrepresentation:
    

1. 
   "A man is not to be allowed to get a benefit from a statement which he now admits to be false. He is not to say, for the purpose of civil jurisdiction, that when he made it he did not know it to be false; he ought to have found that out before he made it.
   
2. 
   "Even assuming that moral fraud must be shown in order to set aside a contract, you have it where a man, having obtained a Beneficial Contract by a statement which he now knows to be false, insists upon keeping that contract. To do so is a moral delinquency: no man out to seek to take advantage of his own false statements"
   
• 
  If someone makes a material representation that is meant to induce the other party to enter into the contract, it is an inference of law that the other party relied on that material representation.
  
  • 
    Unless there is evidence to show that the party was not relying solely on that representation, it will be inferred that they were, and if that representation is false it will be grounds for rescissions
    
• 
  An action for rescission can succeed in cases of innocent misrepresentation is the misrepresentation is what induced the person to enter the contract
  
  • 
    Or, had they known they wouldn’t have entered into contract
    

 Newbigging v Adam

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  In common law with innocent misrepresentation, you are to be returned to your prior state but with the limitation that he is to be replaced in his position so far as the rights and obligations which have been created by the contract into which has been induced to enter:
  

1. 
   He may get an advantage in the shape of an actual benefit, as when he receives money
   
2. 
   He may also get an advantage if the party with whom he contracts assumes some burden in consideration of the contract
   
   • 
     The contract is rescinded and the party is able to receive the benefits of this, but is not able to recover any money lost through the operation of the business?
     

• 
  Plaintiff was induced by misrepresentation of the defendants as to the adequacy of the machinery to contribute 10,000 to a partnership to which he was admitted.
  
• 
  The business sucked
  
• 
  Plaintiff brought an action to dissolve the partnership, an order for the defendant to repay him the money and indemnify him from liabilities he may have become liable to in the partnership's name
  
• 
  Defendant appeals on the ground that this order amounted to damages for innocent misrepresentation
  

• 
  Is there a remedy through common law for innocent misrepresentation that allows the defendant to recover without damages?
  

• 
  For Plaintiff, appeal dismissed
  

• 
  In common law with misrepresentation if it goes to the root of the matter of the contract it is sufficient to void the contract
  
  • 
    In rescinding the contract the plaintiff would receive all the incidents and consequences of the rescission
    
• 
  In common law with innocent misrepresentation, you are to be returned to your prior state but with the limitation that he is to be replaced in his position so far as the rights and obligations which have been created by the contract into which has been induced to enter
  

• 
  He may get an advantage in the shape of an actual benefit, as when he receives money
  
• 
  He may also get an advantage if the party with whom he contracts assumes some burden in consideration of the contract
   
  

• 
  He is taken out of the contract?
  
  • 
    Contract was paying the money and being entered into partnership
    
  • 
    His obligations are removed
    
    • 
      If he lost money within the business venture he could not retrieve it but he can have his contractual obligations returned to their prior state?
      

 Kupchak v Dayson Holdings Ltd.

Ratio:

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  Attempts to minimize damages suffered under the fraudulent contract (ie resale/fixing fraudulent issue) does not amount to an affirmation of the contract. (From post case notes)
  

Facts:

• 
  The plaintiffs had been induced by fraud of defendants to:
  
  • 
    Exchange Haro street and North Vancouver properties for shares of the Palms Motel
    
  • 
    Then, put mortgages on the land and chattels of the motel to pay the remaining difference in the value of the two properties
    
  • 
    Defendants flip the two properties
    
  • 
    The plaintiffs continue operating the hotel
    
  • 
    Plaintiffs not entitled to rescission because:
    
    • 
      Couldn't restore the defendant's shares in the motel
      
    • 
      The defendant's couldn't restore the properties to the plaintiffs as they had already been knocked down to make a modern apartment
      
  • 
    Plaintiffs appeal
    
  • 
    Defendant's counter-appeal claims of fraud
    
    • 
      Argue that the plaintiffs operation of the motel amounts to an affirmation of the contract
      

Issue:

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  Judge finds fraud evident, so what relief can be granted to the plaintiffs?
  
• 
  Did the plaintiffs affirm the contract by not rescinding the contract
  

 Decision:

 Reasons:

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  The main issue is whether the plaintiffs are forfeit their right to rescind on account of laches
  
• 
  If someone makes a misrepresentation they can argue that the contract is still enforceable because the other party affirmed the contract through some conduct, word, or silence.
  
  • 
    The guilty party must plead and prove those defences to rescission
    
    • 
      Defendants did not argue this
      
  • 
    If the evidence is fully canvassed in trial one cannot object to the argument that there exists a defence of rescission. If evidence shows the plaintiffs affirmed the contract through action then it doesn't matter if the defendants didn't argue this defense immediately?
    
  • 
    Fill out these notes in class.
    

Redican v. Nesbitt

SCC 1924

Ratio:

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  Payment by cheque will constitute a full execution of the contract
  
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  If you get full consideration (or, if the contract is fully executed) you cannot receive rescission on the basis of innocent misrepresentation
  

 Facts:

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  Action to demand payment by defendants on the contract
  
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  Defendants purchased property from plaintiff's
  
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  Plaintiff's agent allegedly misrepresented facts
  
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  Defendant's had already handed over a cheque with payment, and received the keys
  
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  Upon viewing the property for the first time the defendants claimed that it had been misrepresented by the plaintiff's agent
  
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  Defendants stopped making payments
  
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  Plaintiffs want payment
  
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  Defendant's claim the misrepresentation allows them remedy of rescission
  

 Issue:

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  Will the defendant be able to receive remedy since they paid using a cheque?
  
• 
  Was the contract fully executed?
  

 Decision:

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  For the Plaintiff's (but with a retrial for fraud), The contract was fully executed for all purposes from the position of the defendants
  

 Reasons:

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  The court is unable to compel the landlord to assent to a re-assignment of the leasehold to the plaintiff.
  
• 
  The court finds the acceptance and payment of the cheque as intended to be the full execution and close of the contract.
  
  • 
    The cheque is equivalent to cash payment
    
• 
  The court will only rescind the contract in cases where there has been fraudulent misrepresentation, not innocent misrepresentation
  

 Leaf v International Galleries

Ratio:

• 
  Rescission of a contract for innocent misrepresentation must occur within a reasonable time limit (just as rejection of a contract for breach of a condition must)
  
• 
  An innocent misrepresentation will not supply grounds for rescission if a rejection of the contract based on a breach of the misrepresented condition is barred.
  
  • 
    "a condition is a term of the contract of a most material character, and, if a claim to reject for breach of condition is barred, it seems to me [this gives strong evidence] that a claim to rescission on the ground of innocent misrepresentation is also barred.
    

 Facts:

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  Plaintiff buys a painting and is told it is a Constable
  
  • 
    Trial judge finds that this terms was incorporated into the terms of the contract
    
• 
  Plaintiff wanted to sell the contract 5 years later
  
  • 
    Was advised that it was not a Constable and that it was worth very little
    
• 
  Plaintiff attempted to return it to the gallery and get his money back
  
• 
  Defendants refused and stood by their claim that it was in fact a Constable
  
• 
  Trial judge found as a fact that the painting was not a Constable
  

 Issue:

• 
  Is the Buyer (Plaintiff) entitled to rescind the contract in this case?
  

 Decision:

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  For Defendants, the plaintiff took way too much time to bring the action
  

 Reasons:

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  There is no claim for damages for breach of condition or a breach of warranty
  
• 
  The action is only for the rescission of the contract
  
• 
  The case is to be decided according to the well=known principles application to the sale of goods.
  
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  The mistake involved in this contract related to the implied a term that the contract was painted by Constable
  
• 
  Denning sees this term as either a condition or a warranty
  
  • 
    If a condition:
    
    • 
      Contract could be rejected prior to execution
      
  • 
    If a warranty
    
    • 
      Contract couldn't be rejected but damages would be available
      
• 
  Denning finds the term a condition
  
  • 
    The only thing that could be done would be reject for breach of condition
    
    • 
      But this is barred due to the amount of time that is past
      
  • 
    If a claim to reject based on breach of condition is barred a claim to rescind based on the innocent misrepresentation will be barred
    

 

• 
  The buyer is deemed to have accepted the goods if he retains the goods without intimating to the seller that he has rejected them
  
• 
  The only remedy after this length of time would be damages, but he has not brought this claim
  

 (IC)O'Flaherty v McKinley

Ratio:

• 
  ?
  

Facts:

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  Plaintiff had never owned a car and wished to purchase a 1950 Hillman
  
• 
  Defendant sold plaintiff a 1949
  
  • 
    Design flaws existed in the 49 model
    
• 
  Plaintiff seeks rescission
  

Issue:

 Decision:

Reasons:

• 
  The contract was executed fully executed
  
  • 
    She must rely on the exception to exception
    
    • 
      The misrepresentation is significant and goes to the root
      

 

Murray v Sperry Rand Corporation

Ratio:

• 
  An affirmation made with the intention of inducing contractual relations is a warranty
  
• 
  Manufacturers would be liable for breached warranties if they had supplied the goods directly to the owners and are equally liable in supplying the goods indirectly
  

 Facts:

1. 
   The Plaintiff was induced to purchase the harvester through oral representation made by the personnel of Church and Sperry Rand Canada and through the sales brochure prepared and published by Sperry Rand Corporation
   
2. 
   The performance of the machine fell seriously short of that represented in the sales brochure
   
3. 
   The consequence of the machine's failure was damage suffered by the plaintiff
   

 Issue:

• 
  Should the manufacturer who published the brochure in an obvious attempt to induce sales be shielded from liability because it had no direct contract with the plaintiff?
  

Decision:

• 
  For the Plaintiff, the manufacture is liable because its brochure presents a case to buy as if they were there in person.
  

 Reasons:

• 
  An affirmation made with the intention of inducing contractual relations is a warranty
  
• 
  "It is the law that a person may be liable for breach of a warranty notwithstanding that he has no contractual relationship with the person to whom to whom the warranty is given.
  
  • 
    The brochure was put out to entice sales
    
  • 
    It contained warranties that were proven to be inaccurate
    
  • 
    No legal differentiation between dealer and manufacturer in relation to collateral warranties
    
    • 
      Dealer had to rely on manufacturer in order to make the claims
      

 

• 
  Manufacturers would be liable for breached warranties if they had supplied the goods directly to the owners and are equally liable in supplying the goods indirectly
  

 Notes: 

• 
  Andrews v Hopkinson
  
  • 
    The court will interpret contracts similarly if it is the conduct of a third party that has exposed the contracting parties to liability
    
    • 
      In this case a car dealer who sold the care to a car rental company was sued because it had a defect
      
    • 
      The court found the dealer liable even they were not privy to the contract
      

 

• 
  Ranger v Herbert A Watts
  
  • 
    Court impliedly reads into contracts that advertising will be applied fairly
    
    • 
      In this case a man had lost his glasses and was flustered and so he could not answer a math question to win a prize
      
    • 
      Court said the test had to be administered fairly, the man needed warning
      
  • 
    Court states that businesses have been taking advantage of individuals through misleading advertising.
    

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