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Attorney General of British Columbia v Deeks Sand and Grave Co, [1956] SCR 336. (Link)

Facts:

Resp. held leases to certain quarries in BC granted by the province.

Original lease was signed in 1910 (b/w Resp. and the Dominion of Canada) and it came up for renewal in 1931 after BC succeeded Canada.

BC claimed it was entitled to certain royalties for materials removed from the quarries.

Resp. argued under the terms of the original lease and regulations, no new royalties could be levied neither should there be rent review.

A compromise was reached in regard to rent and royalty whereby inter alia: Lease was free from rent adjustment for the first 5yrs

Issue(s):

Was consideration made?

Ratio:

A compromise of a serious claim if honestly made can be a valuable consideration, whether or not the claim could have been successful. In other words, a party can in effect surrender potential rights by agreeing to a claim which subsequent events show to be unenforceable in law.

If parties had an honest belief that there could be a possible successful legal action then the agreement not to go to court is good consideration.

Analysis:

Resp. claims that the agreement for compromise was without consideration.

Why the volte face by the Resp?
->There was no legal basis for the Province to insist upon the claim for rent alternation or royalty.

BC as a promisee did not suffer any detriment by forbearing from a legal action it was not entitled to.

Resp. as a promisor obtained no benefit that it was not already entitled.

Resp. promised to enter into compromise agrmt.with BC to pay agreed rent and royalty on terms and requested P not to take action to realize its claims.

What is important is that the belief was honestly held or bona fide; its veracity is of no consequence
Belief must not be used to carry out ulterior or fraudulent or collateral purpose
Honest claim premised on genuinely existing dispute

Principle of Compromise: If a party honestly believes that they have aright and another party has convinced themselves that original party has a right and because of this the parties compromise to make a contract and it turns out that that right did not actually exist, the contract will still be enforceable as the honest belief will be constituted as consideration


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