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Bible Notes Contracts
Contracts (Université de Montréal)
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Introduction to Contract Law.................................................................................................................................................................1
Theories of Contract Law............................................................................................................................................................................ 1
Freedom of and from contract ............................................................................................................................................................. 1
Assent (consentement) .............................................................................................................................................................................. 1
Economic interpretations ........................................................................................................................................................................ 2
I.
Damages for Breach of Contract.................................................................................................................................................... 3
The Three Damage Interests ........................................................................................................................................................................ 3
Expectation .................................................................................................................................................................................................. 6
Reliance .......................................................................................................................................................................................................... 4
Restitution..................................................................................................................................................................................................... 3
Problems in Measuring Damage ................................................................................................................................................................ 8
Diminution in value or cost of performance? ............................................................................................................................... 8
The lost volume seller ............................................................................................................................................................................ 10
Limitations on Damages ............................................................................................................................................................................ 12
Remoteness (foreseeability)................................................................................................................................................................... 12
Notice of Special Circumstances ................................................................................................................................................... 14
Mitigation .................................................................................................................................................................................................... 19
Certainty ...................................................................................................................................................................................................... 21
Special Problems in Damages ................................................................................................................................................................... 22
Damages for Intangible Injury ........................................................................................................................................................... 22
Punitive Damages .................................................................................................................................................................................... 25
Damages Based on the Gain to the Breaching (defendant’s) Party ...................................................................................... 26
Time of Measuring Damages .......................................................................................................................................................... 26
Restitution .............................................................................................................................................................................................. 27
Specific Performance .............................................................................................................................................................................. 30
Land .......................................................................................................................................................................................................... 30
Personal services ................................................................................................................................................................................... 30
Goods ....................................................................................................................................................................................................... 32
What you should know at the end......................................................................................................................................................... 34
II. FORMATION ........................................................................................................................................................................................ 35
Offer and Acceptance .................................................................................................................................................................................. 35
Offers and Preliminary Negociations ................................................................................................................................................ 35
The power of Acceptance..................................................................................................................................................................... 39
The tendering process ............................................................................................................................................................................ 43
What you should know at the end......................................................................................................................................................... 43
The Importance of a Writing ................................................................................................................................................................... 44
Formalisation and Certainty ................................................................................................................................................................. 44
Contracts Negotiated by Correspondence ..................................................................................................................................... 47
Electronic Offers and Acceptances .................................................................................................................................................... 49
What you should know at the end......................................................................................................................................................... 49
III. ENFORCEABILITY .....................................................................................................................................................................50
1. The Doctrine of Consideration .......................................................................................................................................................... 51
What is consideration? ........................................................................................................................................................................... 51
The Bargain Theory ................................................................................................................................................................................. 51
Mutual Promises....................................................................................................................................................................................... 52
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Past Consideration..................................................................................................................................................................................... 53
The Pre-Existing Duty Rule .................................................................................................................................................................. 53
Compromises ............................................................................................................................................................................................ 55
Charitable Subscriptions........................................................................................................................................................................ 56
Non-Bargain Promises ................................................................................................................................................................................. 57
2. The Seal ................................................................................................................................................................................................... 57
3. Estoppel ................................................................................................................................................................................................. 58
Unilateral Contracts..................................................................................................................................................................................... 61
IV. PROBLEMS IN THE INTERPRETATION OF WRITTEN CONTRACTS .................................................. 63
Unsigned Documents (The Ticket Cases) ............................................................................................................................................ 63
The Parole Evidence Rule ........................................................................................................................................................................... 64
Rectification .................................................................................................................................................................................................... 66
V. PERFORMANCE AND BREACH .............................................................................................................................................. 68
Repudiation..................................................................................................................................................................................................... 68
Waiver and Conditions Precedent ........................................................................................................................................................... 68
The Duty of Good Faith ............................................................................................................................................................................ 69
VI. MISTAKE ..............................................................................................................................................................................................70
Misrepresentation ......................................................................................................................................................................................... 70
Mistake about Terms................................................................................................................................................................................... 70
Mistaken Assumptions ................................................................................................................................................................................. 70
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Introduction to Contract Law
Theories of Contract Law
1-25
Contract Law Perspectives
• What is the basis for contract law? It is the bargain of exchange, treading promises.
• Why does the law enforce contracts? Contract law tries to come up with an explanation for
why promises should always be enforceable? Don't we have a right to change our mind? Contract
struggles with the idea that someone has to be forced to perform a contract that they no longer want
to.
• Who benefits?
Freedom of and from contract
2 principles:
1. Freedom of contract: free to create any contract you want. There are default rules if no
different one is used.
Ex. COD: cash on delivery. You can also negotiate anything else.
2. Freedom from contract: There is also the right NOT to be in a contract. → Why can’t you
stop being in one then?
→ Contract as a promise
The Promise Principle: contracting parties have willingly and freely agreed to be bound and so we
must respect that choice.
But what if I change my mind? Why should I still be bound?
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 the rule that it would be best for him to follow”
Your individual utility is diminished in a particular situation, but it is more beneficial for the future, the community and
stability of contracts.
→ 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 promisor incurs a contractual obligation, the legal enforcement
of which is morally justifiable, by …
Assent (consentement)
The law considers boilerplate to be a 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 exist. How can this be consent ?
One of the justification for boilerplate ?
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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 ascent but in many cases we don’t even know
what the terms are.
Economic interpretations
In this enforcement mechanisms, contract law essentially limits freedom of contract
From an economic perspective, we can identify several major functions of contract law:
1. Providing an essential check on opportunism in non-simultaneous exchanges
2. Filling gaps in incomplete contracts
a. If you have missed something, you can rely on contract law to solve the rest of problems
3. Distinguishing welfare-enhancing from welfare-reducing exchanges
a. Principle of efficient breach: K1: 100$; K2: 150$, Market value: 120$ → you can breach
the K1 and give that person 20$ (difference with market price), and you get to keep 30$.
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Law & Equity
We have a division of law and remedy. The presumptive remedy for injury at common law is money damages.
Damages are said to be efficient and predictable.
Specific forms of relief, such as specific performance or injunctions are equitable remedies and available only
where there is no adequate remedy at law.
• In CL we do not usually give specific relieves. In order to obtain specific performances in contracts,
the plaintiff needs to show that money will not do it.
The purpose of Damage Award
“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 position as he would have been in if he
had not sustained the wrong for which he is now getting his compensation or reparation.”
– Livingstone V. Rawyards Coal Co (1880)
•
•
•
It is not possible to provide “perfect compensation”
Restrictions must be placed on damage awards in many cases
There is a tension between putting a plaintiff in the exact position he would have been had the injury
not occurred and adopting fair, consistent, and efficient legal principles.
Impossible to Provide Perfect Compensation
If you had another obligation and someone breached the contract, you will not be fully compensated, because
contracting would involve too much liability.
• « I am responsible for the damages for which I have assented »: you cannot be held liable if
it was not clear (or clear from the circumstances) that there were other obligations.
• There is no compensation for aggravation or disappointment.
The compensation principle works in general, but at the margins, it is a bit rough. The alternative creates too
many problems.
The Columbus (1849): “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 necessity,
exceed, in others fall short of the precise amount.”
The Three Damage Interests
25-38
You are entitled to damages, but how to measure them?
This is a theory developed by professors, which has been accepted by courts.
Restitution
Putting the breaching party in the position he would have been in had the contract
never been made.
• Restoring what the other party gave.
• It is the most limiting of them all, you are simply receiving what you gave.
• Restitution Interest & Unjust Enrichment  where a plaintiff, in reliance on a promise,
• has provided some benefit to a defendant, who has failed to perform their promise. The
• court then requires the defaulting party to relinquish the value they have received to
• prevent unjust enrichment. The interest protected is called the restitution interest.
Bollenback v. Continetal Casualty co
414 P2d 802
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Facts
The plaintiff wants the insurance company to pay the hospital bill and they refuse.
What does the plaintif f want?
He wants the premiums back.
What is cause of action?
He is not suing in breach of contract; he says there is no contract at all. It is rescission and
restitution. He wants the court to declare that there was no contract.
• In order to get the remedy what must happen? Recission
o If I have failed to perform the contract, the contract must be brought to an end, “we
must rescind the contract”, the contract should be declared void.
If he sues in breach of contract, he receives 100$ (expectation) If he
sues in rescission, he receives about 2000$ (restitution)
Arguments
• Why does Bollenback say that he should have a rescission and restitution of the contract?
o Because the insurance company has not provided him with any cover at all.
• What does the insurance company say in response?
o Bollenback should just get damages for the denial of coverage, which would basically
mean giving him his hospital expenses.
o He should not get restitution for all the premiums, he should get restitution, what he
would have gotten with the contract i.e. the hospital fees.
Decision
• In order to succeed, what must Bollenback show?
o That the breach was substantial
o That the insurance company basically repudiated the contract
• What does the court do?
o Orders a rescission and restitution of the contract.
• Why?
o The breach of contract was substantial; they acted like there was no contract at all. As a
result, he should have rescission and restitution, the breach is substantial.
o The insurance company was not merely mistaken about the extent of coverage, it was saying
there was no coverage at all. Bollenback was not getting what he paid for.
o If for four years that have acted as there was no contract, then there’s no contract, he is
entitled to recover all the premiums he paid during those four years. He should be restored.
Restitution following recission.
Point of the case: demonstrates how you frame the cause of action has an impact on
damages.
Reliance
Putting the non-breaching party in the position he would have been in had the contract
never been made.
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•
•
•
•
It is about measuring the damage, not by what they would have got, but by what they have
lost by getting it from other people.
It is putting the person back to square one.
Reliance is a question of expenses which are enquired preparing to perform the contract.
Reliance Interest  where a plaintiff has changed their position because of their reliance on the contract with
the defendant, the object is to put the plaintiff in as good a position as they were prior to the promise;
Sometimes, courts put them together (reliance and restitution), but strictly speaking, it is two different
concepts.
Pre-Contract v Post-Contract Expenses
Traditional rule:
• Hodges v The Earl of Litchfield (1835) 1 Bing NC 492, 498: “The expenses preliminary
to the contract ought not to be allowed. The party enters into them for his own benefit at a
time when it is uncertain whether there will be any contract or not.”
• Expenses need to be divided between the ones occurred before the contract and the ones
occurred after the contract.
o Traditional rule is that the expenses made before the contract are not
o recoverable.
Anglia Television v Reed
[1972] QB 60 (CA)
Facts
Reed is the actor of a television show. He was booked for a play, but he was double booked. He cancels,
they try to find someone else but can’t. AT didn’t have their advertisers yet, so couldn’t ask for
expectation. They had to abandon the project because of it.
AT seeks reliance.
For all the technical employees, Reed says it is impossible; he is responsible only for what has been signed
after, because they did not rely on his contract to make these contracts. Those expenditures were made on
a gamble that they would find someone to do that job (pure reliance) → the court refuse Reed’s argument,
because now that he has accepted the contract, he is liable. Had he not said yes, they would have found
someone else. Now they are relying on his contract. If he hadn’t accepted, he never would have been
liable. Because Reed knows the television industry, he knows what happens if he doesn’t show up.
Arguments
• What does Anglia want?
o All the wasted expenditure
• What does Reed say Anglia should get?
o Only the expenditure incurred after September 2, the day he signed the contract.
• What is Anglia not seeking lost profit?
o It couldn’t prove any lost profit at the time. No advertising had been sold. Who knows
how much money --- if any --- the film would have made?
Decision
• Why does the court give Anglia the pre-contract as well as post-contract expenses?
o Because when he signed the contract, Reed knew that Anglia had already spend a lot of
money preparing to film. He also knew, therefore, that if he backed out at the last moment
that expenditure would be wasted.
The court gives the expenditures that occurred before and after the contract BECAUSE when Reeds signed
the contract, he knew about the expenses, he’s an actor that’s familiar with the industry.
* Since they hadn’t paid the actor yet, the only had reliance, not restation.
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Point of the case: if you can’t prove expectation, you can use reliance.
Expectation
Putting the non-breaching party in the position he would have been if the contract
had been performed.
• Giving the value of the thing the party would have had.
• Sometimes, it is harder to evaluate because it is about guessing and is less definitive. If we
are guessing, we don’t use expectation, because we don’t want to put the party in a better
position, because that is not what the contract was agreed on.
• Expectation Interest  where damages are awarded based on putting the plaintiff in the position they would
have been if the defendant had performed their promise;
* You could have a contract where there’s restitution, but not reliance. And could have reliance without
restitution (ex. Hired a truck to transport the bananas but haven’t paid for the transportation yet). There
can also be both together.
Pitcher v Shoebottom
[1971] 1 OR 106 (HC)
What are the elements of damage? […] the transaction didn’t go through
What is the expectation measure? The value of the land, the difference between what it was at the
time, less the value of the contract.
In what category do the pre-payments fall? Yes, it is a restitution.
Why does he not get the costs of title inspection and other pre-contract expense? How does this
square with Anglia?
• No, in reliance on the contract he did it, but you have to look at the price of the land (ex. 100K$),
the title company (100$), the lawyer (100$). It is the cost of the land, what you were willing to pay.
If you give the expectation, you can’t give him that. If we don’t give him the expectation, he can’t
have this amount
Why is the surveyor’s cost deducted?
• Total cost for Land to buyer: $110K; Contract Price: 100K$ + Associated costs: $10K
• Market Value at time and place for delivery: $120K
• → How much did the Buyer ultimately expect to profit? $10K
• If the seller reneges before buyer has given any money, what are the damages? $10k
• → Why? Because that is the profit. The buyer would have made that amount if the sale had gone
through.
Analysis
• What is the measure of damage?
a. The difference between the contract price of the land and the current market value (not
what I was ready to pay for) along with
b. any deposit may have paid to the seller
• The first is the pure expectation damage: the loss of bargain
• The second is the restitution: putting the breaching party back in the position he would have been
in had the contract not been made
Decision
• Why does he not get the cost of the lawyers, surveyors, or title search?
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•
•
•
•
These were part of the “price” he was willing to pay. The “real” price of the land was
1. The actual money paid to the seller, plus
2. The solicitors’ fees, surveyors’ fees, title costs.
What element of damage is represented by these additional fees?
o Reliance.
When are they recovered?
o They are included in the expectation
He is entitled to money damages; he can’t get an equitable remedy.
In this case the expectation can’t be the land because the land had been sold to a third party.
Point of the case:
Measuring damage Situation
#1
That which he should have gotten (Market Value): $120K
Less that which was actually received: $0
Gross Expectation: $120
But the buyer didn't pay, nor did he pay any of the associated costs…
Less “expenses saved”
• Associated costs: $10K (reliance)
• Unpaid Purchase price: $100K (restitution)
Net expectation: $70K
Situation #2
Assume Buyer had paid $50K deposit and the associated costs That which
should have gotten (Market Value): $120K
Less that which was actually received: $0 Gross
expectation: $120
And the buyer paid associated costs…
Less “expenses saved”
• Associated costs: $0 (reliance)
• Unpaid Purchase price: $50K (restitution)
Net expectation: $70K ($50K down payment, $10K associated costs, $10 expected profit)
Incidental: incidental to the breach.
Ex. You must deliver iPhone 11, but you deliver iPhone X.
• You can either keep the X’s and get a discount on the price.
• You can refuse and send them back. The extra shipment is an incidental. It is not
reliance, because it only occurs if there is a breach of the contract.
→ The contract price is not the only thing to consider.
Hawkins v McGee
84 NH 114 (1929)
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Facts
George burned his hand while working on the farm. He was embarrassed by his hand, he dropped out of
school because of it. Doctor McGee pressed the father to operate on his hand. The father said no. Dr. had
learned about skin grafting and was anxious to try it out. He promised a 100% functional hand. He took a
piece of skin on his chest and put it on his hand. When he was 18, his hand was hairy. In addition, his hand
was closed even more than it was before. The Dr has made the hand worst rather than better
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Issue
• What is the measure of damage and why? The difference between a 100% perfect hand and
the hand he ultimately wound up with.
• Which if the three damage interests is that? Expectation
Arguments
• The argument is that it isn’t a promise that can be made. That defence is refused because he, in
fact, made that promise. The Dr has made a warranty of cure. We don't usually walk out from
the doctor’s office with that type of warranty.
• The boy says he should have the difference between the hand he started with and the one he
finished with (which would be reliance).
If he asks the doctor for the fee, that would be restitution. Since he was promised a 100% functional hand.
Analysis
• What should the measure of damage be?
o The difference between that which was promised and that which he ultimately got (i.e. 100%
hand vs. damaged hairy hand). In other words, the difference between a "100 percent perfect
hand" and a damage and hairy hand.
• Why should the boy not get damages for time spent in the hospital or pain and suffering?
o These were part of the “purchase price”, they were costs of the service, so he shouldn’t get
those costs.
It is not a tort case (for negligence, he would have needed to prove that the doctor didn't act in the way a
normal person would have. He probably would have lost), it is a contractual case.
* See comparison with machine case in book p. 37
Point of the case:
Problems in Measuring Damage
38-48
What is the market value of what I should have gotten?
In Hawkins, we are asking a jury to evaluate the value of a hand. It is theoretical, but not impossible.
When we are not talking about a commodity, how to evaluate the damage?
Diminution in value or cost of performance?
Groves v John Wunder 286
NW 235 (Minn 1939)
Facts
The π promised to turn over the land and allow the excavation. The ∆ promised to excavate and restore the
land to “substantially the same as the grade now existing.” The ∆ actually left without the work, leaving
the grade below ground level.
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If the contract had been performed, the owner of the land (Groves) would of gotten a clean piece of land
to develop or to sell it. The gravel company is looking for the gravel.
Arguments
• Groves want the land in a sellable state. He says he wants $60K to level the ground.
• The excavator (JW) says he shouldn't get that amount, because even if they level the ground, the
value ($12K) will stay the same.
• One argument is that plaintiff ought to get what he contracted to do. If that is the case, then isn`t
specific performance always the proper measure? Clearly, the problem here is that the court is
concerned about the wilful breach.
Issue
• The ∆ says the π will simply put the money in the bank and won’t use it to level the ground.
• The π says he was promised a piece of grated land, it was not done, π is entitled to the value of it.
If the contract had been performed, the ∆ would have given the value of
$60K.
• Argument: even if the work would diminish the value of the land, if one asks you to do it, you
agree to do it, it doesn't matter that it diminishes the value of the land (freedom of contract).
• The ∆ says it isn’t applicable. He says it is a waste of time and money. This is not a claim to ask the
contractor come and do the job, he is asking for the value of it.
• What would he have had if the contract had been performed? A piece of land worth
$12K
• What would he have if we give him the $? A piece of land worth $12K and $60K
Questions
1. Why does the court award cost of completion here?
2. Doesn’t efficiency dictate that the company should breach?
3. Does anyone believe the farmer is going to actually do the work?
Decision
• The majority says he wanted a land worth $12K that was grated. This is a case of what they
contracted for. He should be put in the situation he would have been if it had been performed.
• The Majority is also trying to punish the ∆ because he decided to breach his contract. It is to help
contract stability.
•
Dissident judge says he is looking for a piece of land he wants to sell (land that retained its value)
(doctrine of substantial performance)
The purpose of common law is to repair, not to punish. If punishing is the reason for which the damages
were allowed, then it is an error.
Point of the case:
Doctrine of substantial performance: it is still an expectation method, but we are trying to find what
they contracted for, what the loss is and what they should get. It is different if there is no attempt to do
the job from if there is an attempt but there is an error from a wilful error because it saves money or time.
Peevyhouse v. Garland Coal
*Not in the book*
Facts
• Peevyhouse and the coal company contract to mine on Peevyhouse’s land.
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•
Contract calls for the land to be restored to its original condition after the mining
operations are ended.
• Company doesn’t do that.
• Cost to repair = $29,000
• Diminution in value of land = $300
Questions
• Should the company have to pay cost of repair? Why or why not?
Point of the case:
The lost volume seller
UCC Article 2 Sales of Goods
§ 2-708. Seller's Damages for Non-acceptance or Repudiation.
(1) Subject to subsection (2) and to the provisions of this Article with respect to proof of market
price (Section 2-723), the measure of damages for non-acceptance or repudiation by the buyer is
the difference between the market price at the time and place for tender and the unpaid contract
price together with any incidental damages provided in this Article (Section 2-710), but less expenses
saved in consequence of the buyer's breach.
(2) If the measure of damages provided in subsection (1) is inadequate to put the seller in
as good a position as performance would have done then the measure of damages is the profit
(including reasonable overhead) which the seller would have made from full performance by the
buyer, together with any incidental damages provided in this Article (Section 2-710), due allowance
for costs reasonably incurred and due credit for payments or proceeds of resale.
What happens if the buyer breaches? Kp:
100
Mkt: 120
Buyers damages 20$ if it is a seller’s breach.
Kp: 120
Mkt: 100
Sellers damages 20$
Buyers walk away when the market price falls. Sellers walk away when the market price rises.
If I only have one car, contract to sell it, breach of contract, but find another buyer, the second
sale is in mitigation for the first. If you had bought it, I wouldn't have anybody else to sell it to.
A car dealer is not in the same position, because he has access to other vehicles, he could have had 2
profits.
Thomson v Robinson (Gunmakers) Ltd
Facts
•
•
•
•
•
Buyer agrees to buy car from dealer
Buyer repudiates the contract the next day
Seller is able to send the car back to the manufacturer
Seller still sues buyer for the lost profit from the lost sale
Buyer says seller’s damages are nominal
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“True, the motor-car in question was not sold to another purchaser, but the plaintiffs did what was
reasonable, they got out of their bargain with George Thompson Ld., but they sold one less “Vanguard,” and
lost their profit on that transaction.”
Point of the case:
Charter v Sullivan
Question
• What happens when the seller cannot keep up with demand?
Point of the case:
What you should know at the end:
•
•
•
•
What are the theories underlying the enforcement of contract in common law?
Why a hands-off approach?
What do we mean by freedom of contract and freedom from contract?
To what extent should economic analyses influence the development of the legal rules, especially in contract?
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Limitations on Damages
Principle: Putting the party in the state he would have been had the contract been performed. Sometimes the
strict principle has to be yield.
We should not expect the other party to be liable for all the consequences of breach of contract. It has to do
with assent. The reason: we agree to be in a contract and to the consequences of the contract.
Only for damages which were foreseeable and could not be mitigated.
I am only liable for damages that I agreed to be liable for
Remoteness (foreseeability)
48-76
The term remoteness refers to the legal test of causation which is used when determining the types of
loss caused by a breach of contract or duty which may be compensated by a damages award.
Can be compared to foreseeability.
Had x been done, y would have happened. Since x did not happen, the remoteness of y allows
damages.
British Columbia and Vancouver’s Island Spar, Lumber and Saw Mill co LTD v.
Nettleship
Refers to a 1600 case where a man, on his way to get married, had a problem with his horse. He
employed a blacksmith to replace the horse’s shoe. The blacksmith did a bad job and the horse was
lamed. The guy arrived late, and the girl married someone else. The blacksmith was held liable for the
loss of the marriage.
In case involving remoteness of damages, we should inevitably fall into absurdity unless we applied
the rules of common sense to restrict the extent of liability for the breach of a contract of this sort.
This is a contract case because the blacksmith agreed to do a service, which he performed
poorly.
Should Blacksmith be liable for the loss? (in a but-for causation, he is liable, BUT…) Should the
blacksmith conceivably be liable for anything I could have lost?
Was he agreeing, when fixing a $10 horseshoe, to be responsible for, let’s say, a loss of
$1 million for missing out on marrying a rich woman? NO, he was not agreeing to that.
Point of the case:
*Hadley v Baxendale
1854
Facts
In a mill, the mill shaft is broken which stops everyone from working. They asked how long it would
take to send it to London to be repaired, they said 4 days, it took 7 days. We are asking for damages for
the 3 days extra during which the mill was closed.
Two rules:
1. « Where two parties have made a contract which one of them has broken, the damages which the
other party ought to receive in respect of such breach of contract should be such as may fairly and
reasonably be considered either arising naturally, i.e., according to the usual course of
things, from such breach of contract itself, or
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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 » What was foreseeable
at the time of the making of the contract?
→ if the garage man tells you the car will be ready tomorrow and it is not, it is available 3 days after
due date. You use a taxi to go to work for 4 days. You can ask damages for 3 days. Garage man could
deduct cost of gas and usage of the car from the expenses.
→ If additionally, he is a delivery man and cannot work without his car, this is a special circumstance
which cannot be damage if it was not explicitly said.
2. « Now, if the special circumstances under which the contract was actually made where
communicated by the plaintiffs to the defendants, and thus known to both parties, the damages
resulting from the breach of such a contract, which they would reasonably contemplate, would be
the amount of injury which would ordinarily follow from a breach of contract under these special
circumstances so known and communicated. »
→ If it is a pluming van (which is clearly indicated), and the same situation occurs. It is clearly a van
that is used for that purpose.
→ what would a reasonable person understand ?
The normal circumstance of fixing a car doesn't lead to a loss of profit (delivery man), but when fixing
a pluming van, the profit loss is predictable.
The garage man can make his client sign a disclaimer to say he is responsible for the fee, but not
incidental or consequential damages.
You can:
• Refuse to do the work
• Accept to perform the work and refuse to be liable (or charge more)
Prof’s example
Imagine I buy a ticket to Toronto by train with Via Rail. They cancel last minute. I need to take a cab to the
airport and take a flight. They will need to reimburse those costs as it was a reasonable expense.
BUT, what if in Toronto I had a really important million dollar meeting, which I lost because I could not get
there on time (loss profits claims). This is point #2 in Hadley, Special Circumstances. Special circumstances
MUST be made known to the contracting party to give them opportunity to either refuse (knowing the new
info and potential risk), or they can up the costs to make up for the additional risk you are asking the other
party to bare.
So, if Via Rail knew about my million dollar meeting, they would have most likely refused or charged my an
insurance premium (basically the deductible they would have to pay their insurance to cover it).
Fuller & Perdue, The reliance interest in contract damages
Hadley v. Baxendale may be said to stand for two things:
1. That it is not always wise to make the defaulting promisor pay for all the damage which follows as
a consequence of his breach;
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2. That specifically the proper test for determining whether particular items of damages should be
compensable is to inquire whether they should have been foreseen by the promisor at the time of
the contract.
The test of foreseeability → concept of the reasonable man
JH Jackson – Contract law in Modern Society
• Jury used to have a free hand in setting damages. Why? Because they knew the parties and probably
had some idea of the actual damages or consequences of a breach of contract.
• Common law judges have always been reluctant to interfere with jury verdicts.
• 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 (they couldn’t change the damages directly, so had to grant a new trial)
(3) instructing juries about what was reasonable (giving the basic rules) Hadley
represents one of the earliest attempts to settle the law of damages.
Notice of Special Circumstances
How does one explain the result in Kinghorne v The Montreal Telegraph? Is it consistent
with Hadley?
Kinghorne v The Montreal Telegraph
Facts
Failure to carry a contract that would of cost 60¢, the jury awarded 57pounds.
Decision
We are not holding the telegraph company for not sending it accurately. No special
circumstances were mentioned. Therefore, it is a natural expectation. A telegraph necessarily
has commercial consequences because they are mainly used for commercial affairs.
The court implies that in the contract there is no expectation of massive liability on a
60¢ telegraph. It would be too much responsibility for the telegraph company.
If you enounce the special circumstance, the counterparty can decide to contract
(and promise the result) or refuse to contract.
Horne v The Midland Railway
Facts
The plaintiff were under contract to supply shoes to London for the use of the French army.
The shoes were supposed to be deliver on February 3th. The plaintiff sent the shoes to the
defendant’s station. Notice was given to the defendant that the plaintiff was under a contract
to deliver the shoes for February 3th and that, unless it were delivered, they would be
thrown on their hands. The shoes were not delivered in time. The plaintiff loss profits.
Decision
In Hadley v. Baxendale it was said that if there were a special note of the circumstances the
plaintiff might recover the exceptional damages.
It does not appear that there has been any case in which it has been affirmatively held that in
consequence of such notice the plaintiff could recover exceptional damages.
In order that the notice may have any effect, it must be given under such circumstances, as that
an actual contract arises on the part of the defendant to bear
the exceptional loss.
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For the amount of money being charged, we cannot assume someone would have accepted the
responsibility. Even if special circumstances are given (as it is the case), the carrier is not liable.
For the cost of carriage, we don’t assume that the carrier assumes the responsibility
in any case.
Hydraulic Engineering Co LTD v. McHaffie
A person contemplates the performance and not the breach of his contract; he does not enter
into a kind of second contract to pay damages, but he is liable to make good those injuries
which he is aware that his default may occasion to the contractee.
Rivers v. George White & sons co.
The theory of « kind of a second contract to pay damages » has been mainly developed in
actions against carriers on the ground that a common carrier has no discretion to decline a
contract.
*Victoria Laundry v Newman Industries
Facts
The failure to deliver the boilermaker that was going to be used to do the laundry led to the
loss of business.
X was going to allow to Y. VL reclaim the value of Y, not just X
What elements of damage does the laundry seek?
1. Loss of profit on the increased washing business
2. Loss of profit on new dyeing contracts (was not given by the court because wasn’t
foreseeable)
Decision
The defendants knew at the time of the contract that the plaintiffs were laundrymen and
required the boiler for immediate use. The defendants did not know the precise role of the
boiler in the plaintiff’s economy (whether it was bought to replace a broken one, to add an
extra unit, etc.).
The plaintiffs said that if the boiler had been punctually delivered, they could have taken on a
very large number of new customers (the demand being growing) and they could have accepted
a number of highly lucrative contracts from the Ministry of Supply. The first loss of profit was
quantified at 16$ a week and second at 262$ a week.
The defendant said that there was no loss of profits recoverable in law. The first judge (we are
in appeal) agreed to that. He took the view that the loss of profit claimed was due to special
circumstances, and, therefore, recoverable only under the second rule of Hadley v. Baxendale.
According to him, the defendant was not made aware at the time of the contract of those
circumstances.
The Court resumes what the jurisprudence taught us so far:
1.
The governing purpose of damages is to put the party whose rights have been violated in
the same position as if his rights had been observed.
2.
In cases of breach of contract, the aggrieved party is only entitled to recover
such part of the loss actually resulting as was at the time of the contract reasonably
foreseeable as liable to result from the breach.
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3.
4.
5.
6.
What was at the time reasonably foreseeable depends on the knowledge then possessed
by the parties, or at all events, by the party who later commits the breach.
The knowledge possessed is of two kinds – one imputed, the other actual. As a
reasonable person, everyone is taken to know the ordinary course of things (subjectmatter of the first rule in Hadley v. Baxendale). We may add particular knowledge if the
information was disclosed.
The contract-breaker becomes liable when he would as a reasonable man have
concluded that the loss in question was liable to result.
The contract-breaker could foresee it was likely that a breach would result in that loss.
In this case, the defendant did not know about the contracts, but they did know that the boiler
was important for a laundry company. It could then be expected that loss of profits would
occur.
The ∆ knew the π needed the boiler for the business to function. They should have known that
it would have led to some business loss of some kind.
“It is enough if he could foresee that it was a possibility”: you may not have known precisely
the economic loss, but you knew there would be one.
How does it defer from the telegraph case or the railroad case?
The consideration: the amount it cost (boiler = expensive, vs telegraph =60¢) + the boiler is
exclusively for business use (vs telegraph can be personal).
2 ways increased damage could arise:
1- Naturally (the nature of the contract should be enough to let me know that X losses
could arise) – ex: selling chocolate to Cadbury right before Easter, you can expect that
they claim easter sales lost damages from you..
2- Special Circumstances (which must be disclosed to you)
The normal liability is the amount of the contract (ex. 25$ shipping fee). If the package is worth
100 000$ and you ask for his liability, the carrier will buy insurance for your package, which will
bring the price of your contract up, but he will be fully liable.
*Scyrup v. Economy tractor parts LTD
Facts
Plaintiff bought a second-hand La Plante Hydraulic attachment for a D8 caterpillar tractor from
the defendant. Plaintiff had a contract from Supercrete Limited to do certain work with this
equipment in a gravel pit. When he started to work, the tractor did not operate properly,
and it appeared that various parts were either missing or useless. The parent company of the
defendant supplied the missing part.
Finally, Supercrete became impatient and hired someone else to do the job. According to the
plaintiff, he had told defendant that he had that contract. Decision
According to the testimony, the Court’s view is that not much information was given
to the defendant as to the scope of the contract, including whether it was a small or large
contract, what type of work was involved, where or when it was to be performed, or its
duration.
To conclude to the foreseeability of those circumstances, plaintiff should have told exactly
what kind of contract was being entered into, the type of work that was to be
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done and the magnitude of the operation.
Plaintiff argued that these damages for loss of profit naturally flow from breach of contract by
defendant and therefore come under the first rule in Baxendale case; that these would be in the
same category as damages for repair costs of the defective parts. The Court did not accept this
argument. Those damages for loss of profit did not naturally flow from the defective character
of the equipment or they couldn’t have been reasonably foreseen or anticipated by defendant,
because the defendant was not given sufficient information regarding the contract.
Koufos v. C Czarnikow, LTD
Facts
The π chartered the ∆’s vessel to proceed to Constanza to load sugar and carry it to Barash,
where he would sell it.
A reasonable accurate prediction of the length of the voyage was 20 days. But the vessel had in
breach of contract made deviations which caused a delay of 9 days.
The ∆ was aware that the π would sell his sugar at a market in Barash. The price of
the sugar had fallen by the time the vessel arrived.
Issue
The π says he is entitled to recover the difference (price of sugar before it had fallen vs after it
did) as damage for breach of contract.
Decision
In an earlier decision, the court held that the loss due to fall in market price was not too remote
to be recoverable as damages.
The ∆ knew the sugar would be sold at arrival and he must have realized that at least it was
unlikely that the sugar would be sold in the market at market price on arrival. He must have
known that market prices are apt to fluctuate. He could not have known that during that
period, such fluctuations would be downwards rather than upwards.
Thus, the question is : whether, on the information available to the ∆ when the contract was
made, he should, or the reasonable man in his position would, have realized that such loss
was sufficiently likely to result from the breach of contract to make it proper to hold that the
loss flowed naturally from the breach or that loss of that kind should have been within his
contemplation. Court says yes.
*Transfield Shipping v Mercator Shipping (The Acchileas)
2009
Facts
Charter party (ship hire contract) running from 02/01/2003 – 07/2003 Renewed in
09/2003 to run until 05/2004.
Price of hire: $13,5K/day
Shortly before end of charter owners make a new fixture for another charter at
$39,5K/day for 6 months
The ship is not delivered on time
New charters want to go rent somewhere else. Rather than lose the new hire, the owners
agree to reduce the hire charge to $31,5K/day
Issue
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The owners claim a total loss of 8K/day over six months, or $1,364,584
Charterers say the loss should only be for the $8000/day over the 9 days they were late in
delivering, or $72,000.
Why do the owners say they are entitled to the full six-moth loss? You should have
known that not delivering the ship on time, they may lose business (Victoria Laundry). It is
obvious, it is arising naturally, not even special circumstances.
Why do the charters say the loss should be limited to the hire charge for nine days?
That may be the rule of Hadley, but it is not the custom and understanding in the industry. The
custom is: when you’re late, you pay for the days you were late. They made the calculation and
accepted to do that.
Isn’t the loss of a subsequent charter party a natural consequence of failing to
redeliver the vessel on time?
Decision
The court says the standard isn’t what any person would of thought, but what a person in the
industry would have thought.
« the case therefore raises a fundamental point of principle in the law of contractual damages: is
the rule that a party may recover losses which were foreseeable (not unlikely) an external rule of
law, imposed upon the parties to every contract in default of express provision to the contrary,
or is it a prima facie assumption about what the parties may be taken to have intended, no
doubt applicable in the great majority of cases but capable of rebuttal in cases in which the
context, surrounding circumstances or general understanding in the relevant market shows that
a party would not reasonably have been regarded as assuming responsibility for such losses? »
Hadley is the general
rule, but in certain
markets,
there
are
understandings. That may be what the parties actually agreed to, it may be part of
their contract.
different
Even if this isn’t binding to Canada, it is persuasive.
Cornwall Gravel Co v Purolator Courier Ltd
SRC, 1980
Facts
Cornwall Gravel asks Purolator to deliver tenders on October 2, 1973. The delivery needed to
be done before 3pm otherwise it would be rejected. Cornwall Gravel told that to the Purolator
employee. They even said they could do it themselves if he was sure the delivery would be on
time. The employee knew that the failure to deliver on time would result in a loss of profit.
Decision
The court takes the position that the special circumstances were clearly communicated. The
carrier who picked it up made the deal, he agreed to the liability. Through its employee, they
accepted. They knew if it was to be delivered late, the tender wouldn’t be worth anything and
they would be liable.
They should have had a clause that said they are not responsible for their agent/clerk’s acceptation,
they are liable only for the value of the shipment
contract.
There are clear special circumstance and they are accepted by the agent. The agent’s
acceptation means the company’s acceptation.
Evolution since Hadley, were the agent couldn’t bind its employer
Had the contract not been breached, what would have happened?
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Hadley: your capacity to get that damage is limited to, at the moment the contract was formed, the parties
could have predicted would happen.
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Mitigation
102-115
As the non-breaching party, you have an obligation to take reasonable steps to limit the damages
where it can be done so without undue …, or expense.
In other words, did the π due what a reasonable person would have done to limit their damages.
Why? When you make a contract, you know there is a possibility that one of the parties will
breach. We agree to the damages that cannot be avoided. It is part of the assent that the nonbreaching party will make an effort to limit the damages. You expect the other one to do the same if
you breach.
Payzu limited v Saunders
CA, 1919
Facts
The ∆ sold cotton to the π. According to the contract, theπ was supposed to pay by cheque after the
delivery. But, the π didn’t pay for the two last deliveries, because he didn’t have any funds. For the
third delivery, the ∆ asked that the π would pay in cash at the time of the delivery. The π refused to
pay and brought an action for damages for breach of contract.
COD: cash on delivery. The contract says 30 days credit, not cod. Buyer says that by asking cod, the
seller is breaching the contract.
Decision
The buyer could have found another seller that would have given him credit. He also could have found
a seller that
The court says, although the seller is not a nice person, he offered a mitigation. If you have another
way of making this thing go through, make it go through and the seller will pay the difference.
It would be different if the contract asked for them to be in close personal contact. Since this is a
seller/buyer of goods contract, they should simply move on with the mitigation.
Having not found a better deal, the buyer ought to have the mitigation deal and sued for
the rest.
Roth & Co. v Taysen, Townsend & Co.
CA, 1896
Facts
Two months in advance, the buyer says that he will not take the goods. It is an anticipatory
repudiation. The seller does nothing, He holds the goods and around the time for delivery, sells the
goods. If he had sold when he knew the buyer repudiated, he would have had a better price because
the value of good was depreciating.
Issue
The buyer says once he knew, he should have taken steps to mitigate.
The seller says the breach of contract occurs at the moment it should have been performed. He can
wait to see if the buyer might come back to buy.
Decision
When the market is declining and you know the buyer isn’t coming forward, he won’t
accept the goods, you have to mitigate.
When a party repudiates, you don’t immediately mitigate. You explore your options. There
should be a reasonable time between the repudiation and the mitigation. If it is longer, that part
won’t be covered.
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Hochster v De La Tour
If you tell me you will not go forward with the contract, I am relieved of the obligation I had.
Results of anticipatory repudiation - the choices you have:
1. Wait for the day of performance (date of delivery) to make sure the person will actually perform (or
breach the contract)
2. Declare a breach immediately and begin efforts to mitigate and sue for damages
You should do the latter; it is more efficient.
White & Carter (Councils), Ltd v McGregor
Scot, 1962
Facts
The π supplies liter bins which are placed on the streets. They are allowed to attach to these
receptacles’ plates carrying advertisement which is how they make their money.
The ∆ made and agreement with the π under which they displayed advertisements of his business on a
number of bins for three years. But, the sales manager of the ∆’s company didn’t have the authority to
conclude such a contract. Therefore, the ∆ repudiated the contract within 24h.
Even if the πs had not done anything, they did not accept that and went on with the contract
(printed the advertisements, etc). They now sues for the money the ∆ owns him.
The acceleration clause says once you breach, the full amount is due today (you don’t have to
wait till the end)
There is an acceleration clause that allows them to sue now for the full amount, if they can’t mitigate.
Even so, once they get to court, the have to show how they could have mitigated.
∆ says they didn’t have to wait till the end of the period, but that doesn’t mean they didn’t have to
mitigate. They only have a right to the profit, not a right to the price.
If the Kp = $1M and the cost is 900K, the profit is $100K.
The π are basically asking for specific performance by giving them the Kp, asking them to perform
something they don’t want to do.
Issue
Is the π entitled to such damages?
Decision
If one party to a contract repudiates it in the sense of making it clear to the other party that he
refuses or will refuse to carry out his part of the contract, the other party, the innocent party, has two
options:
1. He may accept that repudiation and sue for damages for breach of contract; or
2. He may, if he chooses, disregard or refuse to accept it and then the contract remains in full effect.
The πs should not be deprived of their right to claim the contract price because the benefit to them as
against claiming damages and reletting their advertising space might be small in comparison with the
loss to the respondent.
The π gets to recover the full amount. It is based on the stability of contract.
The reason: why should we tell him that he has to be reasonable in the performance of his contract? It
makes no sense, it is a contract, not tort.
Dissenter
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Allowing the π the full amount of the contract essentially results in a
wasted
expenditure.
There is also the question of extortion. The non-breaching party can threaten to run up damages in
order to get a bigger settlement from the ∆.
→ Under White & Carter: you get the Kp if you performed your part of the K. → the nonbreaching party can extort the breaching party by asking for less than the Kp, but more than profit.
The πs were bound to take steps to minimize their loss. Far from doing this, having incurred no
expense at the date of the repudiation, they made no attempt to procure another advertiser, but
deliberately went on to incur expense and perform unwanted services with the intention of creating a
money debt which did not exist at the date of the repudiation.
White and Carter is thought in US law schools about how not to do it. They were entitled to their lost
profit and that is all. We shouldn’t allow waste.
Finelli v Dee
Ontario, 1968
Facts
The π made a contract with the ∆. It was concluded that the π would pave the driveway of the ∆. The
price was fixed but not the particular time for the completion of the work. The ∆ called later to cancel
the contract and the π’s sales manager agreed that the contract would be cancelled. Later, while the ∆
was not home, the π went on and performed the contract. They then sued for the price of the work
done.
Issue
Is this a rescission (résiliation) or a repudiation (renunciation)? it is repudiation Are the ∆
entitled to damages?
Decision
No. There is a distinction to make between contract that need to co-operation of both parties (like in
this case) and contract that need the performance of only one party (like the case White & Carter
(Councils), Ltd v MCGREGOR).
It was necessary for the π to enter upon the ∆’s land in order to perform; the π were obliged to give
previous intimation to the ∆ that they were prepared to do the work called for by the contract and
proposed to do it on a certain day. This was not done.
“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."
When you need the cooperation, one can refuse to cooperate or coordinate and
communicate, which creates a breach.
Certainty
It is not in the book, but the third limitation is certainty: you have to be able to prove the damage.
The certainty is hard to prove in some cases (ex. Anglia television v Reed)
Ex. Contract to rent room for singer’s show. The tickets haven’t gone on sale. How to say how much
revenue she would have made. You use experts and determine the reasonable amount of tickets she
could have sold and the possible profits.
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→ When someone claims damages, you have to prove :
1. Foreseeability of damages (Hadley)
2. Certainty of damages
3. Avoid the damages through mitigation 4.
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Special Problems in Damages
When we think about damage, we think about expectation and we often reduce it to profit. It works well
for goods contracts.
Damages for Intangible Injury
76-102
Addis v Gramaphone Company limited
HL, 1909
Facts
π employed by ∆s as manager in Calcutta. Could be dismissed by 6 months’ notice. October 1905: gave
the 6m notice and appointed successor at the same time → prevented π from keep on acting as
manager. In December, he went back to England.
Issues
Is this a breach of contract if he contracted to be a manager and can't act as so?
1. Lost wages
2. loss commissions
3. damages resulting from delay in finding new employment
4. exemplary (punitive) damages because he says he has been humiliated by this situation.
Decision
He gets 1-3, but not 4.
Contracts does not give exemplary damages, because the purpose of contract is not
punishment, it is compensation.
If he wants punishment, he should go to torts.
Emotional damages & Hadley
Damages for injured feeling, mental distress, anger and annoyance are generally not recoverable in
contract even though they might be reasonably foreseeable.
Why? It is the cost of doing business.
What about an actual breakdown in health (ex. severe anxiety or depression; real health
consequences rather than inconvenience)? It has to be foreseeable in regard to the person with whom
you are contracting. Do I know that a breach of contract will cause this person severe mental
or physical injury? (Second Hadley test).
Key Point
- Establishes the general rule that there is no reward of damages for mental distress or loss of reputation
Facts
- C was employed as a manager by D
- D gave him the requisite 6 months’ notice but appointed a replacement and prevented him from acting as
manager
- He left after two months and sued D for breach of contract for the wrongful dismissal
Held (House of Lords)
- C was awarded damages for loss of wages and commission equal to 6 months of earnings
- But C was not granted damages for injured feelings and loss of reputation
Lord Atkinson
- Damages for breach of contract were in the nature of compensation, not punishment
- In cases of breach there may be circumstances of fraud, defamation or violence, but they can only be pursued in
an action of tort as opposed to an action for breach of contract
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Kolan v Solicitor
Ontario, 1969
Facts
The solicitor failed to discover that premises purchased by the π were subject to a city demolition.
It had been pleaded that the π suffered an anxiety state and could not work, and that the ∆ knew
she was peculiarly liable to nervous shock.
Issues
Can the π seek damages for the anxiety it caused her?
Decision
Was it reasonably foreseeable to the solicitor at the time of the contract? The Court said that the
health breakdown was not a reasonably foreseeable consequence of the ∆’s
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negligence. The π is not entitled to any damages under that heading or refer any for assessment.
However, the Court accepted that, in another case, damages could be recovered for nervous shock
or anxiety state if it is a reasonably foreseeable consequence. Thus, if the special circumstance was
brought home to the ∆ (the fact that the π’s life was a nervous shock after another), it might have
enlarge the area of foreseeability so as to make him liable.
Heywood v Wellers
CA, 1976
Facts
The solicitor is asked to obtain a restraining order to stop a man from harassing a woman. He doesn’t
do so. He molested (annoyed) her.
Decision
It is a good case that show it was foreseeable. The solicitor is responsible for the subsequent severe
emotional distress. It must have been in their contemplation that if they failed in their duty she
might be further molested and suffer much upset and distress. The damage she suffered was within
their contemplation within the rule in Hadley v. Baxendale.
These types of cases are few.
Jarvis v Swans tours ltd
CA, 1973
Facts
Jarvis buys a ski trip in Switzerland. They promote and he expects a ski trip as well as a social/party
experience. No one speaks English and the location is remote. He doesn’t have a lot of pleasure. It
doesn’t meet his expectation.
Issues
Is he entitled to damages? He asks for the difference between what he paid for and what he got. He
also sued for loss of enjoyment.
Decision
He gets both his claims. The advertisement promised enjoyment and it was the purpose of the
contract. Instead, he got aggravation and annoyance. He went to enjoy himself with all the facilities
which the ∆ said he would have. He is entitled to damages for the lack of those facilities, and for
his loss of enjoyment.
The failure to provide that is actionable.
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.
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The courts have held that when the contract involves peace of mind (mental security),
when you breach, it is foreseeable that there will be emotional damage.
Canadian courts have for a long time said that the main object of the contract has to be peace of
mind.
Recently: It was said that it doesn’t have to be the main element.
Voris v Insurance corporation of BC
SRC, 1989
Facts
Case of wrongful dismissal of a solicitor. The solicitor was able to get a new job but not as a solicitor.
Issues
Can we punish someone who humiliates someone once they have been fired?
Decision
What is the difference between punitive damages and aggravated damages? Punitive
damages are those designed to punish. They are traditionally available in tort. Aggravated damages are
designed to compensate for intangible damages. The emotional damage is an aggravated damage.
Aggravated damages will frequently cover conduct which could also be the subject of punitive
damages, but the role of aggravated damages remains compensatory.
In the Anglo Canadian context, it is an additional damage to the breach.
The Court doesn’t allow it however. Damages, to be recoverable, must flow from an actionable wrong.
It is not sufficient that a course of conduct not in itself actionable be somehow related to an actionable
course of conduct. The conduct complained of preceded the wrongful dismissal and therefore cannot
be said to have aggravated the damage incurred as a result of dismissal.
Why are aggravated damages available in breach of an employment contract but not
punitive damage?
Because they are considered to be foreseeable.
FACTS: Lawyer terminated after seven years employment. Two years before dismissed new supervisor comes in and
decides that this lawyer is a problem because they are overcautious, over-papers everything. Tries to get lawyer to
conform. Weekly productivity meetings, which were basically weekly harassment meetings. Vorvis resorts to medical
attention from these meetings. Arbitrarily supervisor comes along and fires him. The lawyer brings a claim for wrongful
dismissal.
TRIAL: TJ awards damages for wrongful dismissal, no punitive damages, CA agrees.
SCC: SCC sets out scope of punitive damages and says absolutely possible to award in contract cases, shouldn’t be just
in tort cases.The SCC goes on to hold that punitive damages should: only awarded where the conduct complained of
merits punishment. Awarding punitive damages requires “harsh, vindictive, reprehensible in nature” and they require
an independent actionable wrong. Meaning there has to be a wrong that is independent of the contractual breach. Here
the SCC says that doesn’t exist – this is the framework.
Note: Historically not many cases with awards of punitive damages. Requirement independent actionable wrong.
by Thomas Shaw — Western University's Law Students' Association
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Fidler v Sun life assurance co of Canada
SRC, 2006
Facts
For more than five years, the ∆ denied π the long-term disability benefits to which she was entitled.
Decision
Damages for breach of contract should, as far as money can do it, place de π in the same position as
if the contract had been performed. Since Hadley, it has been the law that these damages must be
such as what 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.
In an insurance context, you are buying peace of mind. If you don’t pay the claim, it causes anxiety and
removes the peace of mind.
Hadley makes no distinction between the types of loss that are recoverable for breach of contract. This
Court’s jurisprudence has followed the restrictive interpretation of Addis, generally requiring that a
claim for compensation for mental distress be grounded in independently actionable conduct.
In the 1970s, the Court acknowledged that the reasons of principle and policy for the rule did not
always apply and began to award such damages where the contract was one for pleasure, relaxation or
peace of mind.
In Jarvis, the holding emerged from the common law chrysalis as the peace of mind exception to the
general rule against recovery for mental distress in contract breaches. The court should ask what did
the contract promise, and provide compensation for those promises.
However, it does not follow that all mental distress associated with a breach of contract is
compensable. In normal commercial contracts, the likelihood of a breach of contract causing
mental distress is not ordinarily within the reasonable contemplation of the parties.”
The Court must be satisfied:
1. that an object of the contract was to secure a psychological benefit that brings mental
distress upon breach within reasonable contemplation of the parties
2. That the degree of mental suffering caused by the breach was of a degree to warrant
compensation.
Court concluded that the peace of mind is some aspect of the contract. It should not be viewed as
an exception to the general rule but rather as an application of the reasonable contemplation or
foreseeability principle that applies generally to determine the availability of damages for breach of
contract.
Facts:
• Fidler has insurance through her employer, Sun Life
• Fidler gets sick, Sun Life eventually rescinds coverage
Decision:
• f parties reasonably contemplated mental distress could arise from breach, damages can be awarded
• Court should ask, "What did the contract promise?" and compensate for that
• No damages for incidental frustration: Issue is whether object of the contract is to secure a particular
psychological benefit
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Notes
1. In Honda v. Canada, the SCC said that 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 arising
from its breach are recoverable.
After Fidler, when are aggravated damages available in Canada?
In commercial contract, never.
In individual contract, if the peace of mind is an aspect of the contract.
In the US, they are almost never recoverable. Every breach of contract result with a loss of time and
inconvenience. They take Hawkins. Aggravation, annoyance and other feelings are part of the contract.
→ Following Hadley, intangible injury damages are awardable if they were foreseeable. Mental illness
ought to be recoverable, but in commercial cases it is not.
Punitive Damages
Purpose of punitive damages: punishment Purpose of
contract: compensation
Canada stands alone as the only country that allows punitive damages for breach of contract.
Whiten v Pilot Insurance Co
SCC, 2002
Facts
Contracted to pay money, they don’t pay the money.
There was a fire that destructed the π’s home. They want the money from the insurance. The ∆
refused to give the money because they say that the π did it on purpose, even though the
firefighters concluded it was an accident as well as the inspector of the ∆.
Issues
Should the π be awarded punitive damages because of the ∆’s actions. Question to be ask is: is a breach
of an insurer’s duty to act in good faith an actionable wrong independent of the loss claim under the
fire insurance policy?
Decision
The court says that punitive damages are available in contracts were there is a breach of good faith or a
breach which constitutes an independent actionable wrong (tort of duty of care). The only basis for
the imposition of such punishment must be finding of the commission of an actionable wrong which
caused injury complained of by the π.
There was a clause that obligated to act in good faith. The failure to act in good faith brings up
the punitive damages. The breach of the contractual duty of good faith is independent of and in
addition to the breach of contractual duty to pay the loss. It constitutes an actionable wrong within the
Vorvis rule, which does not require an independent tort.
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We need not fear punitive damages in the contracts because they have to be reasonable. In order to
ascertain punitive damages, we will advise the jury about the things that should be taken into
consideration before they make the decision. There are 11 factors that should be acknowledged, which
makes it very hard for the jury.
Facts:
P. denied W.’s house insurance claim after a fire burned their house down. P. originally alleged arson, which was
proved/admitted to be completely false and lacking any evidence. P. entered protracted litigation (over 2yrs) over the
issue with W. to force her to make an unfair settlement for less than she was entitled to. Conduct was planned and
deliberate.
JH:
Trial – awarded W. 1M$ in punitive dmgs in addition to compensation
Appeal – overturned the punitive dmg award
Issue:
What to do with punitive dmgs?
Reasoning: (Binnie J)
Controversies
1.Punitive dmgs are awarded only in exceptional circumstances for ‘malicious, oppressive, and high-handed’
misconduct that ‘offends the court’s sense of decency; rides the line between civil law compensation and criminal law
punishment
2.Quantums are controversial; seeks to punish defendant and deter others from similar outrageous conduct, but US
example shows how jury awards can get out of all proportion
* Three purposes of punitive dmgs: Punishment, Deterrence, Denunciation
Essential elements of Punitive Dmg Awards:
1.Limiting punitive dmgs by categories doesn’t work; often restricted to intentional torts, but available for K breach as
well
2.General objectives of punitive dmgs are Punishment, Deterrence, Denunciation
3.Should only be used in exceptional circumstances
4.The oft used pejoratives (‘high-handed’, ‘vindictive’, ‘oppressive’, etc.) aren’t useful; Court must look for more
principled approach
5.Court should relate facts of the particular case to the underlying puposes of punitive dmgs, asking how in particular
the award would further objectives of the law
6.It is rational to use punitive dmgs to relieve wrongdoer of its profit where compensatory dmgs would amount to
nothing more than a license fee
7.* Proper focus is not on ptf’s loss, but def’s conduct
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8.Governing rule for quantum is proportionality; should be rationally related to objectives for which dmgs awarded
9.Juries should receive guidance from Court in terms of their mandate in awarding punitive dmgs
10.Punitive dmgs aren’t ‘at large’, and CA entitled to intervene where award exceeds rational boundaries
According to Canadian jurisprudence, there must be an ‘independent actionable wrong’ for punitive dmgs to apply
·Here, breach of K duty of good faith by P. is independent of and in addition to the breach of K to pay the loss
suffered by W.
·Doesn’t have to be an independent tort; ‘actionable wrong’ used on purpose by McIntyre J. in Vorvis
·Independent actionable wrong is required, but it can be found in breach of a distinct and separate K
provision or other duty such as a fiduciary obligation
Holding:
Ruled for W.; Court restores 1M$ punitive dmg award
The amounts are very hard to determine for the court (different amounts given by trial judge,
appeal judges and supreme court judges). → Certainty is missing.
Whiten v. Pilot Insurance Co. (2002, SCC) - Whitens lose their home to a house fire; insurance company pursues a case against them
for arson/insurance fraud not grounded in the evidence; actions were motivated by their precarious economic position; senior
management was aware of the actions of their lawyer
• lower court: judge condemned Pilot's lawyer; made more egregious by the knowledge of the client; jury agreed and awarded $1
million in punitive damages (on top of compensatory damages and solicitor/client costs)
• Court of Appeal: award was reduced to $100,000
• SCC: restored the original award based on the exceptional circumstances of the case
• found Pilot's conduct exceedingly reprehensible and in breach of their obligation to
deal with the Whitens in good faith
• exacerbated by the fact that insurance contracts are "peace of mind" contracts
• behaviour was planned & deliberate even when they knew the hardship it was
causing
• court was mindful of the controversial status of punitive damages (fears of
"Americanization")
• case represents an effort to limit awards of punitive damages (while upholding a
large award)
• doctrine - two basic requirements (test) for an award of punitive damages in a breach
of contract actions:
• misconduct must be highly reprehensible - "high-handed, malicious, arbitrary…
departs to a marked degree from ordinary standards of decent behaviour"
• misconduct must be an independent actionable wrong (IAW) aside from the
main cause of action
• IAW may be founded in a breach of a term of the contract; doesn't need to be a
tort
• policy framework - court laid out policies to guide future applications of the doctrine;
key features are:
• exceptionality: punitive damages are the exception to the general rule of
compensatory damages in breach of contract
• must be a rational response to the circumstances of the case; driven by the
reprehensible conduct of the defendant
• rationality: punitive damages are intended to achieve three objectives:
punishment, deterrence, denunciation
• an imposition of punitive damages must be linked to one of these three goals
• proportionality: the sum should be proportionate to the degree of misconduct
exhibited and no more
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• proportionate to the blameworthiness of the defendant's conduct - considers
factors such as deliberateness, motive, length of time, knowledge of wrongdoing, profiting from conduct
• proportionate to the degree of vulnerability of the plaintiff - considers the
relative positions of the parties and whether the stronger party abused it's
position/exploited the vulnerability of the weaker party
• proportionate to the harm or the potential harm directed at the plaintiff includes both actual harm and likely harm; defendant is punished for the nature
of their conduct, not necessarily the outcome
• proportionate to the need for deterrence - the sum should deter both the wrongdoer and future wrong-doers from contemplating
similar misconduct
• proportionate even after considering penalties that have already been assessed
for the same misconduct - punitive damages should not be awarded if
compensatory damages/criminal penalties are adequate to meet the policy
objectives
• proportionate to the advantage wrongfully gained by the misconduct - the
amount of the award can't be such that the defendant can regard it as "the cost
of doing business"
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Damages Based on the Gain to the Breaching (defendant’s) Party
137-163
General rule: We have always evaluated damages by the cost, by the compensation principle: what did
the non-breaching party lose by this? How was I injured?
We measure the injury be the loss (Hawkins and McGee). If I made by your breach, you
will only get a nominal damage.
Exception: Sometimes it is possible to obtain a remedy that is measured by the
defendant’s gain, rather than by the loss suffered by the π.
There are both equitable and legal routes to this remedy.
Time of Measuring Damages
The time for measuring damage is at the time and place for delivery/performance. For a
commodity contract: Kp1: $100; Delivery: 1/6/2019. We look at the value of the product on
that date.
The exception being when there is an anticipatory repudiation → you may (1) wait a reasonable
time or (2) declare the breach now (Hoxter)
If the repudiation happens on 15/5/2019. If you choose (2) and find an alternate supplier
(Kp2:110), the damage will be between the Kp2 and Kp1 = $10
If on the date of delivery, the market price has dropped to 90, it doesn’t matter that the price is
now lower, the non-breaching party did a “cover”, he was not required to wait.
The breaching party owes $10.
Wroth v Tyler
(1974) p. 137
Facts
The π is a couple which bought a house from the ∆. The wife of the ∆ had registered a charge
against the title under the Matrimonial Homes Act (a statute designed to protect the wife from
eviction from the matrimonial home). She refused to remove the charge. The π sued for
damages. The important question here is the time for measurement of damages, because the
value of the home rose dramatically between the date agreed for conveyance and the date of the
trial.
The contract price was 6000£, the value at the date agreed for conveyance 7500£ and the value
at the date of trial 11 500£.
Issues
What should be the quantum of damages?
Decision
The rule of the common law it, that where a party sustains a loss by reason of a breach of
contract, he is, so far as money can do it, to be placed in the same situation, with respects to
damages, as if the contract had been performed.
In the present case, the π would at the date fixed have had the house, then worth 7500£ in
return for the contractual price of 6000£. Today, to purchase an equivalent house, they need
11 500£. On facts such as these, the general rule assessing damages as the date of the
breach of contract seems to defeat the general principle.
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The ∆ pleaded that the quantum of the damages were not foreseeable, in accordance with the
second rule in Hadley. The Court said that the function of the second rule is to exclude from the
damages any liability for any type of kind of loss which could not have been foreseen when the
contract was made. No authority has been put before the Court which provide any support for
the alleged requirement that the quantum should have been in contemplation.
The Court allowed 5500£ in damages.
The damages were allowed under a statute*****
RG Lawson, Damages an appraisal of wroth v Tyler
(1975) p. 143
The common law rule is that damages for breach of contract should place the innocent party in
the position he would have occupied had the contract been performed. Generally speaking, this
is done by awarding a measure of compensation based on the difference in sale price and market
price at the date of breach of contract.
Of course, if the market price at the date of judgement exceeds the market price at the date of
breach, compensation based on the earlier date may be unsatisfactory. The objection that the
buyer should mitigate his loss by making a substitute purchase before the date of judgement
is valid only if he has sufficient cash in hand. This may not be so → Wroth v. Tyler.
In Wroth v. Tyler, the damages were awarded under the Lord Cairns’ Act. Under this Act, the
damages are based as at the date of the judgement. What about common law damages?
Restitution
Damages, specific performance and the injunction are the remedies considered to be
contractual remedies.
Restitution = remedies that is different from remedies in contract or tort. We recognized a third
category of the common law which has been called quasi-contract or restitution. It is used when
there is a case of unjust enrichment.
Deglman v Guaranty Trust co of Canada and Constantineau
(1954) p. 146
Facts
The π is the ∆ nephew. During her life, she promises that if he does things for her, she will
leave him the house when she dies. The π was good to her and did a bunch of things for her as
drive her to Montreal from Ottawa and grocery shopping, she would put him in her will. π
would get her estate.
The agreement = Do things, I leave the house.
The agreement is unenforceable because the only way to transfer in common law is by writing
(statute of fraud). Otherwise, it is void. Therefore, there is a promise that is not a contract
(agreement).
Issues
Is the π entitled to restitution?
Decision
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He is seeking a Quantum meruit (amount that is earned): he gave her services, he should receive
compensation. Because there is no contract, he cannot have compensation.
The statute intervenes to prevent her from paying as she promised. The best we can do is pay
for the services by measuring the breach by what she has gained (value of the services): unjust
enrichment. Receiving a benefit for which the law implies a promise to pay.
This is not a contract, it is a Quasi-Contract or an implied contract.
Implied: If you don’t stop someone from giving you a service that you know is given by
mistake and is onerous, you owe them money for the service.
Quasi-Contract: If you didn’t know the service was being given, but if a reasonable person
would of accepted the contract, it is assumed you would of assent.
→ in those limited classes of cases, there is an obligation to pay.
In certain cases, we imply an obligation to pay as if it were tort. Even if you didn’t want to
be involved in the relationship, you must pay. It is an obligation imposed by law (akin to
tort). The implied contract and quasi-contract don’t always apply, some situations don’t fit
into them.
The ∆’s obligation arises by natural justice, it doesn’t have to look contractual.
Ex. money paid by mistake, money got through imposition or undue advantage, etc.
i.e there is no contract.
Ex. mistake: money put in the wrong bank account. It is not a quasi-contract because the
person who sent the money has no idea the other person received it. There is still an unjust
enrichment and therefore an obligation imposed by law, even without fault.
Deglman says there is unjust enrichment which creates an obligation imposed by law.
→ We look at the circumstances (quasi-contract, implied contract, without fault, other)
under which there is an obligation imposed by law. There aren’t categories.
Facts:
·Aunt promised Constantineau she would leave him premises at 548 Besserer St.
·In return he was to do the chores and take her on car trips (performance)
·Heirs of the deceased refused to transfer the premise at her death
Issue: Was there an enforceable contract? (this would disregard s.4 of Statute of Fraud)
Held:
Ont SC: there was contract
Ont CA: held
SCC: contract is invalid but restitution interest so Appeal is allowed.
Reasoning:

Restitutionary remedy used to prevent unjust enrichment

Les Terrasses & Brewer v. Chrysler ; But differs from these since there was a contract that was invalid
for lack of formality.
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
But, for transfer of land, a formality is required (Statute of Fraud, Art. 1416, Fuller).

Unjust Enrichment because the services were done in reliance of contractual justifications.

He gets only his restitution interest for his unjustified enrichment. Because the law implies an
obligation to pay for the value of the services rendered.
Comment:

Cannot use estoppel because it is not a consideration problem but a formality one
A legalized system is bound to provide remedies for cases of what have been called unjust
enrichment or unjust benefit, that is to prevent a man from retaining the money of or some
benefit derived from another which it is against conscience that he should keep. The
obligation of restitution is a creation of the law. It does not derive from the contract.
The π should recover the money.
Related: Boone v Coe. (1913) p. 148
• The π are farmers from Kentucky. The ∆ is a farmer in Texas. He promised them a lease
of his farm for a year, to build them a dwelling and to share profit. The π got to Texas
and nothing was done. Restitution here cannot be allowed: the ∆ received no benefit.
Related: Moses v Macferlan (1760) p. 149
• Restitution lies only for money which the defendant ought to refund. Money paid by
mistake or upon a consideration which happens to fail, or for money got through
imposition (express or implied); or extortion; or oppression; or an undue advantage
taken of the plaintiff’s situation.
Why a plaintiff might prefer to pursue restitutionary relief rather than damages for breach of
contract? Relief in a restitution claim is benefit-based rather than expectancy-based, one can
imagine circumstances in which restitutionary relief might be preferable to the victim.
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Hunt v Silk
(1804) p. 150
Facts
The ∆ landlord agreed to rent a house to the π, to repair it and to execute the lease within ten
days in return of the π’s initial payment of 10£. He did not do it.
Issues
Is the π can recover the 10£?
Decision
No because he occupied the house for a moment.
Attorney General v Blake
(2000) p. 151 to 163
Facts
The ∆ is a notorious traitor. He worked as a member of the security and intelligence services for
17 years. During that time, he became an agent for the Soviet Union. He disclosed valuable
secret information and documents gained through his employment.
He decided to write a book out of his life. He entered into a publishing contract. Under this
contract, he made 60 000£ and another 90 000£ will be received. The government did not
know the book was to be published.
The ∆’s disclosure of information in his autobiography is a breach under section 1(1) of the
Official secrets Act 1989. When he got the job, the ∆ signed a contract stating he would not reveal
the information gained by the result of his employment.
Issues
Can the government have restitution of the money gained from the book? Government hasn’t
loss anything because it is no longer confidential, but he is breaking his agreement,
therefore, they can ask for the profit.
Decision
“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.”
-
You can still have contract certainty.
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-
You will get a gain based remedy based on circumstances (even if they just said it will be
certain).
- In some circumstances, you should measure the damage by the gain.
When? When there is no loss (determined with the circumstances)
This is one of those cases. Even if the crown doesn’t loose anything, the Crown wants to
prevent people working in the security services to use the information to make money.
it can't be given that much, because if the gain is calculated, it makes transaction
unpredictable, therefore it is limited to cases where it is necessary to use it.
The law is now sufficiently mature to recognize a restitutionary claim for profits made from a
breach of contract in appropriate situations. These include cases of skimped performance, and
cases where the ∆ obtained his profit by doing the very thing he contracted not to do. The
present case fell into the latter category: Blake earned his profit by doing the very thing
he had promised not to do.
The broad proposition that a wrongdoer should not be allowed to profit from his wrong has an
obvious attraction. The corollary is that the person wronged may recover the amount of this
profit when he suffered no financially measurable loss. The corollary is not so obviously
persuasive.
However, the law recognizes that a party to a contract may have an interest in performance
which is not readily measurable in terms of money. The law recognized that the innocent party
to the breach of contract had a legitimate interest in having the contract performed even
though he himself would suffer no financial loss from its breach. The classic example of this
type of case is a contract for the sale of land. The buyer of a house may be attracted by features
which have little or no impact on the value of the house. An award for damages, based on
strictly financial criteria would fail to recompense a disappointed buyer for this head of loss.
The Attorney general can recover the profits.
ATTORNEY GENERAL V BLAKE (2000)
Key Point
Restitution of profits made in breach of contract can be awarded where there is legitimate interest in preventing the profit-making
activity.
Facts



Blake (D) was a former Secret Service agent and notorious double agent for Russia who published his autobiography
At the time of publication, the information contained in the book was available to the public
The AG on behalf of the Crown sued D for breach of an undertaking not to disclose official secrets when he entered into
when he joined the secret service, seeking damages amounting to the profits from the book
Issue
Whether an account of profits could be awarded for breach of contract?
Held (House of Lords)
The government was awarded D’s profits from the book based on exceptional grounds of public policy.
Lord Nicholls
When is restitution of profits awarded?
 The law is now sufficiently mature to recognise a restitutionary claim for profits made from a breach of contract in
appropriate situations: p. 277
 The law recognises that damages are not always a sufficient remedy for breach of contract: p. 285B
 The concern of uncertainty created by the availability of such a remedy is countered by the fact that it will be appropriate only
in exceptional cases where normal remedies are inadequate: p. 285C
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No fixed rules can be prescribed on when it will be available, the court will have regard to the circumstances, including (at p.
285C):
o the subject matter of the contract;
o the consequences of the breach; and
o the circumstances in which relief is being sought
 A general guide is whether C has any legitimate interest in preventing D’s profit-making activity: p. 285C
Current case
 The Crown has a legitimate interest in preventing D from profiting from the disclosure of official information whether
classified or not, during his service and after
 The points below are offered as justification
Public policy concerns
 Neither D, nor any other member of the service, should have a financial incentive to break his undertaking
 The confidence of members of the service in their dealings with each others should not be undermined and would jeopardise
the effectiveness of the service: p. 287C
Akin to breach of fiduciary obligation
 The undertaking, if not a fiduciary obligation, was closely akin to a fiduciary obligation, where an account of profits is a
standard remedy in the event of breach
 Had the information which Blake has now disclosed still been confidential, an account of profits would have been ordered,
almost as a matter of course.
 In the special circumstances of the intelligence services, the same conclusion should follow even though the information is
no longer confidential: p. 287D
Commentary
 The national security concerns of allowing Blake to profit from the his traitorous acts was what persuaded the court to grant
this exceptional remedy
 The same concerns were not present in Experience Hendrix v PPX, which was a more typical commercial dispute, in which the
Court of Appeal denied such relief

SPECIFIC PERFORMANCE
Specific Performance
Specific performance is a judicial order to the promisor that he undertake the performance to which he
obligated himself in a contract. Specific performance is an alternative remedy to damages and may be issued at
the discretion of the court, subject to a number of exceptions. Emily signs a contract to sell Charlotte a gold
samovar, a Russian antique of great sentimental value because it once belonged to Charlotte’s mother. Emily
then repudiates the contract while still executory. A court may properly grant Charlotte an order of specific
performance against Emily.
Once students understand the basic idea of specific performance, they often want to pounce upon it as the
solution to almost any breach of contract. It seems reasonable that the nonbreaching party could ask a court
to simply require the promisor to do what she promised she would. But specific performance is a very limited
remedy: it is only available for breach of contract to sell a unique item, that is, a unique item of personal
property (the samovar), or a parcel of real estate (all real estate is unique). But if the item is not unique, so that
the nonbreaching party can go out and buy another one, then the legal remedy of money damages will solve
the problem. And specific performance will never be used to force a person to perform services against his
will, which would be involuntary servitude. A person may be forced to stop doing that which he should not
do (injunction), but not forced to do what he will not do.
115-137
Link to equity: if an aggrieved party wanted to have her expectation interest more specifically
satisfied, if she wanted to have the promise actually performed, she could turn to equity.
In order to get an equitable remedy: you have to show there is no adequate remedy at law.
If you give me money, I will not be in the position I would have been had the contract been
performed. Money is inadequate. If you cannot make that showing, you will get money.
Land
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The common law value land very highly. when there is a breach for land, the common law
almost always provides specific performance. it is based on the principle that all land is
unique. Money can't put you in the same position.
In some cases, where land is being treated as a commodity (ex. when you will flip the
property and sell it). If the contract had gone through, he would have made X amount. (Semelhago v.
Paramadevan)
→ You have to prove the land is unique to you. It can be subjective and be good enough. The
court doesn’t assume the land is unique, but 9/10 times, it is.
Stewart v Kennedy
(1890) p. 115
Facts
England vs Scotland law.
Decision
In England, the only legal arising from a breach of contract is a claim of damages. Specific
performance is not a matter of legal right. In Scotland, it is for specific subject such as land
estate.
Personal services
Specific performance is almost never granted. We don’t force people to finish the job
personally, because of supervision. The court doesn’t want to supervise the person completing
the task.
Warner Bros Pictures incorporated v. Nelson
(1937) p. 130
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Facts
Performers worked for the studio based on an annual salary and played in all the movies the
studio required they do. Betty Davis became a star and left the USA to England to work for a
studio there.
Issues
Can they make her come back?
Decision
There is no way the court will issue an injunction for her to perform (the positive covenant),
but at the same time, she has promised not to perform for anyone else (negative covenant).
She says that by enforcing the negative covenant forces her to do the positive covenant by
putting her out of work. The court says no, she can work in another industry.
The negative covenant has to be in the contract.
(1) Positive covenant “I will work for Warner Bros”
→ supervision problem : easier to give damages than to see if the person did the job
properly.
(2) Negative covenant “I will not work for anyone else (film studio)”
→ It would never be permitted if it was for anyone at all.
The negative covenant has to be reasonable
(1) in scope (anyone else or a specific group)
(2) in time (forever or for the time of the contract)
(3) location (English language film industry)
There shouldn’t be any specific performance of a negative covenant if the person is not unique
(ex. person who delivers the mail in the company). The question then becomes: is the person
unique or does she have important information?
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Tanenbaum v WJ. Bell Paper Co. Ltd.
(1956) p. 123
Facts
Bell bought a parcel of land from T and promised to build a road with some specific conditions.
The road proved troublesome (wasn’t built in accordance with the agreement)
Issues
Action for specific performance and damages.
Decision
The court interpreted the contract as calling for a specific type of road.
Specific performance ought to be decreed where a person undertakes accommodation works on
lands possessed by him in consideration for obtaining those lands or in consideration of the
purchase-price of other lands sold by him, if
the particulars of the work are sufficiently clear and defined […].
The π can be properly and sufficiently compensated in damages. Let me say at once, however
that it is in my view that such relief, even if capable of being calculated, would be quite
inadequate to atone for the inadequacy of the watermain (conduit d’eau principal). As long as that
pipe remains its sole source of water, parcel C cannot be put to its full use and certainly its
potential sale value cannot be realized.
Goods
Can you get specific performance? Maybe
Falcke v Gray
(1859) p. 116
Facts
The π is buying the house of the ∆. Falcke is an art dealer and knows the jars are worth a lot.
He deals so that the jars come with the house for 40£. The ∆ sold the jars to someone else for
260£.
Issues
Can the π have the jar?
Decision
Can you apply specific performance to chattels? The Court will not allow specific performance
for ordinary articles of use and consumption, because you have only to go into a store and buy
another equally good article = you can get adequate compensation for it.
Here, the chattels are unique. The Court enforced the contract and would give specific
performance, because giving the value will not compensate for the breach of contract,
because he won’t be able to find equivalent goods.
In the end, he didn’t get it. The court says uses the maxim “to do equity, one must get equity”:
if you are asking the court to do what is fair and just, you must act in the same way. The
court concluded that he skimmed her. he has manipulated her by pretending he didn’t know
anything about them. He has deceived her in the bargain.
In Falcke v Gray, the Court assessed whether a contractual bargain was capable of specific performance and
held that it was not.29 In this case the plaintiff knew the value of the vases greatly exceeded the £40 offered
and that the defendant did not know their true value, which exceeded £200. This case undermines the basic
principle of contract law that the parties do not need to come with equal bargaining power.30 Falcke v Gray
allowed the defendant to escape the contract without apparent penalty as the order of specific performance
was dismissed without costs and there was no discussion of the damages to be awarded in its place.
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Carter v. Long & Bisby: where the chattels was of particular value so that damages
would be no adequate compensation, the court can enforce the contract.
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Cohen v Roche
(1927) p. 117
Facts
At an antique’s auction, the π bought chairs. The ∆ then refused to hand over the
chairs.
Issues
Can the π recover the chairs?
Decision
The chairs possessed no special feature at all. They were ordinary chairs.
The power vested in the Court to order delivery up of a particular
chattel is discretionary, and ought not to be exercised when the chattel is
an ordinary article of commerce and of no special value or interest, and not
alleged to be of any special value to the plaintiff, and where damages
would fully compensate. If he had gotten the chairs, he would have resold
them. He did not want the objects themselves; he wanted the profit. They
are not unique TO HIM.
The π cannot recover the chairs.
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Behnke v Bede Shipping Co ltd.
[1927] KB
Sale of ship. For the buyer, the ship is like a house/land. It has a practically unique value to the
π. The ship was German, which allowed him to it on the German register.
This is an ordinary good that is unique under specific circumstances.
Sometimes, ordinary goods, even if not unique, can be in “proper circumstances” subject to
specific performance, because not giving the goods would arise significant problems.
You get specific performance if the:
- the goods are unique
- If the court sees it fit in proper circumstances.
Sky Petroleum Ltd. v. VIP Petroleum Ltd.
(1974) p. 119
Facts
The π had entered into a contract with the ∆ to purchase from the ∆, at fixed prices, their entire
requirements of gasoline and diesel fuel for the π’s filling station.
The ∆ put an end at the contract when the market crashed. The π then had no other option.
Issues
Are the π entitled to specific performance?
Decision
Damages are not a sufficient remedy here. The evidence suggests, and indeed it is common
knowledge that in the petroleum market is in an unusual state in which a would-be buyer
cannot go out into the marker and contract with another seller, possibly at some sacrifice as to
price. Here, the ∆ appears for practical purposes to be the π’s sole means of keeping their
business going. The court allowed the specific performance.
The court decided that even though the contract was disadvantageous to the ∆.
Gilbert v Barron
(1958) p. 121
Facts
The dispute in this action arises out of a struggle for control of the ownership of the shares of
the Ontario company.
Issues
Decision
The π are entitled to specific performance.
Co-operative insurance society Ltd. V. Argyll stores (holdings) Ltd.
(1998) p. 128
Facts
∆ operated a supermarket in the π shopping centre, and undertook, by a lease entered into in
1979, to keep it in operation for a term of 35 years. In 1995 the ∆ announced that the store
would close.
Issues
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π asks specific performance
→ refused 1st instance
→ granted in CA
Decision
→ HoL restored the order of the judge of first instance. Reasons for
which we don’t ask for specific performance:
1. it would require constant supervision
2. the only means available to the court to enforce its order is the quasi-criminal
procedure of punishment for contempt
3. It may cause injustice by allowing the π to enrich himself at the ∆’s expense
4. The purpose of the law of contract is not to punish wrong-doing but to satisfy the
expectations of the party entitled to performance.
Page one records Ltd. V Britton
(1968) p. 134
Facts
A group of musicians (the Troggs) appointed Page One Records Ltd. to be their managers and
then made them their agency and signed a recording agreement. They also made a publishing
agreement with the second π.
By two letters, the Troggs purported to determine the four agreements they had made with the
π.
Issues
the π sought an injunction.
Decision
The ∆ have not established a prima facies case for the view that there were such breaches
by the first π of its duty to the Troggs as to justify the Troggs in repudiating the agreement
they made with is.
Here the obligation of the first π, involving services, were obligations of trust and confidence
and were obligations which, plainly, could not be enforced at the suit of the Troggs.
The injunction is refused.
WARNER BROS 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
twelve-month 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
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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.
By contract, the defendant actress Bette Davis, agreed to act exclusively for Warner Bros for two years. The contract stipulated not
only that could she not act for another but also she could take no employment of any kind. Bette Davis then moved to England and
in breach of contract entered an agreement to act for another. Warner Bros sought an injunction to prevent her from doing so.
Held:
An injunction was granted but only in so far as it prevented Bette Davis from acting or performing for another. The term relating to
no employment of any kind was severed and did not form part of the injunction.
Branson J:
“The case before me is therefore one in which it would be proper to grant an injunction unless to do so would in the circumstances
be tantamount to ordering the defendant to perform her contract or remain idle or unless damages would be the more appropriate
remedy. With regard to the first of these considerations, it would, of course, be impossible to grant an injunction covering all the
negative covenants in the contract. That would, indeed, force the defendant to perform her contract or remain idle; but this objection
is removed by the restricted form in which the injunction is sought. It is confined to forbidding the defendant, without the consent of
the plaintiffs, to render any services for or in any motion picture or stage production for anyone other than the plaintiffs.”
What you should know at the end
•
•
•
•
•
•
•
•
•
Under what circumstances will the common law give damages for purely intangible injury?
Why will the law not compensate for aggravation or inconvenience?
How does Hadley and the rule of foreseeability impact the choice to compensate for intangible
injury?
What are the theoretical problems with giving punitive damages in contract?
What is the compensation principle?
How is that impacted by the decisions in Deglman and Blake?
Why are common law courts reluctant to give gain-based remedies? How does one measure
gain?
Why are damages the default remedy in contract?
Under what circumstances should courts grant specific performance and why?
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II.
FORMATION
A basic problem of contract is, “What is a contract and how are they formed?” The term “contract” is
essentially a legal conclusion. A contract is an agreement that the law will enforce and for the breach of which
the law gives a remedy. Yet, we make all sorts of agreements every day. Which of these are contracts, and thus
legally enforceable, and which are not will depend in a large part on how they are formed.
You need to have a contract you need:
1. intention to be bound
2. mutual assent
3. the exchange
The mutual assent is what we will look at.
Offer and Acceptance
Offers and Preliminary Negociations
163-178
Offer: expression by one party of his assent to certain definitive terms, provided that the other
party involved in the bargaining transaction will likewise express his assent to the identically same
terms.
Expression of intention to enter into a bargain so made as to lead the other party to
believe that his acceptance will conclude it.
-
An offer creates a power of acceptance in the offeree (once the offer is accepted, the contract is
made).
The offer must contain all the terms of the contract to be made.
Offer or Invitation? communication.
Is the communications sufficiently clear that it would constitute an offer?
Denton v Great Northern railway company
(p.164)
Facts
π consulted the printed timetables issued by the defendant to know when the train would pass. He
took a first train to Peterborough in the morning, but then he tried taking a train to Hull in the
evening, he was told that there were no train to Hull, nor had there been one for the entire month.
They continued to post timetables with that line even if the train did not pass anymore.
The whole line of railway is not the property of the Company and the train to Hull had been
discontinued, and the Company had failed to change its timetables.
Issues
Can the π recover damages, notably for the missed appointment?
Decision
Yes, the π can recover on the ground that there was a contract with him, and also on the ground that
there was false representation by the Company.
The railroad argues that the contract is formed when you buy the ticket.
Lord Campbell: A promise to the large public is as good as a promise to each individually. All the
elements of the offer are present (5W). A contract is created when the plaintiff
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came to the station to buy a ticket, therefore accepting the offer. The Company also failed to change
their timetables in reasonable time, therefore making false representation.
Wightman: There is a contract, and the Company is liable for making false representation. Essentials for
an action in false representation: (1) representation is untrue (2) it is known by the persons making it
to be untrue (3) it is calculated to induce the plaintiff to act and he, believing it, is induced to
act accordingly.
Crompton: He does not think there is a contract, but agrees the π has a right of action for false
representation (tort), on the ground of their duty as public carriers of passengers. They are responsible
for the negligent representation.
General rule: an advertisement is an invitation to come in and to offer to buy the product.
That means that you can ask for a different price once you come in, he can ask for a different price.
(The statutes prevent you from doing so, they will ask you to have a reasonable supply).
Johnston Brothers v Rogers Brothers
(1899) p. 167
Facts
The πs (Johnson) are bakers and seek to recover damages from the ∆s (Rogers) for breach of a contract
for the sale and delivery of a quantity of flour. The bakers received a letter quoting flour at price X.
The following day they sent a letter accepting the offer. They then received a letter saying the prince
had gone up.
Issues
Is a quotation of price an offer to sell?
History: Appeal by the defendants from a decision in favour of the plaintiffs
Decision
There was no contract made in this case. A quotation of price is not an offer to sell, and
therefore requires the acceptance by the one naming the price, of the order so made, to
complete the transactions.
* It would have been different if the person quoting the marker price was the potential buyer and
that the seller would have answer yes.
Invitation → offer → counter offer/Rejection + New offer
It is a question of communication, you have to look at the words that are used. If it is
sufficiently clear, there is an offer.
Harvey v Facey
(1893) p. 170
Facts
Harvey sends telegram to Facey saying: Will you sell us Bumper Hall Pen? Telegraph lowest cash price –
answer paid. Harvey answers: Lowest price for Bumper Hall Pen 900$. Facey answers: We agree to
buy Bumper Hall Pen for 900$. But the telegraph from Harvey only stated the lowest price, it did
not say if he was willing to sell, therefore it is not an offer to sell and there is no contract.
Issues
Decision
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Grainger & Son v Gough: The transmission of a price list does not amount to an offer to
supply an unlimited quantity of the item.
Boyer and Co v D & R Duke: Recipient of a priced catalogue offering desirable items is not an offer
to sell. There is a limited quantity of stock for every supplier and transactions are limited. Such
quotation invites an offer, which will be honoured or not according to the exigencies of the business.
Lefkowitz v Great Minneapolis Surplus store
p.171
Facts
The ∆ refuses to sell to the π a certain fur piece which it had offered for sale in a newspaper
advertisement on a first come first served basis. The π was the first to present himself every time, but
the defendant said the store policy was to sell to women only.
Defendant’s argument: a newspaper advertisement offering item of merchandise for sale at a
named price is a unilateral offer which may be withdrawn without notice.
Issues
History: At trial, the plaintiff was awarded 138.50$ as damages for breach of contract.
Decision
Whether an ad constitutes an offer rather than an invitation to make an offer depends on the legal
intention of the parties and the surrounding circumstances. Here the offer by the defendant is clear and
he could have modified his offer but only before the acceptance. The “house rule” is not
mentioned in the ad, therefore the plaintiff is entitled to damages.
You should ask yourself: what is left to discuss in the what, when, where, who, how
much? (5W) If the answers are clear, then it is an offer.
→ We look at what is missing and if the words certain
Rules:
- The offer is out there and the other party is in command. The offeror is at the mercy of the
offeree.
- How to terminate an offer?
o rejection
o revocation
o acceptance
o lapse of time
Pharmaceutical Society of Great Britain v. Boots Cash chemists (Southern LTD)
p. 173
Facts
The Pharmacy and Poison act provides that no person shall sell any point included in Part I of the
Poisons list unless it’s under the supervision of a registered pharmacist. The substance is displayed in a
self-service area of the pharmacy.
Issues
Does the sale take place when the customer helps himself from the shelf, or when he pays for it?
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History: At trial, it was decided that the sale took place when the cashier accepted the payment and
under proper supervision. The Society appealed
Decision
The layout of the store is an invitation to the customer to pick up anything he wishes to purchase. Is
the offer accepted when he puts the item in his receptable? No, the customer has no right on the
item until he has paid for it. He also has the opportunity to change his mind, abandon the item
of change it for something else in the store that is more interesting to him. The contract is made
with the payment, and therefore under proper supervision of the pharmacist.
Fisher v Bell: A police constable told a shop worker that a knife displayed with a price tag was
considered a flick knife, which is illegal to sell. Held: the display of the knife was a mere invitation to treat, not
an offer for sale.
Swiss federal code of obligations: The display of merchandise with a price tag is considered as a rule
as an offer.
Storer v Manchester City Council
(1974) p. 175
Facts
Before 1971, the Manchester Corporation was controlled by the Conservatives, who would sell their
council houses to tenants on favourable terms (any tenant who had been in occupation for more than a
year, at market price with a reduction on the price from 10- 20%, with possibility of 100% mortgage).
When the Labour administration took over, they reversed that policy. They could not go back on
existing contracts but decided to refuse ongoing applications. Storer had received a purchase
Agreement by the City council with a letter that said they would sign it once they received a copy
signed by him.
Issues
Plaintiffs’ argument: Firm contracts had been made even though the contracts had not been
exchanged.
Defendant’s argument: Contracts were only binding when the when contracts of sale had been
exchanged.
Decision
Clear common law rule: When parties arrange for a “sale subject to contract”, that means, as a rule,
that there is no binding contract until the contracts of sale have been formally exchanged.
But here there is no arrangement subject to contract. Still, the Agreement signed
between the parties enclosed all legal formalities and the contract was concluded by offer
and acceptance. There was one part left blank for administrative
convenience and that does not mean there was no contract concluded.
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The power of Acceptance
178-202
Shatford v BC wine Growers LTD
p. 178
Facts
Issues
Decision
When an offer is made with no time limit, the offer must be accepted within reasonable
time. Here the plaintiff waited 6 days to answer, not reasonable.
Manchester Diocesan Council for education v Commercial & General Investments LTD
p. 179
Facts
Issues
Decision
Manchester Diocesan council for education v Commercial & General investments Ltd.
When an offer is not accepted within reasonable time, is it void because:
- The offer is withdrawn by the offeror;
o This implies that the offeror has a time limit in mind…
o Has a certain level of uncertainty because reasonable time limit differs from a person to the other
- The offeree must be treated as having refused the offer.
o This is based on the conduct of the offeree
o Simple assessment of facts
Neither party is in greater need of protection by the law. In the first case the offered can withdraw
his offer or put a time limit on it. In the second case the offeree is free to clearly refuse the offer at
any time. The judge here prefers the second alternative to the first.
Larkin v Gardiner
p. 180
Facts
Action in specific performance of a contract for the sale of the land, brought by Larkin (the vendor),
against the defendant (alleged buyer). Larkin’s property was placed in the hands of a land agent for sale
on her behalf. Gardiner offered 1,900$ to the land agent for the property. The land agent was not
authorized to sell at that price but made Gardiner sign an agreement to purchase at that price. The next
morning, Larkin signed the same agreement with her agent. Later on, Gardiner sent a written notice to
the agent, withdrawing his offer. The agent did not communicate to the defendant that the offer had
been already accepted by the vendor
Issues
Decision
It is clear that the document signed by the defendant was an offer to purchase, which can
be withdrawn at all time before acceptance. Therefore, we must ask if the signature by the
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plaintiff constitutes an acceptance. The posting of a letter or the verbal communication to Gardiner of
the signature of the contract would have been considered an acceptance. But here the delivery of the
signed agreement to her own agent was a revocable act until it had been communicated to the
defendant.
Dominion Building Corp. v The King
Offer says: “This offer of purchase, if accepted by Order of His Excellency the Governor General in
Council, shall constitute a binding contract of purchase and sale…” This language means that the
acceptance does not need to be communicated to the offeror, the only thing necessary is the Order in
Council.
Dickinson v Dodds
p.182
Facts
Dodds made a written offer to sell a house to Dickinson, with a time limit for acceptance. Offers:
1. to sell
2. to hold it till Friday.
Dickinson accepted the offer because he heard a rumor that he was ready to sell. The written
document, which reached Dodds’ house, but his mother-in-law forgot to give him the document.
Still before the time limit, Dickinson’s agent found Dodds and gave him a duplicate of the acceptance
by Dickinson. Dodds told the agent it was too late, that he had sold the property. A few moment later
Dickinson found Dodds and handed him another duplicate, but he said it was too late, he had sold the
property.
Issues
Is there a binding agreement (offer + acceptance = contract)
Decision
In this case, we have a offer, revocation and acceptation = nothing.
The court says that the revocation happened when he made an agreement with someone
else. Dickenson then knew Dodds had no intention to sell. He knew on Tuesday that Dodds had no
offer.
Revocation
Is there a moment at which there is an offer on the table that it is still possible to accept? Offer →
Rejection → Counteroffer (change of roles) → [Acceptance → Agreement] or [R→ CO]
The question that arises: how does the knowing of the rumor mean that the offer is
revoked?
The court determines that the way by which the information came to him makes it reliable.
Even if it is reliable information, it only means he has offered it to someone else.
The court suggests that you cannot have two valid offers at the same time. Since there is only
one piece of land, there can only be one offer at a time.
In order to be an agreement, there must be a “meeting of the minds” but that meaning
is determined by the objection manifestation of assent → we are interested in knowing what the
actions demonstrate.
Just because an offer is put out there does not mean you cannot revoke it. Before
acceptance, it is possible to revoke. The manifestation must be objective.
Promise
The promise, being a mere nudum pactum, was not binding because he did not get anything
in exchange and until the moment before the complete acceptance of
Dickinson of the offer, Dodds was free to withdraw the offer. The withdrawal does not
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need to be express or actual. Plus, in this case, the plaintiff knew the defendant was offering the
house to other people.
To be valid, a promise needs a return promise.
German Civil Code: An offer to contract is binding upon the offeror unless he provided for the
contrary.
Uniform Commercial Code: An offer to buy or sell goods in a writing whose terms give assurance
that it will be held open is not revocable…
Felthouse v Bindley
p.184
Facts
Nephew talks with his uncle about selling him a horse for 30 guineas. The uncle gave him
30 pounds and thought he was the owner of the horse. The uncle says he offered 30 pounds even if
the nephew had asked for 30 guineas and the nephew said the horse was his. He offers to split the
difference.
Decision
The importance of certainty in the terms of the offer and the acceptance.
Because of the nature of these two people, the fact that the nephew didn’t do anything after the
offer to split the difference and that he didn’t do anything when the uncle put it up for auction, he
agrees with the offer.
Silence cannot be acceptance at common law, except in some circumstance, like here
where they have a relationship, which makes silence an acceptance.
Wheeler v Klaholt
p. 186
Facts
It is a way to proceed to send items to businesses, and say if you don’t like them, let us know, we will
come pick them up. They send shoes and they decide that they do not want to keep the goods, but
never informed the other party.
Decision
If it had been sent to a stranger, it could not have been enforced, but since it is custom for them to do
it, these are special circumstance that make silence an acceptance. In this case, the acts of one
party showed that they accepted the offer of the other without expressively saying it.
→ Generally, Silence is not acceptance
Eliason v Henshaw
p. 188
Facts
Issues
Decision
Offeror is “Master of the Offer” he can decide of the terms of the offer, which you may accept or
not. It is also possible to decide of the terms of the acceptance. If there are no acceptance terms, the
person may accept in any manner reasonable under the circumstances.
There is a misconception that if the offer is written, the acceptance must also be. That is not true.
Mirror Image
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My acceptance must mirror the offer. If it deviates in any way, it is a rejection and a
counteroffer.
Manchester Diocesan Council for education v Commercial & General Investments LTD
p. 189
Facts
Issues
Decision
Hyde v Wrench
p. 189
Facts
Issues
Decision
Butler machine tool co Ltd v Ex-cell O corporation LTD
p. 190
Facts
O (in a piece of paper), description of machine, price and variation clause. If you accept, we will
deliver the machine, but if the price has raised, you will pay the difference. They also add a clause
“what is on this paper shall prevail”, meaning anything you send us won’t have value.
The buyer sends back a document in which there is no variation clause (without rejecting it), it
simply states the price and a clause that says “we (seller) accept the terms on this paper” + asking
them to sign and send it back. → Mirror image problem.
The seller signs it and returns it.
Issues
Seller claims the price variation and buyer says the seller has agreed to its terms.
Decision
Battle of the forms resolution. There is clearly an agreement, but we are looking for the terms of the
deal.
First Shot Rule: Having put in the first offer the prevalence clause makes it enforceable.
Last Shot Rule: since the counteroffer was accepted, it should prevail.
Trial court thought it was a first shot rule.
Since the seller has signed the paper and sent it, he has accepted the overwriting of his terms.
We should see it as O→R/CO→A.
In the American Code, in a commercial sale of goods contract, if they don’t agree on a term, none
of them apply and they shall use the statutory disposition. The Battle of the form is resolved by
looking at what they have agreed and the rest is filled by the code, additional terms may come in if
they don’t largely affect the contract.
Ways of accepting a contract:
- Promise
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-
o Written (letter, email, text, etc.)
o Orally
Performance (ex. giving the money or doing the task)
When is the deal made and what happens after?
Bristol Cardiff and Swansea aerated bread company v Maggs (1890)
p.193
Facts
2 entities are negotiating the sale of a bakery. There is an offer to sell the business for with a list of
terms 450K, the lease is 14 years, etc. Their answer is ok, without repeating the terms.
When they come to the moment of exchange of letters by the solicitor, the buyer says they want a
clause which says that you will not compete (open another bakery in Cardiff). When they come to
negotiate (later than planned), the seller revokes (he has a better offer).
The buyers say they had a deal.
Issue
The additional clause that wants to be added is a new concession. If there is a deal, it is the initial offer.
If that isn’t it, then there is no deal. Where does the extra non-compete clause stand?
Decision
The court suggest that the two letters are good enough, but there was no final agreement. In fact, the
buyer was trying to modify an agreement.
Both parties are inclined to so that the letters weren’t agreements because the seller wants out and the
buyer doesn’t want to be in it unless the non-compete is in it → Nobody is attesting a contract.
The tendering process
What is the character of bids?
If you want the process to work, the bids have to be binding. The tender is not an offer, it is an
invitation to submit bids. The bid is an offer to do the work. Each bid is a firm offer, it is not
revocable. The problem is you don’t get anything in exchange (Dickson v Dodds). The bid itself is an
offer to make a contract.
Americans say it is Estoppel.
Contract A is a tender which is responded to by the bid. It means the bid becomes irrevocable. Once
the bid is made, it may not be taken done. The tender does not contain the actual contract. The bid is
not final, there is still some negotiation, because there might be some change since a substantial
amount of time has gone by.
MJB enterprises LTD v Defence construction
1951 p. 197
Facts
The argument here: one said they were not the lowest bidder and won’t choose. They say they were
bound to choose them.
In the tender, they have a clause that says they are not bound to choose the lowest bidder, they
can consider other factors as well.
Decision
The clause allowed them to choose someone else as long as it is in accordance with the rules. They
chose someone that did not comply with the rules. Because they broke the rule of their own tender →
they have to pay him expectation.
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They could of chosen other bidders as long as they respected the rules.
What you should know at the end
•
•
•
•
•
•
•
•
•
•
What is an offer?
What is an invitation?
What is the significance between the two in contract formation?
How does one tell the difference between and offer and invitation?
What is the legal effect of an offer?
What does it mean to be “master of the offer”?
What is an acceptance?
What is the effect of an acceptance?
What is a revocation?
What is the importance of timing in acceptance and revocation?
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The Importance of a Writing
Formalisation and Certainty
203-220
There must be certainty. One of the problems that arises is that there is a lot of talking during
negotiation. Then we come to an agreement and want it written down → the problem then is
when was the agreement made? In the oral agreement or in the paper later on?
Once we have a writing:
(1) is it the agreement; or
(2) the memorandum of the, already existing, oral agreement?
→ When was there the agreement to be bound?
Some people will say there is no agreement until the paper is signed, other will say they will put the
agreement down on paper later on to formalise the agreement.
British American timber co v Elk river timber Co
p. 203
Facts
Parties entered a contract to purchase timber limits. It had been partially performed. Clause 10
required that they sign a formal contract later on. That contract has not been signed.
The π sues for specific performance of the initial agreement.
The ∆ says the failure to provide the formal contract means there is no agreement. They only have an
agreement to sign an agreement.
Issue
What is this formal agreement?
Decision
The initial agreement is a complete and enforceable agreement of sale.
“it is clear the parties have agreed to all the terms of the sale […] the agreement of June 15 is the
whole agreement and includes all they agreed upon or intended to agree upon. When an agreement is
complete in itself the fact that a formal contract is to be drawn up embodying its terms does not render
it unenforceable.”
“there is a contract to which all the parties assented and intended to be bound by. It was intended
to be put in legal form which was not done but no term in the contract was left as a matter for
negotiation and further their informal agreement was complete.”
“the parties came to a concluded contract and the respondent’s attempt to now recede
from it cannot be countenanced.”
When people have agreed on the agreement and have decided to put it down on paper, there is an
agreement → Category (2)
Even if there was no formal agreement, it is already agreed upon.
If the oral agreement contains 3 elements and the written agreement has 4 elements
- it can be said the 4th element is a proposal to modify. It could be accepted or declined.
The initial agreement (oral) stands and the modification is refused.
- The other party would say no, there was no existing agreement and there is no agreement
at all if the 4th element is not accepted.
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May and butcher limited v the King
p. 207
Facts
There is a sale agreement in which it is agreed to determine the price and payment dates as the
quantities of the good become available for disposal.
The proposals made by the suppliants for purchase were not acceptable to the Controller, and in
August, 1922, the Disposals Board said they considered themselves no longer bound by the agreement.
“the prices to be agreed by the commissioner and the purchaser”
Issue
Are they bound to the agreement / was it in fact an agreement?
Decision
“It has long been a well-recognized principle of contract law that an agreement between two parties
to enter into an agreement in which some critical part of the contract matter is left
undetermined is no contract at all”
→ the commission has agreed to continue to negotiate. These things will be agreed at a future
date, and if they are not accepted, there is no agreement at all.
“The clause refers “disputes with reference to or arising out of this agreement” to arbitration, but
until the price has been fixed, the agreement is not there.”
To avoid this problem, you could add a mechanism to be able to set the price (third party, market value, etc.)
Failure to set the price is not always fatal, but failure to set the quantity always is (because
no external party can decide about it for the parties).
Uniform commercial code
2.204 FORMATION IN GENERAL
(3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if
the parties have intended to make a contract and there is a reasonably certain basis for giving an
appropriate remedy.
Foley v Classique coaches limited
[1934] 2 KB 1 (CA) p. 210
Facts
Condition to sell a land: the buyer should obtain all his petroleum from seller. It was put into two
documents. The price should be agreed by the parties in writing and from time to time.
Years after, their solicitor, thinking he saw a way out of the agreement, wrote on behalf of the
appellants the letter of September 29, 1933, repudiating the agreement.
Issue
The respondent brought his action claiming damages for breach of the agreement. Considering May &
Butcher v. The King, was there a valid agreement even if the price of petroleum was not fixed?
How much are they supposed to buy and how much should they pay for it?
Decision
They cannot keep the land and dump the petroleum clause. They also cannot enforce a contract for
two years and then throw it out.
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“In Hillas & Co. v. Arcos the House of Lords said that they had not laid down universal principles
of construction in May & Butcher v. The King, and that each case must be decided on the
construction of the particular document”
"In the present case the parties obviously believed they had a contract and they acted for three
years as if they had; they had an arbitration clause which relates to the subject- matter of the
agreement as to the supply of petrol, and it seems to me that this arbitration clause applies to any
failure to agree as to the price.”
When the parties haven’t agreed the price, the court will assume that the seller agreed to sell at a
reasonable price and the buyer agreed to buy at a reasonable price. The reasonable price becomes
an evidentiary question.
“requirements” : the quantity is based on their need of petrol, if it is not indicated, the payment is
cash or payment on delivery.
-
If it wasn’t agreed on, if it wasn’t essential, then there still was an agreement.
If you can prove it wasn’t agreed on and it was essential, then there won’t be an agreement.
“there was an effective and enforceable contract, although as to the future no definite
price had been agreed with regard to the petrol.”
Scammell and Nephew limited v Ouston
p. 212
Facts
O agrees to purchase a van from S in exchange for a van and “the balance of purchase price can be
had on hire-purchase terms over a period of two years.” Hire-purchase was accepted. S said the van
was ready for collection, “subject to mutual acceptance of the hire-purchase agreement.” They added,
“We make it a condition of the supply of vehicles 263on hire-purchase terms that we approve terms of
agreement before supply.”
Before h-p agreement was entered into, S refused to go ahead because the van was not in satisfactory
condition.
Decision
2 reasons for which there is no contract:
1. Language used: ambiguous and obscure → impossible for the court to interpret it.
2. The parties never in intention nor even in appearance reached an agreement. It is
necessary for the parties in each case to agree upon the particular terms.
Express tower LTD v Bank of Nova Scotia
p. 215
Facts
ET leased a building to the bank from 1972-1984. They then made a new 5y lease that contained a
renewal clause that discussed the rental rate: it is possible to renew at the
(1) market rate
(2) as mutually agreed by landlord and tenant.
After trying to conclude a deal with ET, ET responded on the first day a payment of the new lease
was due.
ET is trying to use this clause to get more out of the bank.
Issue
The principal question in the appeal is whether the renewal clause was void either for uncertainty
or, what is fundamentally the same, as an agreement to agree. → because of (2), because (1) is
certain but it makes it not agreed by a third party, but by both parties to the contract, therefore, they
must both agree.
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The obverse of that question is: If the renewal clause is not void, what does it mean?
Decision
Three categories of options:
1. to be agreed (usually not enforceable)
2. established by a stated formula but no machinery for applying the formula to produce the rental
rate (court provide the machinery)
3. formula is set out but defective and machinery is provided (machinery may be used to cure
formula)
The court adds an obligation to negotiate in good faith the market rate. Their lack of agreement
is not on the market rate, they are unhappy about the $15K.
An agreement to agree is not an agreement, it is an obligation to negotiate in good faith.
They can then walk away and the agreement will fall.
→ the courts should stay out of them, because otherwise, they will be writing the contract and forcing
them into a contract they did not agree on.
They will try, wherever possible, to give the proper legal effect to any clause that the
parties understood and intended was to have legal effect.
Contracts Negotiated by Correspondence
220-234
Negotiation carried on through mail, telephone, email or fax.
We have to have a moment when the offer and the acceptance are at the same time
→ agreement.
You need the “meeting of the minds”.
The “Mailbox rule”: an acceptance is valid on mailing. Once the letter is in the box, the offer is
accepted.
→ What happens if it never arrives ?
Justification of the rule:
When you allow someone to use the post office, you accept to take the PO as your agent.
- By not specifying a means of acceptance, you accept to receive it by mail.
Expediency: it is best if people know they are in a contract as soon as possible. The acceptor knows
he is in a contract from the moment he has sent the letter. The offeror has an uncertainty period, but
he can protect himself from that by refusing mailing.
A revocation is valid on reception whereas an acceptation is valid on mailing.
Household insurance co v Grant
p. 220
Facts
The letter never reached its destination
Decision
- A contract formed by correspondence through the post is complete as soon as the letter accepting
an offer is put into the post and is not put an end to in the event of the letter never being delivered.
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-
the moment one man has made an offer, and the other has done something binding himself to that
offer, then the contract is complete and neither party can afterwards escape from it.”
In order to the effecting of a valid and binding contract, that the minds of the parties should be
brought together at one and the same moment
An acceptance, which only remains in the breast of the acceptor without being actually
and by legal implication communicated to the offeror, is no binding acceptance.
Posting a letter does not differ from other attempts at communication in any of its
consequences, save that it is irrevocable as between the poster and post office.
Art. 1387 C.c.Q. A contract is formed when and where acceptance is received by the offeror,
regardless of the method of communication used, and even though the parties have agreed to reserve
agreement as to certain secondary elements.
Henthorn v Fraser
[1892] 2 Ch 27, CA (p. 225)
Facts
Contract about the sale of a property, Fraser =
seller; Henthorn = buyer.
F offered to sell it to H for 14 days. The next day agreed to sell it to someone else, subject to being
able to cancel his offer.
F sent H a letter at 12:00 → delivered at 17:00 → received at 20:00. H sent a
letter to F at 15:50 → received next morning by F.
Issue
F denies contract and H sues for specific performance.
Decision
“a person who has made an offer must be considered as continuously making it until he has
brought to the knowledge of the person to whom it was made that it is withdrawn.” “Where the
circumstances under which an offer is made are such that it must have been within the contemplation
of the parties that, according to the ordinary usages of mankind, the post might be used as a means of
communicating the acceptance of it, the acceptance is complete as soon as it is posted.”
Byrne & Co v Leon Van tienhoven & Co
(p. 226)
Facts
Letter sent from ∆ (oct 1 1879) → π (received 11th).
π accepted telegram (11th) + letter (15th) 8th ∆
sent letter revoking the offer.
Issue
1. Whether a withdraw of an offer has any effect until it is communicated to the person to whom the
offer has been sent?
2. Whether posting a letter of withdrawal is a communication to the person to whom the letter is
sent?
Decision
1. a state of mind not notified cannot be regarded in dealings between man and man; and that an
uncommunicated revocation is for all practical purposes and in point of law no revocation at all.
2. I can find no evidence of any authority in fact given by the π to eh ∆ to notify a withdrawal of
their offer by merely posting a letter and there is no legal principle or decision which compels
me to hold, contrary to the fact, that the letter of the 8th of Oct.
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is to be treated as communicated to the π on that day or any day before the 20 th, when the letter
reached them.
The withdrawal of the ∆ on the 8th of their offer of the 1st was inoperative and complete
contract binding on both parties was entered into on the 11th.
A person who has accepted an offer not know to him to have been revoked, shall be in position
safely to act upon the footing that the offer and acceptance constitute a contract
binding on both parties.
→ revocation communicated after acceptance, though determined upon before the acceptance, is
too late.
Holwell securities LTD v Hughes
p. 229
Facts
Agreement on Oct. 19 1971: option to purchase certain freehold property → option
exercisable by notice in writing 6 months from the date hereof.
April 14th 1972: letter wrote exercising the option by solicitor to ∆. The
letter was posted but never delivered.
Issue
π says that the option was exercised and the contract for sale and purchase was constituted at the
moment that the letter was committed to the postal service → its failure to reach destination is
irrelevant.
Decision
the requirement of 'notice … to', in my judgment, is language which should be taken expressly to assert
the ordinary situation in law that acceptance requires to be communicated or notified to the offeror,
and is inconsistent with the theory that acceptance can be constituted by the act of posting,
→ This does not persuade me that the artificial posting rule is here applicable.
→ The parties cannot have intended that the posting of a letter should constitute the exercise of the
option.
Eastern power limited v Azzienda comunale energia and ambiente
178 D.L.R. (4th) 409 (p.232)
Facts
EP and ACEA negotiated to concluded a joint venture agreement for an electricity project in Italy.
Letters of intent were signed and sent by fax, but they were unable to conclude the joint venture
agreement.
EP brought action in Ontario for breach of contract.
Issue
Where is the contract formed when the acceptance if an offer is communicated by
transmission?
facsimile
Decision
The general rule: a contract is made in the location where the offeror receives notification of the
offerees’s acceptance.
I would hold that in contract law an acceptance by facsimile transmission should follow the general rule
of contract formation, not the postal acceptance exception
Hence, applying the general rule, the contract was formed in Italy.
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Electronic Offers and Acceptances
234-239
Email, telephone, fax, telegram
The rules are now reversed, there is no mailbox rule. The question is now: was it received?
The reason for that is instantaneous communication: I know that the other person received it.
If you are speaking on the phone, you know when you are communicating or not. You know if the
person understood it or not.
What
-
you should know at the end
Do you need a writing to have a contract?
What happens if the parties make an oral agreement and then want to reduce the terms to a writing?
Is the oral agreement the contract or is the writing?
Under what circumstances can a party prevent formation of an agreement until the final writing?
What happens if the parties disagree about the terms of the writing?
What happens if the writing does not reflect the oral agreement?
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III.
ENFORCEABILITY
Not every agreement we make is enforceable. Indeed, it would be a very ugly world if every promise we made
came with legal consequences for failure to perform. Thus, the law recognises that some promises are just not
meant to be enforced. The question is “Which ones?” Whether an agreement is enforceable as a contract
depends on the manner of its formation and the intention of the parties. This section considers that problem.
There is a difference between an agreement and a contract.
- Not every agreement is a contract.
- A contract is a legal conclusion. It is an agreement that the law will enforce.
→ we have to consider if the agreement is an agreement that the law will enforce.
What does it take to make an agreement enforceable?
- Assumpsit (action on the case): there are three things considerable
o consideration
o promise
o breach of promise
- we need a means to say that a person wants the promise enforced.
There are three types of promises that are enforceable:
1. Seal
a. In the middle age, the act of writing a promise and putting a seal on it proved there was an
intention and desire for it to be enforceable.
b. If only seal contracts are enforceable, it wouldn’t work in the modern world.
c. Lead to another type of promise:
2. Consideration
a. It is enforceable because another promise was asked in exchange.
3. Estoppel
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1. The Doctrine of Consideration
239-250
What is consideration?
-
The primary way to enforce contract.
The exchange of promises
The reason for the enforcement of a promise
A valuable consideration may be:
- right, interest, profit, benefit
- forbearance (abstention), detriment, loss
- Responsibility: given, suffered, undertaken by the other.
The Bargain Theory
-
“Bargained-for-exchange” (“bargain”)
o a promise to deliver and a promise to pay
o a promise to do a service and a promise to pay
White (execution) v William Bluett
Father tells his son if he stops complaining about the distribution of the property, he would give it to
him.
The son had no right to complain.
His abstaining from doing what he had no right to do can be no consideration.
Hamer v Sidway
27 NE 256 (NYCA (2d) 1891)
Facts
An uncle looks at his nephew and says if he restrains from drinking, smoking and gambling until the
age of 21, he will give him $5K.
He does so and when he turns 21, he asks for the money. The uncle then refuses to give it to him now
and says he will hold it for him and retain interest.
When the uncle dies, the executor says there was no interest because the uncle has received nothing
from the boy. All of the benefits flow to the boys: he is sober and has not lost money.
Decision
The court makes clear that you can extract a promise that is of no benefice to me but is still valid.
A promise or consideration does not necessarily require an exchange of economically valuable benefits.
Consideration may be the transfer of something to the uncle or an act or forbearance of the nephew.
The nephew has a right to drink, smoke and gamble. In exchange to give up his right, he gets the
money.
The uncle arguably gets something out of it or he wouldn’t have made the promise. He gets the
benefice of his nephew living a healthy life.
-
We do not police the adequacy of consideration: the fact that you exchanged the promises is all that we
are looking for → We police the want of consideration
There has to be inducement in the promises
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Eleanor Thomas v Benjamin Thomas
(1842) 2 QB 851 114 ER 330
Facts
Husband dies and provides that she will live in the house (oral promise and wish). The executors
enter into an agreement to recognize that they are giving her a house to live in. She gets the promise
that she can live in the house. They are getting the satisfaction to know that they are honoring the
will.
When one of the executor dies, the other one argues that she has to move out of the house.
Issue
What is the exchange that they are receiving?
Decision
They are desiring to fulfill the family obligation, she can live in the house that her husband wanted her
to live in.
The court says it is not consideration, it is still a gift. If all sentiment of gratitude counts, then all
gifts will count as consideration.
She doesn’t give up anything (vs Hamer).
The privilege is saved because it was provided that she gives 1 pound for the house. Therefore,
there are promises. Even if it is not worth 1 pound, it is consideration.
Mutual Promises
Although I don’t enquire in the adequacy of consideration, you have to make sure there are two promises
Tobias v Dick and T Eaton Co
[1937] 4 DLR 546 (Man KB)
Facts
Tobias says to Dick that he will be his agent. Dick and T Eaton told Tobias that he was his exclusive
selling agent.
They are then bound to give him the machine and not to allow anybody else to sell them. He doesn’t
seem to be obligated to do anything at all. He doesn’t have to buy the machines.
By the playing terms of the document, it only requires them to provide him with machines when he
asks for them.
→ There is a lack of mutuality → there is no enforceable agreement.
Wood v Lucy, Lady Duff-Gordon
118 NE 214 (NYCA 1917)
Facts
The ∆ is a creator of fashion. She puts her name on something, it increases its value and people buy it.
Woods makes a deal to represent her, to put her name on stuff. He gets half the profit and he gets half
the profit.
She decides to compete against her agent and to put her name on stuff without him. He says he is the
exclusive agent.
She says she has a contract that forces her to use him, but he has no obligation in exchange. He has
her name locked up, but can do nothing and she could do nothing about it.
Decision
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There is an implied obligation, even if it is not written. He has to go do things.
There is an obligation to account to her. Although it does not specifically say he has to go out and do
something, he has to use reasonable effort.
There is a mutuality: he has to go try to sell and she has to let him.
The difference between Tobias and Woods, Tobias is not obligated to buy anything from them and
does not split the profit. If there is an obligation in return, it counts as consideration.
Past Consideration
295-299
The promises must also be the inducement for the other (my promise must get you to give yours).
Ex. a car breaks down, one person helps to fix the tire, you then say you will give 100$. You
then refuse to give the 100$.
Since you have not changed the tire in exchange for the 100$, the promise is a past consideration.
The later promise is not supported by that.
The past consideration does not support the rule of consideration.
-
Sometimes, the request made come with an expectancy of payment. Even if it wasn’t specifically said
that it comes with payment, it is expected that there will be. Even if the promise of the amount
comes later, it isn’t past consideration because it was expected at first (it was inducement).
Sometimes, a past consideration can be valid
Webb v McGowan
A guy pushes a piece of wood down the bloc and sees a guy under. He saves the other guys life.
The saved guy promises to pay $50 every two weeks for the rest of his life. The saved guy then dies.
The other one asks the executors to continue the promise.
That was past consideration according to the executor. The $50 sent was a gift. His promise was
one to make a gift.
Decision
Past consideration (a promise to pay for a prior act) may be enforceable if there was a material
benefit received. The problem of consideration is then overlooked.
The Pre-Existing Duty Rule
250-272
Stilk v Myrick
(1809) 2 Camp 317, 170 ER 1160
Facts
A group a sailors go out on a voyage and are paid a set amount at the end of the voyage. Two sailors
desert and the captain says they have to leave. The other sailors don’t want to leave because it means
more work for them. They ask for more money, the captain agrees. When they come back to London,
the refuses to pay them the extra.
The captain’s defence is that there was no consideration.
Issue
There are two promises:
P1: voyage in exchange for 5 pounds
P2: additional 5 pounds → what did they agree to do?
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Decision
There was an implied risk that they might have to pick up someone else’s share of work (they had
undertaken to do all they could under all the emergencies of the voyage).
In the second promise they simply promised to come back, which is the same as P1.
They has sold all their services till the voyage should be completed.
The court says they should have added a consideration, i.e. wear their hats backwards (giving you
something, even if it not something that is desired). It would be a valid consideration.
If you are powerful enough to bring the voyage to an end, you are also powerful enough to
get you to change something. In that way there is an exchange.
NAV Canada v Greater Fredricton Airport Authority Inc
2008 NBCA 28, 290 DLR (4th) 405
Facts
NAV has the exclusive right and responsibility to provide aviation services and equipment to GFAA.
GFAA decided to extend one of its runways → $6M. NAV concluded that a specific change should be
made (made more economic sense). The airport agrees to do it because otherwise there will be delays.
In order to get the project going and not lose a year, they decide to pay under protest (economic
duress)
Who should pay? Arbitrator: NAV has the right to choose but no right to claim the reimbursement
under the contract, but that a “subsequent exchange of correspondence between the parties gave rise
to a separate and binding contract, supported by consideration, and therefore Nav Canada was entitled
to recover the acquisition cost on that basis”
Issue
Is the second agreement enforceable?
Decision
Was the subsequent promise to pay for the cost supported by “fresh” consideration? → Did NAV
accept to do more than originally promised? NAV Canada promised nothing in return for the GFAA’s
promise to pay for a navigational aid that it was not contractually bound to pay for under the
agreement.
[25] English Court of Appeal has effectively modified the consideration doctrine by asking whether
the promisor obtained a benefit or advantage from the agreement to vary, irrespective of whether the
promisee has agreed to do more.
[27] In my opinion, this is a proper case to consider whether this Court should build upon the English
Court of Appeal's decision.
Three reasons:
1. Unsatisfactory way of dealing with the enforceability of post-contractual modifications (The
reality is that existing contracts are frequently varied and modified by tacit agreement in order
to respond to contingencies not anticipated or identified at the time the initial contract was
negotiated)
2. Impose an injustice on those promisees who have acted in good faith and to their detriment in
relying on the enforceability of the contractual modification)
3. the reality that it developed centuries before the recognition of the modern and evolving
doctrine of economic duress.
[31] a post-contractual modification, unsupported by consideration, may be enforceable
so long as it is established that the variation was not procured under economic duress.
[32] I am not advocating the abrogation of the rule in Stilk v. Myrick. Simply, the rule
should not be regarded as determinative as to whether a gratuitous promise is enforceable.
→ Illustration of the Modern problem of pre-existing duty:
- Stilk v Myrick: there is a new promise, there should be new consideration.
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-
Parties amend contracts all the time
NAV recognizes that we have to make changes and that there shouldn’t be consideration.
It controls possible breach combined with economic duress.
Stilk doesn’t quite work for us, and in some situations, people should be bound to a promise
and that the second promise should be enforceable.
It is a modernisation of Stilk.
A promise may be rejected even if there was consideration if the promise is considered to be a sham, a
peppercorn.
o Ex. P1 = X for X; P2 = X1 ($100k) for Y1($1)
o Is the P2 a sham?
Valid = if there was an intention to give consideration
Invalid = economic duress (if it is extortion)
↪ An exception, to the rule that the court doesn’t void contract for the inadequacy of
consideration.
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Compromises
272-276
People are being asked to settle a claim.
Question: should you be bound by a promise to settle a claim that is unjustified?
The traditional view: because the claim is untrue, you have no reason to do it.
But what about when there might be a possibility, when we are in doubt about it?
Most tort cases don’t go to trial because they are garbage.
Cook v Wright
(1861) 1 B&S 559, 121 ER 822 (QB)
Facts
∆ was told that if he did not pay, legal proceedings would be taken against him.
The commissioners were not entitled to claim the money from him, but honestly believed that he was
personally liable and really intended to take legal proceedings against him.
The ∆ knew there was no basis for the claim, that he was never liable at law.
In the result, the amount charged upon defendant was reduced, and time was given to him to pay it in
three instalments, for which he gave three promissory notes (in order to avoid being sued).
Decision
Knowing and settling a claim that has no basis whatsoever is still good consideration. When they
sue you as owner, you should tell them you are not the owner.
Fairgrief v Ellis
(1935) 49 BCR 413 (SC)
Facts
The man invites woman to be his housekeepers and to come live with him. If they do so, he promises
to give them the house. When his wife comes back.
He promises that if they don’t sue, he will give them 1000$. When they reclaim the 1000$ he says they
don’t have a claim (they don’t because it is not in writing and to have a right in land). He settled
because he believed they had a claim.
Decision
When the agreement was made in September to pay the plaintiffs $1,000 the defendant thought that he
was under an obligation to the plaintiffs and in order to be released from that obligation and so that
the plaintiffs might agree to peacefully vacate his premises, he made the second agreement.
There was good consideration to support the promise to pay $1,000.
Giving up what you think is a win for you is sufficient consideration.
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Charitable Subscriptions
276-279
If you promise to make a gift and then don’t make the gift.
Dalhousie College v Boutillier Estate
(1934) SCR 642
Facts
It is a promise to make a gift and must be supported by consideration. They did not promise him
anything → where is the consideration? It is the promise of someone else to do the same that
makes it “consideration”
Decision
The court says it is not sufficient to be consideration.
There is no evidence that he contracted with anyone to make a deal with. He says “because
everybody is doing it, he will do it as well”.
He said that because of the promise they spent the money.
The court shows that they didn’t increase expenses, they spent less than what they raised. They weren’t
out anything because of his promise.
Universities name things in exchange of money all the time, but what is it worth?
No promise by the university → no consideration + no detriment = no claim → the
university loses out.
Wood makes a promise to a divinity school for the German department. He wanted the money to be
used for the German department, but it wouldn’t have closed without the money. If they had said the
department would have closed it would have been different.
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Non-Bargain Promises
2. The Seal
-
289-294
The document is enforceable by virtue of their being a seal. The contract under seal is enforceable in
the absence of consideration → The seal imports a consideration (it is equivalent to consideration).
There will be no exchange.
A promise to make a gift is unenforceable
The most efficient way to make a gift is with a document under seal.
or giving the gift (it is the way of proof of the desire of the promise being enforceable)
In some jurisdiction, signing a name and adding “L.S.” (legal seal) could indicate a seal (meaning you
simply don’t have wax).
Also known as a deed, a covenant a formal contract or a specialty
In Linton, a guy signs a mortgage and signs at the bottom:” signed, sealed and delivered”, hands
it to the bank. He should have known it is a sealed document.
-
-
Functions:
Evidentiary
o
Cautionary
Channelling
we want evidence that you wanted this to be performed: it could be
consideration or a seal.
o
we want something that says be careful, if you do this thing, it will be
enforceable; you will be bound by it.
o
By making these the means of enforcement, we push people in this direction, we
regularize the making of agreements.
By saying only a document under seal is acceptable, you force them to get a promise
through this mean to bind the other party.
o
Both consideration and seal have these functions.
Vincent v Premo Enterprise Ltd. If you write a document, put a seal on it, never do anything
with it and put it in a drawer, is it enforceable? It needs to be delivered as well: it is the expression of
the document to the person.
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3. Estoppel
299-337
Contract with the bank:
- Your work cheque is directly deposited there every month; the bank holds it for you.
- You also have the possibility to make cheques.
- You call to see if the direct deposit has been made for the month, they say yes. You write some
cheques to pay your bills, they all bounce back.
The contract says: If you make cheques with insufficient funds, you owe the bank 25$/cheque.
- In contract he owes the bank this money. At law, the bank is correct.
- BUT what about the information the bank gave him? The bank should be estopped for saying
there was money in the account. Because you relied on the bank’s statement, they should not be
permitted to deny the statement. When the bank sues you for 125$, your defense is estoppel.
- If they knew the other person would rely on it, the other person relied, the other person
suffered a detriment.
- To allow the bank to walk away from its statement would be unjust.
Equitable estoppel: preventing someone from denying a statement of fact. (1)Statement (fact)
(2)Knowledge/expected to rely (3)Reliance
(reasonable) (4)Detriment
(5)Unjust.
Skidmore v Bradford
Uncle asked the nephew to go buy a warehouse and promised to give him the money. He gave him a
part of it, but died before giving him the full amount.
Decision
The promise made by the uncle encouraged the nephew to have a detriment.
“On the faith of the testator’s representation he has involved himself in liability and incurred an
obligation”
This is arguably an estoppel; it is a promissory estoppel: (1) promise (2) Expectation (3) Reliance (4)
Detriment (5) Unjust.
This would eviscerate the consideration doctrine. If it is correct any promise can be enforceable simply
by going out and doing the promise, ensure a detriment to make the unenforceable promise
enforceable.
The statement could also be a promise.
Estoppel came to be a representation of facts, not promises, because there is no consideration in a
promise.
Hughes v Metropolitan Railway Co
HTH is the classic discussion of the difference between traditional estoppel and
promissory estoppel.
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Central London Property Trust Ltd v High Trees House Ltd
It is a case that arises during the war. There is a 99y lease of a building that is 625 pounds/quarter. The
lease begins sept. 29th 1937. It is a speculative project. The leaser is the person who will be the
landlords of many people. When the war breaks out, the property business breaks down.
The leaser goes to the landlord and says things aren’t going well. He accepts to reduce the rent by 50%.
It is a promise to reduce the rent as commencement of the lease with the idea that they would
return to the normal rent when the war would end or when the building would be fully rented out.
When the war ends, the market picks up and the apartment building gets filled. The landlord sues
for the loss rent (1937-1945). He wants 1250 pounds. The tenant says that the landlord’s promise
should extend into the future.
Decision
Promissory estoppel does not extend like the π would like it to extend. Usually, they would have
dismissed the lease’s request.
There is a contract for 2500, now it has been reduced to 1250. Where is the consideration for the
reduction? There was none (the owner had nothing in exchange).
→ They go to equity
“A promise such as that to which I have referred is binding.” “A promise intended to be
binding, intended to be acted on and in fact acted on, is binding so far as its terms
properly apply.”
1937-1945 (pas): the doctrine of equitable estoppel will apply since they accepted to earn less, they
cannot now say they will not. He relied on the promise of the landlord to accept less to charge less to
the leasers. This is an equity estoppel, it shall be enforced.
1945 (future): landlord is saying that in truth it was 2500 but that it was accepting 1250.
This is a case of a promissory estoppel that cannot survive. It is expectation. It would be a whole
new deal.
Because it is equity, the remedy cannot be in proportion to the detriment that was
suffered.
Equitable estoppel is a shield and promissory estoppel is a sword.
In both the cases we looked at, estoppel is raised to protect themselves from other people’s claims.
In other words, a party cannot found a cause of action on an estoppel.
It may, as a result of being able to rely on an estoppel, succeed on a cause of action on which, without
being able to rely on that estoppel, it would necessarily have failed.
Estoppel works for the past, it does not create binding promises.
US: Promissory estoppel can exist for the future, but the remedy is limited
Uncle says to niece: he doesn’t like the fact that she has gotten a job, but she likes working. He tells
her that if she would give up her job, he would give her 100$/month. She gives up the job. Uncle gives
her the money for 5 years. He dies. The executors stop the payment. She says he made a promise, they
ask what the consideration is, there is none. She says it is a promise.
The court gives her 100$/month every month of her life because of expectation. If the promise
would have been enforced, she would have received that. The detriment would be whatever time it
would have taken for her to find a new job. The injury would be the months she has lost not
working.
The court gives an expectation remedy.
US: Hoffman v Red Owl
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He owns a store, he wants a bigger store. he talks to Red Owl about getting a franchise. They say they
want him to get experience by working in a bigger store. If he sells his store and works in their store in
another city, they will name him manager. He does all those things and then, without explanation, they
decided not to give him a franchise.
He sues: they made him a promise that if he did those things, they would give him a franchise,
They argue that before giving him a franchise, if would have to prove himself a good manager.
The court agrees with RO. There is no inducement.
The court says he has lost his business, moving expenses (reliance), but he wants a franchise
(expectation).
The promise is sufficient to be binding, but they will only give him the reliance, not the full
expectation.
The reliance may be such that giving the full expectation value is the only way to make it equitable.
→ High trees is applicable in Canada, not these two cases.
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Combe v Combe
Husband and wife divorce in 1943. After the divorce, the husband promises to give 100 pounds a
month to his wife (25 pounds quarterly) with regards to maintenance. He never sends the money. She
sues in 1951 to retrieve 600 pounds.
She has a bigger income than he has and wouldn’t have gotten maintenance from the divorce court.
Decision
“The principle, is that where one party has, by his words or conduct, made to the other a promise or
assurance which was intended to affect the legal relations between them and to be acted on
accordingly, then, once the other party has taken him at his word and acted on it, the one who gave the
promise or assurance cannot afterwards be allowed to revert to the previous legal relations as if no
such promise or assurance had been made by him, but he must accept their legal relations subject to
the qualification which he himself has so introduced, even though it is not supported in point of law
by any consideration, but only by his word.”
“Unilateral promises of this kind have long been enforced so long as the act or forbearance
(abstention) is done on the faith of the promise and at the request of the promisor, express or
implied. The act done is then in itself sufficient consideration for the promise, even though it arises ex
post factor.” I cannot find any evidence of any intention by the husband express or implied, that the wife
should so forbear [from asking for maintenance at the court].
“I do not think it would be right for this wife, who is better off than her husband, to take no action
for six or seven years and then demand from him the whole £600.”
If the wife had forborne from asking maintenance from the court at his demand and suffered
detriment from not receiving the amount due, it would be promissory estoppel
and would replace consideration.
She has not, there is no estoppel and no consideration → he doesn’t owe her anything.
The object of the equity is not to compel the party bund to fulfil the assumption or expectation; it
is to avoid the detriment which, if the assumption or expectation goes unfulfilled, will be suffered
by the party who has been induced to act or to abstain from acting thereon.
Owen Sound Public Library Board v Mial Developments Ltd
p. 311
The promissory estoppel doctrine was invoked on the basis of the allegation that the contractor had
failed to honour its promise to obtain the affixing of a seal to a certain document, which promise was
relied on by the appellant in delaying payment of the account.
→ Library was allowed to delay its payment to Mial because M had promised to get a
sealed document, which it has not done.
Intent and knowledge on the part of the promisor are necessary ingredients of promissory
estoppel. However, the authorities make it clear that intent to create legal relations does not require
a direct statement to that effect. Rather, such an intent can be based on an inference drawn from the
evidence.
D & C Builders Ltd v Rees
Principle: When a creditor and a debtor enter on a course of negotiation, which leads the debtor to
suppose that, on payment of the lesser sum, the creditor will not enforce
payment of the balance, and on the faith thereof the debtor pays the lesser sum and the
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creditor accepts it as satisfaction: then the creditor will not be allowed to enforce payment of the
balance when it would be inequitable to do so.
In applying this principle, however, we must note the qualification. The creditor is barred from his
legal rights only when it would be inequitable for him to insist on them. Where there has been a true
accord, under which the creditor voluntarily agrees to accept a lesser sum in satisfaction, and the
debtor acts on that accord by paying the lesser sum and the creditor accepts it, then it is inequitable
for the creditor afterwards to insist on the balance. But he is not bound unless there has been truly
an accord between them.
Decision
In the present case, on the facts as found by the judge, it seems to me that there was no true accord.
The debtor's wife held the creditor to ransom. No person can insist on a settlement procured by
intimidation.
If (1) a debtor offers to pay part only of the amount he owes;
(2) the creditor voluntarily accepts that offer, and
(3) in reliance on the creditor’s acceptance the debtor pays that part of the amount he owes in
full,
Then: the creditor will, by virtue of the doctrine of promissory estoppel, be bound to accept that
sum in full and final satisfaction of the whole debt.
→ For him to resile will of itself be inequitable. In addition, in these circumstances, the
promissory estoppel has the effect of extinguishing the creditor’s right to the balance of the debt.
The jurisprudence and academic comments support the requirement of detrimental reliance as lying at
the heart of true estoppel.
Detrimental reliance encompasses two distinct, but interrelated, concepts: reliance and detriment.
(1) The former requires a finding that the party seeking to establish the estoppel changed his or her
course of conduct by acting or abstaining from acting in reliance upon the assumption, thereby
altering his [page86] or her legal position.
(2) If the first step is met, the second requires a finding that, should the other party be allowed to
abandon the assumption, detriment will be suffered by the estoppel raiser because of the change
from his or her assumed position.
Cowper-Smith v Morgan
2017
Facts
A mother and three children. The mother is getting old. 2 sisters and a brother. They are in BC, but
one brother lives in England for 20 years. The eldest sister says that she needs someone to come and
watch over mom. Eldest sister tells her brother who lives in England that if he comes, she will give
him her share of the house. He will get 2/3, she will have nothing and would be fine.
They negotiate this for quite some time, he moves back, takes care of her. The mother dies. The
sister then says she won’t give him her share.
Decision
This is clearly a contract, but it is not enforceable for technicality (it is not in writing). She is using it
as a sword in order not to give what she owes.
Proprietary Estoppel (promise of interest in property) (1) representation/promise (property) (2)
reliance (by doing something or refraining from doing something) (it is reasonable) (3) detriment that is
unfair or unjust not to enforce the promise made.
In this case, the brother gave up his whole life in England and goes back to BC on basis of
that representation. He was reasonable on relying on it.
The sister had an obligation to transfer it if and when she received it.
The moment she has the property, she has the obligation to transfer it.
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Proprietary
estoppel
is used because
there
is an agreement
unenforceable. He should be able to have the transfer of the interest.
Contract
Created by the agreement of the parties
Must be supported by consideration
Measure depends on the terms of the
contract and the circumstances to which it
applies
that
is
Equity created by estoppel
Imposed irrespective of any agreement by
the party bound
Need no to be supported by what is, strictly
speaking consideration
Varies according to what is necessary to
prevent
detriment
resulting
from
unconscionable conduct
Unilateral Contracts
If I say to you: I will give you 100$ if you walk across the Brooklyn bridge. You begin walking across it. Halfway across, it starts to rain. You come back. Can I sue you and make you finish the job.
In the alternative, you get the whole way through but before you make the final step, I say, I revoke.
A bilateral contract can be accepted can by promise OR performance.
A unilateral contract can only be accepted by performance NOT promise.
A bilateral contract can be accepted can by promise OR performance.
Ex. A man asks another one to paint his offices. The guy accepts by going out, buys the paint and starts
painting.
Issue
Is this an acceptance of the contract?
Decision
The court says you can accept a contract by beginning to do it. The acceptance may be in any manner
reasonable under the circumstances.
The people who made the offer weren’t close by. Not knowing he accepted, they made an offer to a new
guy and accepted. When he went, he realized that the other guy had started the work.
Although you may accept by performance, if you do so, you have to perform in a way that your activity
comes to their knowledge (make sure they know). The activity has to be of two kinds:
1. come to their knowledge (if it is being done at a distance).
2. unequivocally rely on the offer
→ this is a bilateral contract : one that may be accepted by promise or performance.
A unilateral contract, can only be accepted by performance NOT promise.
Ex. Reward: I lost my dog and promise a reward. You don’t owe a promise because you haven’t found
the dog. The only way to accept the offer, is performing what is requested. Everybody who goes out and
looks for the dog takes the risk of not finding it.
What happens when the offeror revokes the offer? The reward falls. If you believe it could happen
Carlill v Carbolic Smoke Bail Company
CSMBC makes an ad offering anybody who appropriately uses their medication and then has influenza
100£.
A woman claims the £.
Agurments: They say: it is not an offer made to anyone in particular, so it is not an offer.
Decision
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You can make an offer to the world, that is what a reward is. They may be liable to pay all the people.
They also say she should have told them, they couldn’t know she was starting performance.
They are the masters of the offer, they should have specified it. If notice of acceptance is required,
then the person should. Otherwise, the full performance is the acceptance.
If they wanted evidentiary proof, they should have asked for it.
Puffery: this is an example of sales talk → nobody believes this.
Because of the lengths they went to, this is sincerity, she can believe this.
Be careful of what the offer is, because it does not limit the quantity of people who may request it.
Brooklyn bridge: The Americans have taken the position that once you have taken the first step, the offeror
cannot revoke, he must let a reasonable time to finish. If the offeree doesn’t finish in a reasonable time, then
the offeror may revoke.
The courts say it can't be that strictly interpreted. Ex. lost dogs, you should be able to revoke to some
extent.
If there is some preparation required, then you should let the offeree time to complete the offer.
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IV. PROBLEMS IN THE INTERPRETATION OF WRITTEN CONTRACTS
Most people think a contract not in writing is unenforceable. That, however, has never been the common law
rule. Nonetheless, once parties have determined to reduce their agreement to writing, a number of problems
can arise. These include questions such as how to interpret writings that are unsigned, agreements left out of
the written document, and what happens when the writing contains an error or does not accurately reflect the
parties’ actual agreement.
Unsigned Documents (The Ticket Cases)
443-459
Parker v the south eastern railway company
(1877) p.443
The bag has disappeared. They say there is a limitation of liability at 10 pounds. It is a
question of notice and acceptance.
He says the stuff on the back (terms) doesn’t apply because he didn’t read it. The ∆ says if that was a
defence, then commerce would come to an end. it isn’t about what you do know, when you sign something
and say you read it, we have to believe that. Otherwise there would have to be evidentiary proof that all
person has actually read it.
When there is a shipment, the person shipping goods gives the contract, the captain signs it and the receiver
receives the contract. We assume that that person accepts the conditions even without knowing them.
The person must bear the consequences of his own exceptional ignorance.
The court suggests that the railroad should say it is one of the 2 mode of acceptance:
1. Signing (does not apply here)
2. everybody who receives a ticket is assumed to know what it contains.
The court decides that the railroad should say that everybody who leaves a package at the train should
know. The railroad has to prove that those conditions are called to people’s attention.
The railroad has to show:
1. everybody would know
2. OR this guy should have known (we had told him or he had read them) → but he will always say he
didn’t. The alternative is saying to proving he had (1) actual knowledge is proving he had (2)
constructive knowledge → by putting it clear on the front part that the conditions are on the back
and that he should read it.
District counsel
You can rent a chair and use it in the park. A ticket is given to prove you have rented the chair. There is
information on the ticket and some information that is indicated clearly on a board.
There is a possibility that the person doesn’t see the board and only sees it after the service has been use.
This is not a situation where everybody ought to know and even if it says on the ticket you should know it, you
can’t consider it is part of it.
Shrink wrap License
Software: if the seal is broken, it cannot be brought back. The conditions are in the box which is in the shrink
wrap. It is impossible to see the condition until it has been paid and opened, and once that has been done, it is
impossible to return it.
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→ It is possible to reject the terms because you cannot assent to terms for which you didn’t have an
opportunity to read.
If the terms were available elsewhere and it was possible to reject the terms and it was possible
to reject them, it would be different.
(1) were they brought to my attention
(2) did I have an opportunity to reject them if they were brought to my attention after the fact.
The Parole Evidence Rule
459-491
We want to promote writing because there is less ambiguity.
The PER is about extrinsic evidence. When can you bring oral arguments that weren’t in the actual
writing?
The terms of a writing cannot be contradicted by evidence of a prior or contemporaneous oral agreement.
Ex. Sale of a car: 1 car, price 1000 pounds, date June 1st, no warranty. The car
breaks down 30 days after the sale.
The buyer says that the seller promised a one month warranty orally before the sale. He wants to
enter the oral evidence into the written agreement.
→ If this was possible, written agreements lose their value.
If it something that was added after the written agreement, it can be added with the
consideration rule.
To explain a term, oral evidence may be added. Evidence of an oral conversation may be added.
Frigaliment
The Americans are buying chicken. F delivers the right amount of chicken, but the American say it is stewer
(lesser quality chicken, used in process food). Usually they look for a broiler chicken for serving.
American says the word chicken means broiler.
Swiss says it didn’t say what kind of chicken and they are therefore allowed to deliver which ever type of
chicken they want.
The judge can ask for any opinion to help her define chicken. What did the parties understand chicken to be?
→ The court uses extrinsic evidence to explain the document.
An expert says that the price rate indicates it would have been broilers because of the elevated price.
Ex. sale of a hotel. The seller says the furniture was part of the deal and the buyer says it was included.
The buyer wants to include building + furniture. This is not a case of contradiction, it is a case of supplement.
It would allow to understand the parties actual intentions.
When someone wants to add extrinsic evidence, you have to know:
(1) what are they trying to do?
a. contradict → no
b. explain → yes (if the court finds there is an ambiguity)
c. supplement → maybe (it must be a consistent additional term, something that fits in with the
rest of the document)
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December 4th
Oral promises
The statutes of Fraud channeled certain documents in form. It is about whether we will enforce oral
agreement. At CL, contracts do not need to be in writing to be enforceable. If the doctor promise to give him
a 100% perfect hand, it is enforceable. If we go back to the material on the seal. Originally, it was designed to
make promises that were all enforceable.
We often say, “well if it is not in writing, there are no evidence”. That’s not right, you can have people to
testify, those are evidences. The only question is what weight do we assign them? It is about credibility and
sufficiency. The oral testimony can prove an oral promise.
The problem is that we can also lie about them. I could invent the whole thing. If we are going to enforce oral
agreement, we know there is a danger of over-enforcement.
Over-enforcement: Enforcing a testimony that is false.
Other problem
The jury: Way too many juries have watch cops shows and they always think there is
forensic evidence. Most cases are circumstantial.
Written Promises
Under-enforcement: If you restrain yourself to writing agreement, there is risk to miss the agreement.
The Statute of Frauds (1677) says that certain contracts must be in writing to be enforce.
You may have made an agreement, but if there is no writing, there is nothing we can do. It is
unenforceable.
Highest value in English law: Land An agreement for an interest in land MUST be in writing.
Sail, Mortgage, Servitude, etc.
Modern statutes of fraud as altered the form of the lease. We can have an oral lease, provided certain
elements
Provided it is more than a year or other conditions.
A surety contract must be in writing.
Insurance, taking debts of someone
Contract in consideration of marriage:
• Marriage is an oral contract perform in front of witnesses.
• The contract in consideration of marriage was done in the past to secure the money of the dowry.
• Do we see this today? Yes, prenuptials.
Sell land: We agree, but we don’t put it in writing. It doesn’t matter if 20 bishops can testify, It is
unenforceable.
We want a writing when it is a BIG DEAL. We don’t want someone to lose their land in an overenforcement.
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Writing Evidence
This thing we call a writing may not be the actual agreement! The Statute of Fraud says that evidence of
the making of the contract has to be in writing. It is a evidentiary rule. What kind of writing will satisfy?
1. The actual contract
2. Memo, letter, email If you can print out the text, you have a writing.
Does not need to contain all the terms
If we make an oral agreement for you to sell me your land. Later in the day, I email you to confirm. There is
now evidence. We don’t want people to be cheated. We then have to present oral testimony to prove the
terms of the agreement.
Some courts will pull it this way Shield v. Sword
The Statute of Fraud is to prevent someone to come in and lie about our deal. It is not made for you to get
out of an agreement you really made. As long as we present evidence of the deal, the terms of the deal can be
proven by oral proof.
The writing must show that:
- There was an agreement
- A quantity: Price, reference to what is implied
- Signed by defendant
The fact that the price is not established may or may not be fatal to an agreement.
Federal commerce & navigation co ltd v Tradax export sa
(1978) p.460
Prenn v Simmonds
(1971) p.461
Farah v Barki
(1955) p. 467
Hawrish v Bank of Montreal
(1969) p.470
Margon v Griffith
(1871) p.473
Pym v Campbell
(1856) p.474
Tilden Rent-a-car co v Clendenning
(1978) p.476
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Gallen v Allstate grain Co ltd
(1984) p.483
Rectification
491-509
What happens if there is an error/mistake in the written contract. Ex. wrong address. How to correct a
written document.
We have a document but one of us decide that it doesn’t actually reflect our underlying agreement. Right
away, it should run with the Parol Evidence Rule. It limits challenge to the writing.
- We cannot use extrinsic evidence outside the writing to contradict. If the writing says 10K, and I say
it was 100K, I am attempting to contradict the plain term of the writing. But, on the other hand,
we do know that, naturally, people do make mistake in putting things down on paper
This
problem is called a scrivener’s error.
How do we balance these 2? It is a parol evidence problem, but the court has recognized the tension, but
still allowed rectification.
Rectification is an action in equity. You are going to be dismiss by the court, but then you go to the equity
court.
Usa v Motor Trucks, Limited
Facts
(1924) p.491
In order to fulfill the contract, they told the American government that they’re going to have to build bigger
plan. In order to make this contract, they’ll have to purchase land and buildings. When the war ends, the
American notify the company that they don’t want to pursue.
Issue: How much should the company be paid? They have already produced some products.
1.3 K for goods supply, the stock and 300K for the land and buildings they knew they were going to buy.
The gov. owes 1,6 million. In the K, it was written that the gov will pay at the end of the contracts for the
built ones, and half built. The company says it should include the land and the building. The conversation was
1.3 for the good and X for the land = 1,6. But schedule A includes only the goods, not the land. The contract
should include the land that the Americans say they forgot to add. When you look at the price, it does not
match what is written on the piece of paper, because it misses the land.
The writing does not reflect accurately the underlying agreement.
Analysis
The court essentially says that in order to do this, you have to show without clearly, without doubt, with
substantial evidence what was the real agreement.
(1) Prove actual underlying agreement “beyond doubt”.
(2) Writing not accurately reflect true agreement.
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(3) Reason not to do it? (discretion) Why would the judge shouldn’t allow the rectification. –> because of
the change of position: I didn’t notice the mistake. Motor Trucks already made a contract to sell the land to
someone else. I believe land was not included.
Decision
The standard is REALLY high. Contract is rectified and the Motor company gave 300K to balance. Mutual
mistake
Court more at ease to order rectification.
Unilateral
I didn’t notice it, but YOU did. Might still be rectified if the none mistaken party
was basically taken advantage of the other.
Motor trucks knew of the mistake and were happy. They were seeking to take advantage of the mistake.
Performance industries LTD v Sylvan Lake Golf & Tennis Club LTD
(2002) p.495
Remedies shall be use with great caution since a relaxed approach to rectification as a substitute for due
diligence in the conclusion of contracts would undermine the confidence of the commercial world in
contracts.
Canada (AG) v Fairmont Hotels Inc
(2016) p.500
Facts
This convincing proof (nearly beyond the reasonable doubt) can’t be out ruled, It is a civil case it has to be
judged by the balance of probability. We can still say that the quality of the evidence must be convincing, must
have a high degree of cleanliness.
The evidence in a rectification rule must be really good. It is still a higher standard than the reasonable
doubt.
Issue
Decision
Paget v Marshall
(1884) p. 506
Exam
1. Don’t have to cite cases, you only have to know the rule.
2. When talking about the law, explain it. Organization counts a lot.
V. PERFORMANCE AND BREACH
Assuming we know there is an agreement, and assuming we know that the agreement is enforceable, the
question then becomes “What does it really mean? And what must the parties do to perform it?” This section
considers questions of breach.
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Repudiation
673-692
N CL contract, it is more or less similar as repudiation in civil law. When do I get to declare a breach of
contract and walk away? We usually say not every breach of a covenant is in fact a breach of the contract.
In other words, we tolerate that somebody might not perform the contract perfectly. When we think
of breach, is there a right of repudiation to walk away or it is damaging for the breach?
If I am 2 days late on my rent, is the breach:
Material
substantial?
Does it go to the whole contract? No, not enough. It depends on what the contract is and what is the
nature of the breach. Does it make the contract significantly different to what I was expecting to have?
If it is not material, we can still go forward.
Waiver and Conditions Precedent
692-696
The relinquishment of a known right. I have the right of performance at this time, you blew it, and a
didn’t charge you for it. At what point do I have the right to say “from that point, I am not waiving”? If I let
you do something 6 times, I may say STOP. You have to you that you have rely on your detriment.
Case: Delivers the good every month for a year in a half. The other company says stop at some point, but the
company A assumed it was ok and the whole supply chain changed.
The Duty of Good Faith
696-714
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VI. MISTAKE
What happens when the parties are mistaken about the subject matter of the contract? Can they get out of it?
What happens when they are deceived about the true state of affairs upon which the contract was made?
Misrepresentation
715-749
Mistake about Terms
749-762
Mistaken Assumptions
762-810