University of Calgary Continuing Education
Construction Contract Law and Documents
Week 3
Tenders
Factors Effecting Contracts
Contract Terms/Misrepresentation/Contract
Completion
Tenders
Tenders – Old law regarding errors
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Tender is an offer
Mistake in tender was a mistaken offer
which could not be accepted if known by
the tenderee
Law defined by McMaster University v.
Wilchar Construction and Belle River
Tenders
Along comes Ron Engineering
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Contract “A” and Contract “B”
The invitation to tender is the “offer”
The submission of the tender is the
“acceptance”
The consideration is the willingness to
“consider” the tender
Ie: Contract “A”
Tenders
Thus, a contract is formed between the
tendering authority and ALL the
tenderers – Contract “A”
Tenders
The terms of the Contract “A” are:
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Each tender will be considered fairly and in
strict accordance with the rules of the
tender call
Unless there is an unusual event, Contract
“B” will be awarded to the lowest
compliant bidder
Tenders
A series of cases culminating in MJB
have redrawn the landscape for
tendering rules.
Tenders
The consequences of breach of Contract
“A” are serious:
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For the Tendering Authority – paying
compensation for lost profits
For the Tenderer – paying difference
between tenders
Factors Effecting Contracts
Consideration
Capacity
Privity of Contract
Consideration
Definition
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Some right, interest, profit or benefit accruing
to the one party or some forebearance,
detriment, loss, or responsibility, given,
suffered, or undertaken by the other.
Consideration
Issues Regarding Consideration
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Adequacy of consideration - peppercorn
Existing Obligation and Past Performance
as Consideration
Payment of Existing Debt
Illegality of Consideration
Forbearance can be consideration
Consideration
Example
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Rebar supplier contracted to supply to GC.
Mill raised price.
Rebar supplier approached GC to raise
price (if you don’t – no more rebar)
GC orally agreed to raised price.
GC short paid invoices.
At end GC refused to pay.
Consideration
Court held that oral agreement to
change price invalid.
Agreement was to change contract
without consideration – unenforceable.
(Gilbert Steel v University Construction)
Consideration
P contracted with D to have ship built and
pay in 5 payments.
After 1st payment, exchange rate went up and
D raised prices.
P agreed “under duress”
P insisted that D increase letter of credit.
P sued to get extra $ that was paid.
Was D entitled to extra money?
Consideration
Increase in letter of credit by D at the
insistence of P was sufficient consideration to
validate the change in the contract.
The court also decided that the application of
duress was sufficient to make the contract
voidable.
However, P took too long and thus affirmed
the contract. (North Ocean v Hyundai)
Consideration
Exceptions to Requirement for
Consideration
 Effect of Seal
 Statutory Intervention
 Promissory Estoppel
Capacity
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Incapacities of Natural Persons
 Minors
 Insane Persons
 Drunkards
 Aged and Handicapped
Capacity
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Artificial Persons
 The Crown
 Business Corporations
 Municipal Corporations
 Unincorporated Associations
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Trade Unions
Indian Bands
Privity
Agency
Contracts In Writing
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Statute of Frauds
Exercise
Your boss, Frank, met someone, Jim, who needed some
construction work done for him.
Jim asked Frank for a price for the work - which he described
as follows:
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I need to build a retaining wall behind my shop to hold up the
dirt that is falling down because my equipment is really heavy
and is liable to fall down the slope in back.
Frank visited the shop and measured the width of the lot and
sent Jim a quote for $10,000 as follows:
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Estimate for retaining wall: $10,000
Jim called Frank and said that the amount was too high but
since he needed the job done, he wanted Frank to start work.
Frank did the work and sent out a bill for $10,000.
Jim refused to pay since "I told you that the $10,000 was too
much.“
Break
Discuss Frank and Jim
Contract Terms
In simple terms, the terms of a contract are generally
those items between the first heading and the
signature lines.
The terms are the “various statements, promises,
stipulations, etc., grouped together” in the contract.
Terms of a contract can be express or implied.
Terms can be of a nature to limit or exclude liability.
Puffs, Representation and Terms
In the process of negotiating a contract, words may
be spoken that do not end up in the contract.
For example, a car dealer may say that “I am the
most reputable dealer in Alberta” and subsequently
conclude a contract.
Is that statement a term of the contract and is it a
breach when it is subsequently learned that the deal
was the biggest crook south of Red Deer?
Puffs, Representation and Terms
What about the situation where a car dealer says
that each used car was inspected by a licensed
mechanic and found mechanically sound and
subsequently the purchaser found that no such
inspection took place?
Puffs, Representation and Terms
What about if the inspection took place but a
problem was missed?
Puffs, Representation and Terms
The first situation has been described as “puff” in Carbolic
Smoke Ball, or what we more commonly would describe as sales
talk.
Statements of a general nature, as described, cannot be
construed as terms of a contract.
Neither can the second situation unless the statements that
were made ended up being incorporated in the written, or oral,
terms of the contract.
Rather, these statements are “representations” that led to the
formation of the contract.
Inaccurate representations can result in a finding of a void or
voidable contract.
Express Terms
Generally, in the case of a written contract, the
express terms are fairly simple to determine – they
are in the document.
Express Terms
Fridman defines an express term is one which has been
specifically mentioned, and agreed upon by the parties, and its
form, character and content expressed in the oral or written
exchanges between them at the time the contract was made.
In the courts, the words “within the four corners” of the
contract are used to refer to the four corners of the sheets of
paper on which the contract is written. The court will consider
anything written therein and nothing else.
In the case of an oral contract, it is not so simple to determine
the express terms if the parties don’t have identical recollections
of the events or there is not some third-party observer to
corroborate the agreement.
Implied Terms
Sometimes, there are terms to a contract that are not
expressed by the parties but are implied by the
circumstances or the pattern of dealing that had
been established.
Implied Terms
For example, if two companies had been dealing with
each other for a number of years and had established
a pattern of billing and payment that showed that
each company paid the other 30 days after
presentation of an invoice, a court would probably
construe that the payment period on a new contract
was 30 days.
Implied Terms
Terms may be implied into a contract as long as the
implied terms are consistent with the express terms
and the general tenor of the contract.
Representations
A representation is a statement, spoken or written, at
the time the contract was being finalized.
A representation may end up being a term but not
necessarily.
The difference between a statement that ends up as
a term and a representation has to do with the intent
of the person making the statement.
If the intent is that the statement will be enforceable
by the contract, then the statement is a term.
Otherwise, the statement is considered to be made
to induce the formation of the contract.
Representations
An example might be, “On all our past projects, all
deficiencies were completed within 90 days of final
completion.”
Here, the speaker was making a statement about his
past work performance; this could be either a “puff”
or a representation depending on the context in
which it was offered.
If he added: “We will do the same on your project”
then this would certainly be a representation unless
the statement ended up in the contract.
Then it would be a term.
Certainty of Terms
The terms of an agreement must be clear and
unequivocal.
The courts will give the literal meaning to the words
in the agreement and will not look beyond them.
In the case of a oral agreement, more latitude is
given to the type of evidence that is considered.
Certainty of Terms
For example, if a person offers to sell an object to 2
different people at a certain price and one person
accepts the offer and there is, later, a question as to
whether the condition of the object when it was sold
was a term of the sale, the evidence of the other
potential purchaser might be allowed by the court.
Parol Evidence Rule
As a rule, if a contract is in writing, no oral (Parol)
evidence is permitted to clarify the intentions of the
parties at the time of contracting.
The written agreement is deemed to be the entire
agreement unless it says otherwise.
Some contracts include specific wording to this effect,
so as to eliminate any possible misunderstanding.
Parol Evidence Rule
If there is a question of the meaning of a contract – for example
an ambiguity – the court will determine the meaning by taking a
literal interpretation of the words in the agreement unless such
an interpretation would lead to uncertainty, an absurdity or an
injustice and the text was unambiguous and grammatically
correct.
If there still remains an ambiguity, it will be resolved against the
author of the agreement.
This is a generalization and should not be relied upon strictly
but describes the way courts will probably deal with this type of
situation.
Contract Avoidance and
Rescission
When is a contract not a contract?
When can a contract be reversed?
These are two common questions posed to lawyers
by clients – generally when the client finds
himself/herself in a bad deal.
Contract Avoidance and
Rescission
Misrepresentation
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One of the most common situations where one wants out of
a contract is the situation when a party feels that they have
been misled.
The remedy that is offered to the contracting party depends
on the nature of the misrepresentation.
Misrepresentation
Joe, wants to sell his used car to Harry.
He shows the car, which has 110,000Km on the
odometer, to Harry.
Joe tells Harry that he wasn’t the original owner but
the mileage when he (Joe) bought it was 40,000km
and the previous owner had been an old lady who
used it to go to church every week.
Harry buys the car.
Misrepresentation
After a month he takes it to the original car dealer for an oil
change.
While there the mechanic asks about Alice.
“Who is Alice?” says Harry.
“Alice is the cab driver who used to own this car before some
guy named Joe bought it.” said the mechanic.
Subsequently, Harry found out, through checking the dealer’s
records, that Alice put 200,000km on the car before selling it.
Apparently, Alice used to do a lot of her own repairs and had
replaced the speedometer at one time.
Alice had always kept her cars spotless.
What can Harry do?
Misrepresentation
Since the mileage on the car was not a term of the
contract, there was no term of the contract that was
violated.
The mileage on the car was important to Harry when
he bought the car and the statement regarding
mileage was made with the intention to induce the
sale of the vehicle.
Thus, there was a representation; however, the
representation was false.
Misrepresentation
There are three kinds of misrepresentation:
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innocent misrepresentation,
negligent misrepresentation and
fraudulent misrepresentation.
Innocent Misrepresentation
In the above example, if Joe had received his
information from the old lady, Alice, who looked the
part, and accepted the information at face value,
there was no intent to misrepresent the facts.
Further, Joe had no particular obligation to search out
the facts about the mileage.
This is an innocent misrepresentation and occurs
when the person making the representation has
reasonable grounds for believing the truth of the
information that he is imparting.
Negligent Misrepresentation
Before the sale was finalized, Harry asked Joe to verify the
mileage on the car by checking again on the prior owner
because Harry thought the stated mileage was way too low.
Harry said that if the mileage checked out he would proceed
with the sale.
Joe thought Harry was being foolish and didn’t bother to do any
checking even though he knew that the car had always been
repaired at the dealer.
Joe simply looked at the wear and tear on the interior, which
seemed consistent with a low mileage car.
Joe reported to Harry that he had checked and the mileage was
correct.
Negligent Misrepresentation
Here, we have negligent misrepresentation.
Joe undertook to find out some information for Harry
and, by virtue of that, entered into a “special
relationship” with Harry.
By failing to use reasonable efforts to find out the
information, Joe was negligent and, by making the
statement confirming the mileage without checking,
Joe made a negligent misrepresentation.
Fraudulent Misrepresentation
After the sale was complete, Harry did some more
checking and found out that Joe and Alice were
running an ongoing scam where Alice bought old
taxis, cleaned them up, replaced their odometers and
sold them through Joe.
This is a case of fraudulent misrepresentation since
Joe, knowingly, passed on false information that was
relied on by Harry when he purchased the car.
Fraudulent Misrepresentation
“A fraudulent misrepresentation consists of a
representation of fact made without any belief in its
truth, with the intent that the person to whom it is
made shall act upon it and actually causing that
person to act upon it.”
Fraudulent Misrepresentation
Note that there are specific requirements to show
fraudulent misrepresentation.
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There must be a positive misstatement of fact.
 Thus, a statement of opinion cannot lead to fraudulent
misrepresentation.
 Similarly, the courts deem that everyone knows the law so no
fraudulent misrepresentation can be found where a
representation as to the law occurs.
Fraudulent Misrepresentation
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There can be no belief in the information being represented.
 “The misstatement must be made dishonestly or recklessly,
with lack of belief in its truth.”
 Thus, an honest but mistaken statement cannot be considered
fraudulent.
Fraudulent Misrepresentation
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There must be intent that the person hearing the
representation should act and the information being
imparted was important to the decision to act.
Fraudulent Misrepresentation
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The person hearing the representation must act.
Remedies For Misrepresentation
The contractual remedies pertaining to each type of
misrepresentation are:
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Innocent misrepresentation:
 Here the victim may rescind the contract – it will be found
never to have existed and the parties will be restored to their
original situation.
 The victim may be able to get some indemnity and will restore
any benefits received by the contract. Note that damages
cannot be claimed for a wholly innocent misrepresentation.
Remedies For Misrepresentation
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Negligent misrepresentation:
 Here a victim may rescind the contract or seek damages
resulting from the misrepresentation.
Remedies For Misrepresentation
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Fraudulent Misrepresentation:
 A contract induced by fraud is voidable at the election of the
victim.
 Damages may be awarded to the innocent party and can
include all losses flowing directly from the avoided transaction.
 Rescission may be granted but this remedy is discretionary.
Bars To Rescission
As was noted above, rescission attempts to restore
the parties to the situation existing prior to the
formation of the contract.
Ideally, it would appear as if the contract never
existed.
However, there are certain events which prevent
rescission.
Bars To Rescission
Affirmation of Contract:
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If the innocent party, with the full knowledge of the
misrepresentation, specifically affirms the contract or
continues with the performance of the contact for a period
which would amount to affirmation of the contract.
Bars To Rescission
Impossibility
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If it is impossible to restore the parties to their original
status, there is no rescission.
For example, if a mine was sold and worked for a
considerable period, rescission would not be possible since
the contents of the mine would have been substantially
altered.
Bars To Rescission
Third Party Involvement
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In a case where a 3rd party has acquired rights, for value, it
will be impossible to rescind the original contract.
Mistake
Consider the situation where Pete buys a house
located in Edmonton from Fred as an investment.
Both parties proceed on the transaction and conclude
the contract at 10:00am Friday morning.
However, unknown to both parties, the house burned
down Thursday night.
Here both parties to the contact were mistaken.
Is it just that such a contract would remain in effect.
Mistake
Fundamental to a contract is the parties agreeing with respect
to the terms and conditions.
There must be consensus ad idem.
In common law, only an error, which is fundamental – going to
the root of the contract, is sufficient to determine that a
contract is void.
A mistake that affected the intention to contract rather than the
motivation for contracting would generate relief.
The approach taken in equity is somewhat different and would
permit relief for the latter type of mistake by permitting the
contract to be voidable.
The law regarding mistake is somewhat complex and is beyond
the scope of this course.