Exam 11: Failure to Create an Enforceable Contract

A met B while shopping, and in the course of conversation, mentioned that he had a motorcycle for sale. B was familiar with A's motorcycle and offered to purchase it for $500. A accepted the offer, and A and B walked to A's home to get the motorcycle. When they reached A's house, they were told by A's father that the motorcycle had been stolen earlier in the day and was subsequently found by the police in a badly damaged and burned condition in a local stone quarry. B may avoid the contract on the basis that the parties had made a mistake as to the existence of the subject matter.

Mathieson wanted to lease a suite in the new office building owned by Logan, which is the most prestigious one in town. He knew that Logan would not rent to him because of a business deal several years ago that had gone bad, costing Logan a great deal of money. Logan swore he would never do business with Mathieson again. Mathieson paid Muir to act as an agent for his company, and Logan rented to him. Several months later, Logan found out who had really rented the suite.

Jax, a university student commuted to and from classes by public transit. He decided that he must buy a car because the bus service was terrible. A friend was discussing this problem with Jax and said that he wanted to sell his car in order to purchase a motorcycle. Knowing the car's good condition, Jax said he would buy it. Jax's friend told him to come by to pick up the car in two days. Neither of them knew that the friend's roommate had borrowed the car that day and had destroyed it in an accident. This is not a cause of mistake of fact because the two were both clear as to what was the subject matter of the contract.

Where there has been rescission, there must have been reliance.

For there to be punitive damages, there must have been the tort of deceit, and therefore there must have been fraudulent misrepresentation.

Rob purchased an old glass vase, which Banya represented as an antique made by a famous Italian glassmaker in the 17^th century. As proof of its authenticity, Banya produced an old paper with a rough sketch of the vase on it, along with some writing, and what appeared to be the glassmaker's name. Rob later sold the vase to Castillo, after telling Castillo the story of the vase as told to him by Banya. After Castillo had purchased the vase, he discovered it to be a reproduction of the original, and of very little value. Banya is liable to Rob in tort for fraudulent misrepresentation of the vase if he knew the vase was only a reproduction, and the paper a forgery.

Rob purchased an old glass vase, which Banya represented as an antique made by a famous Italian glassmaker in the 17^th century. As proof of its authenticity, Banya produced an old paper with a rough sketch of the vase on it, along with some writing, and what appeared to be the glassmaker's name. Rob later sold the vase to Castillo, after telling Castillo the story of the vase as told to him by Banya. After Castillo had purchased the vase, he discovered it to be a reproduction of the original, and of very little value. Castillo may take action against Rob to have the contract rescinded on the basis of fraudulent misrepresentation by Rob.

Sunjai, who is functionally illiterate, asks her friend Hahna to read a document aloud to her. She is to sign it in order to purchase chinchillas from Patrice to start a breeding farm. Actually it is a deed transferring ownership of Sunjai's farm to Patrice and, unknown to Sunjai, Patrice and Hahna have made a secret agreement to sell the farm and share the proceeds. Since Sunjai did what was reasonable to deal with her own inability to read, she could raise the defence of non est factum to an action by Patrice to get possession of the farm.

Fronia, a neighbour of David, wished to borrow a sum of money from a local bank. David was quite wealthy but elderly, with very poor eyesight. He frequently requested Fronia to read his newspaper to him when Fronia would drop by for a visit because reading was exceedingly difficult for him. One evening, Fronia placed a paper before David and explained to him that she wished to borrow a sum of money but required a letter of reference before the bank would make the loan. She requested David to sign the paper to satisfy this requirement. David trusted his friend Fronia and signed the paper at her request without reading it. Unknown to David, the paper was a guarantee of Fronia's indebtedness, and not a letter of reference, and Fronia later defaulted on her debt.

Wes, a neighbour of Stan, wished to borrow a sum of money from a local bank. Stan was quite wealthy, but elderly, with very poor eyesight. He frequently requested Wes to read his newspaper to him when Wes would drop by for a visit, because reading bothered his eyes. One evening, Wes placed a paper before Stan, and explained to him that he wished to borrow a sum of money but required a letter of reference before the bank would make the loan. He requested Stan to sign the paper to satisfy this requirement. Stan trusted his friend Wes and signed the paper at his request without reading it. Unknown to Stan, the paper was a guarantee of Wes's indebtedness, and not a letter of reference. Wes later defaulted on his debt. If Wes had told Stan that the paper was a guarantee for $1,500 when it was in fact for $2,000, Stan could still successfully plead non est factum as a defence.

Jahara Ltd. enters into a contract to supply glass bottles to Brine Co. for its line of baby dill pickles. Since it is a new relationship, both parties want the option to end the contract without problems, so they include a clause that allows either one of them to terminate the contract on 30 days written notice. Jahara finds that Brine Co. is too slow in paying its bills and too quick to question quality. On March 1^st, Jahara Ltd. gives Brine Co. notice in writing that the contract will end on March 31^st. Brine Co. insists that the 30 days notice clause means 30 working days, not 30 calendar days, and thus Jahara must supply them until April 1. Jahara refuses. Brine Co. loses two weeks of production when its supply of bottles runs out and sues Jahara for breach of contract. In this situation,

Sunjai, who is functionally illiterate, asks her friend Hahna to read a document aloud to her. She is to sign it in order to purchase chinchillas from Patrice to start a breeding farm. Actually it is a deed transferring ownership of Sunjai's farm to Patrice and, unknown to Sunjai, Patrice and Hahna have made a secret agreement to sell the farm and share the proceeds. Sunjai could not raise the defence of non est factum if the document she signed was one to purchase chinchillas, but for a much higher price than Hahna read to her.

Innis Ltd. reach a verbal agreement with McKenzie Co. to sell them 16 tonnes of first-grade steel for $2,100 per tonne. At the request of McKenzie, Innis drew up a written version of the contract and both parties signed it. Shortly after delivery, Innis received a cheque from McKenzie for $19,200 in full settlement of the account, and was horrified to discover that the figures 1 and 2 had been reversed in the written contract and the price read "$1,200 per tonne" instead of "$2,100 per tonne," and neither party had noticed it at the time. Discuss what Innis Ltd. may do in this case.

Jahara Ltd. enters into a contract to supply glass bottles to Brine Co. for its line of baby dill pickles. Since it is a new relationship, both parties want the option to end the contract without problems, so they include a clause which allows either one of them to terminate the contract on 30 days written notice. Jahara finds that Brine Co. is too slow in paying its bills and too quick to question quality. On March 1^st, Jahara Ltd. gives Brine Co. notice in writing that the contract will end on March 31^st. Brine Co. insists that the 30 days notice clause means 30 working days, not 30 calendar days, and thus Jahara must supply them until April 1. Jahara refuses. Brine Co. loses two weeks of production when its supply of bottles runs out and sues Jahara for breach of contract. In this situation,

Undue influence is not the same legal concept as duress. Despite this, both constitute grounds for rescission by the affected party.

ABC Construction Co. was building a large condominium complex in two phases. Phase 1 was to commence immediately, and construction of Phase 2 would get under way once a minimum of 50% of the Phase 1 units had been presold. ABC had asked for bids for certain aspects of the construction project. Company X had bid on the stucco work and Company Y on the drywall. Both bids were accepted by ABC and the respective contracts awarded. Moreover, ABC used the bids to prepare its budgeting for the project and to acquire its financing. Shortly after commencement of Phase 1, Company X ran into financial difficulties and was forced to withdraw from the project. ABC then approached Company Y with a request for a bid on the work which Company X could no longer complete. ABC emphasized the urgency to move on with Phase 1, which was falling behind schedule, and requested Company Y's bid as quickly as possible. Company Y believed from the conversations it had with various representatives of ABC that it was to quote only on Phase 1. ABC accepted Company Y's bid as it was very close to the prior bid of Company X. Sometime later it became apparent that ABC expected Company Y to do all of the stucco work on both phases of the project for the bid price. The president of Company Y contacted the president of Company X to inquire what X had understood the bid terms to be. X's president replied that he had been unclear at the time just what he was bidding on but that he had submitted a bid for one phase only. In fact, he mentioned to Y's president that if ABC had taken even a brief look at his bid, it would have realized that the bid would have been substantially below cost if it were for both phases. After this conversation, Company Y undertook the further work on Phase 2 but insisted on additional payment. ABC contended that the bid was to be for both phases and brought legal action for breach of contract against Company Y. Company Y countered with a claim for the money owing for Phase 2. Discuss the legal issues which arise as a result of these facts and the principles of law each party will rely on.

Wes, a neighbour of Stan, wished to borrow a sum of money from a local bank. Stan was quite wealthy, but elderly, with very poor eyesight. He frequently requested Wes to read his newspaper to him when Wes would drop by for a visit, because reading bothered his eyes. One evening, Wes placed a paper before Stan, and explained to him that he wished to borrow a sum of money but required a letter of reference before the bank would make the loan. He requested Stan to sign the paper to satisfy this requirement. Stan trusted his friend Wes and signed the paper at his request without reading it. Unknown to Stan, the paper was a guarantee of Wes's indebtedness, and not a letter of reference. Wes later defaulted on his debt. Stan may plead non est factum as a defence to a claim by Wes's creditor on the guarantee.

Rob purchased an old glass vase, which Banya represented as an antique made by a famous Italian glassmaker in the 17^th century. As proof of its authenticity, Banya produced an old paper with a rough sketch of the vase on it, along with some writing, and what appeared to be the glassmaker's name. Rob later sold the vase to Castillo, after telling Castillo the story of the vase as told to him by Banya. After Castillo had purchased the vase, he discovered it to be a reproduction of the original, and of very little value. The contract is voidable by Castillo on the basis of innocent misrepresentation.

Sarah Burns is suing her lawyer, Tom Lachey, for the return of property worth $20,000 that she had given him. She had signed a properly sealed document making the gift to him. She says she knew what she was signing but felt overwhelmed by his manner. If Sarah Burns, through embarrassment, fails to do anything about the return of the property for several months, it is unlikely that she would then win an undue influence suit even if she might have done so if she had acted promptly.

Duane applied to the municipality of Smallville for a permit to build an addition onto his home. He contacted the municipal offices by telephone to enquire about the fee for the permit. The building official was unavailable, but the municipal clerk told Duane she thought the current fee was $100 per 1,000 square feet. Duane's new addition was planned to be 3,500 square feet, so he attached a cheque in the amount of $350 to his application and delivered it to the building office. When the permit was approved and returned a note was attached to it which read that all building permits now cost a flat fee of $250. No money accompanied the note. Duane contacted the municipal offices requesting a refund of his $100. He was told by the clerk that there was no municipal bylaw authorizing the repayment of excess fees paid to the municipality, so she had no authority to process his refund. She suggested he could apply the extra amount to his municipal property taxes. Duane would probably be unable to obtain the money he paid in error.