Exam 11: The Extent of Contractual Rights

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.

Indrek, a university student, owned a small automobile, which he desired to sell for $800. He placed an advertisement in the university newspaper offering the vehicle for sale, and included his telephone number for further information. A few days later, he received a telephone call from a man who identified himself as Mr. Green. Green asked Indrek a number of questions concerning the car, and then expressed a desire to examine the vehicle. A meeting was arranged for later that evening, and Indrek gave Green the opportunity to test drive the automobile. Green agreed to purchase the vehicle for $800 and offered Indrek a personalized cheque bearing the name "R. Green" as payment. Indrek was reluctant to accept the cheque without further identification, and suggested the two men meet the next day at the bank to close the deal. Green explained that he would not be available for the next week or two as he was leaving town on some business. Instead, he offered the driver's licence and a number of credit cards bearing the name "R. Green" as evidence of his identity. He offered to leave his credit cards with Indrek as security. With some hesitation and concern, Indrek signed the blank motor vehicle registration, and handed Green the papers necessary to transfer the ownership. In return he received the cheque and the credit cards which he agreed to hold until Green's return. The next day, Indrek presented the cheque at Green's bank only to discover the cheque had been forged. A customer at the bank whose name was "R. Green" had apparently lost his wallet sometime before, and the wallet contained the cheque book as well as the credit cards and licence. In the meantime, the purchaser of the automobile, posing as Indrek, sold the vehicle to Smith for $500, and disappeared. A few weeks later, Smith wrote a letter to Indrek asking if he might have the owner's manual to the automobile, and at that point, Indrek demanded the return of his vehicle. Smith refused to return the vehicle. He maintained that it was now registered in his name as a result of the transaction that, from his point of view, was a bona fide purchase from the person who possessed the registration documents for the automobile. Indrek brought an action against Smith for the return of the automobile. Discuss the points of law which are raised in this case, and indicate how the courts might decide the matter.

Generally, a party is under a duty to disclose material facts to the other contracting party, and failure to do so is a violation of his or her duty of utmost good faith.

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.

Misrepresentation by nondisclosure renders a contract voidable at the option of the party misled.

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

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.

While George was visiting his physician, he mentioned to him that he wished to sell his expensive sailboat. The physician expressed an interest in buying the boat, and offered to pay George $10,000 for it. George had intended to advertise the boat for $12,000 in the local newspaper, but agreed to sell it to the physician for $10,000. Some weeks after the boat had been sold; George wished to avoid the contract. The physician could rebut the presumption of undue influence by proving that he paid a reasonable price for the sailboat, and that George had freely offered to sell him the boat.

Diana receives a phone call late one night from Robert, her former husband. He says that if she does not agree in writing to drop her action for support to put herself through university, he will distribute copies of compromising photographs he took of her when they were married. Diana signs the agreement under seal. This is a clear case of duress.

Red Stripe Beer Ltd., located in Kingston, Jamaica enters into a sales contract to sell beer to the Manitoba Liquor Board. The contract states the beer will be sold for a price of $4 per 12-bottle case plus transportation and delivery costs. The Manitoba Liquor Board receives 200 cases and an invoice for $800. It writes a cheque for JMD$800 (approximately CDN$400). Red Stripe replied saying the $4 price is in Canadian currency, not Jamaican currency. When a contract does not specify the currency but only contains the $ symbol, the contract

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.

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.

Deirdre bought a secondhand car from Honest Harry's Autos after being assured by Harry, in response to her questions, that the car had been driven only in good weather by the little old lady from whom he had purchased it. He claimed that was why its mileage was so low, and that it had never, (according to the little old lady), had so much as a scratch. "That's excellent," said Deirdre. "If it had been otherwise, I wouldn't have bought it." Deirdre soon began having trouble with the car pulling to one side when she applied the brakes, so she took it into the garage for a wheel alignment. The mechanic said "Why on earth would you buy this old heap? Granny Moses, that wild old lady, drove this thing like a madwoman, and it's never been the same since her last crash." a. Assuming that Honest Harry had also been fooled by Grandma Moses, what rights would he and Deirdre each have? b. Suppose Honest Harry found out after he sold the car to Deirdre that he had been cheated by Grandma Moses, but decided not to tell Deirdre. How would that affect Deirdre's rights and why?

Garth and Elizabeth are husband and wife. Garth is a real estate agent and Elizabeth an artist. Although her occupation does not expose Elizabeth to a great deal of business-related matters, the couple have entered into many real estate deals and business ventures as full partners. Garth has an opportunity to buy into a condominium complex. He asks Elizabeth to sign as his loan guarantor so that he may invest in the project. Before the project is complete, the contractor abandons the job and all partners are left to answer the debt. Garth cannot produce sufficient funds to cover his loan, and the bank turns to Elizabeth as guarantor for payment. Outraged at the course of events, Elizabeth refuses to pay, and seeks legal assistance to nullify the contract. As her lawyer, what do you tell Elizabeth?

Your car dealer hands you documents for your signature, "the paperwork on the deal" you have just shaken hands on. Among the papers is an undiscussed extended warranty plan. You sign all the documents where the dealer so indicated. You first become aware of the warranty when its cost is automatically debited from your chequing account. Your successful defence to further payments will be non est factum.

Anderson Ltd. was negotiating a contract with the Bolton Manufacturing Co. for a large number of components for the office equipment Anderson Ltd. sells. The normal way of pricing the components is "by the piece," but Bolton Manufacturing sent a written offer to Anderson to sell the components at $5 a kilogram. The components would normally cost about $5.50 each and there are about two of them to the kilogram. After receiving Anderson Ltd.'s acceptance of the offer, Bolton realized the mistake it had made and is now refusing to perform the contract. Anderson has sued for breach of contract.