Contracts

1
Contracts

• Professor
• Darcy L. MacPherson

2
Collateral Contracts

• Heilbut Symons Co. v. Buckleton
• 1913 English House of Lords
• Facts
• Johnson and Reimers each represent the appellant
  (Heilbut Symons Co.). The appellants are
  rubber merchants.
• Buckleton purchased 6,000 shares of the Filisola
  Rubber and Produce Estates Limited from the
  appellants based on the following conversation
  with Johnson

3
Collateral Contracts (contd)

• I said Is that you Johnston? He said Yes. I
  said I understand you are bringing out a rubber
  company. and he said We are. I asked him if he
  had any prospectuses, and he said No. I then
  asked him if it was all right, and he said We
  are bringing it out. I then replied That is
  good enough for me. I then asked him how many
  shares I could have. He asked me how many I
  wanted and I said I would take almost any
  number.........

4
Collateral Contracts (contd)

• He said I think I can let you have 5000, but the
  premium is l s. 3d. I then said that was all
  right, that I would take them. The respondent
  added that the reason why he was willing to take
  almost any number of shares was because the
  position the appellants occupied in the rubber
  trade was of such high standing that any company
  they should see fit to bring out was a sufficient
  warranty to him that it was all right in every
  respect.

5
Collateral Contracts (contd)

• Paragraph 16
• The alleged warranty rested entirely upon the
  following evidence. The plaintiff got a friend
  to ring up on the telephone Mr. Johnston (a
  representative of the defendants, for whose acts
  they accept the full responsibility) to tell him
  that the plaintiff wished to speak to him. The
  plaintiff's evidence continues thus " I went to
  the telephone and I said ' Is that you, Johnston
  ?' He said 'Yes.' I said I understand that you
  are bringing, out a rubber company,' and he said
  ' we are."'
• It is discovered that there were rather severe
  errors in the prospectus the document used to
  sell shares in corporations.
• Issues
• Was there fraudulent misrepresentation
• If not, was there a warranty by Johnson and
  Reimers?

6
Collateral Contracts (contd)

• Holdings
• There is no fraud here (paragraph 15)
• A warranty
• He must shew a warranty, i.e., a contract
  collateral to the main contract to take the
  shares, whereby the defendants in consideration
  of the plaintiff taking the shares promised that
  the company itself was a rubber company. The
  question in issue is whether there was any
  evidence that such a contract was made between
  the parties.

7
Collateral Contracts (contd)

• Paragraph 20
• Such collateral contracts, the sole effect of
  which is to vary or add to the terms of the
  principal contract, are therefore viewed with
  suspicion by the ' law. They must be proved
  strictly. Not only the terms of such contracts
  but the existence of an animus contrahendi on the
  part of all the parties to them must be clearly
  shown. Any laxity on these points would enable
  parties to escape from the full performance of
  the obligations of contracts unquestionably
  entered into by them and more especially would
  have the effect of lessening the authority of
  written contracts by making it possible to vary
  them by suggesting the existence of verbal
  collateral agreements relating to the same
  subject-matter.

8
Collateral Contracts (contd)

• There have been attempts to get damages for
  innocent misrepresentation, that have been
  rebuffed
• Paragraph 23
• An affirmation at the time of the ' sale is a
  warranty, provided it appear on evidence to be so
  intended.

9
Collateral Contracts (contd)

• Oscar Chess Ltd. v. Williams
• 1957 English Court of Appeal
• Facts
• The Williams family buys a car, believing it to
  be 1948 Morris. They are now attempting to trade
  it in and buy another car. The dealer offered
  290 as a trade-in, based on looking up the blue
  book value of a 1948 Morris. The trade was
  made. It turns out later that the trade in was a
  1939 Morris and not a 1948 Morris.
• The plaintiff dealer wants damages for the loss.
  It was clear that the misrepresentation as to the
  model year of the car was entirely innocent
  insofar as the defendant was concerned.
• Both parties assumed that this was a 1948 Morris,
  and not a 1939 Morris
• The dealer wants damages for the difference
  between the value of the car and the expected
  value

10
Collateral Contracts (contd)

• Paragraph 8
• The crucial question is Was it a binding promise
  or only an innocent misrepresentation? The
  technical distinction between a condition and a
  warranty is quite immaterial in this case,
  because it is far too late for the buyer to
  reject the car. He can, at best, only claim
  damages. The material distinction here is
  between a statement which is a term of the
  contract and a statement which is only an
  innocent misrepresentation. This distinction is
  best expressed by the ruling of Holt, C.J., Was
  it intended as a warranty or not?, using the
  word warranty there in its ordinary English
  meaning because it gives the exact shade of
  meaning that is required. It is something to
  which a man must be taken to bind himself.

11
Collateral Contracts (contd)

• Paragraph 9
• Lord Moulton made it quite clear, in Heilbut,
  Symons Co. v. Buckleton (1913 A.C. at p. 51).
  that The intention of the parties can only be
  deduced from the totality of the evidence ....
  The question 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 a warranty was intended,
  that will suffice. And this, when the facts are
  not in dispute, is a question of law. That is
  shown by Heilbut, Symons Co. v. Buckleton
  itself, where the House of Lords upset the jury's
  finding of a warranty...

12
Collateral Contracts (contd)

• Knowledge of the dealer v. ignorance of the
  customer
• No knowledge of either party with information
  from elsewhere
• Recorded in writing

13
Collateral Contracts (contd)

• Dick Bentley Productions Ltd. v. Harold Smith
  Motors
• Facts
• Dick Bentley wants to buy a Bentley car. Smith,
  on behalf of the defendant, says that this one
• Was owned by Rolls-Royce
• Was driven by a German Baron
• Had had only one owner since its return to
  England
• Had only 20,000 miles on the new engine and
  gearbox

14
Collateral Contracts (contd)

• Paragraph 10
• Looking at the cases once more, as we have done
  so often, it seems to me that if a representation
  is made in the course of dealings for a contract
  for the very purpose of inducing the other party
  to act upon it, and actually inducing him to act
  upon it, by entering into the contract, that is
  prima facie ground for inferring that it was
  intended as a warranty.

15
Collateral Contracts (contd)

• Paragraph 10 (contd)
• It is not necessary to speak of it as being
  collateral. Suffice it that it was intended to
  be acted upon and was in fact acted upon. But
  the maker of the representation can rebut this
  interference if he can show that it really 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.

16
Collateral Contracts (contd)

• When something is said for the very purpose of
  inducement, then it is a prima facie a warranty,
  unless it is was said without fault (completely
  innocent).
• If it is said without fault, then there is no
  warranty

17
Collateral Contracts (contd)

• Given that Smith made the statement without
  checking the factual accuracy, it was obvious
  that there was some negligence and thus some
  fault on the part of Smith.
• Therefore, Bentley wins

18
Collateral Contracts (contd)

• Ennis v. Klassen
• 1990 Manitoba Court of Appeal
• Klassen owed a 1979 or 1980 BMW 728, a car which
  cannot ordinarily be imported into Canada, but
  came in illegally, but not by Klassen. Ennis
  thought he was buying a 733. There is no such
  thing as the 733 there is a 733i. There is more
  horsepower in the 733i than the 728, and the 733i
  has more safety features, and is more luxurious
  than 728.
• The car needed servicing twice shortly after
  purchase. The second time it was taken into the
  service, there is some evidence that the
  defendant purchaser may have been told that this
  was a 728, and not a 733i.
• The defendant had been told that the vehicle was
  referred to as a 728 in Europe (but might
  actually be a 733 in this country). The defendant
  thus wanted the dealer to sell the car on his
  behalf. The dealer refused because it was brough
  in illegally, and insurance concerns as a 728.
• Klassen tries to sell it privately as a 733i
• Ennis sees the ad

19
Collateral Contracts (contd)

• Holdings
• This is a purchase by description of a 733i it
  is not a 733i. This is a breach of condition
• Breach of condition is better than innocent
  misrepresentation (more remedies) and fraudulent
  misrepresentation (easier to prove)
• Rapid depreciation of the asset makes repudiation
  of the contract not a good idea here. Therefore,
  all that is left is the remedy of damages
  (paragraphs 17-19)
• The facts are sufficient to allow the court to
  determine the issue, notwithstanding that it was
  not pleaded.
• Therefore, damages can be granted

20
Collateral Contracts (contd)

• Paragraph 9
• ... although rescission may in some cases be a
  proper remedy nevertheless it is to be remembered
  that an innocent misrepresentation is much less
  potent than a breach of condition. 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 a fortiori
  that a claim to rescission on the ground of
  innocent misrepresentation is also barred.

21
Collateral Contracts (contd)

• Sale of Goods Act
• 13(3) Where a contract of sale is not severable,
  and the buyer has accepted the goods, or part
  thereof, or where the contract is for specific
  goods, the property in which has passed to the
  buyer. the breach of any condition to be
  fulfilled by the seller shall only be treated as
  a breach of warranty, and not as a ground for
  rejecting the goods and treating the contract as
  repudiated, unless there is a term of the
  contract, express or implied, to that effect.

22
Collateral Contracts (contd)

• Sale of Goods Act (contd)
• 37 The buyer is deemed to have accepted the goods
  when he intimates to the seller that he has
  accepted them, or when the goods have been
  delivered to him, and he does any act in relation
  to them which is inconsistent with the ownership
  of the sellers or when after the lapse of a
  reasonable time, he retains the goods without
  intimating to the seller that he has rejected
  them.

23
Collateral Contracts (contd)

• Lord Denning is a maverick in Leaf v.
  International Galleries (paragraph 29)
• Paragraph 34
• the courts of equity never contemplated the
  remedy of rescission in the case of an executed
  contract for the sale of goods. Lord Denning's
  observations were based on his own conception of
  what was fair. But that was because there was no
  way, as the law then stood, he could justify an
  award of damages. It does not make rescission
  the ideal remedy.

24
Collateral Contracts (contd)

• Arnold v. Gen-West Enterprises Ltd.
• 1994 Manitoba Court of Queens Bench
• Facts
• December 18, 1995 The Arnolds purchased a car
  as is to be delivered three days later.
• They needed to sell their own car to buy the one
  from Gen-West, and the potential buyer backed
  out.
• December 19, 1995 The Arnolds write to Gen-West
  saying that they were withdrawing from the
  contract
• It turns out that the car had been written off by
  Autopac. Therefore, the Arnolds say that they
  are not bound.

25
Collateral Contracts (contd)

• Statutory provisions
• consumer transaction means a transaction
  between a consumer and a supplier for the retail
  sale ... by the supplier to the consumer, of any
  goods, in the ordinary course of business of the
  supplier and primarily for the consumer's
  personal, family or household use ...

26
Collateral Contracts (contd)

• Statutory provisions (contd)
• supplier means a person who, as principal or
  agent, is carrying on or is engaged in the
  business of
• (a) selling ... goods on a retail basis ...
• unfair business practice means an unfair
  business practice within the meaning of section 2
  ...

27
Collateral Contracts (contd)

• Statutory provisions (contd)
• 2(1) It is an unfair business practice for a
  supplier
• (a) to do or say anything or to fail to do or say
  anything if, as a result, a consumer might
  reasonably be deceived or misled ...
• 23(1) A consumer may commence a court action
  against supplier for relief from an unfair
  business practice.

28
Collateral Contracts (contd)

• Statutory provisions (contd)
• 23(2) Where the court finds in an action under
  subsection (1) that an unfair business practice
  has occurred, it may, subject to subsections (3)
  and (4),
• (d) order the supplier to repay all or part of
  any amount paid to the supplier by the consumer
  ... in respect of the consumer transaction, ...

29
Collateral Contracts (contd)

• Statutory provisions (contd)
• 23(3) In determining whether to grant any relief
  under this section and the nature and extent
  thereof, the court shall consider whether or not
  the consumer made a reasonable effort to minimize
  any damage resulting from the unfair business
  practice and to resolve the dispute with the
  supplier before commencing the court action.

30
Collateral Contracts (contd)

• Statutory provisions (contd)
• 23(4) A judgment under subsection (2) may include
  an award of exemplary or punitive damages against
  the supplier, except where the supplier took
  reasonable precautions and exercised due
  diligence to avoid the unfair business practice.

31
Collateral Contracts (contd)

• Holdings
• Conditional Contract No mention of contingency
• Gen-West knew of the problem and decided to
  mislead the Arnolds