9. Ontario PPE Questions

The following questions are from old PPE (Professional Practice Examinations) collected over the years. These exams are not copyrighted, but credit for their development and distribution belongs to the PEO. Each candidate will typically receive one copy of a (complete) recent examination paper which will show common test formats and rules. In constructing this list of questions I wanted to give a good set of practice problems, without encouraging method studying, so I have not indicated which questions are repeated, or which year they appeared in.

If anybody has got additional examination questions not included here, I would appreciate a copy so that they may be added to the list. The dates of the previous tests included are,

May 2, 1987

September 12, 1987

May 14, 1988

September 10, 1988

April 29, 1989

September 9, 1989

April 28, 1990

September 8, 1990

April 27, 1991 (Ethics only)

December 14, 1991

April 25, 1992

September 5, 1992

September 4, 1993

April 23, 1994

September 7, 1996

April 26, 1997

September 6, 1997

April 25, 1998

August 21, 1999

December 17, 2005 (law only)

With thanks to the following people,

D. Chang

A. Mahmud

9.1 Law Questions

Problem 9.1 Define the following terms

a) Fraudulent misrepresentation

b) Vicarious liability

c) Gratuitous promise

d) Parol evidence rule

e) The 5 legal essentials of a binding contract

f) Libel

g) Secret commission

h) Common law

i) Quantum meruit

j) Defamation

k) Innocent misrepresentation

l) Frustration of contract

m) Specific performance

n) Performance bond

o) Joint venture

p) Discharge by frustration

q) Mitigation of damages

r) Exemption clause

s) Limitation period

t) Concurrent tort-feasor

u) Bid bond

v) Slander

w) Consideration

x) Duress

y) Labor and material payment bond

z) The purpose of the holdback under the Construction Lien Act.

aa) Undue influence

bb) Letter of intent

cc) Cost-Plus construction contract

dd) Fraudulent misrepresentation

ee) Joint venture

ff) Contract ratification

gg) Statutory holdback

hh) Contract A (in tendering)

ii) Consequential damages

jj) Rule of contra proferentem

kk) Directors duty of care

ll) Duty to mitigate ,

mm) Indirect damages

nn) Contra proferentem

oo) Piercing the corporate veil

pp) Liquidated damages

qq) True construction approach

rr) The “liberal” approach to contract interpretation

ss) Alternative dispute resolution (“ADR”)

tt) Concurrent tortfeasors

Problem 9.2 A manufacturing company retained an architect to design a new plant. The manufacturer, as client, and the architect entered into a written client/architect agreement in connection with the project. The purpose of the plant construction was to enable the client to expand its manufacturing and warehousing facilities.

The structural design of the plant was prepared by an engineering firm which was retained by the architect. A separate agreement was entered into between the architect and the engineering firm to which the client was not a party.

The engineering firm turned the matter over to one of its employees, a professional engineer with experience in structural steel design who proceeded to complete the structural design of the plant. The client had informed the architect that the second floor of the plant was to be used for manufacturing and warehousing purposes and that forklift trucks would be extensively used in both the manufacturing and warehousing sections on the second floor. The architect passed this information on to the engineering firm. The employee engineer designed a steel frame and specified that the second floor was to be a concrete-steel composite, consisting essentially of concrete poured onto a steel deck, and containing a light steel mesh. The steel deck, concrete thickness, and steel mesh specifications were specified in the engineer’s design and were taken from design tables which the engineer located in his firm’s library and which had been published by a company which manufactured and supplied the steel deck.

The construction of the plant was completed and shortly after manufacturing commenced at the plant, severe cracks appeared in the concrete on the second floor. After two months of operation the floor cracked and broke up so badly that the plant had to be shut down and a remedial slab, heavily reinforced with reinforcing bar, was poured on top of the damaged second floor.

The design of the remedial floor slab was carried out by another consulting engineering firm. After completing its investigation of the cause of the failure of the second floor, the second engineering firm stated that, in its opinion the engineer who had designed the second floor had used design tables from the steel deck manufacturer which were 12 years out of date and had also failed to use the tables that he obviously ought to have used knowing that the floor was intended for manufacturing and forklift truck loading. The second consulting engineering firm concluded that the depth of concrete and size of steel mesh in the floor as initially designed resulted in a floor that might have been appropriate for the design of an office or apartment building but not for manufacturing and warehouse purposes.

What potential liabilities in tort law arise from the preceding set of facts? In your answer, state the essential principles applicable in a tort action and apply these principles to the facts. Indicate a likely outcome of the matter.

Problem 9.3 Supercleen Limited, a manufacturing company, entered into an equipment supply contract with Red Fire Mines Limited, Supercleen agreeing to design supply and install a dust collection system at Red Fire Mine’s northern Ontario smelter for a contract price of $200,000.00. The specifications for the dust collection system specified that the dust collection equipment was to remove 98% of prescribed exhaust particles from the exhaust gases in order to comply with the requirements of the environmental control authorities in the area in which the smelter was located.

In addition, the signed contract between Supercleen and Red Fire Mines also contained a provision limiting to $200,000.00, Supercleen’s total liability for any loss, damage or injury resulting from Supercleen’s performance of design, supply and installation services to Red Fire Mines pursuant to the contract.

The dust collection system as installed by Supercleen did not meet the specifications. In fact, only 60% of the prescribed exhaust particles were removed from the exhaust gases. As a result, Red Fire Mines was faced with the threat of substantial fines and possible shutdown by the environmental control authorities. Supercleen refused to remedy the defective equipment without being assured of compensation from Red Fire Mines of any costs in excess of $200,000.00 incurred in connection with such remedial work.

At the time of discovering that the system failed to meet the specifications, Supercleen had already received $180,000.00 from Red Fire Mines and Red Fire Mines refused to pay anything further to Supercleen.

Red Fire Mines contracted another equipment supplier who, for an additional cost of $275,000.00 successfully designed and installed remedial equipment sufficient to clean the exhaust gases to the satisfaction of the environmental authorities and in accordance with the original contract specifications between Supercleen and Red Fire Mines.

Explain and discuss what claim Red Fire Mines Limited can make against Supercleen Limited in the circumstances.

Problem 9.4 An owner and a Contractor entered into a written construction contract which provided that payments were to be made by the Owner to the Contractor within five days subsequent to an Engineer’s Certificate being issued and that, if the Owner should fail to pay the Contractor within such five day period any sums certified as due by the Engineer, the Contractor would be entitled to terminate the construction contract. The Contractor had been the lowest bidder on the project and, as the construction proceeded, became concerned that, because of its low bid, it would lose money on the contract.

During the first two months of the six-month construction schedule, the Engineer certified payments due by the Owner to the Contractor and such payments were made to the Contractor within five days of such certification.

At the end of the third month of construction, the Engineer certified a further sum as due to the Contractor. In spite of having received the Engineer’s Certificate, the Owner requested that prior to payment the Contractor obtain the corporate seal of one of its subcontractors on a document supporting the Engineer’s Certificate and the Contractor stated that it would obtain such corporate seal. However, the Contractor never did obtain the corporate seal; the five day payment period passed and ten days later the Contractor notified the Owner that it was terminating the contract on account of the Owner’s failure to pay it within the five day period pursuant to the terms of the construction contract.

Was the Contractor entitled to terminate the contract in the circumstances? Explain.

Problem 9.5 Acme Manufacturing Limited designed and manufactured two identical cranes, which were sold by an Ottawa dealer two companies contracting logging barge services on the Ottawa River. The names of the purchasers were Movemore Ltd. and Unjammers Inc. Both cranes went into service at approximately the same time. After one month’s service the crane purchased by Movemore Limited collapsed, killing the operator of Movemore’s barge.

During the Worker’s Compensation Board’s investigation into the accident, it became apparent that the cause of the collapse was the negligent structural design of the crane. It also became apparent that the manufacturer and the dealer had been aware of the structural weaknesses for some time. Three weeks later, upon learning that a crane of similar design had been sold to Unjammers Inc., representatives of the Worker’s Compensation Board notified Unjammers Inc., of the disaster involving the sister crane sold to Movemore Limited. At no time had Acme Manufacturing Limited or the Ottawa dealer notified Movemore Limited or Unjammers Inc. of any potential problems.

As a result, Unjammers Inc., at the height of its busiest season, was forced to return the crane to the factory for repairs.

What claim can Unjammers Inc. make against the crane manufacturer or against the dealer in the circumstances? Explain.

Problem 9.6 Jason Smith is a 25% shareholder and director of Skylift Inc., a company engaged in commercial helicopter services in Ontario.

A friend of Smith, James Johnson, sought Smith’s technical and financial support in forming another commercial helicopter business in British Columbia and Smith agreed to so participate and acquired a 50% shareholder interest in the second company, known as Johnson’s Skyhooks Limited.

Eventually Skylift Inc. became interested in purchasing all of the assets of Johnson’s Skyhooks Limited. Jason Smith was in no way involved in promoting the purchase of Johnson’s Skyhooks Limited until the proposed purchase was presented to the five man board of directors of Skylift Inc. for approval. At that meeting, Smith did not disclose his shareholder interest in Johnson’s Skyhooks Limited and Smith cast the deciding vote in passing the directors’ resolution to authorize the asset purchase. Shortly after the asset purchase had been finalized, the board of directors of Skylift Inc. became aware of Jason Smith’s shareholder interest in Johnson’s Skyhooks Limited and, on further investigation, concluded that the price paid for the assets of Johnson’s Skyhooks Limited was unreasonably high.

What action might the board of directors and shareholders of Skylift Inc. take in the circumstances? State, with reasons, the likely outcome of the action.

Problem 9.7 A contractor specializing in farm buildings was engaged by an owner to design and construct a barn to be placed over a manure pit. The contract between the contractor and the owner provided that the contractor would be responsible for both the design and construction of the barn.

The contractor had previously designed and built barns over manure pits, but had never designed a manure pit of the size and shape required by this owner. In preparing the design, the contractor contracted an engineer who was employed by the Department of Agriculture of Ontario. The engineer was a government employee and not a consulting engineer. However, the engineer was employed by the government to assist farmers and contractors to work out their plans and although the engineer never received any payment from the contractor, the engineer had previously provided advice to the contractor in connection with the design of farm buildings.

The contractor and the engineer never met to discuss the plans but discussed the matter by telephone. Eventually, the contractor left a copy of the plans on the engineer’s desk and the engineer reviewed the plans and forwarded the following hand written message to the contractor:

“Good set of plans. I like the detail. Wish I could spend that amount of time on each project. Keep up the good work.”

After the manure pit was constructed in accordance with the plans, the walls of the manure pit cracked badly and had to be rebuilt.

The owner sought the advice of another engineer who redesigned the manure pit prior to the remedial construction taking place. The second engineer noted that the contractor’s plans had two particular deficiencies:

(a) The plans showed the reinforcing rod to be in the middle of the wall. The rebar should have been closer to the inside of the wall for maximum support.

(b) There was a complete absence of any rebar schedule on the plans.

The second engineer concluded that the original plans were deficient insofar as the structural steel components and requirements vital to the integrity of the concrete wall were missing.

When the owner discovered that the original contractor had sought advice from the government employee engineer, the owner sued both the contractor and the government engineer on account of the extra costs incurred by the owner in having the manure tank redesigned and reconstructed.

The government employee took the position that he really hadn’t carefully reviewed the plans, but had simply looked through them. He said he didn’t really understand that his advice on the detailed sufficiency of the plans was being sought.

Do you think the owner would be successful in a tort claim against the government employee engineer? In your explanation, discuss the tort law principles that a court would apply to determine whether and to what extent the government employee engineer would be liable.

Problem 9.8 a) The question of how long an engineer or a contractor can be sued for negligence is one that is of concern to professional engineers and to contractors. Describe the limitation periods during which engineers and contractors can be sued in tort.

b) In some construction contracts, an Engineer is authorized to be the sole judge of the performance of work by the Contractor. Where such a provision is stated, it is possible that the provision will not be enforceable on account of the manner in which the Engineer performs his duties? Explain.

c) Usually, an Engineer on a construction project is authorized to inspect the construction in order to ensure that the work proceeds in accordance with plans and specifications. Comment on the desirability of an Engineer actually instructing the Contractor on work methods and construction procedures which the Contractor should employ in carrying out the work.

d) Some construction contract contain a provision that failure of the contractor to complete work by a specific date will result in the contractor being required to make a specific payment to the owner for each day, week, or month that completion of construction is delayed. Is such a penalty provision always enforceable? Discuss.

e) Describe the circumstances in which “penalty clauses” are enforceable.

f) Briefly describe the basis upon which damages for breach of contract are calculated at common law. Explain also the meaning of “mitigating damages”.

g) In a construction contract, it is common for an Engineer who is not a party to the contract to be authorized to judge the performance of the work by the contractor. Where the owner and contractor agree that the engineer shall be so authorized, it is possible that the engineer’s decisions may be challenged by either the owner or the contractor on account of how the engineer performs his or her duties? Explain.

h) An Engineer may be asked to provide engineering services to friends, neighbors or community organizations of which the Engineer may be a member. Can engineers ever be liable for losses or damages arising when engineering services are provided without any fee being charged? Explain.

i) Briefly describe the legal essentials of a binding contract.

j) A contractor entered into a construction contract to build 45 houses at a mine site in northern Ontario within a twelve month period. At the end of the twelve month period, only 30 houses had been completed and the contractor abandoned the project claiming that the local labor shortage had made it impossible for him to perform pursuant to the terms of the contract. The contractor emphasized that he had never contemplated his labor shortage when he had provided the mine site owner with his quotation for the project. The contractor claimed that the contract had been frustrated.

Was the contractor justified, from a legal point of view, in abandoning the project? Explain.

k) Briefly describe how a bonus feature may be included in a guaranteed maximum price construction contract to the advantage of both the owner and the contractor.

Problem 9.9 A municipality, as owner, retained an architect to design a new police station. The architect entered into a contract with an engineering firm to perform structural design services in connection with the project.

In performing soils investigations, the engineering firm’s employee engineer assigned to the project examined two shallow test pits and recommended to the architect that proper deep soils tests be taken. However, the architect rejected the engineer’s recommendation, informing the engineer that expensive soils tests were not part of the owner’s budget for the project.

The engineer submitted a “soils report” to the owner on the basis of the superficial examination of the shallow test pits. Neither the architect nor the engineer indicated to the owner that the engineer had recommended to the architect that a more thorough subsurface investigation be undertaken.

The design of the police station was completed and the building was constructed in accordance with the project drawings and specifications.

Within twelve months of completion of the engineering design service the new police station “settled” very badly on one code and extensive remedial foundation work was necessary to correct the settlement problems.

Upon investigation the reason for the settlement problems, another consulting engineering firm concluded that the design should never have proceeded without the more detailed and thorough subsurface investigation which the original project engineer had recommended to the architect.

What potential liabilities arise from the preceding set of facts? In identifying the potential liabilities in tort law, explain the application of tort law principles to the facts as given. Indicate a likely outcome of the matter.

Problem 9.10 A mining contractor signed an option contract which provided that if the mining contractor (the “optionee”) performed a specified minimum amount of work of exploration services on the optionor’s property within a nine month period, then the optionee would be entitled to exercise its option to acquire certain mining claims from the optionor.

Before the expiry of this nine month ”option period”, the optionee realized that it couldn’t fulfill its obligation to expend the required minimum amount by the expiry date. The optionee notified the optionor of its problem prior to expiry of the option period and the optionor indicated that the option period would be extended. However, no written record of this extension was made, nor did the optionor receive anything from the optionee in return for the extension.

The optionee then proceeded to finally expend the specified minimum amount during the extension period. However, when the optionee attempted to exercise its option to acquire the mining claims the optionor took the position that, on the basis of the strict wording of the signed contract, the optionee had not met its contractual obligations. The optionor refused to grant the mining claims to the optionee.

Was the optionor entitled to deny the optionee’s exercise of the option? Explain the contract law principles that apply to the positions taken by the optionor and by the optionee.

Problem 9.11 A professional engineer entered into a written employment contract with a Toronto-based civil engineering design firm. His contract of employment stated that, for a period of five years after the termination of his employment, he would not practice professional engineering either alone, or in conjunction with, or as an employee, agent, or principal, or shareholder of an engineering firm anywhere within the City of Toronto.

During his employment with the design firm, the employee engineer dealt directly with many of the firm’s clients. He became extremely skilled in preparing cost estimates, and he established a good reputation for himself within the City of Toronto.

The engineer terminated his employment with the consulting firm after three years, and immediately set up his own engineering firm in another part of the City of Toronto. His previous employers then commenced a court action for an injunction, claiming that he had breached his contract and should not be permitted to practice within the City limits.

Do you think the engineer’s former employers should succeed in an action against him? I answering, state the principles a court would apply in arriving at a decision.

Problem 9.12 In 1967 a contractor entered into a design-build contract with an owner for the design and construction of a warehouse. The warehouse construction was completed in 1968. In 1985, the roof of the warehouse collapsed. The owner sued the contractor in 1986, alleging that the cause of the collapse was design negligence.

The contract between the owner and contractor contained no provision limiting the time during which an action could be brought against the contractor.

Was the owner entitled to sue the contractor in 1968 for design services performed more than 18 years before the roof collapse? Explain.

Problem 9.13 A developer/owner retained an architect to design an office tower complex in downtown Toronto. In the agreement between the developer/owner and the architect the architect agreed to be responsible for all aspects of design of the complex, including all structural, mechanical and electrical engineering design aspects.

The architect entered into a contract with a mechanical engineering firm for all mechanical engineering design services for the project, particularly the heating, ventilating and air conditioning systems.

The complex was designed and ultimately constructed at a cost of 125 million dollars.

The air conditioning system as designed and specified by the mechanical engineering firm did not perform satisfactorily, as evidenced by start-up and performance tests. Major design modifications and alterations to equipment already installed had to be undertaken at additional project costs in excess of two million dollars before the air conditioning system performed satisfactorily and the project could be completed. As a result, the completion date of the project occurred two months later than scheduled.

The developer/owner, when initially faced with the air conditioning performance shortfalls, retained a second mechanical engineering firm to investigate the reasons for the problem. The second mechanical engineering firm prepared an opinion report for the developer/owner which concluded that the employee engineer of the mechanical engineering firm that prepared the design had made significant errors in his design calculations that resulted in the deficient performance of the air conditioning system. The opinion report also stated that the suppliers of the air conditioning equipment had complied with the specifications included in the project contract documents.

What potential liabilities arise from the preceding set of facts? In identifying the potential liabilities in tort law, explain the application of tort law principles to the facts as given. Indicate a likely outcome of the matter.

Problem 9.14 A contractor, in designing and constructing a shopping centre in 1980, negligently designed and installed certain ceiling anchors. The shopping centre was sold to a new owner in 1987. The inadequacy of the ceiling anchors wasn’t discovered until September of 1988 when the new owner undertook significant renovations and discovered that new ceiling anchors and new ceilings had to be installed.

Is the new owner entitled to recover any damages from the contractor? In your answer, describe any damages from the contractor? In your answer, describe the limitation periods during which engineers and contractors can be sued in tort.

Problem 9.15 A contractor submitted a bid on a construction project. The contractor’s bid price of six million dollars was very low in comparison to the other bidders. In fact, the three other bidders had each bid amounts in excess of seven million dollars.

The contract was awarded to the lowest bidder. The contract conditions expressly entitled the contractor to terminate the contract if the owner did not pay monthly progress payments within ten days following certification by the project Engineer that a progress payment was due.

The low bidder commenced work on the project and soon determined that he would likely suffer a major loss on the project, as he had made significant judgement errors in arriving at his bid price. He also learned that, in comparison with the other bidders, he had “left a million dollars on the table”.

After the fourth monthly progress payment was certified as due by the Project Engineer, the contractor was approached by the owner for additional information relating to bills from an equipment supplier, the cost of which comprised a portion of the fourth progress payment amount. The owner requested that the additional information be provided prior to payment of the fourth progress payment being due. Although the signed contract did not obligate the contractor to obtain such additional information, the contractor verbally informed the owner that he would provide the additional information. However, the contractor never did so.

Eleven days after the progress payment had been certified for payment, the contractor notified the owner that he was terminating the contract as the owner had defaulted in its payment obligations under the specific wording of the contract.

Was the contractor entitled to terminate the contract? Explain.

Problem 9.16 Jason Sharp, P.Eng., was retained by a Municipality in Southern Ontario to design and supervise the construction of a bridge. Mr. Sharp and the Municipality executed a contract for Mr. Sharp’s design and supervisory services.

Mr. Sharp estimated that construction of the bridge would cost his client approximately $1,750,000. The Municipality pointed out to Mr. Sharp that budgetary restrictions were such that it would not be economically feasible for it to proceed with construction if the cost were to exceed $1,800,000.

Sharp entered into a contract with a firm of soils experts, Acme Underground Ltd., to advise him on sub-surface conditions at the site. Acme Underground Ltd. was made fully aware that its services were being requested in connection with the bridge design. On the basis of its subsurface investigations, Acme Underground Ltd. reported to Mr.Sharp that he should encounter no difficulty whatsoever with subsurface conditions, insofar as all drill holes indicated that the footings could easily be designed to rest on bedrock.

Sharp completed his detailed design, the plans and specifications were finalized and the construction of the bridge ultimately awarded to ABC Construction Limited at a cost of $1,650,000. The Municipality entered into a contract with ABC Construction Limited as General Contractor for the project. The form of the Contract had been prepared and approved by Mr.Sharp. In excavating, ABC Construction determined that the subsurface conditions were not as represented in the plans and specifications. Indeed, only two-thirds of the footings could be placed on bedrock at the design elevations. Another firm of soils experts, Subsurface Wizards Inc., was called in to investigate and ultimately concluded and reported that the Acme Underground employee who was responsible for the initial investigations hadn’t drilled enough test holes to accurately predict the nature of the subsurface conditions.

After extensive additional test borings were carried out, a revised design of the structure was prepared which included the driving of piles and a new footing design to ensure a secure basis for the foundation. These changes in design resulted in an extra cost of $350,000 being requested by ABC Construction, much to the annoyance of the Municipality.

Sharp determined that ABC’s price of $350,000 for the extra work was a reasonable price in light of the revised design.

What potential liabilities arise from the preceding set of facts? In identifying the potential liabilities in tort law, explain the application of tort law principles to the facts as given. Indicate a likely outcome of the matter.

Problem 9.17 National Stores Inc., the owner of a large chain of grocery stores in Ontario and Quebec, retained the services of an architect on a project. The purpose of the project was to build a grocery store for a new outlet in Kenora, Ontario. The architect and National Stores entered into a client/architect agreement for the project. Under the agreement, the architect was to design and to prepare the construction documentation necessary to build the store.

The architect produced a conceptual design and a set of general construction specifications for the construction. The general specifications included a requirement that an automatic sprinkler system be installed. More specifically, the sprinkler system was to conform to the National Fire Protection Association (“NFPA”) standards.

In order to perform the detailed engineering aspects of the design, including the detailed design of the automatic sprinkler system, the architect retained an engineering firm. The architect and the engineering firm entered into a separate agreement to which National Stores was not a party. Under the contract, then engineering firm’s design was to conform to the architect’s general specifications.

The engineering firm assigned the design of the automatic sprinkler system to one of its employees, John Abel, who had recently received his engineering degree. Abel obtained a copy of the NFPA standards from his firm’s library because he was not familiar with the requirements. Although he read certain section of the standards, Abel did not have enough time, given his other project responsibilities, to pay close attention to all the details. Abel completed the design of the automatic sprinkler system and it was reviewed by a professional engineer. Although the professional engineer did not perform a detailed check of the design, it appeared satisfactory to him.

Six months after the new store opened for business, it was damaged by fire very early one morning. After investigating the damage, local fire officials concluded that the fire started in a back-room storage area and quickly spread to engulf the store. The fire caused substantial damage to the store and to the inventory. In addition, National Stores had to close the store in order to repair it.

National Stores retained a consulting engineer to conduct an independent investigation. The consulting engineer determined that the design of the automatic sprinkler system was inadequate. Specifically the engineer’s report indicated that the design did not conform to the NFPA standards, which required, among other things, that the coverage per sprinkler head was not to exceed 10 square meters. The engineer determined that 10% of the sprinkler heads were designed to cover an area as high as 25 square meters. The report also indicated that, in the engineer’s expert opinion, had the sprinkler head spacing conformed to the NFPA standards, the fire should have been quickly extinguished and would not have spread to any great extent.

What potential liabilities in tort law arise in this case? In your answer, explain what essential principles of tort law are relevant and how each principle applies to the case. Indicate a likely outcome to the matter.

Problem 9.18 Hyper Eutectoid Steel Inc. (“HESI”) is a company which produces various types of steel for industrial applications. In order to increase the strength of its steel products, HESI uses a process of quenching and tempering. During the quenching stage, hot steel is quickly cooled with water. During the tempering stage, the steel is then heat treated for an appropriate time. The process requires large amounts of water and heat.

Faced with rising costs for energy, HESI decided to install a heat recovery system. The system would include a heat exchanger by which heat could be recovered from the cooling water in the quenching stage. The recovered heat, then, would be used to heat the steel in the tempering stage.

HESI entered into an equipment supply contract with Energy Recovery and Recyclings Systems Inc. (“ERRS”). ERRS agreed to design, supply and install a heat recovery unit for a contract price of $600,000. After an analysis of HESI’s processes ERRS determined and guaranteed in the contract that the heat recovery system would recover 40% of the heat in the cooling water and that this would result in substantial savings in energy costs.

The contract also contained a provision limiting ERRS’s total liability to $600,000 for any loss, damage or injury resulting from ERRS’s performance of its services under the contract.

The heat recovery system was installed and was operational; however, certain defects in the heat exchanger prevented the system from ever recovering more than 10% of the heat in the cooling water. After repeated unsuccessful attempts by ERRS to remedy the defect, HESI hired another supplier, who, for an additional $800,000, replaced the heat exchanger and was able to achieve the level of performance originally promised by ERRS. The total amount received by ERRS under its contract was $500,000.

Explain and discuss what claim HESI can make against ERRS in the circumstances. In answering, please include a summary of the development of relevant case precedents.

Problem 9.19 Rocky Rail Limited, the owner and operator of a railway network, retained the services of Train Engineers Design Inc. (“TEDI”), a consulting engineering firm, on a project in British Columbia. The purpose of the project was to expand Rocky Rail’s service to certain areas of British Columbia.

TEDI and Rocky Rail entered into an engineering services agreement for the project. Under the contract, TEDI was to design a new rail line. The consulting firm’s services were to include the design of mountain tunnels on the rail route as well as the design of the electrical system for the locomotives.

TEDI produced a design for the route and for the tunnels which included a preliminary design for the electrical system. The preliminary design of the electrical system called for an overhead power source for the locomotives.

TEDI retained a second engineering consulting firm, Canadian Rail Electric Works (“CREW”) to perform the detailed engineering design of the electrical system. TEDI and CREW entered into a separate agreement to which Rocky Rail was not a party.

Under the agreement, CREW was responsible for collecting all data and performing all field surveys necessary for it to design the electrical system. CREW assigned the collection of data and the performance of such surveys to Vera Able who had recently received her engineering degree. Able requested and received from TEDI all the relevant information that TEDI had in its possession that related to the design of the project, including geological and other profiles, cross section drawings of the tunnels and preliminary temperature data. Able, however. did not collect any data of her own. CREW used the information obtained by Able to design an overhead contact system to power the locomotives. The overhead contact system consisted of a copper cable suspended by means of “droppers” from the top of the tunnels.

Within two years of installation, the copper wire which made up the overhead contact system had undergone extensive damage. A metallurgical analysis revealed that the damage had been caused by stress corrosion cracking promoted by the presence of sulphur and ammonia compounds and excessive humidity in the tunnels.

Rocky Rail retained a consulting engineer to conduct an independent investigation of the corrosion. The consulting engineer determined that the design of the overhead contact system was inadequate. Specifically, the engineer’s report indicated that the design did not take into account the presence of sulphur compounds and the percolation of water through the rock and that, accordingly the electrical system as designed by CREW was inadequate for the corrosive environment in which the trains were operating. The report also indicated that, in the engineer’s expert opinion, a more corrosion resistant electrical system could and should have been designed.

What potential liabilities in tort law arise in this case? In your answer, explain what essential principles of tort law are relevant and how each principle applies to the case. Indicate a likely outcome to the matter.

Problem 9.20 A land owner retained an architect and a number of engineering firms to design various aspects of an office tower in Ottawa.

The owner entered into a design services contract with a specialist firm of vertical transportation engineers for the building’s elevators. According to the contract, the specialist engineering firm was to provide all design services for a high quality elevator system. The owner promised to pay the firm $400,000 for its services.

During the course of the contract negotiations, the engineering firm proposed that the contract should include a provision limiting the engineering firm’s total liability for any loss, damage or injury including consequential damages to $1 million, being the amount of the engineering firm’s professional liability insurance coverage. The owner, not surprisingly, strongly objected initially to any provision limiting liability but ultimately agreed to the limitation because it was unable to locate another similar specialist that could provide the services within the time available for the design of the project. Accordingly, in spite of its initial reluctance, the owner did agree to the limitation provision when it signed the contract.

The office tower was designed and ultimately completed at a cost of $45 million. A large number of corporate tenants had entered into leases in anticipation of the tower’s completion.

Two weeks before the project was scheduled for occupancy by tenants, it was discovered during start-up and performance tests that the elevator system that was designed and specified by the engineering firm did not perform adequately due to significant design errors made by the engineering firm. Specifically, the elevators would not service any of the floors below the 15th floor when they were loaded beyond one-quarter of their load capacities. As a result, the elevator system did not pass the inspection by the Ministry of Consumer and Commercial Relations and could not be put into operation.

Major design modifications and alterations to major equipment already installed had to be undertaken at an additional cost to the owner of $1.5 million before the elevator system performed satisfactorily and could be certified by the Ministry for use.

The modifications to the design and the equipment caused the completion date for the project to occur two months later than scheduled. As a result of the delay, the owner incurred additional expenses totalling $2 million due to late charges payable to tenants under the leases and the cost of extra financing to cover the project for an additional two months.

The owner sued the engineering firm for $3.5 million. The total amount that had been paid to the engineering firm by the owner pursuant to the design services agreement was $300,000.

To what is the owner legally entitled? Why? What legal principles are involved? In answering, please include a summary of the development of relevant case precedents.

Problem 9.21 Mammoth Undertaking Ltd. (Mammoth”), a development company, retained the firm of Sharpe Architects (“Sharpe”) to design a six storey office building. Sharpe also agreed with Mammoth that Sharpe would provide or arrange for inspection services during the course of construction of the project in order to ensure that construction was carried out in accordance with the project plans and specifications.

Sharpe prepared a conceptual design and retained Abel Engineering (“Abel”) to prepare the detailed structural design for the project and also to carry out inspection services to ensure that all structural aspects of the construction of the project were carried out in accordance with the project plans and specifications.

Abel prepared the structural design and eventually Mammoth awarded the contract for the construction of the project to a general contractor, Swift Construction Ltd. (“Swift”).

Abel appointed one of its employee engineers, James Newman, a recent engineering graduate, as Abel’s representative and inspector on the construction site.

Construction commenced during the month of October and soon thereafter Swift recommended to Mammoth that a substantial cost savings could be effected if the specified fill material around the foundation was changed to a more readily available material. Mammoth sought Sharpe’s advice on the suitability of the proposed alternative fill material and indicated to Sharpe that it was most important that a decision be made as soon as possible in order to complete as much of the foundation and backfilling as possible prior to frost conditions setting in.

Sharpe, in turn, referred the matter to Abel through its representative Newman, requesting that Abel approve the proposed change as quickly as possible in the circumstances. Newman determined that the original fill material had been specified by an engineer who no longer worked for Abel and that the specification had been made on the basis of a careful investigation of soil conditions at the site. Newman contacted one of Abel’s vice-presidents and was authorized to advise Sharpe as to the suitability of the alternative fill material after conducting an appropriate investigation.

Under pressure from both Mammoth and Swift to approve the proposed fill material without delaying the construction schedule, Newman approved the change of materials without giving due consideration to the possible repercussions.

The substitute material did not drain as well as the material originally specified; in fact, it retained some water and, as it expanded during freeze up, it caused significant cracking in the foundation walls, necessitating remedial work resulting in substantial additional expense being incurred by Mammoth. In addition, the completion of the project was considerably delayed as a result.

Explain the potential liabilities in tort law arising from the preceding set of facts. In your explanation, discuss and apply the principles of tort law and indicate a likely outcome of the matter.

Problem 9.22 Provincial Life of Ontario Inc. (“Provincial”), an insurance company, retained an architect, to design a new corporate head office in North York, Ontario, Provincial, as client, and the architect entered into a written client/architect agreement in connection with the project. According to the agreement, the architect was to prepare the complete architectural and engineering design for the project.

In order to carry out the structural engineering aspects of the design, the architect engaged the services of a structural engineering firm. The architect and the structural engineering firm entered into a separate agreement to which Provincial was not a party.

To determine the nature of soil on which the project would be constructed, two shallow test pits, each about 1.25 meters deep, were dug on the site at locations selected by the architect. The architect telephoned the structural engineering firm’s vice-president and requested that he send out a professional engineer from his firm to examine the soils exposed in the test pits.

Based on information received from the professional engineer sent to examine the soil, the vice-president of the structural engineering firm reported to the architect that the test pit had revealed a silty clay. The vice president also recommended to the architect that a soils engineer be engaged to carry out more thorough and proper soils tests. The architect rejected the recommendation stating that there was not “enough room in the budget” for more soils tests.

The architect succeeded in persuading the vice-president to send a letter to Provincial giving a “soils report” based on the examination of the shallow test pits. The vice-president stated in his letter to Provincial, that based on its examination of the test pits, the soil was a fairly uniform mixture of clay and silt which would be able to support loads up to 100KPa.

The structural engineering firm then completed its structural engineering design on the basis of the maximum soil load reported to Provincial.

The project was constructed in accordance with the plans and specifications. Subsequently, the building suffered extensive structural change, including severely cracked and uneven floors and walls.

On the basis of an independent engineering investigation by an engineer retained by Provincial, it was determined that the extensive structural change in the building had resulted from the substantial and uneven settlement of the building. The investigation also determined that the subsoil in the area of the building consisted of 30 to 40 meters of compressible marine clay covered by a surface layer of dryer and firmer clay two meters in depth. The investigation also revealed that the test pits that were dug had not penetrated the surface layer into the lower layer of compressible material.

What potential liabilities in tort law, arise from the preceding set of facts? Please state the essential principles applicable to a tort action and apply these to the facts above. Indicate a likely outcome of the matter.

Problem 9.23 ACE Construction Inc. is a company primarily engaged in the business of supplying heavy equipment used in construction. As part of the company’s economic plan to expand its business, ACE became interested in the rock crushing industry.

ACE had become aware that International Metals Company Ltd. (“IMCO”) required a contractor to crush, weigh and stockpile approximately 250,000 tons of ore. As ACE believed this was an excellent opportunity to venture into venture into the rock crushing business, it decided to tender on the IMCO contract.

In order to tender on the contract, ACE set out to purchase the necessary equipment to crush the material. ACE was contracted by a representative of Rock Busters Ltd., a company which sold such equipment. After visiting the IMCO site and determining the nature of the material to be crushed, the representative discussed the IMCO contract with ACE. After performing a number of calculations, the representative determined and guaranteed that the equipment Rock Busters would provide would be capable of crushing the material at a rate of 175 tons per hour. On the basis of the guarantee, Rock Busters and ACE entered into a contract. Rock Busters agreed that if ACE were successful in its tender to IMCO, RockBusters would provide the equipment for a price of $400,000. The contract also contained a. provision for limiting Rock Busters’ total liability to $400,000 for any loss, damage or injury resulting from Rock Buster’s performance of its services under the contract.

Based on the information provided by the representative, ACE prepared and submitted its tender to IMCO. IMCO accepted the tender and entered into a contract with ACE to crush the material.

The rock crushing equipment was set up at the IMCO site by employees of Rock Busters and crushing operations commenced. However, from the beginning there was trouble with the operation. One of the components of the crusher, called the cone crusher, consistently became plugged by the accumulation of material. Each time the cone crusher had to be shut down and the blockage cleared manually. In some cases, such blockages caused damage to the equipment. Rock Busters made several unsuccessful attempts to correct the defect by making modifications at the site and at its factory. The crushing equipment was never able to crush more than 30 tons of material per hour.

In order to meet its obligations under the IMCO contract, ACE hired another supplier to correct the defects in the Rock Busters equipment. For an additional $500,000 the supplier replaced the cone crusher with one manufactured by another company. The modified equipment was able to crush the material at the rate of 180 tons per hours. The total amount which had been paid by ACE to Rock Busters was $350,000.

Explain and discuss what claim ACE can make against Rock Busters in the circumstance. Would ACE be successful in its claim? Why? In answering, please include a summary of the development of relevant case precedents.

Problem 9.24 An owner and a contractor entered into a written construction contract. According to the contract, the contractor would be paid a lump sum price to construct a factory. The contractor was to complete the work by August 30, 1992.

The contract provided that if the owner delayed the contractor in performing the work, the contractor would be entitled to additional time in completing the work and to be reimbursed by the owner for reasonable costs incurred by the contractor as a result of the delay. Section 4.3 of the contract provided:

“Section 4.3: No claim for a time extension of for costs shall be made for delay unless a written notice describing the delay is given to the owner not later than 14 calendar days after the commencement of the delay.”

Under the contract, the owner was to purchase and supply specialized manufacturing equipment which the contractor was to install in the factory. The owner was to arrange for and have the equipment delivered to the site by March 15, 1992. The owner delivered the equipment on March 22, 1992 and the contractor immediately commenced to install it. At a meeting at the site between the owner and the contractor on March 23, 1992 to discuss the status of the work, the contractor verbally indicated that it had incurred additional labor and equipment rental costs as a result of the owner’s delay in delivering the manufacturing equipment. The contractor explained that because the manufacturing equipment was not available as scheduled, the contractor had incurred 8-person days in additional labor costs and two days’ in rental costs for a crane. The contractor said that it would be seeking compensation for these additional costs. The owner assured the contractor that it would be paid for the delay and asked the contractor to provide the owner with a detailed written statement of the additional costs “within the next month or so.”

On April 10, 1992, the contractor provided the owner with a detailed written statement indicating additional costs of $9,400 as a result of the delay. On May 10, 1992, the owner responded to the contractor’s detailed statement and indicated that the contractor was not entitled to the additional costs claimed because the contractor had failed to give the owner a written notice of delay within the time required by section 4.3 of the contract.

Is the contractor entitled to the additional costs claimed? Explain.

Problem 9.25 Ontario Industrial Laundry Inc. (“OILI”) is the owner of several laundry plants in Ontario. OILI’s operations include handling laundry for various industrial and institutional facilities around the province. OILI decided to build a large new plant in Brampton. The new plant would replace a number of smaller and aging facilities OILI operated nearby.

OILI engaged an architectural firm, Clever and Really Useful Design Developments Inc. (“CRUDDI”), and entered into an architectural services agreement with it. Under the agreement, CRUDDI was to design the new plant and prepare construction documentation necessary to build it. According to the agreement, CRUDDI was to design “the most modern and technically up-to-date laundry in Canada.”

CRUDDI hired a number of engineering consultants to provide the various engineering design services necessary for the project. Of these, Mechanical Engineering Systems and Services Inc. (“MESSI”) was to design the air conditioning and handling system.

Although MESSI did not have a contract with OILI, it worked closely with a representative of OILI who specified that, as it was important to provide comfortable working temperatures in the plant, the air conditioning and handling system must be able to provide working temperatures in the range of 22° to 25° and a minimum of 18 air changes per hour.

OILI, on the basis of competitive tenders, awarded the contract for the construction of the new plant to Dominion Industries and Related Technologies (“DIRTI”). The contract price was $15,000,000. DIRTI completed the construction in accordance with the contract drawings and specifications.

Almost immediately after having commenced its operations in the new plant, OILI experience problems in the air conditioning and handling system. The temperature in the working areas was excessive, reaching 38°C in the summer months. In the compressor room, the temperature reached 50°C and caused malfunctions. In addition, the circulation was poor and the air quality was offensive. The employees began suffering fatigue and other ailments and it became necessary for them to take frequent “heat breaks”.

CRUDDI and MESSI tried several times to remedy the problems but they were unsuccessful. OILI retained Top Industrial Designs Inc. (“TIDI”), another mechanical engineering company, to conduct an independent investigation. TIDI determined that the air conditioning and handling system was underdesigned. The air conditioner’s chilling unit had a capacity of only 230 tons; a large unit having a capacity in the order of 600 tons should have been specified. In addition, the exhaust and intake vents on the roof were located too close to each other and caused exhaust air to reenter the plant.

TIDI determined that the system would require $1.1 million in modifications in order to meet the plant’s specifications. It also indicated that, had the system been specified and constructed as it ought to have been in the first place, construction costs incurred by OILI would have been $400,000 higher, that is $15,400,000.

What potential liabilities in tort law arise in this case? In you answer, explain what principles of tort law are relevant and how each applies to the case. Indicate a likely outcome to the matter.

Problem 9.26 An owner and a contractor entered into a written contract for the construction of a $20,000,000 chemical plant in Sarnia, Ontario. The contract provided that the plant would be constructed in accordance with the plans and specifications that had been prepared by the owner’s engineering consultant. Under the contract, the owner, through the engineering consultant, was permitted to make changes to the design of the plant with the amount payable to the contractor being adjusted accordingly. However, the contract further provided that the contractor could not proceed with any change in the work without a written order signed by the owner and that no claim for additional compensation on account of a change would be valid without such a written order.

As the work progressed, the engineering consultant certified payments for amounts due to the contractor on the basis of the amount of work performed during each month. Several of the monthly payments included additional compensation for extra work performed by the contractor on account of relatively minor changes to the design of the plant. In total there were 55 such changes. In each case, the contractor had proceeded with the extra work and was paid additional compensation despite the fact that no written order was given by the owner authorizing the extra work of the additional compensation.

During the course of the work, the engineering consultant made a major change to the design of the plant. It was anticipated that the change would require and additional $1.7 to $2.0 million of work by the contractor and would require four months to complete. The contractor requested the owner’s approval before proceeding with the extra work. The owner indicated orally to the contractor that the contractor should proceed with the work and that a written order authorizing the change would be issued once the details of the design change were finalized.

The contractor commenced performing the additional work for the major design change in January, 1990 and invoiced the owner on a monthly basis. Although the owner never did issue a written order authorizing the additional work, the contractor was paid for the additional work that was performed in January, February and March of 1990. The contractor completed all of the extra work in April 1990 and submitted an invoice for payment which included $950,000 on account of extra work performed in April.

The owner refused to pay the $950,000 on the basis that no written order by the owner was given authorizing any extra work, as required by the written contract. Is the contractor entitled to the $950,000? Explain.

Problem 9.27 A supplier of information technology hardware, ABC Hardware ("ABC"), submitted a fixed price bid on a computer installation project for a large accounting firm. ABC’s bid price of six million dollars was very low in comparison to the other bidders. In fact, the three other bidders had each bid amounts in excess of nine million dollars.

The contract was awarded to the lowest bidder. The contract conditions expressly entitled the contractor to terminate the contract if the owner did not pay monthly invoices within thirty days following receipt of an invoice.

ABC commenced supplying computer hardware on the project and soon determined that it would likely suffer, a major loss on the project, as it had made significant judgment errors in arriving at its bid price. ABC also learned that, in comparison with the other bidders, ABC had "left three million dollars on the table".

After the fifth invoice was delivered, ABC was approached by the accounting firm for additional information and explanation of bills from an equipment parts supplier, the cost of which comprised a portion of the fifth invoiced amount. The accounting firm requested that the additional information be provided prior to payment of the fifth invoice being due. Although the signed contract did not obligate ABC to obtain such additional information, a representative of ABC verbally informed the accounting firm that ABC would provide the addition information. However, ABC never did so.

Thirty-one days after the fifth invoice had been received, ABC notified the accounting firm that ABC was terminating the contract as the accounting firm had defaulted in its payment obligations under the specific wording of the contract.

Was ABC entitled to terminate the contract? Explain the relevant legal principle and how it should be applied in this situation.

Problem 9.28 A telecommunications development company leased an outdated and unused.underground.pipe system from an Ontario municipality. The developer’s purpose in leasing the pipe was to use it as an existing conduit system in which to install a fibre optic cable system to be designed, constructed and operated in the municipality by the telecommunications developer during the term of the lease. AU necessary approvals from regulatory authorities were obtained with respect to the proposed telecommunications network.

The telecommunications development company then entered into an installation contract with a contractor. For the contract price of $4,000,000, the contractor undertook to complete the installation of the cable by a specified completion date. The contract specified that time was of the essence and that any contract was to be completed by the specified completion date, failing which the contractor would be responsible for liquidated damages in the amount of $50,000 per day for each day that elapsed between the specified completion date and the subsequent actual completion date. The contract also contained a provision limiting the contractor s maximum liability for liquidated damages and for any other claim for damages under the contract to the maximum amount of $1,000 000

Due to its failure to properly staff and organize its workforce, the contractor to meet the specified completion date. In addition, during the installation, the contractor’s inexperienced workers damaged significant amounts of the fibre optic cable, with the result that, the telecommunications development company, on subsequently discovering the damage, incurred substantial additional expense in engaging another contractor to replace the damaged cable. Ultimately, the cost of supplying and installing the replacement cable plus the amount of liquidated damages for which the original contractor was responsible because of its failure to meet the specified completion date, totalled $1,800,000.

Explain and discuss what claim the telecommunications development company could make against the contractor in the circumstances. In answering, explain the approach taken by Canadian courts with respect to contracts that limit liability and include a brief summary of the development of relevant case precedents.

Problem 9.29 (a)An environmental consulting firm, E Inc., was retained by a large manufacturing company, Acme Ltd. E Inc. was retained to prepare an environmental compliance audit as Acme Ltd. was contemplating the possibility of a sale of two of its properties.

E Inc. carried out the environmental compliance audit with respect to each of the properties and submitted its reports on each property. Included at the outset of each report was the following statement:

"This report was prepared by E Inc. for the account of Acme Ltd. The material in it reflects E Inc.’s best judgement in light of the information available to it at the time of preparation. Any use which a third party makes of this report, or any reliance on decisions to be made based on it, are the responsibility of such third parties.E Inc. accepts no responsibility for damages, if any, suffered by any third party as a result of decisions made or actions based on this report."

Some time later, Acme Ltd. sold each of the two properties to Acquisitions Inc. In negotiating the sale with Acquisitions Inc., E Inc.’s reports were shown to Acquisitions Inc., but Acquisitions Inc. had no dealings with E Inc. E Inc. had no knowledge of the sale to Acquisitions Inc. until approximately four years later when Acquisitions Inc. commenced a lawsuit against E Inc. Acquisitions Inc. claimed it had commenced the lawsuit in tort against E Inc. because it had encountered hazardous substances on one of the properties and had subsequently obtained the opinion of another environmental consulting firm who confirmed that the report in question by E Inc. contained negligent misstatements. Acquisitions Inc. claimed in its lawsuit that E Inc. was aware that the report might be shown to a prospective purchaser and, accordingly, E Inc. should be responsible for damages arising as a result of reliance by Acquisitions Inc. on the negligent misstatements in E Inc.’s report.

Should E Inc. be liable in the circumstances? Explain.

(b): The Ontario Human Rights Code protects employees against certain types of behavior in the workplace. Briefly identify (list) five examples of inappropriate conduct in the workplace that are prohibited by the Ontario Human Rights Code.

(c)The question of how long an engineer or a contractor can be sued for negligence or breach of contract is one that is of concern to professional engineers and to contractors. Describe the limitation periods during which engineers and contractors can be sued in tort and in contract.

Problem 9.30 Live Rail Inc. ("Live Rail"), a company specializing in the manufacture and installation of railway commuter systems was awarded a contract by a municipal government to design and build a significant transit facility in British Columbia. The contract specified electrically powered locomotives. As part of the design, Live Rail was contractually obligated to design an overhead contact system in a tunnel. Live Rail subcontracted the subdesign of the overhead contact system to a consulting design firm, Ever Works Limited (’Ever Works’).

Ever Works designed an overhead contact system in the tunnel, however, in doing so it did not carry out any testing nor did it gather any data of its own relating to the conditions inside the tunnel. It did not even request copies of underlying reports which, had they been examined, would have indicated that there was a large volume of water percolating through the tunnel rock and that the tunnel rock contained-substantial amounts of sulphur compounds. The project documentation that was turned over to Ever Works by Live Rail did not include the underlying reports, but did identify the existence and availability of the underlying reports.

The construction of the rail system through the tunnel was completed in accordance with the Ever Works’ design. However, within eight months of completion, the overhead contact system in the tunnel became severely corroded and damaged due to the water seepage in the tunnel resulting in a very humid atmosphere that promoted stress corrosion cracking damage, accelerated by the presence of hydrogen sulphide, ammonia and nitrites.

As a result of the corrosion damage, the municipality had to spend substantial additional money on redesigning and rewiring the system.

What potential liabilities in tort law arise in this case? In your answer, explain what principles of tort law are relevant and how each applies to the case. Indicate a likely outcome to the matter.

Problem 9.31 A mining contractor signed an option contract with a land owner which provided that if the mining contractor (the "optionee") performed a specified minimum amount of exploration services on the property of the owner (the "optionor") within a nine month period, then the optionee would be entitled to exercise its option to acquire certain mining claims from the optionor.

Before the expiry of this nine month "option period", the optionee realized that it couldn’t fulfil its obligation to expend the required minimum amount by the expiry date. The optionee notified the optionor of its problem prior to expiry of the option period and the optionor indicated that the option period would be extended. However, no written record of this extension was made, nor did the optionor receive anything from the optionee in return for the extension.

The optionee then proceeded to perform the services and to finally expend the specified minimum amount during the extension period. However, when the optionee attempted to exercise its option to acquire the mining claims the optionor took the position that, on the basis of the strict wording of the signed contract, the optionee had not met its contractual obligations. The optionor refused to grant the mining claims to the optionee.

Was the optionor entitled to deny the optionee’s exercise of the option? Identify the contract law principles that apply, and explain the basis of such principles and how they apply, to the positions taken by the optionor and by the optionee.

Problem 9.32 An information technology firm assigned to one of its junior employee engineers the task of developing special software for application on major bridge designs. The employee engineer had recently become a professional engineer and was chosen for the task because of the engineer’s background in both the construction and the ’software engineering’ industries.

The firm’s bridge software package was purchased and used by a structural engineering design firm on a major bridge design project on which it had been engaged by contract with a municipal government.

Unfortunately, the bridge collapsed in less than one year after completion of construction. Motorists were killed and injured.

The resulting investigation into the cause of the collapse concluded that the design of the bridge was defective and that the software implemented as part of the design did not address all of the parameters involved in the scope of this particular bridge design. The investigators concluded that although the design software would suffice for certain types of structures it was not appropriate in the circumstances of the particular subsurface conditions and length of span required for this particular application. The investigators’ report also indicated that the design software package was not sufficiently explicit in warning users of the software of the scope of the design parameters addressed by the software. The investigators ’report also stated that even an experienced user of the software might reasonably assume that the software would be appropriate for application on this particular project and that too little attention had been paid to ensuring that adequate warnings had been provided to software users of the limitations on the application of the software.

What potential liabilities in tort law arise in this case? In your answer, explain what principles of tort law are relevant and how each applies to the case. Indicate a likely outcome to the matter.

Problem 9.33 (a) The Ontario Human Rights Code protects employees against certain types of behavior in the workplace. Briefly identify (list) five examples of inappropriate conduct in the workplace that are prohibited by the Ontario Human Rights Code.

(b) A professional engineer entered into a written employment contract with a Toronto-based civil-engineering design firm. The engineer’s contract of employment stated that, for a period of five years after the termination of employment, the engineer would not practise professional engineering either alone, or in conjunction with, or as an employee, agent, principal, or shareholder of an engineering firm anywhere within the City of Toronto.

During the engineer’s employment with the design firm, the engineer dealt directly with many of the firm’s clients. The engineer became extremely skilled in preparing cost estimates, and established a good personal reputation within the City of Toronto.

The engineer terminated the employment contract with the consulting firm after three years, and immediately set up an engineering firm in another part of the City of Toronto. The engineer’s previous employers then commenced a court action for an injunction, claiming that the engineer had breached the employment contract and should not be permitted to practise within the City limits.

Do you think the engineer’s former employers should succeed in an action against the engineer? In answering, state the principles a court would apply in arriving at a decision.

(c) The question of how long an engineer or a contractor can be sued for negligence or breach of contract is one that is of concern to professional engineers and to contractors. Describe the limitation periods during which engineers and contractors can be sued in tort and in contract.

Problem 9.34 A $30,000,000 contract for the design, supply and installation of a cogeneration facility was entered into between a pulp and paper company ("Pulpco") and an industrial contractor. The cogeneration facility, the major components of which included a gas turbine, a heat recovery steam generator and a steam turbine, was to be designed and constructed to simultaneously generate both electricity and steam for use by Pulpco in its operations.

The contract provided that the electrical power generated by the cogeneration facility was not to be less than 25 megawatts. A liquidated damages provision was included in the contract specifying a pre-estimated amount payable by the contractor to Pulpco for each megawatt of electrical power generated that was less than the amount specified. Other provisions specified additional liquidated damages at prescribed rates relating to other matters under the contract, including any failure by the contractor to meet the required heat rates or to achieve completion of the facility for commercial use by a stipulated date. However, the contract also included a "maximum liability" provision that limited to $5,000,000 the contractor’s liability for all liquidated damages due to failure to achieve (i) the specified electrical power output, (ii) the guaranteed heat rate and (iii) the specified completion date. The contract clearly provided that under no circumstances was the contractor to be liable for any other damages beyond the overall total of $5,000,000 for liquidated damages. Pulpco’s sole and exclusive remedy for damages under the contract was strictly limited to the total liquidated damages, up to the maximum of $5,000,000. The contract specified that Pulpco was not entitled to make any other claim for damages, whether on account of any direct, indirect, special or consequential damages, howsoever caused.

Unfortunately the contractor’s installation fell far short of the electrical power generation specifications (achieving less than 25% of the specified megawatts) and the heat rate specifications provided in the contract. The contractor was paid $27,000,000 before the problems were identified on startup and testing. Because of its very poor performance, the contractor also failed to meet the completion date by a very substantial margin. Applying the liquidated damages provisions, the contractor’s overall liability for all liquidated damages under the contract totalled $4,000,000. Ultimately Pulpco had to make arrangements through another contractor for new equipment items and parts to be ordered and installed in order to enable the cogeneration facility to meet the technical specifications, with the result that the total cost of the replacement equipment and parts reached an additional $115,000 000 beyond the original contract price of $30,000,000.

Explain and discuss what claim Pulpco could make against the contractor in the circumstances. In answering, explain the approach taken by Canadian courts with respect to contracts that limit liability and include a brief summary of the development of relevant case precedents.

Problem 9.35 (a) Briefly define, and explain the differences between, (i) sole proprietorship, (ii) partnership, and (iii) the corporation.

(b) Some construction contracts contain a provision that failure of the contractor to complete the work by a specific date will result in the contractor being required to make a specified payment to the owner for each day, week or month that completion of construction is delayed. Is such a penalty provision always enforceable? Discuss.

(c) The question of how long an engineer or a contractor can be sued for negligence or breach of contract is one that is of concern to professional engineers and to contractors. Describe the limitation periods during which engineers and contractors can be sued in tort or contract.

Problem 9.36 Ontario Industrial Laundry Inc. ("OILI") owns several laundry plants in Ontario.OILI’s operations include handling the laundry for various customers around the province. OILI decided to build a large new plant in Brampton to replace a number of smaller and aging OILI facilities.

OILI engaged an architectural firm, Clever and Really Useful Design Developments Inc. ("CRUDDI"), and entered into an architectural services agreement with it. Under the agreement, CRUDDI was to design the new plant and prepare plans and specifications necessary to build it. According to the agreement, CRUDDI was to design "the most modern and technically up- to-date laundry in Canada."

CRUDDI hired several consultants to provide the various services necessary for the project. Of these, Mechanical Engineering Systems and Services Inc. ("MESSI") was to design the air conditioning and handling system.

Although MESSI did not have a contract with OILI, it worked closely with a representative of OILI who specified that, as it was important to provide comfortable working temperatures in the plant, the air conditioning and handling system must be able to provide working temperatures in the range of 22deg to 25deg C and a minimum of 18 air changes per hour.

OILI, on the basis of competitive tenders, awarded the contract for the construction of the new plant to Dominion Industries and Related Technologies Inc.’ ("DIRTI"). The contract price was $15,000,000. DIRTI completed the construction in accordance with the contract drawings and specifications.

Almost immediately after having commenced its operations in the new plant, OILI experienced problems in the air conditioning and handling system. The temperature in the working areas was excessive, reaching 38deg C in the summer months. In the compressor room, the temperature reached 50deg C and caused malfunctions. In addition, the circulation was poor and the air quality was offensive. The employees began suffering fatigue and other ailments and it became necessary for them to take frequent "heat breaks".

CRUDDI and MESSI tried several times to remedy the problems but they were unsuccessful. OILI retained Top Industrial Designs Inc. ("TIDI"), another mechanical engineering company, to conduct an independent investigation. TIDI determined that the air conditioning and handling system was underdesigned. The air conditioner’s chilling unit had a capacity of only 230 tons; a larger unit having a capacity in the order of 600 tons should have been specified. In addition, the exhaust and intake vents on the roof were located too close to -each other and caused exhausted air to re-enter the plant.

TIDI determined that the system would require $1.1 million in modifications in order to meet the plant’s specifications. It also indicated that, had the system been specified and constructed as it ought to have been in the first place, construction costs incurred by OILI would have been $400,000 higher, that is, $15,400,000.

What potential liabilities in tort law arise in this case? In your answer, explain what principles of tort law are relevant and how each applies to the case. Indicate a likely outcome to the matter.

Problem 9.37 Arbour Pulp & Paper Company ("ARBOUR") entered into a written equipment supply contract with Recovery Exchangers and Turbines Inc. ("RECOVERY"). According to the agreement, RECOVERY was to design, manufacture and deliver a heat recovery steam generator to ARBOUR’s pulp and paper mill in Ontario for a purchase price of $3.5 million. ARBOUR would arrange to install the equipment in its mill as part of a cogeneration system for the purpose of converting steam into electricity.

According to the agreement, RECOVERY was to begin manufacturing the equipment on February 1, 1992 and deliver the finished product to ARBOUR on or before March 30, 1993. The agreement provided that ARBOUR would pay the $3.5 million purchase price in monthly installments over the manufacturing period. The agreement contained the following provision:

"Each instalment of the purchase price shall become due and payable by ARBOUR on the last day of the month for which the instalment is to be made. If ARBOUR fails to pay any instalment within 10 days after such instalment becomes due, RECOVERY shall be entitled to stop performing its work under this contract or term invalidate this contract."

As the work progressed, RECOVERY invoiced ARBOUR for each monthly instalment. Although ARBOUR paid the first instalment on time, it was more than 20 days late in paying each of the second, third, fourth, fifth and sixth installments. RECOVERY never once complained about the late payments, even when ARBOUR apologized for the delayed payments and commented in meetings with RECOVERY that ARBOUR’s current cash flow difficulties resulting from the impact of recessionary times, were the reasons for the late payments.

By the middle of September 1992, it became apparent to RECOVERY that due to serious cost overruns resulting from its own design errors and lack of productivity, it would stand to lose a substantial amount of money on the contract by the time the equipment would be completed. Although the instalment for August had been invoiced and was due on August 31, 1992, ARBOUR had not yet paid it by September 15, 1992. On September 15, 1992, RECOVERY terminated the contract.

Was RECOVERY entitled to terminate the contract? Explain.

Problem 9.38 Clearwater Limited, a process-design and manufacturing company, entered into an equipment-supply contract with Pulverized Pulp Limited. Clearwater agreed to design, supply, and install a cleaning system at Pulverized Pulp’s Ontario mill for a contract price of $200,000.The specifications for the cleaning system stated that the equipment was to remove ninety-five percent of the prescribed chemicals from the mill’s liquid effluent in order to comply with the requirements of the environmental control authorities in the area in which the mill was located. However, the contract clearly provided that Clearwater accepted no responsibility whatsoever for any indirect of consequential damage, such as lost profits, arising as a result of the contract.

The cleaning system installed by Clearwater did not meet the specifications, but this was not determined until after Clearwater had been paid $180,000 by Pulverized Pulp. In fact, only seventy percent of the prescribed chemicals were removed from the effluent.

As a result, Pulverized Pulp Limited was fined $10,000 and was shut down by the environmental control authorities. Clearwater made several attempts to remedy the situation by altering the process and cleaning equipment, but without success.

Pulverized Pulp eventually contracted with another equipment supplier. For an additional cost of $250,000, the second supplier successfully redesigned and installed remedial process equipment that cleaned the effluent to the satisfaction of the environmental authorities, in accordance with the original contract specifications between Clearwater and Pulverized Pulp.

Explain and discuss what claim Pulverized Pulp Limited can make against Clearwater Limited in the circumstances.

Problem 9.39 A long established manufacturing company, Acme Ltd., contemplating the possibility of a sale of some of its properties, retained an environmental consulting firm, E Inc., to prepare an environmental compliance audit.

The Vice-President of E Inc. responsible for the performance of the environmental compliance audit, herself a professional engineer, turned the matter over to one of her department’s engineering employees. The engineering employee in question to whom the matter was referred had only recently qualified as a professional engineer. However, on the basis of previous assignments, the Vice- President had been very impressed by the young engineer’s abilities. The Vice- President was also aware that her extremely busy schedule would likely limit the amount of time she could spend on the environmental compliance audit herself and, accordingly, selected the younger employee engineer in the hope that his involvement, particularly in view of his impressive performance on previous matters, would decrease her supervisory time in connection with the audit.

The employee engineer carried out an environmental compliance audit with respect to each of the properties identified and E Inc. submitted its reports on each property. Included at the outset of each report was the following qualifying statement:

’This report was prepared by E Inc. for the account of Acme Ltd. The material in it reflects E Inc.’s best judgment in light of the information available to it at the time of preparation. Any use which a third party makes of this report, or any reliance on decisions to be made based on it, are the responsibility of such third parties, E Inc. accepts no responsibility for damages, if any, suffered by any third party as a result of decisions made or actions based on this report."

Some time later, Acme Ltd. sold two of its properties to Acquisitions Inc. In negotiating the sale with Acquisitions Inc., E Inc.’s reports were shown to Acquisitions Inc., but Acquisitions Inc. had no dealings with E Inc. E Inc. had no knowledge of the sale to Acquisitions Inc. until approximately four years later when Acquisitions Inc. commenced a lawsuit against E Inc. Acquisitions Inc. claimed it had commenced the lawsuit in tort against E Inc. because it had encountered hazardous substances on one of the properties and had subsequently obtained the opinion of another environmental consulting firm who confirmed that the report in question by E Inc. contained negligent misstatements which, in the opinion of the second consulting firm, had resulted from E Inc.’s representatives having spent too little time investigating the property for hazardous substances. Acquisitions Inc. claimed in its lawsuit that E Inc. was aware that the report might be shown to prospective purchasers and, accordingly, E Inc. should be responsible for damages arising as a result of reliance by Acquisitions Inc. on the negligent misstatements in E Inc.’s report.

What potential liabilities in tort law arise in this case? In your answer, explain what principles of tort law are relevant and how each applies to the case. Indicate a likely outcome to the matter. In your answer indicate if your conclusion would differ if the reports by E Inc. had not contained the qualifying statement identified above and, if your conclusion would differ, explain why.

Problem 9.40 (a)The Ontario Human Rights Code protects employees against certain types of behavior in the workplace. Briefly identify (list) five examples of inappropriate conduct in the workplace that are prohibited by the Ontario Human Rights Code.

(b)Engineers, as creative professionals, may require industrial (i.e. intellectual) property protection. Briefly identify 3 types of industrial property protection and the duration of protection provided by each.

(c)In some construction contracts, an engineer is authorized to be the sole judge of the performance of work by the contractor. Where such a provision is stated, is it possible that the provision will not be enforceable on account of the manner in which the engineer performs his or her duties? Explain.

(d)The question of how long an engineer or a contractor can be sued for negligence or breach of contract is one that is of concern to professional engineers and to contractors. Describe the limitation periods during which engineers and contractors can be sued in tort and in contract.

Problem 9.41 ACE Construction Inc. is a company primarily engaged in the business of supplying heavy equipment used in construction. As part of the company’s economic plan to expand its business, ACE became interested in the rock crushing industry.

ACE had become aware that International Metals Company Ltd. ("IMCO") required a contractor to crush, weigh and stockpile approximately 250,000 tons of ore. As ACE believed this was an excellent opportunity to venture into the rock crushing business, it decided to tender on the IMCO contract.

In order to tender on the contract, ACE set out to purchase the necessary equipment to crush the material. ACE was contacted by a representative of Rock Busters Ltd., a company which sold such equipment. After visiting the IMCO site and determining the nature of the material to be crushed, the representative discussed the IMCO contract with ACE. After performing a number of calculations, the representative determined and guaranteed that the equipment Rock Busters would provide would be capable of crushing the material at a rate or 175 tons per hour. On the basis of the guarantee, Rock Busters and ACE entered into a contract. Rock Busters agreed that if ACE were successful in its tender to IMCO, Rock Busters would provide the equipment for a price of $400,000. The contract also contained a provision limiting Rock Busters’ total liability to $400,000 for any loss, damage or injury resulting from Rock Busters’ performance of its services under the contract.

Based on the information provided by the representative, ACE prepared and submitted its tender to IMCO. IMCO accepted the tender and entered into a contract with ACE to crush the material.

The rock crushing equipment was set up at the IMCO site by employees of Rock Busters and crushing operations commenced. However, from the beginning there was trouble with the operation. One of the components of the crusher, called the cone crusher, consistently became plugged by the accumulation of material. Each time the cone crusher became plugged, the operation would have to be shut down and the blockage cleared manually. In some cases, such blockages caused damage to the equipment. Rock Busters made several unsuccessful attempts to correct the defect by making modifications at the site and at its factory. The crushing equipment was never able to crush more than 30 tons of materials per hour.

In order to meet its obligations under the IMCO contract, ACE hired another supplier to correct the defects in the Rock Busters equipment. For an additional $500,000 the supplier replaced the cone crusher with one manufactured by another company. The modified equipment was able to crush the material at the rate of 180 tons per hour. The total amount which had been paid by ACE to Rock Busters was $350,000.

Explain and discuss what claim ACE can make against Rock Busters in the circumstances. Would ACE be successful in its claim? Why? In answering, please include a summary of the development of relevant case precedents. In particular, point out how the law changed because of these relevant case precedents.

Problem 9.42 A supplier of information technology hardware, ABC Hardware ("ABC"), submitted a fixed price bid on a computer installation project for a large accounting firm. ABC’s bid price of six million dollars was very low in comparison to the other bidders. In fact, the three other bidders had each bid amounts in excess of nine million dollars.

The contract was awarded to the lowest bidder. The contract conditions expressly entitled the contractor to terminate the contract if the owner did not pay monthly invoices within thirty days following receipt of an invoice.

ABC commenced supplying computer hardware on the project and soon determined that it would likely suffer a major loss on the project, as it had made significant judgment errors in arriving at its bid price. ABC also learned that, in comparison with the other bidders, ABC had "left three million dollars on the table’.

After the fifth invoice was delivered, ABC was approached by the accounting firm for additional information and explanation of bills from an equipment parts supplier, the cost of which comprised a portion of the fifth invoiced amount. After a lengthy meeting on the subject, during which some clarification of the information was provided, the accounting firm requested that further additional information be provided prior to payment of the fifth invoice being due. Although the signed contract did not obligate ABC to obtain such additional information, a representative of ABC verbally informed the accounting firm that ABC would provide the additional information as requested, and prior to payment of the fifth invoice being due. However, ABC never did so.

Thirty-one days after the fifth invoice had been received, ABC notified the accounting firm that ABC was terminating the contract as the accounting firm had defaulted in its payment obligations under the specific wording of the contract.

Problem 9.43 A contractor decided to use a computer program to prepare its bid for tendering on a construction project. Having been approached by a software developer promoting its software package for bid preparation, the contractor dealt with the software developer and entered into a contract in the form of a license agreement authorizing the contractor to use the software. However, the contract between the contractor and the software developer also included an express provision which limited the software developer’s liability on account of any damages that the contractor might suffer as a result of using the software to the amount of the license fee paid by the contractor for the use of the software. The licence fee for the software package was $25,000.

The contractor used the software program to prepare a bid for an important contract opportunity. Unformtunately, the software contained a software defect, a flaw which resulted in the bid price that the contractor submitted on the project being understated by $2,000,000. Because of the understated price, the contractor was the lowest bidder and the contract was awarded to the contractor.

The owner insisted that the contractor perform its obligations on award of the contract, even though the contractor attempted to persuade the owner that its low price was due to a software defect. The contractor performed the work under the contract as best it could, and upon completion of the contract determined that its loss on the project amounted to $1,400,000.

The contractor claimed that its loss of $1,400,000 was entirely due to the software defect. The contractor retained an independent expert who confirmed that the contractor had performed as well as it could have on the project and that the losses were in fact due to the pricing error that had resulted from the software defect.

The contractor sued the software developer to recover its loss.

Explain and discuss whether the contractor could succeed in a breach of contract claim against the software developer. In answering, please include a brief summary and description of the development of relevant case precedents relating to the enforceability of contractual provisions that limit liability.

Problem 9.44 Briefly define and explain any five of the following:

(i) Rule of contra proferentem

(ii) The limitation period applicable to contracts in Ontario

(iii) Five examples of inappropriate conduct in the workplace (list only)

(iv) Contract A (in tendering)

(v) Statutory holdback under the Construction Lien Act (vi) Discharge by frustration

(vii) The corporate director's standard of care (viii) Quantum meruit

Problem 9.45 A manufacturing company retained an architect to design a new plant. The manufacturer, as client, and the architect entered into a written client/architect agreement in connection with the project. The purpose of the plant construction was to enable the client to expand its manufacturing and warehousing facilities.

The structural design of the plant was prepared by an engineering firm which was retained by the architect. A separate agreement was entered into between the architect and the engineering firm to which the client was not a party.

The engineering firm turned the matter over to one of its employees, a professional engineer with experience in structural steel design who proceeded to complete the structural design of the plant. The client had informed the architect that the second floor of the plant was to be used for manufacturing and warehousing purposes and that forklift trucks would be extensively used in both the manufacturing and warehousing sections on the second floor. The architect passed this information on to the engineering firm. The employee engineer designed a steel frame and specified that the second floor was to be a concrete ­steel composite, consisting essentially of concrete poured onto a steel deck, and containing a light steel mesh. The steel deck, concrete thickness and steel mesh specifications were specified in the Engineer's design and were taken from design tables which the engineer located in his firm's library and which had been published by a company which manufactured and supplied the steel deck.

The construction of the plant was completed and shortly after manufacturing commenced at the plant, severe cracks appeared in the concrete on the second floor. After two months of operation the floor cracked and broke up so badly that the plant had to be shut down and a remedial floor slab, heavily reinforced with reinforcing bar, was poured on top of the damaged second floor.

The design of the remedial floor slab was carried out by another consulting engineering firm. After completing its investigation of the cause of the failure of the second floor, the second engineering firm stated that, in its opinion the engineer who had designed the second floor had used design tables from the steel deck manufacturer which were 12 years out of date and had also failed to use the tables that the engineer obviously ought to have used knowing that the floor was intended for manufacturing and forklift truck loading. The second consulting engineering firm concluded that the depth of concrete and size of steel mesh in the floor as initially designed resulted in a floor that might have been appropriate for the design of an office or apartment building but not for manufacturing and warehousing purposes.

What potential liabilities in tort law arise from the preceding set of facts? In your answer, state the essential principles applicable in a tort action and apply these principles to the facts. Indicate a likely outcome of the matter.

Problem 9.46 A $30,000,000 contract for the design, supply and installation of a cogeneration facility was entered into between a pulp and paper company ("Pulpco") and an industrial contractor. The cogeneration facility, the major components of which included a gas turbine, a heat recovery steam generator and a steam turbine, was to be designed and constructed to simultaneously generate both electricity and steam for use by Pulpco in its operations.

The contract provided that the electrical power generated by the cogeneration facility was not to be less than 25 megawatts. A liquidated damages provision was included in the contract specifying a pre-estimated amount payable by the contractor to Pulpco for each megawatt of electrical power generated less than the minimum 25 megawatts specified. Other provisions specified additional liquidated damages at prescribed rates relating to other matters under the contract, including any failure by the contractor to meet the required heat rates or to achieve completion of the facility for commercial use by a stipulated, date. However, the contract also includedd a "maximum liability" provision that limited to $5,000,000 the contractor' liability for all liquidated damages due to failure to achieve (i) the specified electrical power output, (ii) the guaranteed heat rate and (iii) the specified completion date. The contract clearly provided that under no circumstances was the contractor to be liable for any other damages beyond the overall total of $5,000,000 for liquidated damages. Pulpco's sole and exclusive remedy for damages under the contract was strictly limited to the total liquidated damages, up to the maximum of $5,000,000. The contract specified that Pulpco was not entitled to make any other claim for damages, whether on account of any direct, indirect, special or consequential damages, howsoever caused.

Unfortunately the contractor’s installation fell far short of the electrical power generation specifications, achieving less than 25% of the specified megawatts) and the heat rate specifications provided in the contract. The contractor was paid $27,000,000 before the problems were identified on startup and testing. Because of its very poor performance, the contractor also failed to meet the completion date by a very substantial margin. Applying the liquidated damages provisions, the contractor’s overall liability for all liquidated damages under the contract totaled $4,000,000. Ultimately Pulpco had to make arrangements through another contractor for new equipment items and parts to be ordered and installed in order to enable the cogeneration facility to meet the technical specifications, with the result that the total cost of the replacement equipment and parts reached an additional $15,000,000 beyond the original contract price of $30,000,000.

Explain and discuss what claim Pulpco could make against the contractor in the circumstances. In answering, explain the approach taken by Canadian courts with respect to contracts that limit liability and include a brief summary of the development of relevant case precedents.

Problem 9.47 A mining contractor signed an option contract with a land owner which provided that if the mining contractor (the "optionee") performed a specified minimum amount of exploration services on the property of the owner (the "optionor") within a nine month period, then the optionee would be entitled to exercise its option to acquire certain mining claims from the optionor.

Before the expiry of this nine month "option period", the optionee realized that it couldn't fulfil its obligation to expend the required minimum amount by the expiry date. The optionee notified the optionor of its problem prior to expiry of the option period and the optionor indicated that the option period would be extended. However, no written record of this extension was made, nor did the optionor receive anything from the optionee in return for the extension.

The optionee then proceeded to perform the services and to finally expend the specified minimum amount during the extension period. However, when the optionee attempted to exercise its option to acquire the mining claims the optionor took the position that, on the basis of the strict wording of the signed contract, the optionee had not met its contractual obligations. The optionor refused to grant the mining claims to the optionee.

Was the optionor entitled to deny the optionee's exercise of the option? Identify the contract law principles that apply, and explain the basis of such principles and how they apply, to the positions taken by the optionor and by the optionee.

9.2 HOW SOLVE TO LAW/ETHICS PROBLEMS

Reasonable problem steps include

1. Identify major events and issues.

2. State the applicable laws and precedents.

3. Apply legal principles and precedents to analyze the situation.

4. Consider possible outcomes.

5. Recommend an action.

9.3 A NOTE TO YOU

If you have benefited by using these problems, help others and give me more recent copies of the exams. I would prefer electronic copies (jackh@gvsu.edu), but faxed copies would also work (616) 331-7215. Thanks. If you want to see if anybody else offered the exam to me first, send me an email (jackh@gvsu.edu)

 

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