Contract Law Overview

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Questions and Answers

What is the legal concept where an employer is responsible for their employee’s negligence?

Independent liability

Vicarious liability (correct)

Subordinate liability

Contractual liability

Which process requires the cancellation of an original contract and the creation of a new one?

Termination

Assignment

Substitution

Novation (correct)

What is required for an assignment to be effective in a debtor-creditor relationship?

Notification to the debtor (correct)

Written documentation of the assignment

The agreement of the original creditor

Consent from the assignee

What legal term means: "a contract cannot be performed due to unforeseen circumstances over which neither party has any control"?

Frustration Signup and view all the answers

What does contributory negligence entail in a legal context?

Plaintiff or injured party will not be compensated for injuries caused by the Plaintiff. Signup and view all the answers

What does voluntary assumption of risk imply for a plaintiff in a negligence case?

The plaintiff agreed to accept the inherent risks of an activity. Signup and view all the answers

What duty of care do commercial vendors of alcohol owe?

They owe a duty to persons who might come into contact with an intoxicated person. Signup and view all the answers

Under which principle does liability get imposed without proof of negligence?

Strict liability Signup and view all the answers

What action can be recommended to protect a weaker party in a relationship with presumed undue influence?

Securing independent legal advice. Signup and view all the answers

What defines an unconscionable contract?

An agreement that exploits the weaknesses of one party. Signup and view all the answers

What is the main factor that determines the existence of a contract between a principal and an outsider in an agency relationship?

The authority of the agent Signup and view all the answers

Which type of authority arises from the specific powers granted by the principal to the agent?

Actual authority Signup and view all the answers

How can an agency relationship sometimes be established without a formal contract?

By the principal's conduct leading outsiders to believe there is an agency Signup and view all the answers

What would not typically constitute implied authority for an agent?

The agent's personal preferences or whims Signup and view all the answers

What constitutes an illegal contract?

A contract that contradicts public policy or legislation. Signup and view all the answers

Which of the following is NOT considered an example of an illegal contract?

A contract meant to execute a legal business transaction. Signup and view all the answers

What is the concept of proximity in relation to establishing a duty of care?

It implies a close relationship necessitating a legal obligation. Signup and view all the answers

What standard is used to judge whether a person's conduct is negligent?

The standard of a reasonable person. Signup and view all the answers

What does 'breach of the standard of care' refer to in a negligence action?

A defendant's failure to exceed a reasonable person's behavior. Signup and view all the answers

Which party typically has the burden of proof in establishing negligence?

The plaintiff must prove causation and damages. Signup and view all the answers

According to the tort of nuisance, which of the following is NOT protected?

The right to free access to sunlight. Signup and view all the answers

What is required for damage to be established in a negligence action?

There must be demonstrable physical or mental harm or loss or property damage. Signup and view all the answers

What higher standard of care is expected of professionals?

They must meet the standard of a reasonable individual in their profession. Signup and view all the answers

Which factor does NOT impact the determination of nuisance according to the guidelines provided?

The financial status of the property owner. Signup and view all the answers

In the case of Resurfice Corp v Hanke, what action led to the accident?

Hanke mistakenly placed hot water in the wrong tank. Signup and view all the answers

What is a key factor in determining a reasonable person's actions in a negligence case?

The average behavior of others in similar situations. Signup and view all the answers

In the context of nuisance, when might an interference not be actionable?

When the interference is temporary and minimal. Signup and view all the answers

Which of the following best describes the requisite standard for proving nuisance?

The interference must be both substantial and unreasonable. Signup and view all the answers

What is a critical consideration for courts when evaluating a nuisance claim?

Whether the interference is reasonable for public interest. Signup and view all the answers

What is a recommended action for businesses when contracting with minors?

Contract with the parent or guardian instead of the minor. Signup and view all the answers

What legal standing do contracts made under duress hold?

They are voidable at the option of the victim. Signup and view all the answers

What was the court's stance on the defence of voluntary assumption of risk in Crocker's case?

The court found that Crocker did not assume any risks due to his condition. Signup and view all the answers

Which of the following describes a situation that involves frustration of a contract?

A natural disaster makes performance impossible. Signup and view all the answers

What distinguishes frustration from a mistake in contract law?

Frustration deals with events after the contract is formed. Signup and view all the answers

What does vicarious liability imply for an employer?

Employers are responsible for employees' negligent actions. Signup and view all the answers

Which of the following conditions must be met for a transfer of rights to occur without debtor consent?

The assignor informs the debtor after the transfer. Signup and view all the answers

What is the consequence of proving contributory negligence in a case?

The court reduces the plaintiff's award by their proportion of fault. Signup and view all the answers

What does voluntary assumption of risk imply for the plaintiff?

They cannot claim damages even if negligence is proven. Signup and view all the answers

What is the significance of mental injury being recognized as recoverable in negligence cases?

It requires proof of mental injury in a person of ordinary fortitude. Signup and view all the answers

Study Notes

Contractual Obligation and Actual Work

A business creates a contract, but the individual who performs the work may not be a party to the contract.
This individual cannot sue or be sued on the contract, but may have liability in tort law.
Employers are held responsible for their employees' negligence through vicarious liability.

Termination of Contracts by Agreement

Parties can agree to terminate or modify a contract due to unfavorable circumstances.
Novation: Replacing an existing contract with a completely new one.
Contract variation: Modifying specific contract terms which may require additional consideration.

Transfer of Rights in Contracts

A party can transfer their rights under a contract to another person.
An example is the right to collect payment from a customer.
Assignment: The transfer of rights from the assignor to the assignee.
This does not terminate the contract but ends the assignor's role.
Only rights can be transferred, duties cannot.

Assignment of Rights: Notice and Priority

A creditor can assign their right to collect payment to an assignee without the debtor's consent.
The debtor must be notified of the assignment to know who to pay.
In case of multiple assignees, the first to give notice has priority.
The assignee's rights are limited to the original creditor's rights.

Termination by Frustration

Contracts can be terminated due to unforeseen events beyond the parties' control.
Examples include natural disasters, wars, and changes in government regulations.
Frustration differs from mistake as it deals with events after the contract is formed.
Establishing frustration in court can be challenging.

Case 11.2: Mustapha v Culligan of Canada Ltd (2008)

Mustapha experienced severe psychological harm after finding a dead fly in a bottle of water.
The Supreme Court of Canada ruled that Culligan had a duty to provide clean water and breached the standard of care.
While the breach caused Mustapha's damages, compensation was granted only if mental injury would occur in a person of ordinary mental fortitude.

Defences in Negligence Cases

Contributory Negligence: When both the defendant and plaintiff are partially at fault.
The plaintiff's award is reduced proportionally to their negligence.
Voluntary Assumption of Risk: The plaintiff knowingly accepted the inherent risks of the activity.
This is a complete defence, and the plaintiff receives no compensation.
The defendant must prove the plaintiff was aware of the risks and waived their right to sue.

Case 11.3: Kralik v Mount Seymour Resorts

Kralik, an experienced skier, was injured while attempting to clear snow from a moving chairlift.
At trial, the lift operator was found solely responsible for failing to stop the lift.
On appeal, the Court of Appeal found Kralik 50% contributorily negligent for not stepping aside.

Case 11.4: Crocker v Sundance Northwest Resorts Ltd (1988)

Crocker participated in an inner-tube race despite signing a waiver without reading it.
He was injured during the race.
The Supreme Court ruled that contracts are only valid when all parties are aware of their contents.

Negligent Misrepresentation and Auditors

Statutory audits by accountants allow shareholders to evaluate management performance.
Audits may also be used for other purposes (investment, loans), which stakeholders may rely on.
The question arises whether auditors are responsible for losses resulting from these "secondary uses."

Business Application of the Law 11.1: Deloitte & Touche v Livent Inc (2017)

Livent auditors failed to detect financial fraud, resulting in Livent’s bankruptcy.
The Supreme Court ruled that auditors' duty of care applies to both negligent actions and words.
The scope of the duty is defined by the auditor's undertaken task - they are not liable for unintended uses.
Auditors were liable for losses resulting from the audit's intended purpose: management evaluation.

Case 11.5: McIntyre v Grigg (2006)

McIntyre was injured by an intoxicated patron at a bar owned by Grigg.
The court ruled that bars have a duty of care towards those who may come into contact with intoxicated patrons.
Grigg was found 70% liable and the Student’s Union was found 30% at fault.

Strict Liability

Liability imposed regardless of proof of negligence.
Mostly confined to vicarious liability, fires, dangerous animals, and escape of dangerous substances.
Contractual liability is also strict liability.

Strict Liability Under International Perspective 11.1

The European Union and parts of the US use strict liability in defective-product liability cases.
Manufacturers are held liable for unsafe products even without negligence.
In the EU, a product is defective if it does not provide expected safety considering product presentation, expected use, and time in circulation.

Occupiers' Liability: Introduction

Occupiers: Individuals with control over land or buildings.
Occupiers can be held liable for harm to visitors on their property.

Occupiers' Liability: Common Law Classifications

Common Law: Liability depends on visitor's classification: trespasser, licensee, invitee, or contractual entrant.
Each class is owed a different standard of care, with the trespasser owed the lowest and the contractual entrant the highest.

Occupiers' Liability: Contractual Entrant & Invitee

Contractual Entrant: Paid to enter the premises.
Owed a warranty of reasonable safety.
Invitee: Enters for the occupier's benefit (e.g., customer).
Occupier must warn of unusual dangers, but not common ones.

Occupiers' Liability: Licensee & Trespasser

Licensee: Permitted to enter for their own benefit (e.g., social guest).
Occupier is responsible for unusual dangers they are aware of or should know about.
Trespasser: Not invited and their presence is unknown or objected to.
Occupier is liable only for intentional harm or reckless disregard for the trespasser.
Children trespassing may be treated as invitees in some cases.

Occupiers' Liability Legislation

Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, and Prince Edward Island have enacted legislation.
Legislation generally adopts a high duty of care standard for those with permission.
Occupiers cannot intentionally harm or endanger trespassers.
Alberta has special provisions for child trespassers.

Case 12.1: Martin v AGO (2022)

Martin was injured after slipping on water in the Hamilton courthouse.
The case highlights the importance of occupiers ensuring a reasonably safe environment for visitors.

Undue Influence

Undue influence can be actual pressure from unfair influence, such as a contract for an elderly person to hand over their estate in return for care.
Undue influence can be presumed pressure based on a special relationship, such as a contract between family members, a lawyer and client, or a doctor and patient.
The presumption of undue influence in special relationships is rebuttable.
Recommending independent legal advice can help protect the stronger party in a special relationship.

Bank of Montreal v Duguid

In Bank of Montreal v Duguid, the bank required a wife to co-sign a loan for her husband’s business partner.
The bank did not recommend independent legal advice for the wife.
The bank did not exert undue influence, but any undue influence exerted by the husband would release the wife from her obligation if the bank knew or should have known and did nothing.
The bank had a duty to make inquiries because of the close personal relationship between the husband and wife, and the loan was clearly to her disadvantage.
The bank’s failure to inquire could lead to the wife’s loan being set aside if undue influence was shown.

Unconscionability

An unconscionable contract is an unfair contract formed when one party takes advantage of the weakness of another.
A common mistake exists when both parties to an agreement share the same fundamental mistake.
Mistake is rarely proven, however, it can result in a contract being voided and is not the same as oversight or error by one party, which is not a legal mistake.
Courts can fix errors in contracts on a limited basis, such as when parties have made a common mistake in recording their agreement.

Mistake

Rectification is a remedy available when parties have made a mistake in recording their agreement, based on establishing the specific terms actually agreed to.
Simple carelessness in signing a document without attention to what it is or its consequences is not enough to avoid enforceability.

The Queen (Ont) v Ron Engineering

Ron Engineering submitted a tender for a project with a certified deposit cheque.
The tendering rules stipulated that tenders could be withdrawn up to the official closing time, after which they were irrevocable and the deposit would be forfeited if the successful contractor refused to proceed.
Ron Engineering discovered an error in its bid after the closing time.
The court held that Ron Engineering could not withdraw its tender after the closing time because it had entered into a preliminary contract with the owner.
The preliminary contract required the owner to respect the rules on how to evaluate tenders and required tenderers not to withdraw their tenders after the closing time.
Only the successful tenderer would enter into the larger contract to perform the work.

Illegality

An illegal contract is unenforceable because it is contrary to legislation or public policy.
A contract is illegal if it is contrary to a specific statute and/or violates public policy.
Examples of illegal contracts include loan interest rates exceeding the Criminal Code limit and sales practices invalidated by the Competition Act.

Establishing a Negligence Action

The defendant’s conduct is judged according to the standards of behaviour that a reasonable person would observe in society.
A reasonable person is not perfect but is a person of ordinary intelligence who uses ordinary prudence.
Professionals must meet a higher or specialized standard of care, for example, a heart surgeon must meet the standard of a reasonable heart surgeon.
When the activity poses a high risk, the law imposes a higher standard of care.
The plaintiff must show causation, which is the relationship between the defendant’s conduct and the plaintiff’s loss or injury.
Causation is usually determined by asking if the harm would not have occurred but for the defendant’s actions.

Resurfice Corp. v Hanke

Hanke was severely burned when he mistakenly placed hot water in the gasoline tank portion of an ice-resurfacing machine.
The claim against the building owner and maintenance company was dismissed because they had a system of inspection and cleaning and used appropriate signs.
Even if they had not met the expected standard, the fall would have occurred anyway, as the amount of water was very miniscule, and Hanke would have been found 30 percent at fault for choosing to wear footwear with partially worn soles.

The Tort of Nuisance

Nuisance is an activity on an occupier’s property that unreasonably and substantially interferes with a neighbor's rights to enjoyment of their own property.
The general test is whether the impugned activity has resulted in an unreasonable and substantial interference with the use and enjoyment of land.
Interference must be substantial and unreasonable.
Nuisance typically does not arise when the interference is only temporary.
Not all interests are protected by the tort of nuisance, such as the right to sunlight.
Courts in nuisance actions will consider trade-offs in interest, such as when the noise in question is reasonable and for the public good.

TMS Lighting Ltd v KJS Transport Inc.

TMS manufactured high-end commercial lighting fixtures at a location requiring clean premises.
KJS, a long-haul trucking service, moved in next door and did not pave its parking lot.
Dust particles raised by KJS trucks driving on its unpaved parking lot caused damage to TMS's products.
The dust interference was deemed substantial and unreasonable.

Creation of Agency

An agency relationship is typically created by contract where the principal authorizes an agent to act on their behalf.
The contract can be created for a single purpose, such as purchasing a delivery van, or as part of a larger contract, such as an employment contract.
An agency relationship can arise by conduct or behaviour of the principal that leads outsiders to believe an agency relationship exists.
An agency agreement can be express, implied, oral, in writing, or in writing under seal.
Power of attorney is a document granting wide or specific powers to the agent to act for the principal.

The Concept of Authority

Authority is a key aspect of the agency relationship and determines whether there is a contract between the principal and an outsider.
When an agent acts within their scope of authority, the principal is bound by contracts negotiated by the agent.

### Actual Authority

Actual authority derives from express or implied agreement.
Express authority is specifically granted by the principal to the agent, such as the authority to purchase supplies.
Implied authority arises by implication, such as from the position the agent occupies, necessity to carry out express authority, or well-recognized custom in a trade, industry, or profession.

Apparent Authority

Apparent authority is the power that an agent appears to have to an outsider because of conduct or statements of the principal.

Finalists in a competition agreed to share a $100,000 prize when one won.

Legal Capacity: Minors

Contracts made with minors may be voidable
Upon reaching the age of majority, most contracts made while underage remain valid
Exception: Contracts ratified or adopted by the former minor
Exception: Agreements of a permanent nature require express repudiation

Business Application of the Law

Businesses contracting with minors have a higher risk of contract unenforceability due to legal protections
Consider contracting with the minor's parent or guardian instead, or requiring them to co-sign or guarantee performance

Legal Capacity: Mental Incapacity

Both parties must understand the nature and consequences of the agreement
Contracts with the mentally impaired may be voidable
Exception: Contracts are valid if they are fair, made in good faith, and the other party was unaware of the mental incapacity and did not take advantage of it.

Duress (1)

Contracts made under duress are voidable by the victim
Duress occurs when one party is threatened with physical harm

Duress (2)

Economic duress occurs when the threat of economic harm coerces another party into contracting
Lack of realistic alternatives can constitute economic duress
Concessions made under coercion beyond ordinary commercial pressure are unenforceable

Undue Influence (1)

Undue Influence is unfair manipulation that compromises someone's free will
Contracts made under undue influence are voidable by the victim
Those who create a contract may not be the ones performing its requirements

Termination by Agreement Between Parties (1)

Contracts may be terminated by agreement between both parties
Parties may enter into a new contract (novation)
Parties may vary specific terms of the existing contract

Termination by Agreement Between Parties (2)

Parties may terminate the contract in agreement
Parties may transfer rights and obligations to a third party (limited novation)

Termination by Agreement: Transfer of Rights (1)

One party may transfer their rights to another party
This is called an assignment
The assignor's role in the contract terminates
Duties cannot be assigned, only rights

Termination by Agreement: Transfer of Rights (2)

A creditor (assignor) may assign their right to collect to another party (assignee) without debtor consent
Debtor must be notified of the assignment
Priority to collect is given to the first assignee to provide notice
Assignee's right to collect is no greater than the assignor's

Termination by Frustration (1)

Frustration occurs when a contract cannot be performed due to a supervening event beyond the parties' control
Supervening events include natural disasters, war, and changes in government regulations
It is difficult to establish frustration in court

Case 11.2 (2)

Mustapha v Culligan of Canada Ltd., 2008 SCC 27: Culligan breached a duty of care to Mustapha by providing contaminated water
Culligan was liable for Mustapha's psychological damages, but only if such damages would occur in a person of ordinary mental fortitude

Defences

Contributory negligence reduces the award to the plaintiff based on the defendant's proportion of fault
Voluntary assumption of risk is a complete defence, where the plaintiff knew and accepted the risk inherent in the activity

Case 11.3

Kralik v Mount Seymour Resorts, 2008 BCCA 97: Kralik was found 50% contributorily negligent for not stepping aside and letting the chairlift pass, even though the lift operator was found 100% at fault

Case 11.4 (1)

Crocker v Sundance Northwest Resorts Ltd., 1988 CanLII 45: Crocker, while intoxicated, participated in an inner-tube race and sustained injuries
Crocker had signed a waiver without reading it

Case 11.4 (2)

Crocker v Sundance Northwest Resorts Ltd., 1988 CanLII 45: Sundance owed a duty of care to Crocker due to the inherently dangerous nature of the event
Sundance was liable for damages because they did not take reasonable care to prevent injuries to Crocker, despite knowing he was intoxicated

Case 11.4 (3)

Crocker v Sundance Northwest Resorts Ltd., 1988 CanLII 45: The Court rejected Sundance's voluntary assumption of risk defence
Crocker had not consented to the legal risk because he did not read the waiver
Crocker was found 25% contributorily negligent due to his intoxication

Negligent Misstatement (or Negligent Misrepresentation) (1)

Pure economic loss results from negligent acts without accompanying property or personal injury damages
Negligent misstatement occurs when an incorrect statement is carelessly made
Professionals are most likely to commit negligent misstatement

Negligent Misstatement (or Negligent Misrepresentation) (2)

Professionals like accountants, lawyers, and engineers can be liable for negligent misstatement for bad advice or incompetently prepared reports

Case 12.2 (2)

TMS Lighting Ltd v KJS Transport Inc, 2014 ONCA 1: KJS's trucks caused substantial and unreasonable interference with TMS's use and enjoyment of land
KJS's actions constituted nuisance, and TMS was awarded damages

Trespass

Trespass to land is wrongful interference with someone's possession of land
Examples include entering property without permission, refusing to leave after being asked, and leaving objects on property without permission
Trespass is actionable without proof of harm or damage

Case 12.3 (1)

TMS Lighting Ltd v KJS Transport Inc, 2014 ONCA 1: TMS’s complaint against KJS was not just in nuisance, due to large trucks driven onto TMS property without permission. KJS trucks ultimately destroyed TMS’s efforts to prevent trespass with concrete blocks

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Description

This quiz covers essential concepts of contract law, including contractual obligations, termination of contracts, and the transfer of rights. Explore the nuances of vicarious liability and novation while understanding how parties manage their contractual roles and responsibilities. Test your knowledge on these critical legal principles.