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
Heilbut Symons Co. v. Buckleton

• Buckleton I said Is that you Johnston?
• Johnson Yes.
• Buckleton I understand you are bringing out a
  rubber company.
• Johnson We are.
• Buckleton Do you have any prospectuses?
• Johnson No.
• Buckleton Is it all right?
• Johnson We are bringing it out.
• Buckleton That is good enough for me.

4
Heilbut Symons Co. v. Buckleton(contd)

• 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?

5
Heilbut Symons Co. v. Buckleton (contd)

• There is no fraud here (paragraph 15)
• A warranty if it is to be shown at all, is to be
  strictly proven, including an animus contrahendi
  (an intention to contract) (paragraph 20).
• The problem with finding this easily is that
  contracts will be re-written without real proof
  of consideration. If the parties really intended
  to do this, they generally would have been
  expected to be done by amendment of the original
  contract, not the creation of a collateral one
  (paragraph 20)
• There is no evidence to support an intention to
  contract (paragraph 21). There is a
  misrepresentation, but that is all.

6
Heilbut Symons Co. v. Buckleton (contd)

• There have been attempts to get damages for
  innocent misrepresentation, that have been
  rebuffed (paragraph 22)
• An affirmation at the time of the sale is a
  warranty, provided it appear on evidence to be so
  intended (paragraph 23).
• An innocent misrepresentation as such does not
  entitle one to damages (paragraph 25)

7
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.

8
Oscar Chess Ltd. v. Williams

• 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 (paragraph
  2).
• Both parties assumed that this was a 1948 Morris,
  and not a 1939 Morris (paragraph 4).
• This is fundamental to the contract (paragraph 5)

9
Oscar Chess Ltd. v. Williams (contd)

• You can get damages for what would otherwise be
  simple innocent misrepresentation if the
  representation was a term of the contract a
  warranty.
• A mistake was made. This does not render the
  contract a nullity (We will discuss the law
  relating to mistake later on in the course).
• The misrepresentation would have entitled them to
  rescission previously but a reasonable time has
  passed

10
Oscar Chess Ltd. v. Williams (contd)

• Warranty is used in its ordinary sense (binding
  promise) (paragraph 7)
• The test is Was it a binding promise or only an
  innocent misrepresentation?
• This is based on objective factors (paragraph 9)

11
Collateral Contracts (contd)

• The relative degrees of knowledge of the parties
  are relevant here. The defendant could not
  possibly know the truth of the representation.
  The registration book was all there was.
• If it was meant as a guarantee, one would expect
  it to be recorded in writing, but this is not
  determinative
• The plaintiff has more ability to know the truth
  here.

12
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
  (paragraph 3)
• 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

13
Dick Bentley Productions Ltd. v. Harold Smith
Motors (contd)

• Where a representation is
• made for the very purpose of inducement
• made with fault by the person making it,
• intended to be acted upon and
• in fact acted upon (paragraph 10)
• Affirmation at the time of sale is
• In writing
• It is more likely to be a warranty (paragraph 10)
• Knowledge is important here The statement of
  Smith was made without foundation (paragraph 11)

14
Dick Bentley Productions Ltd. v. Harold Smith
Motors (contd)

• There is no fraud, but Smith was not innocent
  without negligence either. Since the matters
  in issue were within the knowledge of the
  defendant and not within the knowledge of the
  plaintiff, he should be responsible for it with
  damages (paragraph 12).
• Lord Justice Salmon says that there a straight
  collateral contract, where the defendant actually
  made a separate deal with the plaintiff
  (paragraph 15)

15
Collateral Contracts (contd)

• Ennis v. Klassen
• 1990 Manitoba Court of Appeal
• Facts
• Klassen owed a 1979 or 1980 BMW 728 Ennis
  thought he was buying a 733. There is more
  horsepower in the 733i than the 728, and the 733i
  has more safety features, and is more luxurious
  than 728.
• Klassen tries to sell it privately as a 733i
• Ennis sees the ad sees some of the problems

16
Ennis v. Klassen (contd)

• Ennis was not told
• No compliance with Canadian standards
• Engine size and horsepower
• Resale value
• Later, Enniss wife called Klassen to get him to
  take the car back. Klassen refused.
• Ennis did not drive the car after learning the
  truth

17
Ennis v. Klassen (contd)

• This is a purchase by description of a 733i it
  is not a 733i. This is a breach of condition
• Condition v. warranty This is just a matter of
  terminology. We will spend more time on this
  later in the course. The short version is that a
  breach of a condition will entitle the innocent
  party to end the contract immediately (meaning
  that the innocent party does not have to continue
  on the obligations under the contract) In
  addition, the innocent party can then sue the
  non-innocent party for breach.

18
Ennis v. Klassen (contd)

• Breach of warranty only entitles the innocent
  party to damages. The innocent party cannot put
  an end to the contract, and must continue to
  perform its contractual obligations (paragraph 9)
• Breach of condition is better than innocent
  misrepresentation (more remedies) and fraudulent
  misrepresentation (easier to prove) (paragraph 11)

19
Ennis v. Klassen (contd)

• The Sale of Goods Act says that rescission is not
  available where the goods have been accepted by
  the buyer. However, this is to be determined on
  the facts of each case (paragraph 15)
• Rapid depreciation of the asset makes rescission
  of the contract not a good idea here. Therefore,
  all that is left is the remedy of damages
  (paragraphs 16-18)

20
Ennis v. Klassen (contd)

• The facts are sufficient to allow the court to
  determine the issue, notwithstanding that it was
  not pleaded. Therefore, damages can be granted
  (paragraph 21)
• Justice Twaddle does not agree with the provision
  of the remedy of rescission for innocent
  misrepresentation in the case of the sale of
  goods. He believes that Leaf v. International
  Galleries was wrong in that it provided for the
  rescission remedy in the sale of goods after the
  execution of the contract (paragraph 34)

21
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.

22
Collateral Contracts (contd)

• Conditional Contract No mention of contingency
  (paragraph 12)
• Gen-West knew of the problem and decided to
  mislead the Arnolds (paragraph 13)