- In contracts, I need to know what I want in order to frame my case;
- Because there are more remedial choices than in other fields;
- At CL, most contracts are enforceable wether they’re in writing or not;
- Only certain contracts are required to be in writing;
- A writing can even be modified by oral agreement, with some exceptions;
- Agreement = exchange of promises;
- The term contract is a legal conclusion, cause a contract is a legal agreement, the
performance of which the law recognises as a duty and for the breach of with the law will
provide a remedy;
- What makes a contract enforceable?
- Consideration;
- The seal;
- Estoppel;
- In CL, there was no notion of good faith (until 2015, in Canada);
- Minors aren’t competent to assent to contracts;
Perspectives on contracts;
- A contract is an agreement and an agreement is an exchange of promises;
- “the bargained for exchange”;
- We traded promises;
- Why should the law enforce this?
- Contract law tries to come up with an explanation as to why promises should be
enforceable;
- Freedom of contract vs. freedom from contract
- Freedom of contract = principle that you are free to make almost any deal you like,
structured however you like;
- Very few restrictions imposed by the law;
- There are usually default rules that bridge the empty gaps in contracts, but you’re
entitled to make different ones;
- Freedom from contract = parties are free NOT to be in a contract;
- Paternalistic aspects of the legislation violates this principle;
- Charles Fried : Contract as promise
- The promise principle: the parties have willingly and freely agreed to be bound and so we
must respect that choice;
- What if I change my mind?
- Rule-utilitarianism : an individual should follow the rule that produces the greatest utility.
However, not in the individual sense :
- “An individual’s moral obligation is determined not by what the best action at a
particular moment would be, but by the rule that it would be best for him to follow.”;
- There’s more benefit in the stability that enforcing contracts bring rather than
correcting each situation individually by reneging contracts left and right;
- Benthamite utilitarianism
- Randy Barnett : The Consent Theory of Contract
- The mere fact that one promises something to another creates no legal duty;
- There has to be something more. There must be some other factor. After all, a promisor
would have a moral obligation to perform, but not necessarily a legal one the best
explanation is a manifestation of an intention to be legally bound;
- A consent theory specifies that a promiser incurs a contractual obligation, the legal
enforcement of which is morally justifiable, by manifesting assent to legal enforcement
and thereby invoking the institution of contract;
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- When engaging in the formalities of contract making, you are signalling to the world that
you want the law to back this promise;
Margaret Radin : Boilerplate
- The law considers boilerplate to be valid way of contracting;
- But if Barnett is right, there are many circumstances in which we wind up agreeing to
boilerplate without ever either reading the terms or knowing that they exists. How can this be
consent?
- One of the justifications for boilerplate?
- What are the objections?
- Boilerplate — especially in electronic contracts — would seem to signal the decay of the
idea of voluntary choice. We look like we are manifesting assent, but in many cases we don’t
even know what the terms are;
- For Barnett, the simple manifestation of consent of clicking “I Agree” to the terms in
conditions is sufficient assent;
Michael Trebilcock : The Limits of Freedom of Contract
- In its enforcement mechanisms, contract law essentially limits freedom of contract in a
number of ways. The most important of which is the law’s refusal to permit someone to
avoid performance;
- Modern contract law, especially in the USA and to some degree Canada, uses economic
theory to channel contract law rules;
- From an economic perspective, we can identify several major functions of contract law:
- Providing an essential check on opportunism in non-simultaneous exchanges;
- Example of exchanging pigs and corn. The corn is ready before the pigs. Without the
contract backing the promise, the deal wouldn’t go through because of uncertainty;
- Filling gaps in incomplete contracts;
- Distinguishing welfare-enhancing from welfare-reducing exchanges;
- Means that we have in contract, adopted the principle of efficient breach;
Law & Equity
- The presumptive remedy for injury at common law is money damages. Damages are said to
be efficient and predictable;
- Make the plaintiff whole;
- Specific forms of relief, such as specific performance or injunctions are equitable remedies
and available only where there is no adequate remedy at law;
- When money damages can’t compensate;
- Ex.: a unique good or specific performance;
- Land trades are often subject to such remedies
Purpose of Damage Award
- Livingstone v. Rawyards Coal Co
"I do not think there is any difference of opinion as to its being a general rule that,
▪
where any injury is to be compensated by damages, in settling the sum of money to be
given for reparation of damages you should as nearly as possible get that sum of
money which will put the party who has been injured, or who has suffered, in the same
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position as he would have been in if he had not sustained the wrong for which he is
now getting his compensation or reparation."
- The compensation principle;
- In Contract, the wrong is a breach;
Wertheim v. Chicoutimi Pulp Co
- It is the general intention of the law that, in giving damages for breach of contract, the party
complaining should, so far as it can be done by money, be placed in the same position as he
would have been in if the contract had been performed. That is a ruling principle, but it is just
a principle;
- That’s the application of Livingstone v. Rawyards to Contracts Law;
- “only a principle” = sometimes it’s not possible to do that
Purpose of Damage Award
- It is not possible to provide “perfect compensation”;
- Restrictions must be placed on damage awards;
- Impossible to Provide Perfect compensation:
- Courts have found it necessary to adopt certain rules for the application of damages
principles and it is utterly impossible in all the various cases that may arise, but the
remedy which the law may give should always be the precise amount of the loss or injury
sustained. In many cases it will, of the necessity, exceed in others fall short of the precise
amount;
- I am liable for the damages to which I have assented : ie the damages that reasonably
flow from a contract of this type;
- No compensation for aggravation or disappointment;
The Three Damage Interests
- Fuller and Purdue came up with a coherent way to measure damages: by
- Expectation;
- Put the non-breaching party in the position he would have been in had the contract
been performed (Wertheim v. Chicoutimi);
- What would the plaintiff have gained from the contract? What’s the value of that thing?
- Sometimes, it’s not possible to give expectation : if you didn’t know how things
would’ve turned out;
- If we can’t determine the value, we can’t have the damages because that’s not what
the parties agreed;
- Reliance;
- In reliance on the contract, I went and made expenditures;
- Put the non-breaching party in the position he would have been in had the contract
never been made;
- Here we’re measuring the damage not by what they would’ve made, but by what
they’ve spent preparing to perform this contract;
- Attempts to put you back to square one;
- Restitution;
- You restore the other party;
- Put the breaching party in the position he would have been in had the contract never
been made;
- Often in matters of deposit;
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Bollenback v. Continental Casualty Co.
- Plaintiff, the holder of a health insurance policy issued by defendant, was hospitalized and
filed for coverage, but defendant told plaintiff that the policy had lapsed for nonpayment of
premiums. Plaintiff sued, rescinded the insurance contract based on defendant's
repudiation, and requested the return of premiums paid. Defendant denied repudiation,
pleaded mistake, and tendered the amount of plaintiff's claim to court. The lower court
found that defendant repudiated by nonpayment, mistakenly did so, and plaintiff was entitled
to recover; defendant was not entitled to rescission and was required to honor plaintiff's
health insurance policy, including damages. Defendant appealed.
- Bollenback want his money back;
- This is an action for rescission and restitution;
- Rescission = Equity: the Court would declare there was no contract or that the
agreement they had is unenforceable;
- Rescission = all the premium money back
- If he had sued in expectation, it would’ve only covered the hospital bills;
- The court held that refusal to pay claims by claiming the policy had lapsed effectively
frustrated the purpose and was a substantial breach. The purpose of the contract, insofar as
plaintiff was concerned, was to obtain protection in the form of defendant's promise to pay
claims in case of his disability; defendant's refusal to pay claims, based upon its position
that the policy had lapsed, effectively frustrated this purpose and was a substantial breach.
Plaintiff was entitled to rescind for material breach of contract, but value of protection
received was deducted from the premiums owed to plaintiff. Where defendant refused to pay
a claim due to the mistaken belief that plaintiff had not paid premiums, the court affirmed the
lower court's determination that plaintiff could recover with interest, minus the amount of
protection actually received, but remanded for a determination of interest due.
- The point of the case is that it demonstrates that how you frame the right of action
determines the damages and outcome;
Anglia Television v. Reed
- Anglia asked Robert Reed (who portrayed father Mike Brady in The Brady Bunch) to star in
their TV film, The Man in the Wood, about an American man married to an English woman
who has an adventure in an English wood. Reed withdrew just before filming was about to
start. Anglia did not claim for loss of profits, because that was too uncertain. Instead they
claimed wasted expenditure. Reed argued, based on Tindal CJ in Hodges v Earl of
Litchfield (1835) 1 Bing NC 492, 498 that damages could not be claimed when incurred
before a contract, that was wasted, thrown away.
- Wasted expeditures : caterers, directors, technical guys, location, etc.;
- Reed claims that they didn’t rely on HIS contract to make those expenditures. They made
them on the basis of there being a movie, not on the promise of Reed;
- Lord Denning MR held that expenditure incurred before could be claimed, so long as it was
within the contemplation of the parties. Here Reed would have known of considerable
expense.
- “It is true that, if the defendant had never entered into the contract, he would not be
liable, and the expenditure would have been incurred by the plaintiff without redress; but,
the defendant having made his contract and broken it, it does not lie in his mouth to
say he is not liable, when it was because of his breach that the expenditure has been
wasted;”
- It took away Anglia’s opportunity to avoid the losses;
- So not £854.65 awarded (after) but the full £2750 (before as well) for all the directors,
designers, stage managers, and assistant managers' fees.
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- Reed’s argument usually wins, such recovery are usually not allowed;
Pitcher v. Shoebottom
- Agreement to buy land. The seller ultimately doesn’t convey the land. The buyer has already
engaged in expenditures;
- In a land claim only the difference in value between the contract and time when the breach
of contract occurs can be awarded as damages;
- That’s the expectation damages;
- Value at the time of the breach - value at the time of contract = damages;
- He made deposits to companies: damages = restitution;
- Only the expenses that would not have been necessary due to the breach can be awarded;
- Since he’s getting the expectation damages (the increase in value), he cannot get the
expenses incurred in the costs of the land;
- Ex.:
- Contract price : $100K;
- Associated Costs (solicitors, inspections, taxes, etc.) : $10k;
- Total cost for land to buyer : $110K
- Market value at time and place of delivery : $120K;
- How much did the buyer ultimately expect to profit : $10K;
- If the seller renegs before buyer has given any money, what are the damages? : $10K
- Why? If the contract had gone through, how much would the buyer have made?
-
Contract price : $100k
Assume buyer had payed 50k$ deposite and the associated costs;
That which should have gotten : Market vlue = $120k
Less that which was actually received : $0;
Gross expectation : 120k$
Less expenses saved:
- Associated costs : 0$ (reliance);
- Unpaid purchase price : $50k (restitution)
- Net expectation : $70k (50k$ downpayment, $10k associated costs, $10k expected profit);
Calcul : (That which I had gotten - less which I did) - Less, expenses saved. Plus incidentals
and consequential
- Incidentals = incidental to the breach;
- ex.: If you order items and they ship the wrong thing, the price of sending back items is an
incidental cost. Had you not breached, I wouldn’t have had to ship the items back.
- It’s not a reliance damage because it wasn’t a cost expended while relying on the
contract. It’s a cost emanating from the breach of the contract itself;
Hawkins v. McGee
- Case of the hairy hand;
- Hawkins (young boy) had a burnt and claw-y hand. McGee (Doctor) promised to restore it to
100%. Doctor grafts a piece of skin from the kid’s chest onto his hand. Winds up with a hairy
and even clawier hand. What damages should the doctor pay?
- What is the measure of damage? What I was promised, less which I got;
- In this case : the difference between the 100% perfect hand and whatever he wound up
with;
- Doctor says he can’t promise results, it’s medicine. No reasonable doctor would promise the
result;
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- Defence not successful because he did promise it;
- Court says that while it normally wouldn’t say so, the doctor gave a warranty of cure;
- It’s not a tort case, it’s a contract case because of what the doctor promised;
- If it was a tort case, Hawkins would have to prove fault (negligence), that this isn’t the way
a reasonable doctor would’ve performed;
- There’s nothing to indicate the doctor acted negligently;
- It is an expectation damage case: kid has to be put in the situation he would’ve been had
the contract been completed without breach;
- Mr. Hart’s answer : the difference between the hand he started with and the hand after the
operation. That would’ve been reliance. Putting the boy in the same situation he was
before the contract;
- It’s also a restitution case : recover whatever fee was paid to the doctor;
- Why doesn’t the boy get pain and suffering?
- It’s part of the price of the hand : doctor’s fee + pain and suffering + hospital stay;
- It’s his contribution (his “associated costs”)
PROBLEMS IN MEASURING DAMAGES:
Cost of substitute performance or diminution in value?
Carson v. Willitts (1930)
- Defendant agreed to bore three holes for the plaintiff. After the first one, stopped and
refused to drill the other two. Plaintiff could’ve found oil in those holes, but we don’t know
for they weren’t bored;
- The difficulty in estimating the quantum is no reason for refusing to award any damages;
Groves v. John Wunder Co (1939)
- Synopsis of Rule of Law. The proper measure of damages is the reasonable cost of
performing the part of the contract that the defendant willfully failed to complete.
- Facts. Plaintiff owned a tract of land. Both Plaintiff Defendant operated plants for excavating
and screening gravel. The contract at issue here was essentially a lease from Plaintiff to
Defendant for a term of seven years. Defendant agreed to remove sand and gravel from
Plaintiff’s property and leave the land at a uniform grade, using the stripped overburden for
the purpose of creating the grade. Defendant received the Groves screening plant and paid
$105,000. Thereafter, Defendant intentionally breached the contract by removing the “richest
and best of the gravel” and leaving the premises not substantially at the grade required by
the contract. Rather, it was “broken, rugged and uneven.” The cost of bringing the land into
compliance with the contract would be upwards of $60,000. However, if Defendant had fully
performed by leaving the land at a uniform grade, the land itself would have only been worth
$12,160. The land is worth the same with our without the holes defendant made and didn’t
fill;
- What did the plaintiff promise?
- To turn over the land and allow the excavation work;
- What did the defendant promise?
- To excavate and restore the land to “substantially the same as the grade now existing”
- What did the defendant actually do?
- He left without doing the work, leaving the grade below ground level;
- Issue. Is Plaintiff entitled to damages equal to the reasonable cost to him of doing the work
called for by the contract rather than the difference between the value of the land at the time
of contract and the value the land would have had Defendant fully performed?
- Held. Yes. The damages awarded must equal the cost of remedying the defect.
Otherwise, a breaching party could strategically breach a contract to save money without
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having to pay out significant damages. This strategy seems to be what Defendant has done
here. Hence, Defendant is not permitted to escape his obligations and is therefore liable to
Plaintiff for the cost of leaving the property at a uniform grade.
- What was plaintiff promised? Graded land following the completion of the land. Plaintiff is
therefore entitled to the value of having the land graded ($60k);
- Expectation;
- The dishonesty of the breach affects the court’s decision. Otherwise, contracts would be
unsecured by the possibility of strategically breaching contracts to save costs;
- It’s somewhat contradictory with the concept of efficient breach;
- See Peevyhouse v. Garland Coal & Mining : Court refused to apply Groves;
Lost volume
Lost volume seller :
Lost volume seller is a legal term in the law of contracts. Such a seller is a special case in
contract law. Ordinarily, a seller whose buyer breaches a contract and refuses to purchase the
goods can recover from the breaching buyer only the difference between the contract price
and the price for which the seller ultimately sells the goods to another buyer (plus, under some
circumstances, incidental damages).
In the case of a lost volume seller, the seller goes on to sell the goods to someone else, usually
for the same price. Under the usual measure of damages, such a seller would have no
damages (the contract price less the sale price to the other customer is zero) and the
breaching buyer would have no liability.
The objective of the law of contracts with respect to damages is to put the aggrieved party in
as good a position as the aggrieved party would have been in if the breaching party had fully
performed. The ordinary measure of damages fails to put the lost volume seller in as good a
position as the lost volume seller would have been had the breaching buyer fully performed.
The lost volume seller would have had the profit from two sales if the first buyer had
performed instead of the profit from only one sale as a result of the first buyer’s breach.
In such a case, certain law (including Article 2 of the Uniform Commercial Code in the United
States) permits the aggrieved seller to recover the lost profit that the seller would have made
had the buyer not breached (plus, under some circumstances, incidental damages).
Lost volume sellers tend to be those whose capacity to sell or to produce or acquire the
subject goods is sufficiently large to meet the demands of all customers who seek to buy those
goods. The term generally arises in the context of a breach of contract action in which the
selling party seeks to recover against a breaching buyer who repudiates his or her promise to
buy. For a lost volume seller, the failure to make one sale (i.e., due to the buyer's breach)
reduces the seller's profits by the amount of profit that would accrue from that sale.
Sale of Goods Act (Article 2)
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- It’s a codification of the common law of sales;
- § 2-708. Seller's Damages for Non-acceptance or Repudiation.
- (1) Subject to subsection (2) and to the provisions of this Article with respect to proof of
market price (Section 2-723), the measure of damages for non-acceptance or repudiation
by the buyer is the difference between the market price at the time and place for tender
and the unpaid contract price together with any incidental damages provided in this
Article (Section 2-710), but less expenses saved in consequence of the buyer's breach.
- (2) If the measure of damages provided in subsection (1) is inadequate to put the seller in
as good a position as performance would have done then the measure of damages is the
profit (including reasonable overhead) which the seller would have made from full
performance by the buyer, together with any incidental damages provided in this Article
(Section 2-710), due allowance for costs reasonably incurred and due credit for payments
or proceeds of resale.
- Example :
- Contract price : 100$;
- Market price : 120$;
- Buyer’s damages = 20$ (what I should get, 120, minus what I did, 100 = 20$);
Thompson ltd. v. Robinson (Gunmakers) (1955)
- The defendant bought a Vanguard car from the plaintiff, and later refused to accept and pay
for it.
- The plaintiff’s profit would have been £61.
- It was held that where, as here, the supply of Vanguard cars exceeded the demand, had the
plaintiff found another customer and sold to him as well as the defendant, then there would
have been two sales and two profits.
- Therefore, the defendant was liable for £61.
- Seller has to prove that he had access to a ready supply;
Charter v. Sullivan (1957)
- The defendant bought a Hillman Minx car from the plaintiff but refused to accept it. The
plaintiff’s profit would have been £97. However, only nominal damages were awarded
because he could only sell as many cars as he could get from the makers.
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Charles Fried, Contract as Promise
- There exists a convention that defines the practice of promising and its entailments. This
convention provides a way that a person may create expectations in others;
- The obligation to keep a promise is grounded not in arguments of utility, but in respect for
individual autonomy and in trust;
- Individual obligation takes root in the fact that the individual is morally bound to keep his
promise because he willingly invoked a convention whose function it is to give moral
grounds for another to expect the promised performance;
Stephen A. Smith, Contract Theory
- 4 criteria are of particular relevance in assessing contract theories :
- Fit;
- Coherence;
- Morality;
- Transparency;
Randy E Barnett, A Consent Theory of Contract
- A simple promise doesn’t create a legal duty and makes no remedy available in case of nonperformance;
- Five best known theories or principles of contractual obligations :
- Will theory;
- Reliance theory;
- Fairness theory;
- Efficiency theory;
- Bargain theory;
- A sixth :
- Consent theory
- In determining wether a legal obligation was contracted, one should look for the
person’s consent to being legally bound by his commitment;
- Must manifest assent to a legal enforcement;
- The basis of contractual obligation is promising per se, rather the basis of contract is
consent;
Margaret J. Radin, Reconsidering Boilerplate : Confronting Normative and Democratic
Degradation
- The law considers boilerplate as a method of contract formation (kinda like a contrat
d’adhésion);
- Boilerplates are akin to a contract forming without consent;
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REMOTENESS OF DAMAGES
British Columbia and Vancouver’s Island Spar, Lumber and Saw Mill Co Ltd. v. Nettleship
(1868)
- Case of a groom riding to his bride-to-be (a heiress/whore). Stops at a blacksmith’s to have
his horse’s shoe repaired. It breaks along the way, slowing the groom. In the meantime, the
heiress marries someone else. Groom sues for the lost inheritance;
- It wouldn’t be possible for the blacksmith to guess that the bride would be so quick to
remarry. It was unpredictable on his part, even though the groom informed him he was
headed to his wedding;
Hadley v. Baxendale (1854)
- Plaintiff owned a steam-powered mill. The shaft of the mill broke. He sent it for repairs. The
delivery got delayed. Final delivery therefore was delayed also. The plaintiff sues the
defendant for the lost profit due to the mill being paralyzed for lack of shaft.
- If there’s a contract between 2 parties, which one of them has broken, the damages which
the plaintiff should receive as a consequence of the breach of contract should be such as
may fairly and reasonably be considered either arising naturally from such breach of contract
itself, or such as may reasonably be supposed to have been in the contemplation of both
parties, at the time they made the contract, as the probable result of the breach of it;
- Court produced the two pronged Hadley rule:
- First rule/branch - damages should be those that arise naturally (usual course of
events) from the breach or could be reasonably contemplated, at the time of the making
of the contract*, as the probable result of a breach;
- Even if at the moment I breach, I can contemplate greater consequences than at the
moment of making the contract, I will only be liable for what I knew at the time of the
making of the contract;
- Second rule/branch - if there are special circumstances relating to the contract and they
are communicated by the P. to the D. then the damages are those that are reasonably
contemplated by a breach under these known and communicated special circumstances
- If there are special circumstances under which the contract is made, the concerned party
must inform the other when the contract is made;
- The test of foreseeability : was the damage foreseeable by the parties when contract was
made?
JH Jackson, Contract Law in Modern Society
- Judge’s role in curtailing outrageous verdicts by jurys;
- Jury used to have a free hand in setting damages;
- Because they knew the parties and probably had some idea of the actual damages or
consequences of a breach of contract;
- Outrageous verdicts based on animosity or ignorance gave rise to efforts to control
verdicts;
- They did so by 1) limiting evidence, 2) granting new trials; 3) instructing juries about
what was reasonable;
- Hadley v. Baxendale represents one of the earliest attempts to settle the law of
damages
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Fuller & Perdue “The Reliance Interest in Contract Damages”
- The foreseeability test has it’s limits :
- The “reasonable man” on which the test is based is to be manipulated over time by the
courts;
- Leaves it up to jury to ultimately decide the case if they’re the one deciding what is and
isn’t reasonable;
- Reasonability creates a bias in favour of exempting normal or average conduct from
legal penalties;
NOTICE OF SPECIAL CIRCUMSTANCE
- HOW DOES ONE EXPLAIN THE result in Kinghorne v. The Montreal Telegraph? Is it
consistent with Haldey?
- The court in Kinghorne v Montreal Telegraph Co24 denied liability even though the
defendant telegraph operator acted negligently. In response to a message from New
York requesting delivery of rye for 80 cents a bushel, the plaintiff instructed the
defendant to send a message specifying that the plaintiff would deliver “fifteen or
twenty hundred.” The telegraph operator’s delivery boy failed to deliver the message
to the American representative. The court held that, even if there had been no
negligence on the part of the telegraph operator, no valid contract existed due to
uncertainty; the message was unclear. The court also held that contracts made by
telegraph should observe the same procedures as those made in writing.27 Arguably,
a court attempting to construe a contract would not view the tendency for brevity
observed in telegraph messages favourably.
- Would be unreasonable to infer that the telegraph company accepts to be liable for
massive damages when they offer their services for 60 cents;
- There was no declaration of special circumstances;
Horne v. The Midland Railway Company (1873)
- Plaintiff = shoe manufacturer in Kettering. They had a contract to supply a London firm,
which in turn would sell the shoes to the French army. The price of 4 shillings was
exceptionally high;
- Plaintiff delivered the shoes to the railway station, informing the station master of the shoes
contract and telling him that unless the shoes are delivered, they would not be paid for
(damages to the plaintiff). The shoes weren’t delivered on time, the English firm refused to
pay for them. Plaintiff had to sell them for 2 shillings, the normal the price;
- Notice was given to the railway company, but not special notice about the shoes being
sold for 4 shillings. The railway company could not reasonably predict they would have
to pay the shoes 4 shillings if they failed to deliver;
- The imbalance in the responsibilities were so great, that the notice would have had to be
so clear as to constitute a new and specific contract;
Victoria Laundry Ltd. v. Newman Industries Ltd
- Launders buy a boiler to use in the course of their business. They inform the defendant that
they need the boiler ASAP and insist on a speedy delivery. Boiler is late. Plaintiffs sue for the
loss of profit during the time they didn’t have the boiler delivered;
- VLL successfully recovered the lost profits. NIL knew the boiler was required for VLL’s
business and had promised delivery by a specific date. They could not reasonably argue
they could not foresee that lost profits would result from the delay. It was unnecessary to
prove NIL had specific knowledge of the specific contracts which had been lost. Damages
would be awarded for losses which could reasonably have been expected to be lost.
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- Court didn’t allow for the liability towards the loss profit of new dying contracts
Scyrup v. Economy Tractor Parts Ltd. (1963)
- Sale of defective hydraulic dozer attachment for a tractor; tractor needed for a separate
contract;
- Applies the test from Hadley:
- First rule/branch - damages should be those that arise naturally (usual course of events)
from the breach or could be reasonably contemplated as the probable result of a
breach
- knowledge may be imputed
- Second rule/branch - if there are special circumstances relating to the contract and they
are communicated by the P. to the D. then the damages are those that are reasonably
contemplated by a breach under these known/communicated special circumstances
- knowledge must be actual
- damages should be measured by what is reasonably foreseeable as liable to result from
a breach; depends on the knowledge of both parties (Victoria Laundry) - reasonable
foreseeability is the test under both rules
- test applied to the facts:
- first rule - defendant should be realistically aware that his breach of contract in selling
defective equipment to the plaintiff would in the ordinary course of events result in
damages in the form of lost profits
- second rule - evidence on the second shows the defendant had the required
knowledge
Koufos v. Czarnikow (1969)
- Plaintiff chartered a container vessel owned by the defendant. The voyage took 9 days more
than expected. By the time cargo reached market price was dropped. Plaintiff sued the
defendant for breach and to sought difference between market price & the price he received.
Court favoured defendant. Plaintiff appealed.;
- The damages for breach of contract can be recovered if they have expected by the parties at
the time of agreement formation to “arise naturally” from the breach. (Hadley v. Baxendale);
- The parties didn’t discuss the conditions of the sale of the sugar, but the defendant could
reasonably expect that the plaintiff was having sugar transported in order to sell it;
- Yes. The damages for breach of contract can be recovered if they have expected by the
parties at the time of agreement formation to “arise naturally” from the breach;
Transfield Shipping Inc. v. Mercator Shipping Inc. (2009)
- Facts:
- Charter party (ship hire company) running from 22 January 2003 to July 2003;
- Renewed contract in September 2003 to run until May 2004;
- Price of hire : 13,500$ per day;
- Shortly before end of charter, owners make a new Fixture (Contract) for another charter at
39,500$ per day for 6 months;
- The ship is not delivered on time;
- Rather than lose the new hire, the owners agree to reduce the hire charge to 31,500$ per
day;
- Owners claim a total loss of 8000$ per day, for 6 months = 1,364,584$;
- Charterers say the loss should only be for the 8000$ per day over the 9 days they were
late in delivering, for a total of 72 000$;
- There was a custom in this field of business that the breaching party would be responsible
for the charter loss during the period of lateness;
- This means that, knowing the custom, we can assume that the contract the parties
entered into was made with that knowledge;
12
- We must consider the circumstances or general understanding that exists in the
relevant market;
- To inform what did the parties intend;
- Economic argument : not applying the custom would put the shipping business on
jeopardy because the renters would now be liable for massive responsibilities;
- Lords Hoffman and Hope argued that the mere presence of a foreseeable loss was
insufficient in this case, because of the custom;
- A party cannot be held responsible ‘for something that he cannot control and because he
does not know anything about it, cannot quantify’.
- This point of view seems entirely rational. Lord Walker corresponded with this view,
however Lord Roger and Baroness Hale focused the appeal on Hadley v Baxendale
foreseeability; ‘neither party would reasonably have contemplated that an overrun of
nine days would…cause the owners the kind of loss for which they claim damages’.
This reasoning would have great impact on any subsequent cases concerning the
remoteness of damages.
- “It seems to me logical to found liability for damages upon the intentions of the parties
(objectively ascertained) because all contractual liability is voluntarily undertaken. It must
be in principle wrong to hold someone liable for risks for which the people entering into
such a contract in their particular market, would not reasonably be considered to have
undertaken”;
Cornwall Gravel Co Ltd. v. Purolator Courier Ltd. (1978, 1979)
- Action for damages for break of contract and negligence by Cornwall against Purolator, b/c
of the late delivery of Cornwall's tender to the Ont Min of Ed.
- Purolator did not know exactly what was in the envelope. Cornwall lost a potential contract
of $70,000.
- They knew it was a tender and that it had to be delivered by 12 noon on Octover 2 1973;
- The employee of Purolator was told of the importance of the document and must have
realized that if delivered late, the tender would be worthless and a contract would be lost;
- Court decides that the special circumstances (part 2 of Hadley test) were sufficiently
communicated;
- Purolator liable for the 70k;
- Purolator is used to carrying valuable documents and parcels. People using Purolator
specifically decided to go for their superior service offer, as opposed to using the mail, email, etc.;
MITIGATION OF LOSS
- What is the non-breaching party’s duty to mitigate?
- What constitutes mitigation?
- Why do we require non-breaching parties to mitigate in the first place?
PAYZU LIMITED V. SAUNDERS
- By the terms of the contract, the defendant was to deliver goods to the claimant on a
monthly basis and the claimant was to pay for the goods within one month of delivery.
- The contract was to run for nine months.
- The claimant received the goods at a discounted price because he had committed to
purchase from the supplier over the nine month period.
- The claimant was late in making the first instalment (This amounted to a breach of
warranty not entitling the defendant to repudiate the contract).
13
- The defendant refused to continue with the original contract but told the claimant that he
would deliver the goods in future if the claimant paid cash on delivery and would still let
him have the goods at the discounted price.
- The claimant rejected this offer and purchased the good elsewhere at a higher price. He
then sued the defendant claiming the difference between the contractually agreed price
and what he actually paid for them.
- The claimant was not entitled to damages. He was given the opportunity to purchase at the
discounted price but rejected this. He was under a duty to take reasonable steps to
mitigate his loss. The offer was a reasonable one and one which the claimant could easily
have complied with.
-
Hochster v. De La Tour
- Fact :
- Plaintiff, a currier, entered into a contract with Defendant to accompany Defendant on a
trip that would begin June 1. Defendant changed his mind before June 1, and refused to
compensate.
- Defendant and Plaintiff entered into a contract for Plaintiff to accompany Defendant on
a tour starting on June 1. Defendant contacted Plaintiff on May 11, stating that he had
changed his mind. He refused to compensate Plaintiff. Plaintiff brought suit against
Defendant on May 22. Plaintiff found a new job that would begin on July 1.
- Upon a contract to do an act on a future day, a renunciation of contract by one party
dispenses with a condition to be performed in the meantime by the other, there seems no
reason for requiring that the other to wait till the day arrives before seeking his remedy by
action: and the only ground on which the condition can be dispensed with seems to be, that
the renunciation may be treated as a breach of the contract;
- Results of anticipatory repudiation :
- Wait for the day of performance to see if the breaching party will actually perform;
- Declare a breach immediately, and begin efforts to mitigate and sue for damages;
- Rule : If two parties enter into a contract to be performed at a designated time in the future,
and one party refuses to perform the contract before the designated time the parties agreed
to perform, the other party may sue before the contract was to be performed. That party
need not wait until the time for performance has passed.
Roth & Co v. Taysen, Townsend & Co
- There was an anticipatory breach of contract by the other party :
- A contract was made in the spring, for delivery in the summer;
- In May, the buyer repudiates the contract (2 months in advance);
- The seller does nothing, holds the good and in August, sells them to a third party;
- Between May and August the prices were dropping;
- If he sold them in May, he would’ve made more than in August. He would've
mitigated his loss;
- He knew the market was declining, therefore it was unreasonable, he waited too
long;
- It was very clear that doing nothing would ramp up damages and he was
experienced in the market. Everybody in the market knew it was declining;
- Plaintiff didn’t mitigate their damages;
- It isn’t sufficient to show that the plaintiffs acted to the best of their judgement. The
standard which one must use in these cases is the conduct of an ordinary prudent man
under similar circumstances;
- Difference with Hochster v. De La Tour = the breaching party knew that their damages
were ramping up. A reasonable person would’ve mitigated sooner;
14
White & Carter (Councils), Ltd. v. McGregor (1962)
- Facts : White & Carter, the appellants, were advertising contractors that agreed with a
representative of a garage proprietor to advertise for his garage for the period of three years.
The respondent, the garage owner, wrote to the appellant on the same day of the agreement
to cancel as the representative was mistaken during the negotiation. The appellants refused
this and began advertising for the garage five months after the contract had been agreed
between the parties. The respondent refused to pay and the appellant sued for the whole
amount of the contract.
- Issue : The court was required to understand whether the contract between the parties could
be repudiated on the basis of the mistake that had been made by the representative of the
garage owner. If this repudiation was not permitted, then it had to be determined whether
the appellants could claim for the whole of the contract value or whether the damages would
be limited. It was also argued by the respondent that where a party has no legitimate interest
in performing the contract, the burden should not be placed on the other party
unnecessarily.
- Held : The court found that the appellants had the right to carry out the contract and claim
for the entire value of the contract. On this basis, this did not require the appellant to accept
the withdrawal of the contract by the respondent. The court did not accept the argument
that was put forward by the respondent as to the enforcement by the appellant of the
contract;
- It was the view of the majority of the court that a repudiation by one party to a contract does
not preclude the innocent party from carrying out the contract and suing for the price, at
least where this can be done without the assent or cooperation of the party in breach;
- Court seems to have prioritized the stability of contract
- Court is reluctant to say that one has to perform his contract reasonably;
- Normally, in traditional English law, the plaintiff would’ve only been entitled to the lost
profit, not the whole price of the contract. Therefore in allowing the non-breaching party to
threaten to run up damages in order to get a bigger settlement from the defendant, there
is a risk of extortion;
In American law :
§ 350. Avoidability As A Limitation On Damages
(1) Except as stated in Subsection (2), damages are not recoverable for loss that the
injured party could have avoided without undue risk, burden or humiliation.
(2) The injured party is not precluded from recovery by the rule stated in Subsection (1) to
the extent that he has made reasonable but unsuccessful efforts to avoid loss.
15
Comment:
a. Rationale. The rules stated in this Section reflect the policy of encouraging the injured
party to attempt to avoid loss. The rule stated in Subsection (1) encourages him to make such
efforts as he can to avoid loss by barring him from recovery for loss that he could have avoided
if he had done so. See Comment b. The exception stated in Subsection (2) protects him if he
has made actual efforts by allowing him to recover, regardless of the rule stated in Subsection
(1), if his efforts prove to be unsuccessful. See Comment h. See also Comment c to § 347.
b. Effect of failure to make efforts to mitigate damages. As a general rule, a party cannot
recover damages for loss that he could have avoided by reasonable efforts. Once a party has
reason to know that performance by the other party will not be forthcoming, he is ordinarily
expected to stop his own performance to avoid further expenditure. See Illustrations 1, 2, 3
and 4. Furthermore, he is expected to take such affirmative steps as are appropriate in the
circumstances to avoid loss by making substitute arrangements or otherwise. It is sometimes
said that it is the "duty" of the aggrieved party to mitigate damages, but this is misleading
because he incurs no liability for his failure to act. The amount of loss that he could reasonably
have avoided by stopping performance, making substitute arrangements or otherwise is simply
subtracted from the amount that would otherwise have been recoverable as damages.
NOTE : RESCISSION V. REPUDIATION
- Rescission and repudiation are often confused.
- Rescission is a remedy that may be available to an innocent party to a contract in certain
circumstances. Rescission allows that innocent party to treat the contract as being void,
ab initio.
- Repudiation, on the other hand, occurs by the words or conduct of one party to a
contract that shows an intention NOT to be bound by that contract.
- Put another way, rescission is a reaction - it is a remedy that an innocent party to a contract
may have that results from the acts or omissions of the other party. While repudiation, one
the other hand, is an action by one party to a contract who no longer wishes to be bound by
that contract.
Finelli v. Dee
- Paving company (plaintiff) and the defendant had a contract to pave the latter’s driveway. It
was understood the work was not to begin immediately, the defendant not having the means
to pay. Shortly after the contract was made and before any work was done, the defendant
called to cancel the contract (This counts as repudiation). The plaintiff waited that the
defendant was away from the house, entered the premises, did the work and asked to be
paid in full;
- Even though the contract was repudiated, the rule from White & Carter v. McGregor was not
followed because the contract could not be completed without the assent or cooperation of
16
the defendant (ie. allowing the company on his land to do the work. Some form of trespass
happened here, but the Court doesn’t dwell on it);
- Sufficient distinguishing from White;
- Plaintiff couldn’t recover the contract price;
- “Repudiation is not something that calls for acceptance when there is no question of
rescission, but merely excuses the innocent party from performance and leaves him free to
sue for damages”;
17
REMEDIES FOR BREACH OF CONTRACT
INTANGIBLE INJURIES
Addis v. Gramophone Company Limited
- Facts :
- The claimant was employed as a manager by the defendant. The defendant in breach of
contract dispensed with his services and replaced him with a new manager. There was an
interregnum where both the Plaintiff and the new manager were around, letting everybody
know that the Plaintiff was fired and was to act like a potted plant for the remainder of his
term. The claimant brought an action for breach of contract claiming that the level of
damages should reflect the circumstances in which he was dismissed damaged his
reputation and ability to find suitable employment.
- Held :
- Contract law seeks to put the parties in the position they would have been in had the
contract been performed.
- He was therefore limited to claiming wages and loss of commission during the
contractually agreed notice period.
- There was no right to exemplary damages or damage to reputation in contract claims.
Such claims would have to be actioned in the law of tort.
- Having sued in contract, he gets compensation for his actual loss only;
- Lord Atkinson’s discussion : “In many other cases of breach of contract there may be
circumstances of malice, fraud, defamation, or violence, which would sustain an action of
tort as an alternative remedy to an action for breach of contract. If one should select the
former mode of redress, he may, no doubt, recover exemplary damages, or what is
sometimes styled vindictive damages; but if he should choose to seek redress in the form of
an action for breach of contract, he lets in all the consequences of that form of action:
Thorpe v. Thorpe. One of these consequences is, I think, this: that he is to be paid adequate
compensation in money for the loss of that which he would have received had his contract
been kept, and no more.”
Kolan v. Solicitor
- Facts :
- Kolan brought action against her solicitor for damages;
- Solicitor failed to discover that premises purchased by the plaintiff were subject to a city
demolition order;
- Plaintiff probed that consequent anxiety had caused injury to her health;
- It could be possible for damages to be recovered for a nervous shock or anxiety state, if it is
a reasonably foreseeable consequence of the breach of the contract;
- The damage wasn’t sufficiently foreseeable by the solicitor, therefore no damages were
awarded;
- This foreseeability requirement is a second test, like Hadley’s, where we need to consider if
special circumstances were either foreseeable or communicated at the moment the contract
was formed;
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Jarvis v. Swans Tours Ltd
- Facts :
- Mr Jarvis, a solicitor, booked a 15 day ski-ing holiday over the Christmas period with
Swan Tours. The brochure in which the holiday was advertised made several claims about
the provision of enjoyment relating to house parties, a friendly welcome from English
speaking hotel owner, a variety of ski–runs, afternoon tea and cakes and a Yodler evening.
Many of these either did not go ahead or were not as described. Mr Jarvis brought a
claim for breach of contract based on his disappointment. At trial, the judge awarded him
£30 damages on the basis that he had only been provided with half of what he had paid
for and that no damages could be recovered for disappointment. Mr Jarvis appealed.
- Held : Where a contract is entered for the specific purpose of the provision of enjoyment or
entertainment, damages may be awarded for the disappointment, distress, upset and
frustration caused by a breach of contract in failing to provide the enjoyment or
entertainment.
Turczinski v. Dupont Hearing
- “Generally before damages for mental distress can be awarded for breach of contract, the
contract must be one where peace of mind is what is being contracted for such as
contracting for a holiday… or for insurance. The persuasive reasons to be confined within
narrow limits the circumstances when damages will be awarded for excerbation of mental
illness for breach of a consumer contract.”;
Heywood v. Wellers
- Facts :
- The claimant instructed solicitors in injunction proceedings which they conducted
negligently. The solicitors had put the case in the hands of an incompetent junior clerk.
She sued acting in person, and succeeded but now appealed the only limited form of
damages awarded.
- Held :
- She was entitled to repayment of the legal costs paid by her to her solicitors, and also a
sum which would represent the additional vexation, anxiety and distress through absence
of her remedy;
- She was not entitled to an award in respect of the stress of herself conducting the action
against her former solicitors.;
- Lord Denning described that negligence: ‘I am afraid that the solicitors were much at fault.
They ought not to have left this matter to a young junior clerk with no qualifications – with
no supervision by any partner. In his hands mistakes were made from beginning to end.’
Lord Denning listed a series of dreadful mistakes. ‘The upshot of it all was that the
proceedings were absolutely useless to her. . That brings me to the law. . The judge
approached the case on this footing: Mrs Heywood was entitled to damages for
negligence, but the solicitors were entitled to their costs which they could set off against
her damages. He said that the defendants ‘are not precluded from setting off what is
properly due to them for their costs.’ He then calculated the set off in this way: On the one
hand Mrs Heywood was entitled to damages for negligence which he set out under [a
number of subparagraphs]. . He then awarded the plaintiff damages under [some of those
paragraphs]. He did not quantify those damages, but said that as against them the
defendants could set off all the costs recoverable by them save for [one certified
exception]. . . . So the judge held that they could set off their costs against her damages,
with the result that she was not entitled to any damages and they were not entitled to their
costs… But as she had already paid them 175 pounds on account of those costs, she
19
was entitled to have the money repaid to her. . . . Now I think the judge was in error in
thinking that the solicitors were entitled to recover any costs at all:
- There are two reasons:
- In the first place, the contract of the solicitors was an entire contract which they were
bound to carry on to the end; and, not having done so, they were not entitled to any
costs;
- In the second place, the work which they did do was useless. It did nothing to
forward the object which the client had in view. It did nothing to protect her from
molestation. It being thus useless, they can recover nothing for it.’
Vorvis v. Insurance Corporation of British Columbia
- Plaintiff was wrongfully dismissed, for no cause, by the defendant. Trial judge determined he
was entitled to damages. Plaintiff found another job 7 months later, but not as a lawyer;
- Punitive damages vs aggravated damages:
- Punitive damages were meant to punish;
- Non compensatory;
- Aggravated damages are awarded to compensate for aggravated damage. They are
compensatory by nature.
- They take account of intangible injuries and by definition will generally augment the
damages assessed under the general rules relating to the assessment of damages;
- The aggravated damages are for compensating intangible injuries;
- Can the Court award punitive damages in an action for breach of contract based on a
wrongful dismissal?
- No. The employer-employee relationship has always been one that could be terminated at
will, given due notice. Therefore, the only damages which could arise would result from a
failure to give such a notice;
- Aggravated damages may be awarded in dismissal claims because they are
foreseeable, but not this one;
Fidler v. Sun Life Assurance Co of Canada
- Facts :
- Fidler developed chronic fatigue syndrome and fibromyalgia and went on disability
benefits in 1991. Her benefits would expire after two years unless she could not work at
any job. In May 1997 S told F that she would not longer receive benefits since video
surveillance by a team of private investigators indicated that she was capable of
performing light or sedentary work. Medical evidence was inconclusive, but tended to
support F. F commenced an action a week before the trial and the insurance company
decided to reinstate her benefits and pay all arrears with interest, so now she is just
claiming damages;
- Issues: What damages can F recover?
- Holding: Aggravated damages, but not punitive damages;
- There is no need to show an independent actionable wrong to recover damages for
mental distress. The plaintiff must prove that there was a substantial degree of mental
suffering and that this suffering was reasonably foreseeable at the time the contract
was made. An insurance contract is often made [and frequently advertised!] as bringing
peace of mind. Thus F’s distress in the event of non-performance was reasonably
foreseeable at the time the contract was made. Punitive damages are not appropriate
though. S acted overzealously but in good faith.
20
- (1) “Aggravated damages can be awarded when the object of the contract was the
secure a psychological benefit that brings mental distress upon breach that is within the
reasonable contemplation of the parties” and the degree of suffering was sufficient so
as to warrant compensation;
- (2) Punitive damages should only be awarded exceptionally and in cases of clear bad
faith;
- Basically, mental distress is another title of damages that has to be examined through the
lenses of Hadley: was it foreseeable and/or were special circumstances communicated?
- *** The law does not award damages for incidental frustrations of normal business
dealings;
- The parties have to enter into a contract of which the or an object is to secure particular
psychological benefit;
Honda Canada Inc v. Keays
- “as long as the promise in relation to state of mind is a part of the bargain in the reasonable
contemplation of the contracting parties, mental distress damages arising from its breach
are recoverable;
PUNITIVE DAMAGES
- Purpose of punitive damages : punishment;
- Canada is the only country in the Commonwealth that allows punitive damages for pure
breach of contract;
- In English law, Punitive damages are only open to the following categories: (See Rooke
v.?)
Whiten v. Pilot Insurance Co. *(Canada)
- Facts:
- Pilot denies a claim for fire insurance by Whiten and forced an 8 week trial on a shaky
basis of arson which ultimately wasn’t real;
- Jury was outraged, saw that it was all a strategy by Pilot to force Whiten in accepting a
lowball settlement offer;
- Everybody, including their own expert, told the insurance company there was no
evidence of arson;
- Jury at trial awarded Whiten with $1M for punitive damages;
- Considering the Plaintiff was attempting to recover 345 000$ and put 320 000$ in legal
fees doing so, the award of $1M is put into perspective;
- Punitive damages are awarded against a defendant in exceptional cases for malicious,
oppressive and high-handed misconduct that offends the court’s sense of decency (Hill v.
Church of Scientology);
- The test therefore limits the award to misconduct that represents a marked departure from
ordinary standards of decent behaviour;
- Punitive damages are available in contract where there is a breach in good faith or when
there is a breach that could constitute an actionable cause by itself;
- List of criteria to consider in awarding punitive damages in Canada : see par. 94 (casebook
p. 97)
21
DAMAGES MEASURED BY THE DEFENDANT’S GAIN
- Sometimes, it is possible to obtain a remedy that is measured by the defendant’s gain, rather
than by the loss suffered by the plaintiff;
- There are both equitable and legal routes to this remedy;
TIME OF MEASURING DAMAGES
Wroth v. Tyler
- Facts :
- The plaintiff had contracted to purchase a house for 6,000 pounds but the defendant
failed to complete. Damages were awarded in lieu of specific performance under a Lord
Cairns’ Act provision. At the date of the repudiatory breach the value of the house was
7,500 pounds. At the date of the order the value of the house was 11,500 pounds. The
award to the plaintiff, which but for some matters which have no bearing on the point of
principle, would have been the difference between the purchase price and the value at the
date of the order, namely 5,500 pounds.
- Held :
- The presence of a class F Land Charge registered against a property was a breach of the
condition requiring vacant possession. A solicitor failing to complete a registration
becomes liable to his client in negligence.
- In my judgment, therefore, if under Lord Cairns’ Act damages are awarded in substitution
for specific performance, the court has jurisdiction to award such damages as will put the
plaintiffs into as good a position as if the contract had been performed, even if to do so
means awarding damages assessed by reference to a period subsequent to the date of
the breach. This seems to me to be consonant with the nature of specific performance,
which is a continuing remedy, designed to secure, inter alia, that the purchaser receives in
fact what is his in equity as soon as the contract is made, subject to the vendor’s right to
the money, and so on;
RESTITUTION
- A person who has been unjustly enriched at the expense of another is required to make
restitution to the other (Restatement of Restitution)
Deglman v. Guaranty Trust Co of Canada and Constantineau
- Facts :
- The respondent sought to recover from the estate of his deceased aunt under an oral
agreement whereby the aunt, on condition that the respondent perform such services as
she might request during her lifetime, undertook to make adequate provision for him in her
will and in particular to leave him a certain piece of land. The respondent fully performed
his part of the agreement. The aunt, who owned other land as well, died intestate (ie. with
no will).
- Contract wasn’t enforceable because grant of land after death = by will only;
- What Deglman was seeking here is an action in quantum meruit;
- Held: that the acts relied upon were not unequivocally and of their own nature referable to
any dealing with the land in question so as to take the case out of s. 4 of the Statute of
Frauds; but that the deceased having had the benefits of full performance by the respondent
of an existing although unenforceable contract, the law imposed upon her, and so upon her
estate, the obligation to pay the fair value of the services rendered. The cause of action did
22
not accrue until the death of the deceased intestate and the statutory period only then
began to run. Wilson v. Cameron 30 O.L.R. 486 and Fox v. White [1935] O.W.N. 316
overruled. The rule in Maddison v. Alderson 8 App. Cas. 467, as adopted in McNeil v.
Corbett 39 Can. S.C.R. 608, followed.
- In the absence of the payment (the house) which became impossible when the aunt died
intestate, the value of the work the nephew did became “unjust enrichment” and therefore
the estate of the aunt had to compensate him justly for that work. In money, as the
transfer of the house is impossible;
- Unjust enrichment doesn’t really rely on contract, it is rather an “obligation imposed by law”
- A quasi-contract : we imply a contract where we think no other reasonable person would’ve
said no;
- The assent is assumed;
- Ex.: someone knocks themselves out unconscious and a doctor helps them. Nobody
would refuse the help, the assent is assumed in this case and a quasi-contract exists;
- or implied contract : while there isn’t a formal contract, the actions of the parties are such
that a contract can be implied here;
Moses v. Macferlan
- “The gist of this kind of action (in unjust enrichment/restitution) is that the defendant, upon
circumstances of the case, is obliged by the ties of natural justice and equity to refund the
money”;
Boone v. Coe
- Facts :
- The parties' agreement provided that if the lessees would leave their homes and
businesses in Kentucky, the lessor would furnish them with a house and the necessary
materials to live on and cultivate the lessor's farm in Texas for the period of one year,
commencing from the date the lessees arrived in Texas. The lessees agreed, but when
they arrived in Texas, the lessor failed to have the house and materials ready and refused
to grant the lessees access to the farm. The lessees brought an action for damages, and
the circuit court entered judgment in favour of the lessor. The court determined that the
lessees merely sustained a loss and that as the lessor received no benefit, there was no
implied obligation on the lessor's part to pay for such loss.
- Issue : Can plaintiffs recover for the lost time and incurred expenses based on their reliance
on a contract that is unenforceable under the statute of frauds?
- Answer: No
- Plaintiffs merely sustained a loss.
- Defendant received no benefit. Had defendant received a benefit, the law would imply an
obligation to pay therefor.
- Having received no benefit, no obligation to pay is implied.
- The statute of frauds says that the contract of defendant made with plaintiffs is
unenforceable.
- Defendant, therefore, had the legal right to decline to carry it out. To require him to pay
plaintiffs for losses and expenses incurred on the faith of the contract without any
benefit accruing to him would, in effect, uphold a contract upon which the statute
expressly declares no action shall be brought. The statute was enacted for the purpose
23
of preventing frauds and perjuries. That it is a valuable statute is shown by the fact that
similar statutes are in force in practically all, if not all, of the states of the union. Being a
valuable statute, the purpose of the law-makers in its enactment should not be
defeated by permitting recoveries in cases to which its provisions were intended to
apply.
Attorney General v. Blake
- Facts :
- George Blake was a former member of the Secret Intelligence Service (MI6) from 1944 to
1961. For his employment contract, he had signed an Official Secrets Act
1911 declaration to disclose no information about his work. It applied after his
employment ceased. In 1951, he became a Soviet agent, thus, being a double agent. He
was discovered in 1961 and the British government imprisoned him in Wormwood Scrubs
(HM Prison). He escaped in 1966 and fled to the Soviet Union.
- He wrote a book about it and his secret services work called No Other Choice. He
received a publishing contract for its release in 1989, with Jonathan Cape Ltd. The
information in the book was no longer confidential.
- Blake received advanced payments and was entitled to more.
- The Crown brought an action for all the profits he made on the book including those that
he had not yet received. It argued a restitutionary principle should apply;
- Blake had a contract (employment) that prohibited him from profiting from the information he
learned while being employed by MI6;
- Crown sued in unjust enrichment on that basis: Blake was breaking his agreement;
- In those circumstances, it may be appropriate to take away the profits he would make
on the book;
- This remedy is called “account of profits”
- Court said :
- “The main argument against the availability of an account of profits as a remedy for
breach of contract is that the circumstances where this remedy may be granted will be
uncertain. This will have an unsettling effect on commercial contracts where certainty is
important. I do not think these fears are well founded. I see no reason why, in practice, the
availability of the remedy of an account of profits need disturb settled expectations in the
commercial or consumer world…
- …An account of profits will be appropriate only in exceptional circumstances. Normally
the remedies of damages, specific performance and injunction, coupled with the
characterisation of some contractual obligations as fiduciary, will provide an adequate
response to a breach of contract….
- …It will be only in exceptional cases, where those remedies are inadequate, that any
question of accounting for profits will arise. No fixed rules can be prescribed. The court
will have regard to all the circumstances, including the subject matter of the contract, the
purpose of the contractual provision which has been breached, the circumstances in
which the breach occurred, the consequences of the breach and the circumstances in
which relief is being sought…
- …A useful general guide, although not exhaustive, is whether the plaintiff had a
legitimate interest in preventing the defendant's profit-making activity and, hence, in
depriving him of his profit.ӈ
- In this case, we can fathom that the Crown has an interest in preventing it’s spies and
other employees of security agencies from using the information they learn on the job to
make a personal profit;
24
SPECIFIC PERFORMANCE
-
Specific performance is an equity remedy;
We mostly see it happen in cases involving land;
In order to get an equitable remedy, I have to show there is not adequate remedy at law;
In contracts regarding land, specific performance is the presumptive remedy;
- Because all land is unique;
- Semelhago v. Paramadevan
- A professional speculator agrees to buy a piece of land for 100k and flip it for 150k;
- Court said that in this case, land is a commodity like a chattel. The land isn’t unique to
him, but purely something he’ll use to make money. He can be compensated by money,
as it was his only aim in the transaction;
- ***Exception to the principle because the land itself wasn’t the thing desired, rather the
50k profit was;
- The breaching party can therefore breach and compensate him in money, ergo 50k;
- A contrario : to obtain specific performance in case of land, you need to demonstrate that
the land is unique for you;
Stewart v. Kennedy
- Specific performance is an equitable remedy which the court can withhold when there are
sufficient reasons of conscience or expediency against it;
- IN SCOTLAND: specific performance admissible in matters involving the sale of land;
Falcke v. Gray
- Falcke offered 40 pounds for 2 vases owned by Mrs Gray. Turns out the vases were rare
China and mrs Gray accepted another offer from Messrs Watson for 200 pounds. Falcke is
suing for specific performance, alleging he wants the specific chattels (the vases).
- Note : Falcke was an arts dealer and was trying to rip off mrs Gray;
- The Court will enforce specific performance of a contract to purchase chattels, if damages
will not be an adequate compensation.
- In this case, the vases were unique so the money compensation isn’t good enough. Giving
him the value wouldn’t put him in the same position he would’ve been had the contract
been performed;
- For this reason, the Court allows the specific performance;
- Specific performance is available in matters of sale of goods in cases the the goods
are unique;
- But where the contract, although not actually fraudulent, was one in which the parties were
not on an equal footing, the Plaintiff knowing, and the purchaser being ignorant, of the value
of the thing sold, and the price appeared to be inadequate, the Court refused relief.
- To get equity, one must do equity. To get an equitable (ie. fair) remedy, one has to had
acted fairly;
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Cohen v. Roche
- Antique chairs. A trader wins the chairs at an auction and the owner refuses to deliver them;
- These chairs are unique, but he doesn’t get specific performance even though he should’ve
gotten one following Falcke v. Gray;
- Because he was going to resell them. He was just going to flip them for money, so the
remedy at law (damages equal to the value he would’ve resold them for) was sufficient to
put him in the same situation he would’ve been if the contract had been performed;
Behnke .v Bede shipping Company
- Contract for the sale of a ship;
- They refuse to deliver the not so unique ship, but plaintiff gets the specific performance of
the ship;
- It was a cheap boat being sold, but it’s boiler and engine were practically new, which was
important to him. For that price there was nothing in the same quality;
- Also, it’s a German ship so he can easily put it in the German registry and start using it
right away;
- Therefore it is unique to him for a very specific commercial purpose. It’s a case of
ordinary goods which are extraordinary in specific circumstances;
- Sometimes, ordinary goods can be deemed by the court, when it seems fit to do so,
to be unique;
- Specific performance in case of personal services:
- Almost never granted : we do not force people to perform contracts;
- Because it would necessitate supervision by the courts, which they do not want to be
doing;
Warner Bros Pictures Incorporated v. Nelson
- Facts :
- The defendant was a film artist, otherwise known as Bette Davis, who had entered into a
contract with the plaintiffs, Warner Bros. Pictures, in the United States to provide her
services exclusively to the company for the period of twelve months with a further twelvemonth option. Under the contract, she could not, therefore, provide her services to
another company, without the plaintiff’s express written consent.
- By her own admission, the defendant came to the United Kingdom to agree with a
business to work to produce films for a third party and claimed that she was no longer
bound by the original agreement with the defendants. The plaintiffs brought an action and
claimed an injunction to restrain her actions.
- Issue : The issue for the court was to understand and consider all of the options available
with regards to remedying the breach of contract in this instance. Specific performance
would be a strict requirement that would require Nelson to perform for the business, whereas
damages would potentially be difficult to quantify in the circumstances. The court would also
have to consider the length of time that such a restriction might run for.
- Held :
- The court found that the contract was not meant to force the defendant to specific
performance but that an injunction would enforce the contract to perform and therefore
specific performance was not an appropriate remedy. This was also the case for damages
as they could not be appropriate quantified under the circumstances. On this basis, an
injunction, with a time limit was applied to prevent Nelson from carrying out the other
contract.
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- She made 2 covenants (covenant = agreement within the document):
- A positive one : to work for the 12 months at Warner Bros (Court says : unenforceable);
- The reason the courts dislike enforcing positive covenants is the issue of supervision;
- A negative one : not to work for anybody else for 12 months (Cour says : enforceable, she
can’t work in film for the 52 weeks);
- The enforcement of negative covenants are possible, provided they are (1) reasonable
in scope, (2) time and (3) location;
- Also, who are we talking about? Is it a unique person? A key employee? Someone with
insider information?;
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FORMATION OF CONTRACTS
- To have a contract you need:
- 1) Intention;
- An intention to be bound;
- 2) Mutual assent;
- To the things we are agreeing about;
- 3) Exchange (of value);
- The exchange is related to the intention;
- Offer: expression of a willingness to enter into an agreement with you;
- Promise that if I receive your promise, we’ll have a contract;
- Expression of a willingness to enter into a bargain so made as to lead the other party to
believe that his acceptance will conclude it;
- An offer must be accepted;
- Importance of distinguishing an offer from and invitation
Denton v. Great Northern Railway Company
- Railway company advertises that they have a train at 7pm. Turns out they don’t;
- They made a mistake so they don’t have to train anymore, but it still appears on the
timetable;
- They kept printing the timetable and posting it in train stations even though they don’t
have the train anymore;
- Plaintiff wants to take the train to Hull, can’t and misses on a meeting and loses out on a
sale. He sues for damages;
- Is there a contract between the plaintiff and the railway company?
- Offer: the timetable is the offer;
- It has the hours, the time, the price, it’s public. It meets the prerequisite of a valid offer;
- Who, what, when, where and how much;
- Shouldn’t the publication of a timetable be an invitation rather than an offer?
- We generally construe an advertisement as an invitation;
Johnston Brothers v. Rogers Brothers
- On defining what is an offer vs an invitation;
- Defendant’s letter didn’t contain an offer to sell, rather it was just listing their prices;
Lefkowitz v. Great Minneapolis
- Defendant advertises 3 brand new fur cots to be sold Saturday 9AM for 1$ each;
- It’s an offer, because it’s a specific item, specific quantity, time and place, and the price is
also specific;
- It had the who, what, when, where and how much;
- The offer by the defendant of the sale of the fur coat was clear, definite, explicit and
left nothing open for negotiation;
- The test of whether a binding obligation may originate in advertisements addressed to the
general public is whether the facts show some performance was promised in positive terms
in return for something requested;
In evaluating if an offer is an offer, we look for (1) what is missing and (2) are the words used
definitive or are they openings to further negotiation?
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How is an offer terminated?
1) Rejection;
1) Once there is one rejection, it’s over. You can make a new offer, but the original offer
died with the rejection;
2) Revocation;
3) Acceptance;
4) Time (lapse);
THE POWER OF ACCEPTANCE
Dickinson v. Dodds
- Facts:
- The defendant, Mr Dodds, wrote to the complainant, Mr Dickinson, with an offer to sell his
house to him for £800. The note says the offer will be open until Friday;
- He promised that he would keep this offer open to him until Friday. However, on the
Thursday Mr Dodds accepted an offer from a third party and sold his house to them.
- It was claimed that Mr Dickinson was going to accept this offer, but had not said anything
to Mr Dodds because he understood that he had until Friday.
- Mr Dodds communicated that the offer had been withdrawn through a friend to the
complainant.;
- Even though all he heard was that Dodds was trying to sell the house to someone else,
it’s enough to know that the offer has been revoked. There could be no meeting of the
minds at this point;
- After hearing this, Mr Dickinson went to find the defendant, explaining his acceptance of
the offer. The complainant brought an action for specific performance and breach of
contract against the defendant.
- Issue : The issue in this case was whether the defendant’s promise to keep the offer open
until Friday morning was a binding contract between the parties and if he was allowed to
revoke this offer and sell to a third party.
- Held :
- The court held that the statement made by Mr Dodds was nothing more than a promise;
there was no binding contract formed.
- He had communicated an offer for buying his house to the complainant and this offer
can be revoked any time before there is acceptance.
- There was no deposit to change this situation.
- In order for the Friday promise to be binding, there would need to be something “en
contrepartie” such as a deposit;
- Otherwise it’s nudum pactum : Nudum pactum in Latin literally means 'naked
promise' or 'bare promise'. In common law, it refers to a promise that is not legally
enforceable for want of consideration. An example of a nudum pactum would be
an offer to sell something without a corresponding offer of value in exchange.
- Thus, as there was no obligation to keep the offer open, there could be no ‘meeting of the
minds’ between the parties.
- In addition, the court stated that a communication by a friend or other party that an offer
had been withdrawn was valid and would be treated as if it came from the person
themselves.
- The moment Dickinson revoked the offer before its acceptance, the offer was destroyed;
- There was no “meeting of the minds” between the two parties, which is essential in point
of law to the making of an agreement;
- That “meeting” is determined by the “objective manifestation of assent”;
- We don’t care if you actually wholeheartedly wanted to be in the contract. What we
care about is what did your actions manifest;
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Felthouse v. Bindley
- Facts :
- The complainant, Paul Felthouse, had a conversation with his nephew, John Felthouse,
about buying his horse. After their discussion, the uncle replied by letter stating that if he
didn’t hear anymore from his nephew concerning the horse, he would consider
acceptance of the order done and he would own the horse. His nephew did not reply to
this letter and was busy at auctions. The defendant, Mr Bindley, ran the auctions and the
nephew advised him not to sell the horse. However, by accident he ended up selling the
horse to someone else.
- Issue :
- Paul Felthouse sued Mr Bindley in the tort of conversion, with it necessary to show that
the horse was his property, in order to prove there was a valid contract. Mr Bindley argued
there was no valid contract for the horse, since the nephew had not communicated his
acceptance of the complainant’s offer. The issue in this case was whether silence or a
failure to reject an offer amount to acceptance.
- Held :
- It was held that there was no contract for the horse between the complainant and his
nephew. There had not been an acceptance of the offer; silence did not amount to
acceptance and an obligation cannot be imposed by another.
- Any acceptance of an offer must be communicated clearly.
- There was no manifestation of assent;
- Although the nephew had intended to sell the horse to the complainant and showed this
interest, there was no contract of sale. Thus, the nephew’s failure to respond to the
complainant did not amount to an acceptance of his offer.
Wheeler v. Klaholt
- Facts :
- Action for the price of 174 pairs of shoes.
- Shoes had been sent to the defendant on the understanding that a bargain had been
made;
- When the defendant returned the shoes, they were degraded and some were gone;
- Both parties invoke Hoobs v. Massaoit Whip which states that you cannot send a stranger
goods and impose a duty of notification upon him at the risk of finding himself a purchaser
against his own will;
- HOWEVER, that’s how Wheeler and Klaholt had been doing business for a while, therefore
silence was an acceptation in their case;
Master of the offer:
- The offeror is master of the offer he wants to make;
- He sets the terms of the offer;
- Offeror can provide the means by which the other party “accepts” (chooses the way
acceptance is to be communicated);
- Usually, the master of the offer wants to be in a situation where there is no ambiguity
about how, when and where the acceptance is to be communicated;
Eliason v. Henshaw
- Facts :
- Plaintiffs sued Defendant for nonperformance of an agreement for the purchase of a
quantity of flour. The lower court ruled in favor of Plaintiff. Defendants appealed;
- On February 10, 1813, (Defendants) sent a letter from Harper’s Ferry to the seller (Plaintiff)
at Mill Creek offering to purchase flour at $9.50 per barrel. The letter was sent to Plaintiff
by wagon. The letter required that an acceptance by Plaintiff be sent to Defendants by the
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same wagon returning to Harper’s Ferry. Plaintiff received the offer on February 14, 1813.
Plaintiff sent a letter accepting the offer to Defendants at Georgetown on February 19,
1813. On February 25, 1813, Defendants sent Plaintiff a letter acknowledging receipt of
Plaintiff’s acceptance, but stating that, because they had not heard from Plaintiff
previously, they had purchased flour elsewhere. In March 1813, Plaintiff delivered the flour
to Georgetown. Defendants refused to accept the delivery. Defendants moved to instruct
the jury that if their evidence was found to be true, Plaintiff was not entitled to recover on
the alleged contract. The court did not give the requested instruction and judgment was
rendered for Plaintiff. Defendants appealed.
- Issue : Whether a contract is formed where the terms of the acceptance do not mirror the
terms of the offer.
- Held : No. The lower court’s ruling is reversed. A contract is not formed where the terms of
the acceptance do not mirror the terms of the offer.
- An acceptance must mirror the terms of the offer. Any deviation from the terms of the offer
will invalidate the offer, unless the offeror agrees to the deviation. Here, it is clear that
Defendants required that any acceptance letter be delivered to Harper’s Ferry, and that
this term was an essential part of the offer. Plaintiff, however, sent his acceptance to
Georgetown. The acceptance did not conform to Defendants’ offer and therefore did not
form a contract. The lower court should have instructed the jury as requested by
Defendants.
- Rule : A contract is not formed where the terms of the acceptance do not mirror the terms of
the offer.
Butler Machine Tool Co Ltd. v. Ex-cell-O Corporation (England) Ltd
- Facts :
- The plaintiffs offered to provide delivery of a machine tool for the price of £75,535. The
delivery of the tool was set for 10 months, with the condition that orders only qualified as
accepted once the terms in the quotation were met and prevailed over any of the buyer’s
terms. The buyer responded to the offer with their own terms and conditions, which did
not include the ‘price variation clause’ listed in the seller’s terms. This included a response
section which required a signature and to be returned in order to accept the order. The
sellers returned this response slip with a cover letter signalling that delivery would be in
accordance with their original quotation. The tool was ready for delivery but the buyers
could not accept delivery, for which the sellers increased the price which was in line with
their initial terms. This was denied by the buyer and an action was brought by the seller to
claim the cost of delay and interest.
- Issue :
- The court at the first instance found in favour of the sellers and ordered for the buyers to
pay the increased cost. The buyers appealed this decision. In the appeal, it was important
for the court to establish at which point, and on which party’s terms the contract had been
constructed.
- Held :
- The court allowed the buyer’s appeal. The court found that the buyer’s order was not an
acceptance of the initial offer from the seller but a counter-offer which the sellers had
accepted by returning the signature section of the buyer’s letter. On this basis, the court
found that the contract was completed without the price variation clause and therefore the
seller could not increase the cost of the tool.
- First shot rule: a situation in which having put an offer out there and be very clear that no
matter what, our terms apply, that remains part of the deal. The seller made the assertion in
the beginning that they don’t agree to go further without their terms;
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- Last shot rule : Principle of contract law that holds a contracting party who makes no
objection impliedly accepts any additional terms contained in the final counteroffer, which is
the typically last form sent between the parties in the so-called "battle of the forms.”
Different vs. Additional ter:
- The different term drops out;
- The additional may stay in, provided it does not materially alter the contract;
Acceptance of a contract :
- By promise:
- Orally;
- In writing;
- By performance;
Bristol, Cardiff and Swansea Aerated Bread v. Maggs
- Question is when is the deal made and what happens thereafter?
- Facts:
- 2 entities negotiate the sale of a bakery;
- Facts: D wrote P offering to sell bakery for 40 pounds. P initially accepts, however, after
talking to lawyer they ask to add a non-compete clause in contract. D refuses new terms.
P then accepts original offer, but D no longer willing to sell bakery.
- Ratio: During continuous negotiation, either party is free to withdraw.
- Reasons for Judgment: No consensus ad idem, because they were still negotiating terms.
- Held: No contract.
- Inability to buy bakery because of new terms included in the offer during the negotiations;
- The negotiations can be reopened by introduction of new (important) terms. During
continuous negotiations, either party is free to withdraw;
THE TENDERING PROCESS
- Tender = appel de soumissions;
MJB Enterprises Ltd v. Defence Construction (1951) (Contract A, Contract B)
- Facts : Defence Construction tendered for construction bids according to 11 specific
documents. There was an indicated privilege clause which stated "the lowest or any other
tender shall not necessarily be accepted". One of the four bidders (Sorochan) submitted a
bid suggesting an alternative cost (in effect disqualifying their bid). The owner accepted this.
M.J.B. Enterprises had the next lowest bid. The appellant brought an action stating that this
alternative cost invalidated their tender and therefore M.J.B. should have been awarded the
contract.
- Issue :
- Is it implied that only complying bids will be accepted in a tender?
- Does the owner have to accept the lowest bid, even when there is a privilege clause?
- Held :
- Appeal allowed. The contract with Sorochan is not binding, however the respondent does
not have to contract with M.J.B.
- The court holds that it is an implied term in tenders that only complying bids will be
accepted and that Sorochan's bid did not comply with the terms – therefore, it cannot be
accepted. In accepting the disqualified bid the owner is in a breach of Contract A with the
other bidders.
32
- Contract A = the tender and the bid. Once Contract A is made, the parties will go and
make contract B (the actual construction contract);
- Bid = irrevocable offer (firm);
- Although the privilege clause does not overrule this obligation to only accept compliant
bids, it does allow the owner to not simply accept the lowest bidder. Therefore, the owner
was under no obligation to contract with the plaintiff.
- However, on the balance of probabilities the court finds that M.J.B. would have been
awarded the contract and assesses damages of $398,121.27 based on an agreement of
liability arranged before the case at bar;
- Ratio:
- A privilege clause is only compatible with accepting compliant bids.
- In the absence of a privilege clause, you are most likely to be bound to accept the lowest
offer.
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THE IMPORTANCE OF A WRITING
FORMALIZATION AND CERTAINTY
- Writing: is it
- The agreement itself?; or
- A memorandum of already existing oral agreement?;
- Fundamental question is : when was there agreement to be bound?
- The agreement can exist without a contract;
- It is a fundamental principle of contract law that offer and acceptance must state the
significant terms of the proposed contract with sufficient certainty and definitiveness;
otherwise there will be no contract;
May and Butcher Ltd v. The King
- Facts :
- After the end of the First World War, the Government had a surplus of tents which were no
longer required by the army. As a result, the Government’s disposal’s board was set up to
sell these tents.
- They agreed to sell tents to May and Butcher Ltd who left £1,000 as a security deposit for
their purchases.
- According to the written agreement between the disposals board and the company, the
price for the tents, and the dates on which payment was to be made were to be agreed
between the parties, as and when the tents became available.
- In 1923 a new disposal’s board took over and refused to sell the tents. They stated that
they no longer considered themselves bound by the contract. May and Butcher sued but
were unsuccessful. They appealed to the House of Lords.
- Issue : Were the terms of the agreement sufficiently certain to constitute a legally binding
agreement between the parties?
- Held :
- There was no agreement between the parties. A contract for the sale of the tents had
never in fact been concluded.
- This was because a fundamental term of the agreement that was necessary for the sale
to be completed had not been agreed.
- As such, there could not be a contract.
- Whilst s8 Sale of Goods Act 1893 provided that a price could be fixed in the future, s9
Sale of Goods Act 1893 also provided that if that price could not be fixed by a third party,
then no agreement could be made.
- No third party could set the price for the tents, and the court could not imply a price
into the agreement. Therefore, no agreement had been made.
- The agreement between the claimants and defendant therefore was simply an
agreement to agree, and not enforceable.
- There was no clause in the agreement that in the event the parties don’t agree on the
price, said price would be fair market value;
- The failure to set price isn’t always fatal (there could be arbitration clauses on the price,
reference to FMV (fair market value), etc.), but the failure to agree a quantity almost always
is;
- The Court may also imply a “reasonable price”;
- Then it becomes an evidentiary question;
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Foley v. Classique Coaches Ltd.
- Facts :
- Foley owned some land and a petrol station. He sold part of the land adjoining the station
to Classique Coaches Ltd, a coach company. One of the conditions of the agreement was
that the company purchase all of their fuel for the coaches from Foley’s filling station as
long as it could be provided by him. The agreement also contained an arbitration clause. It
did not, however, provide a price for the agreement. Classique complied with the terms of
this agreement for three years until one of their lawyers advised them that as a price had
not been indicated, it was unlikely in his opinion that there was a binding agreement. After
this, Classique stopped buying fuel from Foley, who sued them for breach of contract.
- Issue : Whether or not the agreement was void for uncertainty because a price had not been
mentioned in the agreement.
- Held :
- The agreement was not void for uncertainty simply because the price for the fuel had not
been mentioned in the agreement.
- Classique had performed their agreement for several years, and this obligation could not
simply be repudiated.
- Where the parties had acted as though an agreement had been created and performed
their obligations in this way, there was instead an implied term that the price of the fuel to
be purchased under the agreement was to be reasonable.
- Furthermore, if agreement could not be reached on what was a reasonable or fair price,
the agreement contained an arbitration clause specifically designed to resolve disputes of
this nature.
- Classique coaches were therefore in breach of contract by failing to purchase fuel from
Foley, as required by the agreement.
- In Foley, the court did “gapfilling” : picking reasonable terms for what has been left unsaid in
the contract;
- Basically, the court first looks to see if there is indeed an agreement (albeit with missing
terms). When this question is positively settled, the courts will fill the gaps left by the
parties by using “reasonable terms”;
Empress Towers Ltd. v. Bank of Nova Scotia
- Facts :
- In 1972, Scotiabank first leased property from Empress Towers - this lease expired in
1984.
- In 1984, the parties entered into a new lease which contained the clause stating
Scotiabank could renew for two successive periods of five years each provided it gave
three months written notice, and the "rental for any renewal period, which shall be the
market rental prevailing at the commencement of that renewal term as mutually agreed
between the Landlord and the Tenant".
- On May 25, 1989 Scotiabank exercised its option to renew for a further 5 years from
September 1, 1989.
- On June 23, 1989 Scotiabank proposed a rate of $5,400 a month, up from $3,097.92
under the existing lease, but they received no written reply from Empress Towers.
- On August 31 Empress Towers responded stating Scotiabank would be allowed to stay if
they made a payment of $15,000 before September 15 (an employee of Empress Towers
had been robbed of $30,000 in that branch of the bank and only $15,000 of insurance was
paid) and rent of $5,400 per month thereafter, and that tenancy would be terminable on 90
days notice going forward. Empress Towers sought a writ of possession. Scotiabank was
successful at trial, which Empress Towers appealed.
- Issue : Was the clause void either because of uncertainty or because it was an agreement to
agree?
- Held : Lambert, writing for the majority, held there were two courses of action:
35
- follow May & Butcher Ltd. v R - if there are things to be agreed upon then there is no
contract; or
- follow Hillas & Co., Ltd. v Arcos, Ltd. (1932) - the courts should strive to find meaning if
there is an agreement between parties.
- He held there were three approaches for determining rent:
- rent to be agreed - cannot be enforced
- rent to be established by formula, but no machinery to do so - the courts will generally
supply machinery
- a formula given but it is defective - the courts will cure the defect
- He interprets the section of the clause requiring the parties to agree on the rent to mean:
- Empress could not be compelled to enter into a market rental value;
- there was an implied term that landlord will negotiate in good faith; and
- an agreement on market rate would not be unreasonably withheld.
- Implying these terms was acceptable for reasonability and for reasons of business efficacy.
In the evidence adduced, Empress had not negotiated in good faith by adding the $15,000
“penalty".
- Ratio :
- Agreements to agree cannot be enforced.
- Agreement to agree doesn’t fore you to ultimately agree, but forces you to “negotiate in
good faith”;
- Here the landlord wasn’t negotiating in good faith (bringing up the robbery thing from
another branch and whatnot)
- The court will try, wherever possible, to give the proper legal effect to any clause that the
parties understood and intended to have legal effect;
CONTRACTS NEGOTIATED BY CORRESPONDENCE
- Mailbox Rule: The mailbox rule (also called the posting rule), which is the default rule
under contract law for determining the time at which an offer is accepted, states that an offer
is considered accepted at the time that the acceptance is communicated (whether by mail email, etc).
- Acceptance is valid on posting/mailing;
- Parties can alter their contract to not use the mailbox rule to and determine between
themselves at what time an offer will be considered accepted.
- The rule originated in the British case of Adams v. Lindsell (1818) B & Ald 681, when the
Court adopted the doctrine and applied it to bilateral contracts. As with most of contract law,
the mailbox rule varies from state to state.
- An acceptance is valid upon mailing, a revocation is valid upon receipt;
- Ex.:
- 1) Offer;
- 2) Mail revocation;
- 3) Mail acceptance;
- 4) Receive revocation;
- Result : there is still an agreement, as the revocation has been received after the
acceptance was mailed;
- Instantaneous communication : the question there is “was this received?”
- Rule is : no mailbox rule;
- Because we know instantaneously what the manifestation (acceptance, rejection, c/o)
immediately;
- You know immediately if you didn’t make an effective manifestation (email notification
that it didn’t go through, etc.)
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ENFORCEABILITY
THE DOCTRINE OF CONSIDERATION
- A contract is an agreement the Law recognizes as a duty and for the breach of which the law
provides a remedy;
- Not every agreement is a contract;
- A contract is a legal conclusion. It is an agreement that the law will enforce;
- What does it take to make an agreement enforceable?
- Enforcing promises : writ of assumpsit;
- A promise to make a gift is unenforceable;
- Enforceable categories:
- Promises supported by consideration;
- Promises supported by a seal;
- Promises enforceable by estoppel;
- What is consideration?
- “An act or forbearance of one party, or the promise thereof, is the price for which the
promise of the other is bought, and the promise thus given for value is enforceable”;
- “Consideration means a reason for the enforcement of a promise”;
- “Consideration really was and is a reason for the recognition of an obligation, rather
than a reason for the enforcement of a promise”;
- An exchange of promises;
- The “bargained-for-exchange” (bargain);
White (Executor) v. William Bluett
- Estate of the father is suing the son (Bluett) on a promissory note. The father supposedly
promised not to enforce the note, in exchange for Bluett not complaining about having
received less money than his siblings while growing up;
- Court said that even if he could prove such agreement, it wouldn’t be binding because there
was no consideration;
- Bluett had no “right” to complain about how his father shared his money with his kids,
therefore his abstaining from complaining, ie from doing something he had no right to do,
can be no valid consideration;
Hamer v. Sidway (1891)
- Facts :
- (D) agreed with his nephew William (P) that if P would refrain from drinking, using tobacco,
swearing, and playing cards or billiards for money until he became 21, D would pay him
$5,000. When P became 21 he wrote a letter to D stating that P had performed his part of
the agreement and had earned the $5,000. P and D agreed that $5,000 plus interest
should remain with D until P was capable of taking care of it. D died without paying P the
$5,000 plus interest. Judgment for D. P appealed.
- Issue :
- Did the proposition between a testator and his nephew, where the latter agreed to refrain
from tobacco and alcohol, form a legal and binding contract between the parties sufficient
to uphold the recovery by the nephew?
- Decision :
37
- Valuable consideration may consist either in some right, interest, profit, or benefit accruing
to one of the parties or some forbearance, detriment, loss, or responsibility given,
suffered, or undertaken by the other party.
- Here, the court found that it is sufficient that P restricted his lawful freedom of action
within certain prescribed limits upon the faith of D’s agreement. Furthermore, the court
found nothing in the record that would permit a determination that D was not benefited in
the legal sense.
- Under the bargain test for consideration, P’s forbearance was arguably both a benefit to D
and a detriment to P. D benefited by having his nephew refrain from certain conduct and P
suffered a detriment by denying himself the enjoyment of that conduct.
- Rule :
- In general, a waiver of any legal right at the request of another party is sufficient
consideration for a promise.
- We don’t care about the adequacy of consideration, as long as there is consideration.
Want of consideration is fatal to enforceability;
Eleanor Thomas v. Benjamin Thomas
- Facts :
- Plaintiff’s husband’s dying wish was that his wife have either the house in which he lived
or 100 pounds. The declaration was relayed to the Plaintiff’s brothers (one being the
Defendant) and they agreed to carry out the intentions. The agreement was that Plaintiff
would have a house for her life, or until she remarried. She agreed to pay one pound
yearly for ground rent and to keep the house in repair. Defendant brought an ejectment
action after death of the second brother;
- Issue : Does consideration exist for the contract?
- Held :
- Yes. Mere motive need not be stated and we are not obliged to look for the legal
consideration in any particular part of the instrument, we may look to any part.
- The stipulation for ground rent was not a mere proviso, but was an express agreement.
In this case, the consideration was not stated in the usual place. However, in another
part the court found express agreement to pay an annual sum and a distinct agreement
to repair.
MUTUAL PROMISES
- “Where the doing of a thing will be a good consideration, a promise to do that thing will be
so too”;
- “The promises must be at one instant, or else they will both be nuda pacta”;
- We need to ensure there are 2 binding promises exchanged, ie. mutuality;
Great Northern Railway Company v. Witham
- Facts :
- GNR advertised for tenders for the supply of iron for a period of 12 months. Witham
tendered to supply the iron required for the period at certain fixed prices and “in such
quantities as the company’s store-keeper might order from time to time”;
- . GNR accepted the tender, but eventually Witham stopped supplying the iron;
- GNR sued for breach of contract. Witham defended the claim and alleged that the
agreement was not enforceable contract as there was no consideration by GNR;
38
- Issues :
- Court had to decide the obligation of a party who submits a tender guaranteeing their
ability to provide goods and services at fixed prices when this tender is accepted by the
party inviting tenders;
- Findings:
- There was sufficient consideration for Witham’s promise to supply the iron, despite GNR
not being obliged to order any iron;
- There was no obligation for the claimants to order any materials, however upon their
ordering, the defendant was obliged to deliver as per his tender
- A person who submits tenders which outline their ability to provide goods and services at
set prices must be able to do so when called upon should their tender be accepted;
Tobias v. Dick and Eaton
- Facts :
- Tobias has exclusive selling agency for Manitoba;
- What is Eaton bound to do:
- Allow Tobias to have exclusive right and give him the machines when he requires them;
- Not allow anybody else to sell the machines;
- What is Tobias bound to do:
- Nothing;
- There was no exchange at all in fact. There is therefore a lack of mutuality;
Wood v. Lucy, Lady Duff-Gordon
- Fact :
- Defendant is a "creator of fashions" whose favor helps a sale, and manufacturers of
feminine apparel are willing to pay for a certificate of her approval. She entered into an
agreement with plaintiff employing him to turn this vogue into money.
- He was to have, for the term of one year, and thereafter unless terminated by a written
notice, the exclusive right, subject to her approval, to place her endorsements on the
designs of others and in return she was to have one-half of all profits and revenues
derived from any contract he might make.
- Plaintiff claims that he kept the contract and that the defendant broke it, by placing her
endorsement on articles without his knowledge and withholding the profits, and sues her
for the damages. Defendant demurs to the complaint on the ground that the agreement
lacks the elements of a contract in that plaintiff does not bind himself to anything.
- Issue : Is there mutuality in the contract?
- Conclusion:
- Yes. The Court held that upon examination of the contract, although plaintiff does not
promise in express terms, such a promise is fairly implied. Defendant gave an exclusive
privilege and plaintiff's promise to pay one-half of the profits and revenues resulting from
the exclusive agency and to render accounts monthly, was a promise to use reasonable
efforts to bring profits and revenues into existence, and, hence, the demurrer cannot be
sustained.
- The obligation to account, the formula to calculate the profits, etc. imply an obligation
on his part to use reasonable efforts to bring profits;
- ***Tobias (precedent case) didn’t have to share the profits. His case was more akin to
a supply agreement
39
- Rule : A promise may be lacking within a contract, and yet the whole writing may be instinct
with an obligation, imperfectly expressed. If that is so, there is a contract.
PAST-CONSIDERATIONS
- Inducement : The promises have to be mutual, but they also have to be the inducement for
the other;
- My promise has to be the thing that gets you to make your promise;
- Past consideration:
- ex.: I fix the tire of an old man’s car on the side of the road. After I’m done, he says he
wants to give me 100$ for my help. I accept. I can’t sue because my promise (of fixing the
tire) wasn’t made in consideration of the 100$;
- Pao On v. Lau Yiu Long : An act done before the giving of a promise to make a payment or
to confer some other benefit can sometimes be consideration for the promise. It must’ve
been understood, at the time the act was agreed to be done, that the doing of said act was
to be remunerated;
- The act must have been done at the promisors’ request: the parties must’ve understood
that the act was to be remunerated either by a payment or the conferment of some other
benefit : and payment, or the conferment of a benefit, must have been legally enforceable
had it been promised in advance;
Webb v. McGowin
- They work in a Mill. W saves M’s life, at the cost of his own health. He cannot work ever
again. In consideration of W’s act of bravery, M promised to pay him 15$/week for the rest of
W’s life. He did the payments for 9 years. When M died, the estate stopped paying.
- The court found that M’s promise was enforceable on the basis that M’s material benefit of
being saved meant that his “express promise to pay appelant for the services rendered was
an affirmance or ratification of what appellant had done raising the presumption that the
services had been rendered at M’s request;
- Past considerations may
- A promise to pay for a prior act may be enforceable if there was a material benefit
received;
PRE-EXISTING DUTY
Harris v. Watson
- Facts :
- Harris was a seaman, Watson was the commander and owner of the ship
- Defendant asked plaintiff to perform some extra work and in consideration promised to
pay 5 guineas over common wage
- The ship was in danger so defendant promised to pay extra to induce seamen to exert
themselves
- Issue : Was the reformation of the contract binding?
- Holding :
- No, Extra wages for extra work does not exist for public policy reasons.
- If this kind of thing was enforceable, seamen would be able to act opportunistically at
sea
- Concerns with imperial power (matter of public policy)
40
- In cases of emergency there could be one party
taking advantage of another and
extracting a promise.
- Revisited in term of consideration instead of emergency
Stilk v. Myrick
- Group of sailors goes of on a voyage. They’ll be paid at the end of the voyage. Along the
way 2 sailors desert. The rest asks for more money, because now theres more work. Captain
agrees. When they get back to port, they ask for the extra money the captain promised, he
says no.
- The desertion of part of the cre is to be considered an emergency of the voyage as much as
their death; and these who remain are bound by the terms of their original contract to exert
themselves to the utmost to bring the ship in safety to her destined port;
- Before they sailed from London they had undertaken to do all they could under all the
emergencies of the voyage. They had sold all their services till the voyage should be
completed;
- Therefore, the subsequent agreement of more money is void for lack of consideration;
- Rule : The performance of a pre-existing obligation does not qualify as fresh or valid
consideration and, therefore, such an agreement to vary an existing contract remains
unenforceable;
Read : Nav Canada,
Nav Canada v. Greater Fredericton Airport Authority
- Ratio : A post-contractual modification, unsupported by consideration, may be enforceable
as long as it is established that the variation was not procured by economic duress.;
- A new promise may be enforced even if there is no consideration, if it is clear that the
parties intended to be bound by this;
- To establish economic duress, two conditions must be met:
- the promise but be made under pressure (demand/threat);
- the pressured party must have no option but agreeing.
- If these conditions are met, three factors must be analyzed:
- was the promise supported by consideration?
- Courts can look beyond the “peppercorn” sham;
- A peppercorn consideration may be evidence of a sham, but it could be a sign of a
desire to go through with the formalities (ex.: parents “selling” a house to their child
for 1$). Peppercorn could be used to say “we really mean it”;
- Sham, 2 possibilities :
- To fulfill a formality (the father asking for a 1$ from the daughter to show his real
intent to be bound) = valid;
- Economic duress (one party is getting extorted and did not want the transaction
and didn’t want the dollar either) = invalid;
- was the promise made "under protest” or “without prejudice”?
- were reasonable steps taken to disaffirm the promise ASAP?
We do not void a contract for inadequacy of consideration, unless it’s a sham. Sham is the
evidence of an invalid exchange;
41
Cook v. Wright
- Work is being done on a house. Wright was a manager for a house. Plaintiff threatened to
sue him even without claims. Wright knew that they had no claim, but he signed letters to
settle the claims anyway;
- Settling a claim that you know has no basis whatsoever is still a good consideration;
- Consideration = I’ll rid myself of the concern of a lawsuit. Wether their case is good or not
is irrelevant. The consideration of having peace of mind is good consideration. Making a
garbage case go away is good consideration;
- A promise to give up a claim that you have a reasonable belief in and is valid and non
frivolous, is good consideration for a contract. The position of both parties must be altered in
cases of compromise.
Fairgrief v. Ellis
- Agreed to settle with them even though they didn’t have an underlying claim;
- He believed that they would’ve had a good claim, so he settled what ultimately wouldn’t
have had a good claim anyway;
- His thinking that there was claim to settle is sufficient consideration;
- In that case, he has basically gotten rid of them knowing rid of them knowing their case was
garbage, sufficient consideration.
GIFTS TO CHARITABLE ENTITIES
- I promise to make a gift and then don’t make the gift;
Dalhousie College v. Boutilier
- Boutilier promised to give 500$ to Dalhousie;
- Gratuitous promise = must be supported by consideration for enforecment;
- What did Dalhousie promise him?
- Nothing. Where’s the consideration? An act or a forbearance may be consideration;
- Facts :
- Boutilier promised to pay Dalhousie $5000 in a campaign run by the university to raise
funds to "improve the efficiency of the teaching, to construct new buildings and to
otherwise keep pace with the growing need of its constituency" with terms of payment "as
per letter from Mr. Boutilier". No letter ever followed and Boutilier fell on hard economic
times and could not pay. He acknowledged that he still intended to pay, and would do so
when he could afford to. He died, and Dalhousie claimed against his estate for the money.
Dalhousie was successful at trial which was overturned on appeal.
- Issue : Is a gratuitous subscription promise sufficient to find a binding contract?
- Decision :
- Crocket, writing for the court, decides that this gratuitous promise did not receive any
consideration, and therefore that it is not a binding agreement.
- Boutilier did not promise to pay the money for any specific reason; he was not getting a
specific benefit out of it.
- Unless the promisor gets some specific benefit from a gratuitous promise, then there is
no consideration.
42
- If he had donated money specifically for the construction of a certain new building this
could be consideration; but no such purpose is found in this case and therefore there is
no binding agreement.
- Crocket also finds that estoppel does not apply here because it can only apply when a
representation has been made in fact (so, when the promisor has partially performed his
promise).
- Because the university promised nothing that they would do for him, the promise cannot
be enforceable;
- Maybe could’ve been enforceable if the university proved a detriment to them
associated with the donation (like if they promised not to do something or remove
something);
- Could be keeping something open on the basis of his promise (ie. we’ll keep the
German department open because you gave us money);
- Ratio :
- A gratuitous promise does not have sufficient consideration to be considered a binding
contract unless the money was given for a specific purpose which can be seen as of
some benefit to the promisor;
- For estoppel to apply, the promisee must rely on actual actions of the promisor, not merely
a statement that they will do something.
THE SEAL
- A gratuitous promise with a seal is enforceable by virtue of there being a seal;
- The contract under seal in enforceable in the absence of consideration;
- The seal “imports” consideration;
- Land can be transferred by a document under seal;
- When you don’t have a seal, you can compensate with some letters;
Linton v Royal Bank of Canada
- A guy sings a document that said “signed, sealed, delivered” in the context of taking a
mortgage;
- They put a paper seal on the document after it was signed;
- Linton signed the document with the intention of it being a deed under seal;
- The markings on the document saying “signed, sealed, delivered” indicated his intention;
EQUITABLE ESTOPPEL
- In some cases where there is reliance to one’s detriment, I may be prohibited from denying
the promise if there is reasonable reliance;
- Ex.: I ask the bank if there is money in the account, they say yes. I rely on this information
and cut cheques to people. They bump. Now the bank says there was no money. Equity will
give me estoppel of the bank;
- Equitable estoppel requires :
- A statement of fact which was made of the intention that the other person would rely on it;
- They knew the other person would rely on it or should’ve expected such;
- The other person relied on the information;
- They suffered a detriment;
- To allow the person suffer the detriment on the basis of the information provided is unjust;
43
- Promissory estoppel
- Promise;
- Expectation;
- Reliance;
- Detriment;
- Unjust;
- Difference between the 2 : one is a statement (equitable), one is a promise (promissory);
- We do not accept promissory estoppel for the future (Central London, Hudson, Maddison,
p. 302
- Equitable estoppel = shield;
- Raising estoppel as a defense to the other party’s claim;
- Ex.: High Trees;
- “prevent them from denying they agreed to take less”
- “He should be estopped from saying such a thing”;
- Promissory estoppel = sword;
- “I want you to create a promise for me”;
- “take a statement and use it to build a new arrangement”
- Using estoppel as a sword to create a win for me;
- Promissory estoppel involves a clear and definite promise, while equitable
estoppel involves only representations and inducements. The representations at issue
in promissory estoppel go to future intent, while equitable estoppel involves statement of
past or present fact.
SKIDMORE V. BRADFORD
- Uncle promised nephew that he would buy him a warehouse;
- Uncle dies beofre paying the whole;
- Estate was held liable because
Re Hudson
- ?
Central London Property Trust v. High Trees House
- Facts :
- The defendants, High Trees, leased a block of flat from the plaintiffs, Central London
Property Trust.
- The property suffered from falling occupancy rates due to the outbreak of World War II in
1940, so the parties agreed to reduce the rent by half.
- However, it was not expressly agreed how long this would last for.
- The defendants continued to pay the rent at this new rate.
- By 1945 the war had ended and the flats were at full occupancy.
- The plaintiffs sued High Trees for the full rent from 1945 onwards.
44
- Issue : The defendants argued that the agreement to pay the rent at a reduced rate applied
to the whole term of the lease. They argued that the plaintiffs were estopped from claiming
that the rent should be higher.
- Held :
- The court reviewed the past case law, especially Hughes v Metropolitan Railway Co (1877)
2 App Cas 439, where the House of Lords had held that parties should be prevented from
going back on a promise to waive certain rights.
- Denning J stated that the cases showed that a promise which the promisor knew was
going to be acted on by the person to whom it was made was enforceable despite a lack
of consideration.
- The time had come for this to be recognized as giving rise to an estoppel.
- Here, the plaintiffs had made a binding promise.
- However, the evidence showed this only applied during the war. Therefore, after the war
the defendants were liable for the full rent.
- The rent would be returned to the originally agreed price for the future only. CLP could not
claim back the arrears accrued during the war years.
- This case is important as Denning J (as he then was) established the doctrine of
promissory estoppel.
- Promissory estoppel prevented CLP going back on their promise to accept a lower rent
despite the fact that the promise was unsupported by consideration.
- Denning J "In my opinion, the time has now come for the validity of such a promise to be
recognised. The logical consequence, no doubt is that a promise to accept a smaller sum
in discharge of a larger sum, if acted upon, is binding notwithstanding the absence of
consideration”
- Cannot use estoppel as a sword;
Combe v. Combe
- Facts :
- During the divorce process, a husband promised to pay his wife a tax-free sum of £100
each year to represent a permanent maintenance payment. The wife was aware that the
husband was not in a good financial state and made no claim to this payment. Several
years later, she brought an action to claim the arrears that were owed under their
agreement.
- Issue :
- This case was brought only four years after the landmark decision given in Central London
Property Trust LD v High Trees House LD, which held that a party could not revert on an
earlier promise made. Therefore, the court in this instance was required to consider
whether the husband could withdraw from his earlier promise to pay the wife the sum of
money. It was important for the court to understand whether the wife had given
consideration in return for the husband’s promise and whether the wife could claim for the
sum of money that had been promised previously, despite the fact she had not claimed for
the money for several years.
- The court held that the wife could only enforce her agreement for the payment which was
promised by the husband if she had given consideration. The court found that no
consideration was given by the wife as she had not agreed to apply for the maintenance that
was promised by the husband. The husband did not request the wife to refrain from taking
the maintenance payment and therefore the wife could not claim for the money.
- Court rejects it because there is no kind of reliance here;
45
Cowper-Smith v. Morgan
- Facts : they need someone to care for their mother. They ask their brother to move from
England and take care of the mom. If he does, his sister will give him her share of the house
(that was supposed to be split between the kids). He accepts and comes to BC, moves in,
takes care of her. Mother dies. When the mother dies, the sister says she’s not giving him her
share;
- Why isn't it enforceable at law?
- She’s promising him an interest in land and there’s not writing. There’s consideration, but
its not enforceable. He cannot enforce her promise at law. He goes to Equity;
- Proprietary Estoppel : is a legal claim, especially connected to English land law, which may
arise in relation to rights to use the property of the owner, and may even be effective in
connection with disputed transfers of ownership.
- Requires:
- a representation that the claimant will receive property interest;
- A reliance (by doing something or refraining from doing something)
- A detriment as a result of the reasonable reliance such that it is unfair or unjust not to
enforce the promise made;
- The court permits a recovery under the circumstances;
American position on promissory estoppel :
- Americans allow a promise to bind you in the future, provided there is reliance. In a case like
High Trees, the Americans would’Ve said promissory estoppel would create a future
obligation as well. They would therefore be getting expectation also.
- Americans say that promissory estoppel may result in a promise in the future, but the
remedy may be limited;
- Ex.: Uncle says to a favourite nice that he doesn’t like the fact that she has a job. Girls of
her class do not work, but she likes working. He says “I’d like you to give up your job and
if you were to give up your job, I’ll give you 100$ per month”. She gives up the job. The
uncle gives her the money for 5 years. He dies. The executors stop the payments. She
said “but he made a promise to me”. No consideration for the promise.
- He made a promise, knowing I would rely, I did in fact rely and if you back out of the
promise, it’s unjust.
- Court agrees and gives her expectation remedy : 100$/month for the rest of her life;
- Hoffman v. Red Owl Stores:
- Plaintiff owns a store, but he wants a bigger store. He starts to talk to Red Owl Stores
about giving him a franchise. They want him to get some experience working in a big
store. They say if he sell his store and move to another town, they’ll make him
manager of a big store so he can get the experience. He accepts, moves, buys a
building and starts to run a decent business in it. Then they say if he sell that, they’ll
give him their franchise. In the end, they don’t give him a franchise with no reason
why.
- He sues, saying they made a promise to him (ie. if you do these things, you’ll get a
franchise).
- Red Owl says that’s not what they said, they said that before giving him a franchise
they wanted him to get experience and whatnot. We’ll give you a franchise if you
prove yourself and we’ll give you opportunity to prove yourself;
46
- Detriment alleged : he sold his business at a slight loss, then incurred all these
expenses moving about at Red Owl’s demand (reliance);
- What does he want? A franchise (expectation);
- Court says the promise is sufficient to be binding, but we will only give him the
reliance and not give him the full expectation;
- Sign the US courts moved closer to High Trees. But if the reliance was significant
enough, he might’ve got his expectation;
- In Canada his case would be dismissed because estoppel is used as a sword
(contrary to High Tree)
47
UNILATERAL CONTRACT
- A unilateral contract is made by accepting an offer, not by making a counterpromise (which
-
-
would create a bilateral contract);
Only one relationship of right and duty is created between the parties:
- Promisor is under duty to perform his promise and promisee has a right to the promised
performance;
You can accept an offer by:
- Making a promise in exchange (bilateral contract);
- Performance;
- You have to perform in a manner in which your activity comes to their knowledge;
- Performance has to unequivocally refer to the offer;
A unilateral contract can only be accepted by performance, never by promise;
- Ex.: A reward for my lost dog. Can’t claim reward on promise, only on performance;
What if I revoke my offer before he performed? Nothing, I can revoke then;
WILLAMS V. CARWARDINE (1833)
- Facts :
- Walter Carwardine was murdered between when he was last seen on March 24th 1831,
and when his body was found on April 12, 1831. He was seen on the night that he was
supposedly murdered with with Mary Anne Williams who was questioned but gave no
information to the magistrates of worth. William, Walter's brother, posted a handbill for
information as should lead to the discovery of the murderer with a reward of £20. Williams
was beaten by her husband and believing she was going to die made a statement which
led to the conviction of her husband for Walter's death.;
- Issues : Has the plaintiff formed a contract with the defendant in spite of the fact that she
was not motivated by the reward when the information was given?
- Held : Finding for the plaintiff;
- The court held that Williams had clearly performed the terms of the offer (giving
information that lead to the conviction of the murderer) and the handbill, which she must
have known of given that it was posted all over Hereford, promised to give money for that
information. As a result, a contract was formed with any person who performed the
condition, without considering the motivations of the individual.
THE CROWN V. CLARKE
- Facts :
- The claimant, under investigation for the murder of 2 police officers, gave evidence which
led to the conviction of another person, the actual murderer. There had been a reward of
£1000 to anyone who gave such evidence;
- Issues :
- Could the claimant claim the reward, given that he had said in his interview that we was
cooperating “exclusively in order to clear his name”;
- Held :
- Claim failed, no recovery. It is necessary to act in reliance of a unilateral offer when
accepting it. Mr Clarke was not acting upon the offer.;
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CARLILL V. CARBOLIC SMOKE BALL COMPANY
- Fact : The Plaintiff, believing Defendant’s advertisement that its product would prevent
influenza, bought a Carbolic Smoke Ball and used it as directed from November 20, 1891
until January 17, 1892, when she caught the flu. Plaintiff brought suit to recover the 100£,
which the Court found her entitled to recover. Defendant appealed.
- The Defendant, the Carbolic Smoke Ball Company of London (Defendant), placed an
advertisement in several newspapers on November 13, 1891, stating that its product, “The
Carbolic Smoke Ball”, when used three times daily, for two weeks, would prevent colds
and influenza. The makers of the smoke ball additionally offered a 100£ reward to anyone
who caught influenza using their product, guaranteeing this reward by stating in their
advertisement that they had deposited 1000£ in the bank as a show of their sincerity. The
Plaintiff, Lilli Carlill (Plaintiff), bought a smoke ball and used it as directed. Several weeks
after she began using the smoke ball, Plaintiff caught the flu.;
- Issue : Lindley, L.J., on behalf of the Court of Appeals, notes that the main issue at hand is
whether the language in Defendant’s advertisement, regarding the 100£ reward was meant
to be an express promise or, rather, a sales puff, which had no meaning whatsoever.
- Held : Defendant’s Appeal was dismissed, Plaintiff was entitled to recover 100£. The Court
acknowledges that in the case of vague advertisements, language regarding payment of a
reward is generally a puff, which carries no enforceability. In this case, however, Defendant
noted the deposit of £1000 in their advertisement, as a show of their sincerity. Because
Defendant did this, the Court found their offer to reward to be a promise, backed by their
own sincerity.
- This case stands for the proposition that while sales puffery in advertisements is generally
not intended to create a contract with potential product buyers, in this case it did because
the Defendant elevated their language to the level of a promise, by relying on their own
sincerity.
- Carbolic was master of the offer, they could’ve put an evidentiary criteria if they wanted
to;
- The fact they put money aside (the 1000 pounds) is what distinguishes their claim from
sale talk to a sincere unilateral offer;
- Rule : This case considers whether an advertising gimmick (i.e. the promise to pay
100£ to anyone contracting influenza while using the Carbolic Smoke Ball) can be
considered an express contractual promise to pay. ;
***Right to an option : in American law, if you undertake the task asked, the offeror
can’Ttunilaterally revoke without giving you reasonable time;
PROBLEMS IN THE INTERPRETATION OF WRITTEN CONTRACTS
UNSIGNED DOCUMENTS (Ticket cases)
- Ticket case : were these provisions brought to my attention and did I have an opportunity to
assent to their inclusion?
PARKER V. THE SOUTH EASTERN RAILWAY COMPANY
- Facts :
- Parker paid to leave his bag in the cloakroom of South Eastern Railway (SER). There was
a notice within the cloakroom stating that SER would not be responsible for any deposits
49
exceeding £10. in value. The tickets given to customers on making their deposit had the
same notice printed on them in legible writing. Parker’s bag exceeded 10l. in value and it
was lost or stolen. Parker successfully claimed against SER for his lost bag and SER
appealed.
- Issue :
- Parker argued he had not seen the notice in the cloak room and had not read the terms on
the ticket, but had simply placed it into his pocket believing it to be a mere receipt for his
deposited goods. As such, SER should not be able to rely on the exclusion clause
because it would be unreasonable to expect customers to know that a receipt for
deposited goods contains special conditions. SER claimed it was irrelevant whether
Parker had read the notice or the ticket, because a party could still be bound by a
contract irrespective of whether he had read its terms. They argued they had taken
sufficient steps to bring the terms to customers’ attention.
- Held :
- A re-trial was ordered. The judge’s direction at first instance that Parker was not bound by
terms he had failed to read was incorrect. Parker would not be bound by terms he did not
know were printed on the ticket, but where he knew there were terms on the ticket, or
that there was writing on the ticket, he would be bound providing the jury were
satisfied he had been given sufficient notice.
- If a plaintiff does not see writing that contains "conditions" of the contract and no
reasonable effort was made to ensure he was aware of it, then he is not bound by its
terms; if he does see it and either does not read it, or does not think that it contains
conditions, then he will be bound by its terms so long as the defendant delivered it in a
manner that gave him reasonable notice that there were conditions on the ticket.;
CHAPELTON V BARRY URBAN DISTRICT COUNCIL
- Facts :
- Chapelton wished to hire a deck chair and approached a pile of chairs owned by Barry
Urban District Council (BUDC). A notice adjacent to the chairs detailed the cost of hire and
advised customers to obtain tickets and retain them for inspection. Chapelton purchased
tickets and placed them in his pocket. On one side of the tickets, the council purported to
exclude liability for any accidents caused by hiring the chairs. Chapelton sat down and the
canvas gave way. He sought damages from BUDC and it was held they had effectively
excluded liability. Chapelton appealed.
- Issues :
- Chapelton argued he had not been given sufficient notice of the clauses printed on the
ticket and, therefore, he should not be bound by them. There was nothing on the notice
adjacent to the chairs, or on the face of the ticket to alert customers’ attention to the
clauses on the back. The ticket should be regarded as a receipt provided after the
formation of the contract. BUDC contended Chapelton did have notice of the terms
because the exclusion clause was clearly printed on the ticket. The notice adjacent to the
deck chairs was merely an invitation to treat. The ticket was not merely a receipt but it
amounted to a written contract detailing the terms by which the parties agreed to be
bound.
- Held :
- Chapelton’s appeal was successful. The ticket was held to be a receipt and the conditions
by which BUDC were held to have offered the chairs for hire were those contained in the
notice, and the notice did not contain any exclusion clause. BUDC had not, therefore,
brought Chapelton’s attention to the clause and they could not rely on it.
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SHRINK WARP LICENCE
- The modern equivalent of the ticket cases is known as “shrink wrap licence” (software);
- When I buy a software in a store, I can’t return it after opening the shrink wrap, even
though the terms and conditions are inside the box;
- Cour says it has to be clear that the terms are in the box (or in the download), but you
must give people an opportunity to read them and then reject them;
PAROL EVIDENCE RULE
- Designed to protect the sanctity of a written agreement;
- It is about the question of extrinsic evidence (when can I introduce evidence of oral
agreements that are not in the actual document?)
- Rule : The terms of a writing cannot be contradicted by evidence of a prior or
contemporaneous oral agreement;
- Any statement made leading up to the agreement or at the moment the agreement is
signed is kept out of the contract;
- If statement happens after, then it may modify (not contradict!) the agreement. Plaintiff
will then have to show consideration;
- Ex.: Frigaliment chicken case;
FRIGALIMENT V. BNS (CHICKEN CASE)
- Facts : Defendant contracted to sell chicken to Plaintiff. Both contract indicated that
Defendant was selling specified amounts of 2 1/2 – 3 lb. chickens and 1 1/2 – 2 lb. chickens.
When the fist shipment was sent, Plaintiff found that the heavier chickens were not young
chickens suitable for broiling or frying, but older stewing chicken. The parties disagree as to
what the term “chicken” in the contract means.
- Issues : Does the term in the contract only mean younger chicken?
- Held :
- No. The term “chicken” in the contract did not mean only younger chicken.
• In determining what a term means the court will consider (in order of importance): (1) the
language of the contract, (2) the preliminary negotiations, (3) trade usage, (4) legal
standard, (5) course of performance, and (6) maxims.
- The smaller chickens had to be younger chickens, because older chickens do not come in
that size. Because the smaller chickens had to be younger chickens, Plaintiff argues that
the larger chickens also had to be young.
- Plaintiff also argues that trade usage of the term “chicken” is to indicate a young chicken.
However, there was conflicting evidence as to whether “chicken” only means a young
chicken in the trade.
- One maxim is that a reasonable construction is preferred over an unreasonable
construction. Defendant alleges that to sell younger chicken to Plaintiff at the contract
price would result in a loss to the Defendant. Because under the Plaintiff’s construction
the contract would result in Defendant selling chicken at a loss, Defendant argues that
Plaintiff’s definition of “chicken” is unreasonable.
- The Court holds that the because Defendant’s definition coincides with the objective
meaning, one of the dictionary definitions, the Department of Agriculture’s regulations
referenced in the contract, some trade usage, the realities of the market, and statements
by Plaintiff’s spokesperson, Plaintiff has not met its burden of showing that the narrower
definition of the term applies.
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- Discussion:
- In the present case, the court holds that Plaintiff did not meet its burden of showing that
its interpretation of the term “chicken” should control when all of the factors are
considered.
- Oral evidence used to explain a term in the written document;
- Rule :
- To interpret a disputed term in a contract, the court will consider (in order of importance):
(1) the language of the contract, (2) the preliminary negotiations, (3) trade usage, (4) legal
standard, (5) course of performance, and (6) maxims.
PRENN V. SIMMONDS
- Rule : Commercial contracts are to be construed in the light of all the background
information which could reasonably have been expected to have been available to the
parties in order to ascertain what would objectively have been understood to be their
intention. Evidence of negotiations is not admissible. Assumptions which were made in
offers and counter-offer may not be acceptable by the other party.;
- When someone wants to introduce extrinsic evidence, the first question you want to know
is :
- 1) What are they trying to do?
- Introduce to contradict the document : cannot introduce;
- Introduce to explain the terms of the document : almost always;
- Court will first have to find there is an ambiguity;
- Introduce to supplement (add clauses) : maybe;
- What does it depend on?
- The supplement must be “a consistent additional term”;
- I’m seeking to add something that fits in with the rest of the document;
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STATUTE OF FRAUDS :
- Certain contracts have to be reduced to writing in order to be enforceable;
- Statutory law;
- Designed to channel certain documents into written form;
- It’s about whether we will enforce oral agreements;
- The principle of assumpsit : contracts don’t have to be in writing to be enforceable;
- This is the general rule to which the statute of frauds makes exception;
- The statute of frauds says that when we come to certain contracts, evidence of the making
of the agreement must be in writing, otherwise it is unenforceable;
- What kind of contracts :
- An agreement for an interest in land;
- Sale, mortgage, servitude, easement, lease, etc.;
- Modern statute of frauds have altered things in matters of leases, where you can
have an oral lease;
- A contract which cannot be performed in a year;
- Ex.: A 5 year manufacturing agreement;
- Suretyship agreements;
- Where I agree to stand liable for another person’s debt;
- Ex.: In a construction contract where I take on a subcontractor and agree to make
good on any damages they could make;
- Contracts in consideration of marriage;
- Marriage is an oral contract an writing isn’t required;
- A contract in consideration of marriage must be in writing;
- ex.: prenup
- Writing : what form?
- The writing may not be the actual agreement;
- The statute of frauds doesn’t say that the contract must be in writing. It says that
evidence of the contract must be in writing;
- What kind of evidence?
- 1) The actual contract;
- All the terms are in writing;
- 2) Memo, letter, email, etc.;
- Evidence of the agreement;
- The writing does not need to contain all the terms;
- Once evidence of the agreement is entered, you can complete it with oral
testimony to demonstrate the terms;
- It only has to show that we made a deal;
- Is the statute of fraud a shield or a sword?
- It is not designed for people to get out of agreements, rather it is designed to help
someone prove there was a deal and what it was;
- What kind of writing?
- PAper (can be a printed thing like an email or a text)
- What must the writing show?
- 1) An agreement;
- 2) Quantity;
- 3) Must be signed (BY DEFENDANT);
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RECTIFICATION
USA V. MOTOR TRUCKS LIMITED
- AMERICAN company makes contract before the war comes to an end. There is a provision
saying that if the war comes to an end, US government could end contract;
- Motor company had to build another plant to accommodate the contract;
- War ends, UsA ends contract;
- What do they owe the motor truck company?
- 1.3M$ for goods supplied and stock;
- 300k$ for land and building Usa knew motor were going to buy;
- They agree on 1.6M$ for the aforementioned expenses;
- The writing only says the 1.6M$ is for goods, they forgot to put in “land” too even
though that is what they agreed on;
- USA says the contract has to be fixed to say “goods and land” or at least if its not
going to include the land, they should get 300k$ back;
- The fact that the $300k was paid by USA can only indicate that the land was
actually part of the deal when orally concluded. Everybody agreed the goods
were worth (agreed value) was $1.3M;
- Proof the writing does not reflect the underlying agreement;
- Court says that in order to correct the document, you have to show with clear and
substantial evidence what was the underlying agreement;
- You can have a document corrected only if you can prove, almost beyond reasonable doubt,
what the underlying agreement was;
- 3 steps :
- 1) Prove actual underlying agreement (“beyond doubt”)
- 2) Prove that the writing does not accurately reflect true agreement;
- 3) Is there a reason not to do it?
- Change in position (opening claim in detriment);
- Acted on it and changed it would be to their detriment;
- Ex.: if Motor Truck had already sold the land to someone else because they
believed the land wasn’t included;
- Equity courts will grant rectification provided
CANADA V. FAIRMONT HOTELS INC.
- Affirms the basic rule of rectification;
- Says that although rectification is available, it has to be use restrictively not to undermine the
writing of contracts. Court requires due diligence and that people pay attention to
documents before they’re signed;
- An imperfectly written agreement that doesn’t get you what you actually wanted isn’t
justification for rectification. It has to be to fix a mistake in the writing, not in formulating the
document;
- We din’t fix deals, we fix scrivener’s errors;
- You have to ask:
- Is the mistake mutual or unilateral?
- Mutual : courts are more likely to order a rectification;
- A “common mistake” = we ask the 3 steps (from motor truck case);
- Unilateral : a unilateral mistake might still be rectified if the non mistaken party was
taking advantage of the other (if they knew or ought to have known of the mistake and
tried to take advantage of it. Not doing anything can constitute “trying to take
advantage”);
- Ex: Motor trucks knew of the mistake and were waiting to see if they could stiff USA
on the deal;
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- Although the standard of proof is balance of probability, the quality of the evidence has to be
very high;
- So the standard isn’t different from other civil cases, but it really actually is;
- Clear and convincing evidence of.the error;
REPUDIATION
- Repudiation = when do I get to declare a breach of contract and walk away?
- Not every breach of a convenant is in fact a breach of the contract;
- We tolerate that someone might not perform the contract perfectly;
- Question is : is there a right to repudiation or is the right really to damages for the specific
breach?
- Is the breach material, substantial? Does it go to the whole contract? IF so = repudiation;
- Does it make the contract something significantly different than what I expected when it
was concluded?
WAIVER
- Waiver = the relinquishment of a known right;
- Ex.: I had the right to performance at this time and I didn’t charge you for it. I waived the
default. At what point can I “unwaive” it?
- Have I relied on the fact that you will accept a late performance because you waived it a
couple times : then the waiver is permanent;
- You may be estopped from claiming the breach;
- Manufacturing case:
- They were deliverng the goods late every months and it was accepted. They setup
their supply chain to deliver late. After a year and a half, the buyer asked for
deliveries to be on time. Couldn’t ask for that because manufacturer relied on the
waiver to their detriment;
Points about the exam:
1) Don’t have to cite the cases;
1) Maybe the main, classic ones;
2) In answers, present the law then apply to the facts;
1) EXPLAIN the law;
2) The moment we use a principle, define and explain it;
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