Table of Contents
1. Social Control of Contracts ................................................................................................. 2
2. Traditional Tools: Procedural Fairness Tools ....................................................................... 3
A. Fear and Duress .........................................................................................................................3
What has to happen for a situation to qualify as duress? ...................................................................................4
CCQ Arts. 1399, 1402-1405, 1407 ........................................................................................................................5
JJ Joubert Ltée. v Lapierre [1972] QCCS - CVL // milk distributor v fearful employees ........................................5
Atlas Express Ltd. v Kafco Ltd. [1989] QB - UK CML// economic duress can render K voidable ..........................6
B. Undue Influence.........................................................................................................................7
Barclays Bank Plc. v O’Brien [1994] UKHL - CML // bank v wife claiming undue influence .................................8
Bertolo v Bank of Montreal [1986] ONCA ............................................................................................................9
Bank of Montreal v Duguid [2000] ONCA ..........................................................................................................10
C. Misrepresentation and Fraud ................................................................................................... 10
CCQ Arts. 1401 ...................................................................................................................................................11
Tremblay v Les Pétroles Inc. [1963] QCCAA - CVL // garage buyer v seller misrepresenting past earnings ......11
Creighton v Gryspan [1987] QCCA - CVL // real estate developers v dishonest sellers re. ownership of land ..12
Esso Petroleum Co. Ltd. v Mardon [1976] UK - CML // gas company miscalculates output .............................12
VK Mason Construction v Bank of NS [1985] SCC - CML // bank induces contractor into K with a client .........13
Rawleigh v Dumoulin [1926] - CVL .....................................................................................................................14
D. Duty to Disclose ....................................................................................................................... 15
CCQ Arts. 1375 & 1416.......................................................................................................................................15
E. Mistake and Error..................................................................................................................... 15
Bell v Lever Brothers Ltd. [1932] UK - CML // guys get bought out of broken K ................................................16
Sherwood v Walker [1887] US - CML // cattle farmer accidentally sells fertile cow as barren .........................17
3. Traditional Tools: Substantive Fairness Tools ................................................................... 17
A. Unconscionability and Lesion ................................................................................................... 18
CCQ Art.1406......................................................................................................................................................18
Harry v Kreutziger [1976] BCCA - CML // sale of fishing licence by indigenous man .........................................18
Uber Technologies Inc. v Heller [2020] SCC - CML // unconscionable arbitration clause ..................................19
Gareau Auto v BC Impériale de Commerce [1989] QCCA - CVL //bought boat he couldn’t afford ...................22
B. Abusive clauses ........................................................................................................................ 23
CCQ Arts.1435-1437 ...........................................................................................................................................23
C. Defects of Consent ................................................................................................................... 23
4. Traditional Tools: Particularly Problematic Clauses .......................................................... 24
A. Exclusion (Exoneration) Clauses ............................................................................................... 24
CCQ Art 1474 ......................................................................................................................................................25
Tercon Contractors Ltd. v BC (transportation and highways) SCC - CML // BC accepts bid from ineligible
bidder ** CML Canada law.................................................................................................................................25
5. Changed Circumstances ................................................................................................... 26
A. Futility/Frustration CML ........................................................................................................... 27
Amalgamated Investment and Property v John Walker & Sons Ltd. [1976] UK - CML // bought a building to
develop, next day listed as heritage site ............................................................................................................27
B. Impossibility/Force Majeure ..................................................................................................... 27
CCQ Arts. 1470 & 1693.......................................................................................................................................28
Otis Elevator Co. Ltd. v A. Viglione & Bros. Inc. [1978] CVL // strike does not meet force majeure, clause
excuses breach ...................................................................................................................................................28
C. Hardship/Imprévision .............................................................................................................. 29
Churchill Falls (Labrador) Corp. v Hydro Quebec [2018] SCC from QC - CVL // good faith only goes so far ......29
6. Breach and Remedies....................................................................................................... 31
A. Breach and Intensity of Obligations .......................................................................................... 31
CCQ Art 1604 ......................................................................................................................................................33
Cehave NV v Bremer Handelgeselleschaft mbH [1975] UK - CML //rejection of ‘bad’ cargo ............................33
Hong Kong Fir Shipping Co. v Kawasaki Kisen Kaisha .........................................................................................35
B. Specific Performance................................................................................................................ 35
CCQ Arts. 1590 & 1601.......................................................................................................................................36
Co-Operative Insurance Society Ltd. v Argyll Stores (Holding) Ltd. [1998] UK - CML// comparison to CVL case
Golden Griddle re. specific performance ...........................................................................................................37
Construction Belcourt Ltée. v Golden Pancake House Ltd. [1988] QC - CVL// CVL comparison to CML Argyll
case re. specific performance ............................................................................................................................38
Warner Bros. Pictures v Nelson [1937] CML //specific performance as NOT performing .................................40
C. (Mitigation and) Remoteness of Damage .................................................................................. 41
CCQ Art 1479 & 1613 .........................................................................................................................................42
Hadley v Baxendale [1854] UK - CML - mill with broken shaft v carrier late with replacement ........................42
Victoria Landry v Newman Industries Ltd. [1949] UK - CML// boiler plate delivered late v laundromat with
surprisingly high demand ...................................................................................................................................43
Koufos v Czarnikow (The Heron II) [1969] UK - CML // boat chartered to sell sugar arrives late, market price
fluctuated ...........................................................................................................................................................45
Ciment Quebec Inc. v Stellaire Construction [2002] QCCA - CVL //company orders wrong type of cement ....46
E. Cost of Cure vs Diminution in Value .......................................................................................... 47
Ruxley Electronics v Forsyth [1995] UKHL - CML// pool builder v man picky about depth ...............................47
Security Stove & Mfg. Co. v American Ry. Express Co. ......................................................................................49
F. Non-Pecuniary Damages ........................................................................................................... 49
CCQ Art. 1607 .....................................................................................................................................................50
Jarvis v Swan Tours Ltd. [1973] UK -CML// man seeks non-pecuniary damages for disappointing vacation ....50
Fidler v Sun Life Assurances Co. of Canada [2006] SCC from BC - CML //insurance company refuses to pay
legitimately disabled woman - punitive damages..............................................................................................51
Whiten v Pilot Insurance ....................................................................................................................................52
G. Liquidated Damages and Penalty Clauses ................................................................................. 53
CCQ Art.1623......................................................................................................................................................54
HF Clark Ltd. v Thermidaire Corporation Ltd. [1976] SCC from Ont. // penal clause disguised as liquidated
damages clause not enforceable .......................................................................................................................54
151276 Canada Inc. v Verville [1994] QCCS - CVL // penalty clause reduced as unreasonable .........................55
1. Social Control of Contracts
Under certain circumstances, a party may claim that despite the prima facie validity of a K, the K
should not be enforced.
 6 specific instances:
1. Fraud
2. Misrepresentation
3. Duress
4. Incapacity
5. Mistake
6. Undue influence
How does the law protect substantive fairness?
 The CML and the CVL have protections for procedural unfairness usually linked to
defective consent
o Where there is improper consent, there is no K (and this does not conflict with
autonomy of the will). However, it is often the case that classical doctrines
protecting consent will indirectly protect the substantive fairness of the K
 N.B. if we adhere too closely to the theory of autonomy of the will, it will limit the scope
of judicial review
Important concerns
 There is a clash between the underlying K theory of autonomy of the will, and the desire
to give the judiciary the scope to invalidate otherwise valid Ks when they are deemed
unfair.
o How should we inject control is an important question?
 Should it be through an umbrella standard such as unconscionability?
 Should it be through individual doctrine focused on impaired consent?
 We will see that this is actually the traditional way of overseeing
the integrity of Ks and controlling unfair Ks.
 This is consonant with the traditional K theory in which Ks are
based on the meeting of the minds of two consenting parties.
2. Traditional Tools: Procedural Fairness Tools
A. Fear and Duress
Judicial intervention is justified when consent is not freely given by reason of duress or fear.
 Here consent is vitiated not because it does not exist, but because the expression of
consent is not freely given
o Thus, it is impaired because of the way it is given: “it is not lack of will, but
intentional submission due to force”
 Proverbial gun to the head
 Justified given the attack to consent (explicitly justified by art.1399 stating that consent
must be free and enlightened).
What constitutes duress and fear?


Classical headings include:
o Threats to physical injury or death
o Threats to property
o Threats of a moral or psychological kind
Emerging heading includes:
o Threats of an economic nature
What has to happen for a situation to qualify as duress?
CVL
 Governed by art.1402-1404
o WHAT must the threat be?
 Under art.1402, fear of serious injury to person or property vitiates
consent
 N.B. whether there is actually potential for serious injury will be
determined by considering the effect of the threat on the threatened
party. This is primarily a subjective test. However, there is an
objective aspect to this test to the extent that we cannot allow the
test to be purely subjective or we would risk having to void Ks
entered into by paranoid persons for fear of injury.
o WHO must the threat be made to?
 Under art.1402, the threat may be made to the contracting party or to
another person, meaning that the threat need not be directly related to the
party
o WHO must the threat be made by?
 Under 1402, the threat must be made by the co-contractor or it must be
known by the co-contractor
o Must there be illegitimacy in either the means or the result?
 In Joubert, the court states that there must be either illegitimacy in the
means or in the ends for there to be a finding of duress. It must be found in
one or the other, it need not be found in both
o Must the K be substantively unfair?
 In Joubert, the court states that the substantive fairness is dependent on the
subjective judgement of the contracting party
 Fear must be (1) decisive (reasonable; serious harm); (2) inflicted by co-contractor or
with their knowledge; (3) against co-contractor or third party; and (4) illegitimate
CML
 Potentially similar requirements across the board.
 Only substantial difference is that NAV theoretically does away with the requirement of
illegitimacy (as the threat of breach of K is not considered illegitimate - breaching a K
not being considered illegal on the basis of the theory of efficient breach)
o However, in practice, most judges would consider this illegitimate means,
maintaining the requirement
Distinction between legitimate commercial pressure and duress
 Per Atlas and NAV, a finding of economic duress is dependent on two conditions

o The promise must be extracted as a result of the exercise of pressure by demand
or threat
o The coerced party must have had no practical alternative but to agree to the
coercing party’s demands
Once these conditions are met, the court must consider how the coerced party consented
o That is, the court will consider factors such as whether the party consented under
protest, whether the party took steps to get out of the K, or whether the promise
was supported (or not) by fresh consideration, etc.
State of necessity
 A state of necessity, or “non-engineered duress,” occurs where a party in a state of
necessity not caused by the other party is offered to be saved for an exorbitant amount
o Note that this will, at least in the CML, often fall under undue influence, although
it might fall under fear in the CVL.
CCQ Arts. 1399, 1402-1405, 1407
Art.1399: (1) Consent must be free and enlightened. (2) It may be vitiated by error, fear or
lesion
Art.1402: (1) Fear of serious injury to the person or property of one of the parties vitiates
consent given by that party where the fear is induced by violence or threats exerted or made
by or know to the other party
(2) Apprehended injury may also relate to another person or his property and is appraised
according to the circumstances
Art.1403: Fear induced by the abusive exercise of a right or power or by the threat of such
exercise vitiates consent.
Art.1404: Consent to a contract the object of which is to deliver the person making it from
fear of serious injury is not vitiated where the other contracting party, although aware of
the state of necessity, is acting in good faith.
Art.1405: Except in the cases expressly provided by law, lesion vitiates consent only with
respect to minors and protected persons of full age.
Art.1407: A person whose consent is vitiated has the right to apply for annulment of the
contract; in the case of error occasioned by fraud, of fear or of lesion, he may, in addition
to annulment, also claim damages or, where he prefers that the contract be maintained,
apply for a reduction of his obligation equivalent to the damages he would be justified in
claiming.
JJ Joubert Ltée. v Lapierre [1972] QCCS - CVL // milk distributor v fearful employees
Facts: J is a milk co.
 The company gave the milkmen a choice between losing their jobs or accepting a new
employment K whereby they would have to sell milk independently. The milkmen
signed the new K.
 They made very little money and sued.
L is invoking the nullity of the K on the grounds that J threatened him to enter into the K
Issue/holding
Is the K valid? NO
Reasoning
Pursuant to Art.995 CCLC (Art.1402 CCQ), the K was signed under fear
 This is supported by the subordinate position of the workers to J.
 The means, i.e. the threat that L would be fired, were legitimate. An employer has the
right to fire his employees.
 The end, i.e. to be rid of the collective bargaining agreement (the union), was
illegitimate - possible to illegitimate ends even if there is no direct financial loss
 violence that vitiates consent need not be physical - to have vitiating violence you need:
a) Reasonable fear
b) Illegitimate pressure - pressure constitutes vitiating violence if it is illegitimate
concerning its means or ends (see above)
J argued that the employees would get a better deal under the new agreement, meaning that
they would make more money
 However, the court rules that the advantageous nature of a K is not the objective
 That is, it is up to the individual signing the K to decide whether or not their situation
is better or worse for the K
Ratio
A K can be voided if legitimate means were used to achieve illegitimate ends.
Atlas Express Ltd. v Kafco Ltd. [1989] QB - UK CML// economic duress can render K voidable
Facts: Kafco is a company dealing in basketware, had a K with Woolworth’s, and therefore
entered into a K with A, a road carrier, to deliver its goods to Woolworth’s
 A gave Kafco a quote for the cost of shipping the baskets, however, the quote
underestimated the actual cost.
 Therefore, when A sent its trailers to pick up Kafco’s baskets, they accompanied them
with a note specifying the minimal charge for each trailer.
It was essential that Kafco meet its deadline related to delivery dates per its K with
Woolworth’s and it was impossible for them to find an alternate carrier at the time.
Kafco signed the agreement and the goods were delivered.
Issue/holding
Is Kafco bound by the agreement it signed for the higher charge? NO, economic duress
Reasoning
Economic duress, but not commercial pressure, is sufficient to rule that consent was
involuntary
 Economic duress consists of some factor which could in law be regarded as coercion
of the will so as to void consent
 In determining whether there was a coercion of the will, the court must consider:
1. Whether the person coerced did or did not protest. YES
2. Whether or not the person coerced had an alternative course open to him at the
time of the purported coercion. NO
3. Whether the coerced party had been independently advised. NO
4. Whether, after entering into the K, the coerced party took steps to avoid it.
YES
The court must conclude that the pressure must have been such that the victim’s consent to the
K was not voluntary.

This render consent given under conditions of economic duress vitiated consent, and
therefore a K made under these conditions is voidable.
 “Duress, whatever form it takes, is a coercion of the will so as to vitiate consent”
Regardless of economic duress, there was no consideration for the new agreement
Ratio
In cases of economic duress, consent is vitiated as it is involuntary
NOTES
Should not draw the parallel between this case and William v Roffey
 In Atlas, it is the promisee of getting more money who said “pay me more or I won’t
do it” while in Roffey it is the promisor who is saying “I’ll pay you more.”
 Because of this, we get a huge difference in outcomes in the cases.
 In terms of the facts, the cases are not actually that different (in terms of the
consideration re: practical benefit)
B. Undue Influence
Undue influence is a CML notion. It does not exist in the CVL
 Of course, the problem it seeks to remedy exists in both jurisdictions
Undue influence in the state of necessity
 Duress and fear
o “I will not do X, unless you do Y.” or “I will do X, unless you do Y.”
 You are placing your co-contractor between a rock and a hard place
 But a state of necessity refers to non-engineered duress
o In such a situation, you are already between a rock and a hard place, and you K
with another party to get you out of this situation. The classic example is a
stranded ship.
 E.g. Post v Jones is the case of a stranded ship which entered into a K to
be rescued for the sale of their merchandise to the rescuing party for an
unfairly low price. The court ruled that you “cannot avail yourself to the
calamities of another.” This is similar to the “salvage clause” suggested by
Denning J. in Lloyd Bank.
 Note that a K with a party is a state of necessity will be valid if the
K does not abuse the party’s situation of necessity, i.e. if it was a
fair K, e.g. if the price offered for the merchandise was fair
 In the CVL, parties in a state of necessity are aided under fear
o The CVL will look at whether consent was vitiated
Note that undue influence is distinct from duress
Undue influence



Equity
Domination of the will
Type of relationship + circumstances
of contract



Duress
Common law
Coercion of the will
Circumstances of contract formation
only




Usually unfair or risky
Results in rescission


Fairness is irrelevant
Results in voidability
Has its origins in the courts of equity
Like duress, a party’s consent is impaired because they feel pressured or coerced.
However, unlike in cases of duress, this pressure or coercion is not the result of a threat,
but the result of something which is making people feel unduly influenced, and this is
generally a relationship
o “It reflects a situation where one person takes unfair advantage of the other due to
the influence or ascendency he has over the other, such influence arising out of
the relationship between the parties.”
o Certain relationships presume undue influence, while others are open to proof of
such influence
 Certain relationships are such as a matter of law, e.g. doctor-patient,
lawyer-client
 De facto relationships of undue influence include Ks entered into by wives
in a relationship of financial dependency or influenced by their husbands,
e.g. spousal guarantees (O’Brien)
There is no such thing as undue influence in the CVL
 However, there are functional equivalents
o These include good faith, public order and fear
 Fear  art.1402
 Good faith requirement of disclosure
 Factual incapacity
Barclays Bank Plc. v O’Brien [1994] UKHL - CML // bank v wife claiming undue influence
Facts: Husband was a shareholder in a company which had a large overdraft with B.
 The husband and the bank entered into an agreement whereby he would secure his
liability by taking out a second charge on his matrimonial home, which he owned
jointly with his wife.
 Husband and wife signed the agreements without reading them, and were not advised
by the bank staff of the content of the agreement, nor was the wife advised to seek
independent counsel
The company’s debt increased beyond the agreed upon limit, and the bank brought a
possessory proceeding against the couple
 Wife claims the husband put her under undue influence to sign
 Wife claims her husband misrepresented the effect of the legal charge, as she thought
the security was limited to $60,000
Issue/holding
Is the charge enforceable against the wife? Only up to $60,000
Reasoning
There are two competing policy issues:

Despite increasing equality of the sexes, men still often have control over the family
financial decisions, and therefore may exert undue influence in decisions affecting
jointly held wealth.
 Undue influence is shown when the claimant can prove that there was an actual
exertion of undue pressure. Where there is a relationship of confidence, the burden of
proof is shifted to the defendant.
A relationship of confidence exists where:
1. Certain relationships are such as a matter of law, e.g. doctor-patient,
lawyer-client.
2. The claimant can prove the de facto existence of a relationship under which
they generally reposed trust and confidence in the wrongdoer
In this case, the bank was aware that the wife agreed to stand as surety for the debts of her
husband
 This entails a number of consequences:
1. The surety obligation will be valid and enforceable only where there was no
undue influence or misrepresentation. NO
2. If there was undue influence or misrepresentation, the creditor will be unable
to enforce the surety obligation unless he took reasonable steps to satisfy
themselves that the surety entered into the obligation freely and will
knowledge of the facts. NO
3. The creditor must take the reasonable step to warn the surety (in the absence
of the principal debtor) to seek independent legal advice. NO
Ratio
1. A K is void if a person entered into it under undue influence
2. Undue influence can be presumed either in law or from the fact of a relationship of
trust and confidence
3. Where there is undue influence and the k is with a third party, the third party must take
reasonable steps to ensure that the weaker party entered into the agreement freely and
with full knowledge of the facts
Bertolo v Bank of Montreal [1986] ONCA
Facts: B was going to act as a surety for her son’s business but was actually made the
principal debtor by the K. Bank recognized she needed independent advice, but only provided
its own solicitor to advise her.
Issue/holding
Is the surety valid? NO, transaction was unconscionable
Reasoning
Clear that B should have been independently advised. No fiduciary relationship existed
between her and the bank. The transaction was manifestly disadvantageous and the bank knew
she should be given advice - failed in this duty. It would be unconscionable for the bank to
take advantage of her lack of advice
Ratio
Does not matter if there is undue influence because of unconscionability
Bank of Montreal v Duguid [2000] ONCA
Facts: D, a real estate agent, acted as surety for her husband’s failed business. Bank did not
disclose its concerns about the financial viability of her husband’s business. She claimed
undue influence
Issue/holding
Is the surety enforceable? YES, no undue influence
Reasoning
The court accepts Barclays formulation of undue influence. Husband/wife relationship may
ONLY give rise to a presumption of undue influence IF the claimant can prove the
relationship of trust and confidence existed. If the principal debtor is a third party, the claimant
can establish undue influence if the principal debtor was the creditor’s agent. Creditor has a
duty to inquire when the surety has a close relationship and the contract is clearly not in the
surety’s advantage. While there is a presumption, D did not put her trust and confidence in her
husband re. financial affairs. Bank had no duty to inquire, therefore no wrongdoing
Ratio
Husband/wife relationship does not automatically indicate a relationship of trust and
confidence
C. Misrepresentation and Fraud
Fraud is a defect in consent
 It is related to the enlightened nature of consent in the sense of art.1399
o In these situations, there is a lack of concordance between the internal and
external will
 N.B. Art.1399 makes no mention of fraud; fraud is subsumed under art.1401 which states
that error induced by fraud vitiates consent
Fraud is also a civil wrong
 Why is this important?  it affects remedies
Under what circumstances do we have fraud or misunderstanding?
 Deliberate and intentional misrepresentation (Tremblay)
 Deliberate or intentional misrepresentation through silence (dol par reticence)
(Creighton)
 Negligent misrepresentation (Esso)
Available remedies
 Rescission or nullity in the CML, or relative nullity in the CVL (Art 1419, 1420, which
states that only the party who wants to be protected can invoke relative nullity)
 Quanti minoris, i.e. a reduction of the obligation of the defrauded party (Art.1407)
 Damages (Art.1407 - note that you cannot get remedies for simple error)
CCQ Arts. 1401
Art.1401: (1) Error on the part of one party induced by fraud committed by the other
party or with his knowledge vitiates consent whenever, but for that error, the party would not
have contracted, or would have contracted on different terms.
(2) Fraud may result from silence or concealment.
Tremblay v Les Pétroles Inc. [1963] QCCAA - CVL // garage buyer v seller misrepresenting past
earnings
Facts: Les Pétroles Inc. leased a public garage to T. LP operated the garage at a loss for
roughly 6 yrs. However, LP informed T during negotiations that gross earnings could amount
to $350,000 per year with profits up to $20-25,000 per year. In support of this contention, T
was shown figures representing the amount of gasoline sold in the previous year, but was told
that no financial statements were available. The claim was dismissed at trial
Issues/holdings:
1. Was there fraud? YES
2. Did T renounce his right to action by delaying it? NO
Reasoning
Majority:
The statements made to T were misrepresentations
 The law allows a measure of exaggeration within bargaining
 if a statement constitutes a simple exaggeration that would be made by an honest man,
then it is permissible and does not serve to nullify a K.
 in this case, the disparity between the stated viability of the garage and its previous
history is so severe as to render the statements fraudulent.
 Importantly, T would not have entered into the K but for these misrepresentations
Where a plaintiff learns of fraud but continues to operate and does not press for
nullification of the K, it is considered a tacit ratification of the K under its actual
circumstances and the right of action is extinguished
 This is not the case here, as T became aware of the fraud by degrees
 A month after it became fully apparent, he instituted the action
The K is null
Dissent:
T operated the business at a loss from the outset
 Several months later, the loss became serious and permanent, at which point he
instituted an action
 The judge considers that there is evidence he was aware of the fraud, yet continued to
fulfil his obligation and attempted to work within the K, which amount to a ratification
of the K and an extinction of the right of action
LP’s statement was bonus dolus, i.e. “good fraud” and does not constitute fraud proper
Ratio:
The law allows some exaggeration within bargaining, but where fraud is determinative of
consent, the K is relatively null unless the defrauded party continues to act under the regime
of the K after learning of the fraud, as this ratifies the K and extinguishes any right of
action.
NOTES
This is a case of deliberate and intentional misrepresentation
 Why not a slam dunk?
 Because we want parties to ‘check themselves’ - i.e. self-inform, and where parties
continue to operate within the K after discovering the fraud, it is considered ratification
of the K (because it does not go against public order)
 We have the notion of dolus bonus, “good fraud.” We want to allow claims like “your
hair will be the shiniest if you use this shampoo” in the interest of salesmanship, etc.
and this reminds us of puffery in Carlill
Creighton v Gryspan [1987] QCCA - CVL // real estate developers v dishonest sellers re.
ownership of land
Facts: G entered into a K to purchase an immoveable from C. G claims the nullity of the K of
sale on the grounds of misrepresentation. G claims that C led him to believe that the sale
included a strip of land, which was actually owned by the city, which they desired and without
which would not have entered into the K. In the first offer of sale, C included the strip of
land. In all subsequent negotiations (offers and counter-offers), C omits the words dealing with
the strip of property. The K uses the words “more or less” in reference to the dimensions of the
property.
Issue/holding
Is the K null for fraud? YES
Reasoning
Majority
Where a party commits fraud in the formation of a K, and the fraud was determinative of
consent, meaning that the other party would not have otherwise entered into the K, then the K
may be nullified.
 It is not necessary for a person to have performed a positive act for them to be deemed
to have committed fraud, as fraud may exist in the omission to disclose or the failure to
act
 In this case, C knew that G believed that the strip of land would be included in the sale.
The fact that he omitted to mention the strip in the K constitutes fraud.
 Even though G may still have purchased the land without the strip, such that the offer
was not fatally flawed, he would not have made the offer that he did knowing that the
strip would not be included
Dissent
G’s imprudence and inattentiveness in not verifying the parameters of the land before entering
into the K counters the determination of fault.
Ratio:
Fraud exists as misrepresentations made either by positive act, omission, or failure to act.
Esso Petroleum Co. Ltd. v Mardon [1976] UK - CML // gas company miscalculates output
Facts: E purchased a vacant lot to set up a new service station. A city ordinance forced the
station to be built “back to front” such that the entrance was no longer on a main street. At the
time, petrol throughput was estimated at abt. 200,000 gallons per year, but this estimate was
not adjusted to reflect the consequences of layout. M entered into a tenancy agreement to
operate the station on the basis of the original calculation. The throughput fell far below the
original estimate to about 78,000 gallons per year.
Issues/holdings
1. Does the failure to adjust the throughput estimate constitute misrepresentation? YES
2. Does the disparity between the throughput calculation and the reality constitute a
breach of warranty? NO
Reasoning
A negligent misrepresentation in a pre-contractual setting, i.e. negotiation, allows the
defrauded party to recover his reliance interest
 A negligent misrepresentation exists where a party with special knowledge or
skill:
(1) Makes representations (including advice, information, and opinion) on the basis
of this skill to induce a party to enter into a K
(2) Fails to exert reasonable care to ensure that this information is correct and
reliable.
E possessed special knowledge or skill to calculate the throughput, and the court rules that
they made the estimation statement to induce M to K.
 The failure to revise the statement was negligent
M is awarded damages for his capital loss, overdraft, and loss of alternative income
Ratio
If a party with special knowledge or skill makes a representation on the basis of this
knowledge or skill it is under a duty to exercise reasonable care to see that the representation is
correct and reliable. Where he induces the other party into the K on the basis of a
misrepresentation, the party is liable for damages.
VK Mason Construction v Bank of NS [1985] SCC - CML // bank induces contractor into K with a
client
Facts: C owned land on which he was developing a shopping complex. VK was in negotiation
with C to be the contractor for the project. VK requires evidence of C’s ability to meet
payments as a condition for entering into the K. C sought a loan from NS. The loan approval
was insufficient proof for VK, so NS sent a letter to VK containing assurances that C would be
able to meet his obligations. C defaulted on the loan, and NS seized and sold the complex. The
sale price was insufficient to cover the outstanding sums owed to VK.
Issues/holdings
1. Is NS liable in K? NO
2. Is NS liable under negligent misrepresentation? YES
Reasoning
There is no K
 VK argues that NS’ letter guaranteeing C’s ability to meet his obligations can be
interpreted as a unilateral K.
 The court refuses to recognize this as a K as it would have to imply too many terms in
order to create a valid K
 There is also no evidence of a clear intent to create legal relations
There was negligent misrepresentation

NS had special knowledge and induced VK to enter into a K on the basis of
negligent misstatements about C’s financial ability to meet his obligations
 All the elements of negligent misstatement are present:
(1) untrue statement
(2) untrue statement is made negligently
(3) special relationship giving rise to a duty of care
(4) foreseeable reliance on the statement
VK is awarded reliance interests, although in this case his reliance interests are the same as his
expectation damages.
 He is awarded the anticipated profits from C’s K on the assumption that VK would
have found other business opportunities had they not contracted with C.
Ratio
Negligent misstatement requires the presence of an untrue statement, made negligently, to a
party to which the negligent party had a special relationship implying a duty of care, and who
would reasonably foreseeably rely on the statement
Rawleigh v Dumoulin [1926] - CVL
Facts: D and another signed a K of guarantee for all moneys due or owing by C to R, who
sold C goods for resale. C told D that he was only signing a reference; D did not understand
English K. C’s indebted account was closed, then he declared bankruptcy; R pursued D fur the
guarantee.
Issues/holdings
1. Is the K void for fraud? NO
2. Is the K null for error? YES
Reasoning
Fraud is not applicable here, since R did not know of C’s fraud.
 R wasn’t a party to C’s fraud and C wasn’t a party to the K
There was error
 Error vitiates consent per art.1234 CCLC
 Excusable v inexcusable error
 inexcusable error: the victim of the error should have known about the error but
didn’t - K is not null
 excusable: there is no way the victim of the error could have known about the error
- K is null
Here, C’s false representations led D to sign a K, the true implications of which he did not
understand and error was not inexcusable (long and complicated K that would have confused
even English speakers) - error as to the nature of the K
 The reason for the error was not inexcusable: the contract was drafted so as to conceal
its true nature and C misled D about its contents
Evidentiary threshold in error
 Must show more than a mistake was made
 Error does not necessarily require outside corroboration - if the victim’s testimony is
credible, that is enough
Ratio
1. Fraud vitiates consent only if the party seeking to enforce the contract was aware of the
fraud
2. Error can be proven by the victim’s testimony alone
D. Duty to Disclose
The duty to disclose becomes an issue in cases in which one party has knowledge of valuable
information which the other party does not
 The question is whether or not the party with the privileged information has a duty to
share this information with their co-contractor.
CVL
 The obligation of good faith in K formation under art.1375 creates a good faith duty to
disclose where two criteria are met:
1. Where the information is of decisive importance
2. Where the other party could not have obtained the information or legitimately
relied on the other party to disclose it
 N.B. it is important to understand that this may be different from fraud by concealment
under art.1401, as fraud requires intentionality
o Furthermore, whether there is fraud or a failure to act in good faith will affect the
remedy
 A failure to act in good faith will be remedied by tortious damages, while
fraud might be remedied by nullifying the K, quanti minoris, or damages.
 Best to argue a combination of art.1416, which states that any K that does
not meet the necessary conditions of formation may be nullified in
conjunction with art.1375 may be grounds for nullifying a K for failure to
act in good faith - although this is not mentioned in art.1407
CCQ Arts. 1375 & 1416
Art.1375: the parties shall conduct themselves in good faith both at the time the obligation
arises and at the time it is performed or extinguished
Art.1416: Any contract which does not meet the necessary conditions of its formation may
be annulled.
CML
 The CML generally does not recognize a duty to disclose
o You cannot rely on the Hedley-Burn principle from Esso related to negligent
misrepresentation, because the CML does not view silence as a representation
o Thus, you have to fall back on the duty to disclose related to proximate
relationships.
E. Mistake and Error
Mistake and error are distinct from fear, duress, fraud, and misrepresentation - error is innocent

The big question is, given the innocence of both parties, why do we sanction error? Who
should bear the risk?
o The reason that it must be sanctioned is because the law of K is based on consent,
and consent is vitiated in the case of error. Where we do not have proper consent,
there can be no K
o However, there is a big difference here between the CML and CVL
 While this is justified under art.1399 and 1400 in the CVL, making it
relatively easy to get out of a K for error (with the exceptions of economic
and inexcusable error), in the CML, one can only get out of a K for error
in very narrow circumstances pursuant to the test laid out in Bell and
Sherwood
How does mistake operate?
 Need it be mutual? Judges objectively?
o Much more CML because it thinks it will undermine K law, and therefore it
requires mutuality of mistake as to something which “destroys the identity of the
subject matter” of the K
 Can it be unilateral? Judges selectively?
o Much more CVL because it is premised on the consent of the parties
Bell v Lever Brothers Ltd. [1932] UK - CML // guys get bought out of broken K
Facts: L hired B to manage its subsidiary, N. N prospered and was amalgamated with another
company and B was no longer needed. L agreed to pay off B in dismissing them. L later
discovered that B had breached its K, i.e. it had participated in insider trading while managing
N and so L could have dismissed B without compensation. L is suing for the amount paid off.
Issue/holding
Was the agreement between L and B void by reason of mutual mistake? NO
Reasoning
Majority
A K can be voided by reason of mistake
Test from Sherwood states that consent is vitiated in situations of mistake:
(1) Parties are mistaken in the identity of the contracting parties
 Where A believes they are contracting with B, but is in fact contracting with C, and it
is clear that A intended only to K with B
(2) Parties are mistaken in the existence of the subject matter of the K
 Where A agrees to sell X to B and X does not exist at the time of formation
(3) Parties are mistaken in the quality of the subject-matter of the K
 If A agrees to sell X to B, but both are mistaken as to some fundamental quality of X,
such that it’s character is something fundamentally different from what the parties
thought it would be
An agreement to terminate a broken K, as is the case here, should not be treated differently
from an agreement to terminate an unbroken K
 The party paying for release gets exactly what he bargains for and it is immaterial that
he could have gotten the result another way
Presence of a mistake
 In the absence of fraud, a K may be nullified for mistake where:
(1) the mistake was mutual among the contracting parties
(2) the mistake was in respect to an assumption of fact so important as to be a
foundation essential to its existence such that it was either an expressed or implied
term of the K, i.e. if a K expressly or implicitly contains a terms that a particular
assumption is a condition of the K, the K is void if the assumption is not true
In this case, the mistake is not sufficiently fundamental in that it does not change the
nature of the K and the K is therefore not void
Dissent
The parties’ mutual erroneous assumption was so fundamental as to be an underlying
assumption but for which they would not have made the K.
Ratio
There is mistake which renders a K void where the K contains an erroneous assumption by
both parties, and that assumption is a fundamental reason for making the K.
Sherwood v Walker [1887] US - CML // cattle farmer accidentally sells fertile cow as barren
Facts: W imported breeding cows and he had some cows he believed to be barren. S wanted to
purchase a cow for slaughter, so W offered him the barren cows. W and S entered into a K of
sale for one of the purportedly barren cows. It was later discovered that the cow was pregnant,
and W refused to deliver it in accordance with the K of sale. S sued.
Issue/holding
Is the K null for mistake? YES
Reasoning
Majority
A K may be nullified for mistake
Two conditions must be met:
(1) the mistake is held with respect to a material fact of the K
YES. The nature of the matter being sold is considered a material fact of the K as the K would
not have been entered into but for the fact that the cow was assumed to be barren. The
barrenness of the cow was not a mere quality of accidental aspect of the matter.
(2) both parties shared this mistake
YES
The K is null
Dissent
Neither party knew the condition of the cow with certainty when they entered into the K.
 Given this and the fact that no conditions related to barrenness were included in the
written K implies that this was not an essential term of the K
 Therefore, the mistake was not as to the material fact of the K, and so the K is valid
Ratio
A K may be nullified for mistake where (1) the mistake is held with respect to a material fact
of the K, and (2) the mistake was mutual
3. Traditional Tools: Substantive Fairness Tools
A. Unconscionability and Lesion
Unconscionability and lesion raise the question as to whether K law should give redress to
persons who have entered into unfair Ks.
 Do we need this extra remedy?
o We want to strike a balance between protecting parties as in Harry, while not
offering protection to everyone
 This is a question in both the CML and CVL
Does unconscionability exist in Canada?
 Yes, in the CML, following the decision in Harry v Kreutziger
o This is the “poster case” for unconscionability because of the vast inequality in
bargaining power including education, financial means, business experience,
physical disability, cultural attribution, etc.
o Twin criteria:
 Inequality in bargaining power
 Substantive unfairness of the K
 Not in the CVL
o CVL has the concept of lesion under art.1406, as pursuant to art.1405 it applies
only to minors, incapacitated persons of full age, and in the cases provided for by
law (e.g. consumers in the Consumer Protection Act ss.8-9, loans at Art.2332).
CCQ Art.1406
Art.1406: (1) lesion results from the exploitation of one of the parties by the other, which
creates a serious disproportion between the prestations of the parties; the fact that there is a
serious disproportion creates a presumption of exploitation.
(2) in cases involving a minor or a protected person of full age, lesion may also result from an
obligation that is considered to be excessive in view of the patrimonial situation of the person,
the advantages he gains from the contract and the circumstances as a whole.
Harry v Kreutziger [1976] BCCA - CML // sale of fishing licence by indigenous man
Facts: H is a poor indigenous man, very shy, with only a 5th grade education and no business
savvy. he also has a physical disability. He owned a boat of little value which had a
commercial fishing licence. Licensing policy stated that new licences could only be granted in
exchange for the surrender of old licences. Therefore, the value of the boat and accompanying
licence was roughly $15,000. H wanted to replace his boat and negotiated a K of sale with
Kreutziger for $2000, after Kreutziger convinced him that as an indigenous person, it would be
easy for him to obtain a new licence. H then decided the K price was inadequate and
renegotiated for $4,500. H ultimately changed his mind and sued to nullify the K
Issue/holding
Is the K null for unconscionability? YES
Reasoning
Majority
A K can be null for unconscionability
 Must show two things:
(1) the K was substantially unfair
(2) There was an inequality in the position of the parties due to the ignorance, need, or
distress of the weaker party leaving them vulnerable to abuse
 Where the above has been established, the stronger party is presumed to be at fault and
bears the onus of demonstrating that the K was reasonable in order to rebut the
presumption.
the criteria are met in this case
 The price of sale of $4,500 for an asset valued at $15,000 constitutes a substantially
unfair bargain
 H’s level of education placed him in a situation of relative ignorance, while his
physical disability and financial situation establish both need and distress
 H wanted to maintain his fishing licence, and was led to believe he would be able to
obtain a new one by Kreutziger. Given that Kreutziger was not knowledgeable in the
matter, this was false or recklessly given advice. H expressed worry several times and
Kreutziger continually reassured him. this misleading represents an abuse of H’s
vulnerability
The fact that H could have sought independent legal advice and failed to do so does not
obviate the inequality of bargaining powers
Concurring:
The unconscionability of the K depends upon the extent to which it deviates from commercial
morality. This requires a holistic evaluation of all the disparate factors involved
Ratio
A K that involves an inequality of bargaining powers and substantial unfairness in its terms
leads to a presumption of fraud, reversible by proof by the stronger party that the bargain was
fair and reasonable.
Uber Technologies Inc. v Heller [2020] SCC - CML // unconscionable arbitration clause
Facts: H is a UberEats driver, trying to commence a class action to declare Ontario Uber
drivers are employees of Uber and governed by the Employment Standards Act. The first time
a driver logs onto the Uber app they must accept a services agreement, by clicking twice on
“YES, I AGREE,’ the second time after reading “PLEASE CONFIRM THAT YOU HAVE
REVIEWED ALL THE DOCUMENTS AND AGREE TO ALL THE NEW CONTRACTS”
(~14 pages).
 Agreement includes an arbitration clause, which includes a forum selection clause,
stating: 1) the Agreement is governed by the law of the Netherlands, 2) drivers must
pay $14,500 USD non-refundable filing fee to initiate mediation proceedings, these
fees do not include legal fees or mediator fees, 3) if mediation is inadequate, parties
must each pay $5K filing fee to proceed to arbitration
 Uber drivers earn ~20-31K/year
Judicial history:
TJ stayed the action in favour of arbitration. Held that courts must enforce arbitration
agreements freely entered into, even in adhesion contracts (applying Seidel v Telus). H
appealed to ONCA. ONCA allowed H’s appeal, and set aside the order of the motion judge
granting Uber’s motion to stay.
Issue/holding
Is the arbitration clause unconscionable and therefore invalid? YES
Reasoning
Majority: Abella and Rowe
Elements for determining if a contractual provision is unconscionable - a contracting party
must show that the other party:
1. Enjoyed unequal bargaining power arising from a weakness or vulnerability, and;
2. A substantially unfair bargain resulted
(Test used by Abella in concurring opinion, Douez)
 Uber argued that the SCC should reject the two-part approach and instead adopt the
stricter four-part test outlined in Titus v William F Cooke Enterprises Inc. This
contention was rejected by Abella and Rowe on the basis that it would result in
unconscionability being “more formalistic and less equity-focused” (para 82).
The doctrine of unconscionability has particular implications for standard form contracts these contracts have great potential for creating inequality of bargaining power, and potentially
enhances the advantage of the stronger party at the expense of the more vulnerable party
 Clauses that enforce choice of law, forum selection, and forced arbitration clauses
violate a party’s reasonable expectations by depriving them of possible remedies.
In this case, there was clearly inequality of bargaining power between Uber and H.
 The arbitration agreement was part of a standard form contract and H could not have
anticipated the $14,500 fees, resulting in a hurdle to resolving a dispute. These fees
were close to H’s annual income and disproportionate to the size of an arbitration
award he could have reasonably foreseen.
Based on both the financial and logistic disadvantages faced by H in his ability to protect his
bargaining interests, and the unfair terms that resulted, the arbitration clause is unconscionable
and, therefore, invalid.
Concurring: Brown
Agrees that the arbitration clause should be struck out, but does not agree that the doctrine of
unconscionability should be used to reach this conclusion
 Arbitration agreements are invalid and unenforceable not because of unconscionability
but rather because they undermine the rule of law by denying access to justice. They
are therefore contrary to public policy
 The majority vastly expands the scope of the doctrine of unconscionability through
their ruling
a) Not necessary because other legal principles exist which operate to prevent
contracting parties from insulating their disputes from independent adjudication
b) Expanding the scope of unconscionability will increase uncertainty that already
exists within the doctrine, and also introduce uncertainty into the enforcement
of contracts generally
Public policy doctrine provides grounds for setting aside specific types of contractual
provisions, including those that harm the integrity of the justice system
 Applies when a provision penalizes or prohibits one party from enforcing the terms of
their agreement, which serves to uphold the rule of law
 Rule of law is undermined without access to an independent judiciary that can
vindicate legal rights
Arbitration agreement effectively bars any claim that H might have against Uber and is
disproportionate in the context of the parties’ relationship
Dissent: Côté
Would allow Uber’s stay of proceedings, but only on the condition that Uber advances the
funds required to initiate the arbitration proceedings
 Emphasis placed on the freedom to contract and party autonomy
 Court’s own past jurisprudence supports respecting the parties’ commitment to submit
disputes to arbitration
Approaching the enforceability of arbitration agreements in the fashion taken by the majority,
using a hypothetical case with an undetermined reward, compromises the certainty upon which
commercial entities rely on in structuring their operations. The arbitration clause should be
upheld.
Ratio
To demonstrate unconscionability, a contracting party must show that the other party:
(1) enjoyed unequal bargaining power arising from a weakness or vulnerability, and (2) a
substantially unfair bargain resulted.
NOTES
Four-part test from Titus: 1) a grossly unfair and improvident transaction; 2) a victim’s lack
of independent legal or other suitable advice; 3) an overwhelming imbalance in bargaining
power caused by the victim’s ignorance or other disability; 4) the other party knowingly taking
advantage of this vulnerability
Drawbacks of the unconscionability doctrine
 Important to question the court majority’s apparent presumption in Uber that parties
who incorporate foreign choice of law clauses are doing so abusively. This
presumption adds an extra step to the framework on external clauses in Dell, and its
implications in the international law context remains unclear.
 When a party - such as Uber - makes a motion for a stay, will it need to prove that the
foreign law chosen in its dispute resolution agreement does not flout our domestic law?
If so, this would constitute a major departure from Dell
 Doctrine of unconscionability is supposed to operate as a “gap filler” when other
doctrines do not apply; it is not meant to replace other doctrines
a) By broadening the doctrine, the court is not only allowing it to undermine other
applicable legal doctrines, it is expanding the power of courts to strike down
standard form agreements
b) Filing in the “gaps between the existing ‘islands of interventions’” (para 60) is
what courts should do with the doctrine, but lowering its threshold broadens it
applicability, allowing these decisions to come down to what a particular judge
deems to be ‘fair’
 If standard form agreements are so inherently unfair that additional protections need to
be imposed, is this not the legislature’s job, and not the court’s?
Gareau Auto v BC Impériale de Commerce [1989] QCCA - CVL //bought boat he couldn’t afford
Facts: C purchased a boat from G for $11,200, which was a fair price, on credit from CIBC
with G acting as guarantor. This was payable in monthly instalments. C used the boat once and
then decided he didn’t want it anymore and stopped making payments.
Issue/holding
Is the K null for lesion under s.8 of the CPA? YES
Reasoning
Art.1012 CCLC (now art.1405 CCQ) states that lesion only vitiates the consent of minors
unless the law has created an exception
 One exception is for a monetary loan, pursuant to art.2332 of the CCQ
 Another exception is consumer Ks, pursuant to s.8 of the CPA
CIBC contends that s.8 should be interpreted narrowly, as has been Art.2332
 Argues that legislative interventions that depart from the freedom of K should be
interpreted narrowly
 Court rejects this argument and states that contractual justice is no longer grounded
simply in the freedom to K
S.8 of the CPA envisions two forms of lesion (disjunctive reading - you can have one or the
other)
 Disproportion of prestation: objective lesion
(1) there is a disproportion
(2) the disproportion is considerable. In evaluation the substantive fairness of the price,
the court must consider the market price or fair price
 Consumer obligations excessive, abusive, or exorbitant: subjective lesion
(1) condition of the parties is considered, including the economic situation of the
consumer. The K will qualify as lesion where the obligations would be disastrous for
the patrimony of the consumer
(2) circumstances under which the K was concluded, including the circumstances
surrounding the negotiations and conclusion of the K
(3) advantages of the K for the consumer, including the need the consumer has for the
objects they purchased
In the present case: subjective lesion
 C was on worker’s compensation, and therefore had a reduced income, was married,
had three children, a mortgage and not much equity
 The boat is of no use to C. He does not participate in water sports. He cannot even
afford the boat as G paid for the deposit and acted as guarantor
 The K would have detrimental consequence if it was not annulled.
Ratio
Consumer Ks can be nullified due to either objective or subjective lesion. Objective lesion
occurs where the price is excessive in light of the market price, and subjective lesion occurs
where the K is excessive, or exorbitant, with respect to the specific consumer
NOTES
This case is important for the philosophical underpinnings of the decision
 States that the traditional foundations of K law, such as autonomy of the will and the
meeting of the minds, etc. are outmoded and no longer sufficient
N.B. the distinction between s.8 of the CPA and the CML approach

S.8 provides for two branches of lesion. This is where we have the disjunctive
interpretation (meaning you can only have one or the other). And this is in contrast
with the CML approach to lesion where there are twin criteria of procedural
inequality in bargaining power and some objective, or substantive unequal bargain.
B. Abusive clauses
The CVL deals with abusive clauses in Art.1437.
 States that abusive clauses in consumer Ks of adhesion Ks may render the K null
o Notice that it is placed right next to the provisions related to external clauses, and
recall Niglia - “A Contract Law of Rules: Form and Intellectual Background”
on direct and indirect control of adhesion Ks and look to art.1435 and 1436 for
examples of indirect control in QC.
 It is not clear in doctrine what an abusive clause is
o It cannot be lesion because it would fly in the face of Art.1405 (N.B. you cannot
do indirectly what you cannot do directly). It cannot be good faith because good
faith has to do with abuse of rights, i.e. an abusive exercise of rights, and has
nothing to do with the content of the prestation, only its performance (think Houle
- the demand loan itself is not in bad faith, but the way it was performed).
o Criteria to recognize an abusive clause in a K is given by Art.1437
 Imposes an excessive obligation
 Is unreasonable
CCQ Arts.1435-1437
Art.1435: An external clause referred to in a contract is binding on the parties. In a consumer
contract or a contract of adhesion, however, an external clause is null if, at the time of
formation of the contract, it was not expressly brought to the attention of the consumer or
adhering party, unless the other party proves that the consumer or adhering party otherwise
knew it
Art.1436: in a consumer contract or contract of adhesion, a clause which is illegible or
incomprehensible to a reasonable person is null if the consumer or the adhering party suffers
injury therefrom, unless the other party proves that an adequate explanation of the nature and
scope of the clause was given to the consumer or adhering party.
Art.1437: An abusive clause in a consumer contract or contract of adhesion is null, or the
obligation arising form it may be reduced. An abusive clause is a clause which is excessively
and unreasonably detrimental to the consumer or the adhering party and is therefore
contrary to the requirements of good faith; in particular, a clause which so departs from the
fundamental obligations arising from the rules normally governing the contract that it changes
the nature of the contract is an abusive clause.
C. Defects of Consent
CVL
CML
Coherent theory (CCQ art.1399)
A distinct set of doctrines
Fear (arts.1402-1404) results from threat,
violence or abuse of right (except good faith)
[relative nullity + damages]
Duress: coercion of the will by illegitimate
pressure (fairness unimportant) [relative
nullity]
Error (art.1400): substantial mistaken belief
Mistake: must go to the “heart of the
that determines decision to contract, including contract” (Sherwood) fundamental error about
error of law (except “inexcusable”) [relative
an essential element [nullity]
nullity]
Misrepresentation: substantial and decisive
Fraud (art.1401): misrepresentation and
error of fact (not law, not prediction),
fraudulent silence [rescission or nullity +
unwitting, negligent or fraudulent [rescission
damages]
and/or damages]
Lesion: only for protected persons and cases
provided by law + CPA. Exploitation that
results in disproportionality or reduction
Unconscionability: equitable doctrine,
imbalance of powers + improvident bargain
[discretionary; often nullity of clause]
4. Traditional Tools: Particularly Problematic Clauses
A. Exclusion (Exoneration) Clauses
An exoneration clause is a problematic type of clause in K law.
 These leave parties without any remedy for breach of K, entailing that one of the
contracting parties has a complete monopoly of power over the other.
What tools does the law have to deal with exoneration clauses?
 Interpretation
o Both CML and CVL judges will approach an exoneration clause by first asking
whether it should apply to the particular facts of the case. This is often referred to
as the “true construction” of the K.
 They generally read such clauses narrowly, restrictively, and strictly on
the basis of Art.1432 in the CVL and the doctrine of contra preferentem in
the CML. They require that the clause specify the situations in which it
will apply
 Doctrine of fundamental breach
o If a party commits a fundamental breach of a K, as a rule of law, said party cannot
take all the benefits of the K and none of the burdens, and the court will not allow
that party to invoke any exculpatory clause in the K regardless of how clearly
drafted that clause might be.
 N.B. the SCC has attempted to “shut the coffin” on fundamental breach,
see Tercon. This is because of the inherent uncertainty of this doctrine
related to establishing what constitutes a “fundamental” “egregious” and

“primary” breach. Furthermore, we have to consider that we may not want
to make such decisions on the basis of the breach alone, i.e. we way want
to take account of other circumstances of the K.
Tercon ostensibly replaces the doctrine of fundamental breach with a three-part test:
1. As a matter of interpretation, did the parties intent for the clause to apply to the
factual situation of the breach?
2. If yes, was the clause unconscionable (twin criteria) at the time the K was made?
3. If no, should the clause still be held invalid due to public policy concerns?
a. The onus here is on the party seeking to avoid the clause to demonstrate an
abuse of freedom of K that outweighs the very strong public interest in
general K enforcement, e.g. fraud or criminality.
b. Note that this essentially resurrects fundamental breach
CCQ Art 1474
Art.1474: (1) a person may not exclude or limit his liability for material injury caused to
another through an intentional or gross fault; a gross fault is a fault which show gross
recklessness, gross carelessness or gross negligence. (2) he may not in any way exclude or
limit his liability for bodily or moral injury caused to another.
Tercon Contractors Ltd. v BC (transportation and highways) SCC - CML // BC accepts bid from
ineligible bidder ** CML Canada law
Facts: BC issued a request for proposals (RFP) to build a highway. The RFP was limited to
six participating companies. However, one of the companies, Brentwood, entered into a joint
venture with another company that was not included in the original six. The RFP included an
exclusionary clause which waived BC’s liability for any compensation of any kind
whatsoever, as a result of participating in the RFP. Brentwood and Tercon were the shortlisted
bidders. When Tercon learned about the joint venture, it sued for damages, alleging
fundamental breach.
Issue/holding
Is the exclusionary clause valid? NO
Reasoning
Majority
Fundamental breach
 The doctrine is outdated and unhelpful
a) “On this occasion, we should again attempt to shut the coffin on the jargon
associated with fundamental breach.”
There is a test for assessing the validity of an exclusionary clause
Three steps:
(1) As a matter of interpretation, did the parties intent for the clause to apply to the factual
situation of the breach?
(2) If yes, was the clause unconscionable at the time the K was made?
(3) If no, should the clause still be held invalid due to public policy concerns? The onus here is
on the party seeking to avoid the clause to demonstrate an abuse of freedom of K that
outweighs the very strong public interest in general K enforcement, e.g. fraud or criminality
 The exclusionary clause here applied to costs incurred related to the RFP, but the fact
is that Tercon lost to a bidder that was not part of the RFP
a) The costs were not incurred as a result of participating in the RFP, but as a
result of BC selecting an ineligible bidder
b) However, since there is ambiguity, the standard rules of K interpretation require
that the contested clause be read contra preferentem
c) So, the court finds that BC has broken an implied duty of fairness to the bidders
Dissent
 There is nothing inherently unreasonable about exclusion clauses esp. between
sophisticated corporations
 The clause here is valid
Ratio:
1. the doctrine of fundamental breach is dead
2. exclusionary clauses are invalid where they apply to the factual situation of the breach, and
are unconscionable at the time the K was made, or it constitute an abuse to the freedom to K
which outweighs public interest in enforcing Ks.
5. Changed Circumstances
Major questions:
 Do changed circumstances post-K formation affect the otherwise required performance of
the K?
o Immediate reaction related to classical K law would be no, because we are trying
to bring the uncertainty of the future into the certainty of the present, and we want
stable interaction expectancies
 Because of pacta sunt servanda
 Because of Art.1439 which states that a contract may not be resolved,
modified or revoked except on grounds recognized by law or by
agreements of the parties
 Are there any circumstances where change post-K formations should affect K
performance?
o And if so, how?
 Altering the terms
 Estopping claims for non-performance
o Also, when can we say there has been a post-K change, and what is the recourse
we want?
Effects of changed circumstances
 No single scenario
o Changed circumstances may lead to:
 Impossibility of force majeure/impossibility
 Situation of impossible performance
 Futility
 Situation of useless performance (John Walker & Sons Ltd.)
 Hardship/impracticability
 Situations including catastrophic price increases
A. Futility/Frustration CML
Futility
 Situation of useless performance
o It is rarely an excuse for non-performance. Just because what you contracted for
has become useless or futile does not mean that you will be allowed to get out of
the K
Amalgamated Investment and Property v John Walker & Sons Ltd. [1976] UK - CML // bought a
building to develop, next day listed as heritage site
Facts: JW sold a piece of land to A for 1.7M pounds. They had advertised the land as being
suitable for redevelopment and occupation. There was aa disused bottling warehouse on the
land. The day after the sale was concluded, the building was listed as an architectural heritage
site, such that it could no longer be demolished, and no development could take place. The
property was referred to the historical society in a month earlier, but the decision took
statutory, legal effect the day after the K was finalized. There was a clause in the K that
required JW to indicate whether it was aware of such an intention. It had replied no. This
caused the value of the property to drop by 1.5M pounds.
Issues/holdings
1. Is the K voidable for mistake? NO
2. Is the K voidable for frustration? NO
Reasoning
Mistake:
The designation of the building as an architectural heritage site occurred after the K was
formed and signed.
 There is no case for mistake, and the K is not voidable.
Frustration:
There was no condition in the K which stipulated that the obligation to pay for the building
was contingent upon it being available for redevelopment
 This stipulation did not constitute the foundation of the K
 The risk that property would not be useful for development for whatever reason is
inherent in all land ownership
a) The purchasers bought the land and the building knowing that they would
require planning permission in order to develop it, and that permission was
contingent on there not being a heritage designation on the building
b) The risk is impliedly allocated to the purchaser. As such, it is not a valid ground
upon which one can advance a claim for frustration
Ratio
Where a risk of some event is impliedly allocated to a party, like the risk of problems with
development of a property being allocated to the landowners, the occurrence of that event is
not a valid ground for a claim in frustration.
B. Impossibility/Force Majeure
Impossibility or force majeure
 Creates a situation in which performance is impossible
How does the law deal with impossibility?
CVL
 Art.1693 and art.1470(2) creates an excuse for non-performance due to force majeure
o Notice that the event must be both unforeseeable and irresistible, which is not
exactly the same notion as an “Act of God.”
 Basically, you are looking for a situation in which by no ability of your
own could you have allocated the risk differently
 But note also that you can contractually allocated the risk through
a force majeure clause, e.g. “If there is a strike, I will not be liable
for breach.” (Otis)
o Note also that economic impossibility is never considered unforeseeable or
irresistible
CML
 CML recognizes impossibility of performing a prestation due to a force outside the
party’s control
CCQ Arts. 1470 & 1693
Art.1470: (1) A person may free himself from his liability for injury caused to another by
proving that the injury results from superior force, unless he has undertaken to make
reparation for it. (2) Superior force is an unforeseeable and irresistible event, including
external causes with the same characteristics.
Art.1693: Where an obligation can no longer be performed by the debtor, by reason of
superior force and before he is in default, the debtor is released from the obligation; he is
also released from it, even though he was in default, where the creditor could not, in any case,
have benefitted from the performance of the obligation by reason of that superior force, unless
in either case, the debtor has expressly assumed the risk of superior force. The burden of
proof of superior force is on the debtor.
Otis Elevator Co. Ltd. v A. Viglione & Bros. Inc. [1978] CVL // strike does not meet force majeure,
clause excuses breach
Facts: O contracted to sell and install two elevators in a building constructed by A. due to a
strike at O, the delivery of the elevators was delayed. The K included a clause precluding
liability on O’s part for delay due to any cause beyond its reasonable control, including
strikes.
Issue/holding
Is O liable for breach? NO - exoneration clause saves him
Reasoning
The delay was due to a strike
 This was outside O’s reasonable control
a) While it does not meet the standard of absolute impossibility under art.1470
required to allow one to escape obligations due to a force majeure, it does
satisfy the conditions set out in the clause. Therefore, O is not liable
Ratio
Where an event is outside a party’s reasonable control renders the prestation impracticable,
this is not sufficient to exonerate the party from liability under art.1470. It escapes liability
only if it has contracted so.
C. Hardship/Imprévision
Impracticability and hardship
 Often refer to a situation in which there has been some catastrophic event which affects
supply or price
It is very difficult to get out of a K for situations of impracticability, although some jurisdictions
have an impracticability standard (e.g. UCC, UNIDROIT, 2nd Restatement).
CML
 Certain (economic) circumstances which arise and result in hardship may, in exceptional
circumstances, satisfy the requirements for frustration
o The presumed intention of the parties will be considered in deciding whether an
impracticable K leads to rescission of the K (e.g. Sainsbury)
CVL
 The CVL has no theory of imprévision, and a party is only released from liability in such
situations if they have included a force majeure clause in their K.
Churchill Falls (Labrador) Corp. v Hydro Quebec [2018] SCC from QC - CVL // good faith only
goes so far
Facts: HQ has a K with CF whereby it purchases electricity at a fixed price. The oil embargo
caused the price of producing electricity to shoot up in the US. Thus, it had to raise its prices.
CF being hydroelectric, did not affect them. HQ was able to sell power at a lower price than its
competitors, while still selling it at 36X the price it purchased it from CF, allowing it to earn
$1.7B, while CF made $50M per yr.
Issues/holdings
1. Was the contract relational? NO
2. Did HQ have a duty to renegotiate based on the duties of good faith and equity? NO
Reasoning
Relational contract
Cannot be characterized as a joint venture or a relational contract
 A joint venture contract is formed where businesses choose to become partners and to
cooperate in a project by each investing resources and by sharing any profits from the
project. In this case, the evidence does not show that the parties intended to enter into a
partnership or to jointly assume financial or logistical responsibility for the project
beyond the simple cooperation required to perform their respective prestations
 Just because a contract is long-term and interdependent, does not mean that it is a
relational one
The contract was extremely specific, indicating that the parties intended to rely on the contract,
not any ongoing relationship
Good faith
There are no implied clauses in the contract containing a duty to renegotiated agreed upon
prices. Implied clauses fill gaps, but in this contract there were no gaps
 Good faith didn’t mean HQ had to give up the benefits it had negotiated
 Doctrine of un-foreseeability
a) Good faith also didn’t mean HQ had to renegotiate just because there was an
unexpected change in electricity prices. While Quebec courts sometimes make a
party compromise a bit to find a solution, no court ever forced parties to
renegotiate the key parts of a contract
b) CF had accepted the risk that prices might change, and HQ accepted that risk
c) Cannot apply when parties had received exactly what they contracted for
 No court ever found that a duty to cooperate meant a party had to give up some of its
profits just because the other party wasn’t profiting as much. Finally, the majority
agree with the TJ that the Corporation’s claim was too late anyway
 This case dealt with a long-term contract and civil law concepts of good faith, equity,
and unforeseeability. The majority confirmed that courts should not change
contracts or force parties to renegotiate them if this would upset the balance the
parties originally agreed to.
Equity
As to equity, it cannot be relied on in support of the relief being sought since its effect
would then be to indirectly introduce either lesion or unforeseeability into Quebec law in
every case. To hold that a change in the circumstances of the parties to a contract will always
justify it being renegotiated in the name of equity would conflict sharply with the legislature’s
intent
 There is neither inequality nor vulnerability in their relationship. Both parties to the
contract were experienced and they negotiated its clauses at length
There is no legal basis on which a judge could impose a new bargain on HQ to which it
has not agreed. Allowing a contract to be modified by a judge at the request of a single party
would conflict seriously with the principles of the binding force of contracts and freedom of
contract that underlie Quebec CVL
Ratio
The duty of good faith does not negate a party’s right to rely on the words of the contract
unless insistence on that right constitutes unreasonable conduct in the circumstances.
Courts cannot force parties to renegotiate contracts. Unexpected changes in electricity
prices didn’t mean that HQ had to share its profits from the CF power station.
NOTES:
Relationship of good faith to imprévision:
 CF is arguing that the duty to renegotiate the K should exist despite QC CVL not
recognizing the doctrine of imprévision/hardship. Good faith is a chameleon that
COULD manifest itself as an obligation to renegotiate based on duty of good faith, but
the court does not like to apply indirectly what the law does not allow directly (e.g.
Tabor v Yoskovitch, applying lesion indirectly).
The case turns on the issue of unforeseeability

CF argues everything is in the realm of foreseeability, it has to be reasonably
foreseeable, and the extent of the price change was unforeseeable
 HQ: it is not the magnitude of the change, it is a known variable
 The law: it is not the amount that must be foreseen, it is the type/head of damage
Assumption of risk
 SCC case: “if a change affects a party who had not assumed the risk” (Johnny Walker:
buyer assumes risk). Price of electricity likely to change. Otis Elevator had a force
majeure clause so contracted out of a risk normally would have assumed.
Limits of good faith?
 SCC quotes Bhasin many times, but says “good faith does not reallocate profits.”
6. Breach and Remedies
Remedies are effects that follow from the non-performance of a valid K
Remedies through a transsystemic lens
 What is different about remedies in the CML and CVL?
o Huge field in the CML. There is such a thing as the law of remedies
o Basically, unknown as a distinct subject in the CVL. No field called remedies.
Not even a translation for the term “remedies.”
 Why do we have this difference?
o “In the CML, remedies precede rights” while in the CVL ‘rights precede
remedies”
 What does this mean?
 Historical development of the CML: court of King’s bench and the
writ system, so we have court-based suits as the basis of this
system
o Why do you go to court? To get a remedy. It all starts with
the remedy. Remedies are the core of the CML
 Historical development of the CVL: codification and universities
o We are thinking about rights and a normative structure. It is
about concepts and principles, abstraction. The civilian
system is a code of behaviour, declaratory rights and
obligations. The CVL does not actually attach a remedy or
sanction to every obligation.
o What consequences might this have?
 CML has a remedial orientation and a divorce mentality
 CVL emphasizes the moral duty to perform and tries to keep parties
together through alternative remedies (e.g. quanti minoris).
A. Breach and Intensity of Obligations
Important questions:
Has there been a breach?

This is a factual question determined by a TJ
o Dependent on the evidence which is put forward and on the interpretation given to
the allegedly breached term of the K
o The interpretation of the obligations itself determines whether there has been a
breach
 N.B. you cannot simply state that non-performance entails a breach
 N.B. you can breach both explicit and implicit obligations
o Note that simple non-performance of an obligation is not always a breach of the
K. further, other times doing exactly what the K stipulates will constitute a breach
(Houle)
Is there a right to breach?
 Here, we are pitting the theory of efficient breach with traditional K theory based on
stable interactional expectancies
What are the possible remedies available?
 N.B. mindset should not be K breach damages, and this is because damage are not the
only remedy
o Other remedies include
 Specific performance
 Resolution, resilitation, or termination of the K
 Quanti minoris
 Exception non adimpleti contractus
 Fin de non recevoir
 Disgorgement of profits
o The CVL and CML have very different philosophical outlooks on remedies
 You can liken this to the “divorce mentality” of the CML vs the “marriage
counselling” mentality of the CVL
CML
 CML deals with breach with the notion of interpretation
o The intensity of the obligation is implied in the interpretation of the obligation
CVL
 Concrete, hierarchical theory of intensity of breach
o Obligation of means
 The debtor must carry out his obligation with care of a prudent administer
 The plaintiff, the creditor, bears the burden of proving breach,
which entails proving:
o Non-execution of the obligation
o That this non-execution was due to the debtor not taking all
the reasonable means required in the circumstances as
demanded by the standard of the ordinarily prudent person
o Obligation of result
 Here, the debtor is obliged to reach a precise and determined result, and
this is a ‘stronger’ obligation than the obligation of means
 The debtor must do more than merely what an ordinary prudent
administrator need to


The creditor need only prove non-execution and then the burden of proof
falls on the debtor
 The debtor can escape where they can show proof of a force
majeure
o Obligation of guarantee
 Strongest. No means of exoneration
 Some are provided by law, others can be stipulated by K (e.g. insurance
K)
Ascertaining the intensity of the obligation
o The intensity of the obligation is often stipulated in the K, and sometimes it is
stipulated by law (e.g. arts. 2283, 1309, 1890)
o When it is not, the court must rely on jurisprudence and doctrinal test
 The court will also consider whether the K is gratuitous or onerous
 There are some instances where the CCQ distinguishes between
the same obligations as being one of result vs one of diligence
where it is either onerous or gratuitous (e.g. arts. 2289, 2032-2034)
Repudiating the K
CML
 Cehave v Bremer states that you can repudiate the K when the breach is serious and
substantial, or goes straight to the root of the K.
CVL
 Art.1604 essentially states the same.
CCQ Art 1604
Art.1604: (1) Where the creditor does not avail himself of the right to force the specific
performance of the contractual obligation of the debtor in cases which admit of it, he is
entitled either to the resolution of the contract, or to its resilitation in the case of a contract of
successive performance. (2) However and notwithstanding any stipulation to the contrary, he
is not entitled to resolution or resilitation of the contract if the default of the debtor is of minor
importance, unless, in the case of an obligation of successive performance, the default occurs
repeatedly, but he is then entitled to a proportional reduction of his correlative obligation. (3)
All the relevant circumstances are taken into consideration in assessing the proportional
reduction of the correlative obligation. If the obligation cannot be reduced, the creditor is
entitled to damages only.
Cehave NV v Bremer Handelgeselleschaft mbH [1975] UK - CML //rejection of ‘bad’ cargo
Facts: BH entered into two separate Ks to sell CNV 12,000 tons of citrus pulp pellets. Each K
was for 6,000 tons to be made in six instalments of 1,000 tons. One was at $73.50 per Kg. the
other was at $73.75 per Kg. The Ks incorporated the terms issued by the Cattle Food Trade
Association. This included a clause which stated: “Shipment to be made in good condition
[…] Each shipment shall be considered a separate contract.” Some of the cargo was found to
be in bad condition and damaged, and at the time the purchase price had decreased
substantially since the time the K was signed. CNV rejected the entire cargo and claimed
repayment for the purchase price of L100,000, but BH refused, so the goods were in storage
with both sellers and buyers disclaiming ownership. An importer, B, inspected the goods in
storage and applied to the court to authorize the sale of goods, unknown to the sellers (BH),
but CNV was aware of this. The application was granted and the sale was made to B who
acquired the entire cargo for L32, 720. B then sold the cargo to CNV, the original buyers, for
the same price it had acquired the pellets at. So, CNV acquired for L32,720 what they would
have paid L100,000 for from BH. No evidence of any losses.
Judicial history
A court ruled in favour of CNV, ordering BH to repay the L100,000. BH appealed.
Issue/holding
Was CNV entitled to reject the cargo? NO
Reasoning
A condition in a K may be either a condition, a warranty, or an intermediate stipulation
Condition (term of the K that goes to the root of the K)
 Where the promisor breaks a condition, however slight, the other party is released
from his obligations and entitled to sue for damages, unless he by his conduct waived
the condition
Warranty (less important term of the K usually written as an assurance or promise)
 Where the promisor breaks a warranty, the other party is not released from his
obligations, but he can sue in damages
Intermediate stipulation
 the effect is dependent on the nature of the breach. If the breach goes to the root of the
K, then the other party is released from his obligations, but he is not if the breach does
not go to the root of the K although he can sue for damages.
“Good condition clause”
 it was neither a condition nor a warranty, but an intermediate stipulation
a) this gives rise to a right to reject the K where the breach goes to the root of the K
b) however, there is no evidence that the condition of the pellets were very bad, and
the cargo was eventually used for its intended purpose. They were of
“merchantable quality” according to the Sale of Goods Act and what the commercial
man would consider merchantable
c) CNV is entitled to damages for the goods, but not to the rejection of the K, i.e. the
entire cargo
Ratio:
A K can be regarded as terminated where one party has breached a condition of the K, or
where the breach of an intermediate stipulation goes to the root of the K
NOTES
“good condition” is vague and leaves excessive potential for breach. Denning agrees that at the
time of formation some clauses are clearly fundamental and serious, while the majority are
intermediate terms which can be breached in a minor or major way. So, determining breach
is mainly after the fact at the time of breach, and not at the time of formation.
 In this case, CNV wanted to end the K because the market price had decreased, not
because the product was truly bad. The law does not want to allow the innocent party
to treat the K as terminated by breach simply to take advantage of a small discrepancy
 Art.1604 states when you can use resolution, 1604(2) limits this right
“notwithstanding any stipulation to the contrary,” making it an imperative provision
which cannot be contracted out of, such that parties can only request resolution if the
default is major
Hong Kong Fir Shipping Co. v Kawasaki Kisen Kaisha
Facts: HK agreed to rent their ship to Kawasaki for 24 months and stated on the date of
delivery that the ship was fitted for use in ordinary cargo service. However, due to the fact that
the engine room staff was inefficient and the engines were very old, the ship was held up for 5
weeks, and then needed 15 more weeks’ worth of repairs after the deal had been made.
Kawasaki repudiated the contract, and HK sued for wrongful repudiation. HK was successful
at trial and Kawasaki appealed
Issue/holding
What is the test for determining if a breach of contract leads to a right of repudiation?
Appeal dismissed
Reasoning
The test does not always depend on whether the thing that was breached was a warranty or a
condition, as sometimes the circumstances are more complex than this. The correct test is to
look at the events which have occurred as a result of the breach at the time when the contract
was purported to be repudiated and to decide if these events deprived the party attempting to
repudiate of the benefits that it expected to receive from the contract.
In this case, as the charterers still get to have the boat for 20 more months, the expected
benefits can still be received. Therefore, this breach should not lead to repudiation, but only to
damages
Ratio
The correct test to determine if a breach should lead to repudiation is to look at the events
which occurred as a result of the breach and to decide if these events deprived the party
attempting to repudiate of the benefits that it expected to receive from the contract (the breach
must lead to the party not being able to obtain all or a substantial portion of the benefits that
they intended to receive by entering into the contract) if they do, then repudiation is in order,
else only damages can be awarded.
B. Specific Performance
CML
 The remedy was developed in the courts of equity; it is an equitable, discretionary,
secondary remedy which is only awarded where damages are considered to be inadequate
(usually where the prestation involves something unique or irreplaceable in the market).
Damages are the rule
o Similar to an injunction, although it is a final remedy. Failure to perform is
considered contempt of court, which is a criminal offence
CVL
 Primary, presumptive remedy for breach of contract enumerated in art.1590. However,
this is limited to “cases which admit of it” pursuant to art.1601
In practice, there is not a great difference between the CML/CVL

This is because, despite their theoretical underpinnings, the CML will never order
damages to remedy the loss of an unique or irreplaceable good, and the CVL will not
enforce positive obligations.
CCQ Arts. 1590 & 1601
Art.1590: An obligation confers on the creditor the right to demand that the obligation be
performed in full, properly and without delay. Where the debtor fails to perform his
obligation without justification on his part and he is in default, the creditor may, without
prejudice to his right to the performance of the obligation in whole or in part by equivalence,
(1) force specific performance of the obligation
(2) obtain, in the case of a contractual obligation, the resolution or resiliation of the contract
or the reduction of his own correlative obligation;
(3) take any other measure provided by law to enforce his right to the performance of the
obligation.
Art.1601: a creditor may, in cases which admit of it, demand that the debtor be forced to
make specific performance of the obligation.
Attributes of specific performance
 Theoretical arguments in favour include:
o It is in accordance with the foundational premise of K theory, namely that the
parties wilfully assumed their obligations
o Increases certainty of Ks
o A rights-based approach argues that K law is the voluntary creation of rights
through the law of the parties, and one of these rights is the right to specific
performance
o It is centred on the promisee, who is the victim
o It is argued to be the morally superior remedy
 Practical arguments in favour include:
o Avoids the necessity (and difficulty) of proving damages
o Avoid under-compensation (which often occurs because of the limitations on this
remedy, namely the duty to mitigate, the remoteness of damage, and limits on the
availability of non-pecuniary damages)
Objections against specific performance
 Theoretical argument against include:
o Nemo praecise cogi potest ad factum, meaning nobody can be forced to complete
a specific act, as this interferes with personal liberty. A court will not enforce
positive obligations (Warner Bros). Further, there is also an important difficulty
in distinguishing positive and negative obligations
o Economic arguments favour efficient breach. Wendell-Holmes states that “the
duty to keep a K at common law means a prediction that you must pay damages if
you do not keep it - and nothing else.”
 Practical arguments against include:
o Problems of imprecision and supervision, which are distinct though related
concerns (which some have argued are unfounded, and advocate instead for a
‘wait and see’ approach).
o An order of specific performance may cause injustice or hardship where it allows
the plaintiff to be enriched at the expense of the defendant
o ‘Why yoke the parties together in a continuing hostile relationship that prolongs
the battle? It is better to sever the forensic link.”
Future developments
 Hardship
o In what circumstances will it be a relevant consideration? Remember that
hardship is not a consideration when the court is awarding damages
 Good faith
o Where specific performance leads to hardship, might there be a duty of good faith
to renegotiate the K? are there situations in which the right to specific
performance might be abused?
 Parties’ choice
o If specific performance is said to be in line with autonomy of the will, then should
the will of the parties related to remedy be taken into consideration?
 “Damages only” clauses
 No real argument against such a clause, so long as it is explicit and
specific
 “Specific performance” clauses
 While the court may not be bound by such clauses, in the CML
because specific performance is a discretionary remedy, and in the
CVL given the limitation written into Art.1601 whereby specific
performance can only be awarded in cases which admit of it, it can
still be argued that the stipulation of such a clause should weigh
significantly on the court’s decision as it is an expression of the
will of the parties.
Co-Operative Insurance Society Ltd. v Argyll Stores (Holding) Ltd. [1998] UK - CML// comparison
to CVL case Golden Griddle re. specific performance
Facts: A had signed a lease for premises in Hillsborough Shopping Centre where it operated a
Safeway. The lease contained a clause which created a positive obligation to keep the premises
open for retain trade during the usual hours of business with the display windows properly
dressed in a suitable manner. A closed the store because it was losing money, breaching the K
in the lease and CIS consented for an order in damages to be assessed. However, the COA
reversed this decision and ordered that the covenant be specifically performed and made a
final injunction ordering A to trade on the premises during the remainder of the term or until
an earlier subletting or assignment.
Issue/holding
Was the COA entitled to set aside the exercise of the trial J’s discretion, given that specific
performance is a discretionary remedy? NO - A can close the store
Reasoning
Remedies for breach of K are about compensating or protecting the plaintiff for loss, not about
punishing the breach
 Therefore, specific performance is a discretionary remedy which should not be
granted:
i.
ii.
When it allows the plaintiff to gain more than he stood to lose
Where public interest militates against wasting resources by ordering someone
to run a business at a loss
iii. Where policy dictates that parties no longer wishing to operate in a relationship
should not be compelled to do so
 In general, courts will not order specific performance of an obligation to run a
business for several reasons, including:
i.
Where the performance would require ongoing supervision of the court. YES,
here we have an ongoing obligation (as opposed to an obligation of result)
ii.
Where enforcing the obligation requires a finding of contempt against a party
not meeting the order, rendering the remedy expensive and difficult to assess.
YES
iii. Where the plaintiff will be enriched beyond what they would suffer under
breach and the defendant impoverished. YES, would likely be able to assign the
lease soon. A remedy which gives the plaintiff more than the K is unjust. It is
not in the public interest for someone to carry out business at a loss when
alternatives exist.
iv.
Where the obligation is imprecise and difficult to enforce. YES, the clause is
imprecise, and nothing suggests that A will be forced to run the store as they
had previously done, e.g. it may operate at a far smaller scale or offering poorer
service in order to mitigate losses
Specific performance should not be ordered in this case
Ratio
The principles of specific performance generally militate against ordering a party to continue a
business
Construction Belcourt Ltée. v Golden Griddle Pancake House Ltd. [1988] QC - CVL// CVL
comparison to CML Argyll case re. specific performance
Facts: B owns a mall, and GG entered into a lease with B for its restaurant. The lease
contained a “continuous operation provision” which provided that GG was obliged to continue
its business operation for the duration of the lease actively, diligently, and to an appropriate
standard. The penalty for breach of this provision was stipulated in the lease as permanent
injunctive relief. The volume of business generated was not sufficient and GG closed the
restaurant. B sought a permanent injunction to compel GG to reopen the restaurant and operate
it in a complete and continuous fashion as stipulated in the lease. GG sought a cancellation of
the lease on the grounds of misrepresentation. Alternately, GG also claimed that the situation
did not admit of a permanent injunction, as such a remedy would result in undue hardship
without commensurate benefit to B.
Issues/holdings
1. Is GG entitled to a cancellation of the lease on the grounds of misrepresentation? NO
2. Does this situation admit of specific performance as a remedy? YES
Reasoning
This is not a case of misrepresentation
 Two equally business savvy parties, and no evidence of any misrepresentation
a) GG argued they relied on a brochure provided to them that misrepresented the
situation
b) however, they had an integration clause which indicated everything agreed to was
written in the K
c) GG signed K and opened restaurant after the mall had already opened, therefore had
access to the premises for viewing
The creditor of a K obligation that is not performed may request the remedy of specific
performance pursuant to art.1065 CCLC
 This remedy will be granted only in cases which admit of it
i.
An injunction is an equitable remedy, as it involves a court order, the violation
of which constitutes contempt of court (and criminal charges). As such, the law
provides principles re. its applicability (a creditor does not have the right to this
automatically simply because it is in the K)
ii.
The court must have regard to the nature of the act, the personality and capacity
of the debtor, and the enforceability of the proposed order
 Three forms of specific performance include:
1. Where the judgement of the court effectively performs the obligation, e.g.
transfer of ownership
2. Where the creditor performs the obligation and the debtor is liable to
compensate, e.g. repairs
3. Where the court orders the debtor to perform the obligation
 In CML, specific performance is an exception to damages, rather than a rule. In French
law it is the rule. In QC, specific performance has equal standing as damages, but is
only available in certain cases
 Specific performance is not applicable in certain circumstances
i.
Where performance is impossible
ii.
The period for performance was fixed and elapsed
iii. The object of the performance no longer exists
iv.
The obligation requires personal service, i.e. NP rule such that one cannot be
compelled to act (N.B. this does not extend to corporations)
 The creation of hardship for the debtor is generally not a relevant consideration
i.
However, the court nevertheless states that is must consider the balance of
hardship. This is applicable when the injunction is oppressive and unreasonable
relative to the benefits that will result from it
ii.
However, hardship for the defendant is not problematic, only hardship for third
parties
The current situation admits of a remedy of specific performance
 it does not fit under one of the headings where specific performance is not admitted
 the closure of the restaurant would harm the atmosphere of the mall and the
profitability of the other tenants. The loss can only be addressed by specific
performance; damages would not directly address the harm. While it will cost GG
money, the expense was foreseeable when the parties made the K.
 the order can be appropriately framed, i.e. a court, if offered appropriate evidence,
could ascertain beyond a reasonable doubt that the terms of the order have been
respected.
i.
The order could be framed with sufficient precision on the basis of the previous
operation of the restaurant as a standard against which GG’s performance could
be judged
ii.
GG will not do a half-ass job because of its prestige and self-interest is at stake;
it will not readily destroy the value of its trademark and franchises by operating
GG poorly
Ratio
Specific performance is a remedy that is prior to, and equal to damages; it is awarded on the
basis of its appropriateness to the situation, as gleaned by relevant consideration with respect
to the particular facts
NOTES
Re. Argyll
 In both cases they argue hardship, i.e. that their loss will be greater than any gain
afforded to the shopping centres and thus performance in their case would be an
injustice to them as the debtor, by allowing the creditor to be enriched at their expense
 While this argument related to injustice is accepted in the CML in Argyll, the
consideration of personal circumstances is deemed irrelevant and the cost of the
remedy deemed a foreseeable consequence of the breach in the CVL in Golden
Griddle, so specific performance is ordered.
 In both cases, they also argue supervision, such that ordering specific performance
would be too imprecise related to defining what it means to “keep open” which will
result in constantly being back before the court.
 In Argyll, this argument relating to creating wasteful and expensive litigation is
accepted, while in Golden Griddle, the court considers that the order is not imprecise,
esp. as the restaurant in question is a franchise, which will not operate poorly given the
self-interest of the company.
Warner Bros. Pictures v Nelson [1937] CML //specific performance as NOT performing
Facts: N entered into a K with WB for 52 weeks, renewable at WB’s option, to work as a film
artist for WB. The K stipulated N would not engage in “any other occupation” for another
party for the duration of the K. It also stipulated that if she failed to perform her obligations
under the K, WB would have a right to extend the K and all its provisions for a period
equivalent to that in which she failed to perform. N went to England to work as a film artist for
another party, breaching the K.
Issue/holding
Can WB obtain an injunction enforcing the negative stipulation that N not work for a third
party while under K to work with WB? YES
Reasoning
Courts will not enforce a positive covenant of personal service, i.e. one which compels a
positive duty of personal service
 This is because courts are reluctant to compel people to maintain relationship where
they no longer desire to do so
 However, that is not the case here
a) WB is looking to enforce a negative stipulation in the K
Courts, by issuing an injunction, may enforce a negative stipulation in a K if that is what the
parties have contracted to.
 This does not mean that a covenant will be enforced merely because it is expressed in
the negative, and a negative covenant will not be enforced where it would drive the
defendant to ‘starvation’ or to specific performance of the positive covenant
a) in this case, granting an injunction would not amount to ordering N either to perform
any positive duties or to remain idle. She is simply restrained from working as a film
artist for another party, and she could earn money in other ways
 Because an injunction is a discretionary remedy, i.e. used where damages are not
appropriate, the court may limit the remedy to what it considers reasonable under the
circumstances
a) Damages are not appropriate in this case because they are difficult to estimate. By
N’s breach, WB is losing her unique and special services which cannot be compensated
in damages
The court grants an injunction for a period equivalent to the length of the K had WB elected to
renew it, and limited the injunction to prohibiting N from performing acts within the English
court’s jurisdiction
Ratio
An injunction is a discretionary remedy and therefore the court may limit it to what it
considers reasonable under the circumstances so as to give reasonable protection to the
plaintiffs.
C. (Mitigation and) Remoteness of Damage
There are serious limitations on the recovery of damages
 Practical limits
o Evidentiary issues (it is difficult to prove damages, and the onus is on the
plaintiff)
o Costs (it is expensive to prove damages)
 Legal limits
o Mitigation
o Remoteness
o Reluctance to award the cost of cure (the cost to remedy the breach) where this
costs exceeds the financial loss suffered
o Reluctance to award non-pecuniary damages
o Limits on penalty clauses
o Limits on punitive damages
Mitigation
 Mitigation is a positive obligation on the victim of the breach to attempt to mitigate the
losses caused by the breach (however, the onus is on the defendant to prove that the
plaintiff unreasonably failed to mitigate damages)
o What justifies placing this obligation on the plaintiff? Who is the victim?
 Causality. It can be argued that if the plaintiff does not attempt to mitigate
his losses, it is actually the lack of mitigation, and not the breach, which
caused the damages. Thus, the idea is that the damages become a
consequence of the plaintiff’s own inaction, thus the plaintiff essentially
becomes the party at fault
 Notice that this is more or less stated at Art.1479, which holds that
the defendant is not liable for any aggravation of damages which
could have been avoided


Good faith. You can argue that while it is the victim of a breach’s right to
sue, he is abusing this right where he does not attempt to mitigate the
consequences of the breach
 Strategic victims. The obligation to mitigate guards against plaintiffs who
strategically choose not to mitigate, sue for specific damages, and to
negotiate away the claim in exchange for damages
It is an obligation of means
o Thus, it is an obligation of diligence, which requires the party to act reasonably
CCQ Art 1479 & 1613
Art.1479: A person who is bound to make reparation for an injury is not liable for any
aggravation of the injury that the victim could have avoided.
Art.1613: In contractual matters, the debtor is liable only for damages that were foreseen or
foreseeable at the time the obligation was contracted, where the failure to perform the
obligation does not proceed from intentional or gross fault on his part; even then, the damages
include only what is an immediate and direct consequence of the non-performance
Remoteness of damages
 Recovery is not allowed where damages are too remote
o The test for remoteness is given in Hadley v Baxendale and states that parties can
recover for damages which may fairly and reasonably be considered to arise
naturally from the breach, or may reasonably be supposed to have been in the
contemplation of both parties, at the time the K was formed, as the probable result
of a breach. This implies that special circumstances must be communicated
 Why is this test of remoteness stricter than in torts?
o Because in a K situation, you have the opportunity to allocate risk contractually
and there is a relationship between the parties
Hadley v Baxendale [1854] UK - CML - mill with broken shaft v carrier late with replacement
Facts: H owns a flour mill, and had a broken iron shaft. H sent the broken shaft to B (a
common carrier) office. B’s clerk was told that the shaft must be fixed and delivered
immediately as the work at the mill had stopped, and that a special entry must be made if
necessary to hasten its delivery. The delivery was considerably delayed for an unreasonable
time. H was unable to work and incurred a loss of profits
Issue/holding
Should B be liable for H’s lost business? NO, B was not reasonably supposed to contemplate
this damage, nor told
Reasoning
Damages awarded should be
 what is fairly and reasonably considered arising naturally (according to the usual
course of things) from the breach OR
 What may “reasonably be supposed to have been in contemplation of both parties” at
contract formation as the “probable result’ of the breach
 If the special circumstances under which the K was concluded were communicated
by the plaintiffs to the defendants (i.e. known by both parties), then the damages
contemplated by the parties would be the amount which follow from these
circumstances
a) this encompasses special cases governed by conventional rules in the sense that we
consider both parties to be cognizant of this rule
 Where these circumstances are unknown to the breaching party, he will contemplate an
amount that would arise generally
In this case, the only information communicated from the plaintiffs to the defendants was that
the article to be carried was the broken shaft of a mill and that they were the owners of said
mill
 It was not made clear that unreasonable delay in the delivery of the broken shaft would
stop the profits of the mill
E.g. they could have had a spare shaft allowing the mill to continue to operate
 It follows that the loss of profits in this case cannot reasonably be considered such a
consequence of the breach of K as could have been fairly and reasonably contemplated
by both the parties when they made this K.
i.
The consequences of the breach would not have flowed from breach under
ordinary circumstances, nor were the special circumstances communicated
to or known by the defendants
ii.
Most millers have a spare shaft. It was not reasonably natural to expect delayed
delivery would cause H to be unable to operate his mill
iii. B is not liable for the consequences in contemplation
Ratio
Where two parties have made a K which one of them has broken, the damages which the other
party ought to receive in respect of such a breach of K should be such as fairly and
reasonably be considered either arising naturally, i.e. according to the usual course of
things, from such breach of K itself, or such as may reasonably be supposed to have been in
the contemplation of both parties, at the time they made the K, as the probable result of the
breach of it.
NOTE
 Koufos cites Hadley as “leading case on remoteness”
Victoria Landry v Newman Industries Ltd. [1949] UK - CML// boiler plate delivered late v
laundromat with surprisingly high demand
Facts: N sold a boiler to V 20 weeks after the agreed delivery date. The plaintiffs were
awarded L110, but they claim that they are additionally entitled to the loss of profits that they
say they would have made if the boiler had been delivered punctually.
Issue/holding
Is V entitled to its lost profits according to the rule in Hadley? YES, but only the foreseeable
amount, not the exceptional lucrative profits as they were not told specifically
Reasoning
Must start by inquiring what information the defendants possessed at the time when the K was
made such as the time at which, and the purpose for which, the plaintiff required the boiler
 N knew before and at the time of the K that V required the boiler for the purposes of
their business and wanted it for immediate use
i.



Evidence from the correspondence that N was aware of the need for a rapid
delivery. Up to and at the very moment of the K, V was pressing N for
expedition of the request.
N did not know at the material time the precise role for which the boiler was to be
used.
i. They argued that for all they knew the boiler was going to be used as a spare or
stand-by boiler.
V claimed that, had the boiler been delivered on time
i. they could have taken on a very large number of new customers in their business
ii. they had even hired extra staff in the expectation of the boiler’s delivery
iii. they could and would have accepted a number of highly lucrative dyeing contracts
N countered that no loss for profits was recoverable
i. the TJ agreed with this argument and refused to order damages with regard to loss of
profits, which he regarded to be too remote
ii. profits not recoverable because the special circumstances were not at the time of the
K communicated to the defendants. He also relied on the fact that the object supplied
was not a self-sufficient profit-making article
judge then considers the case law re: recovery of lost profits
 Notes that in cases of non-delivery or delayed of obviously profit-earning [chattel]
goods, the courts rarely refused recovery. Recovery of profit is also awarded where
goods are sold to a merchant, and the seller is aware that they are for resale and that the
goods could not be acquired from another party if they were to default on the K.
 However, in cases where the defendant is the carrier of goods, the courts have
generally not awarded recovery for lost profit given that the carrier commonly knows
less about any “special circumstances” which may cause loss if due delivery is
withheld
 Concludes with a review of the jurisprudence on a number of principles which apply to
the current case, including:
1. The governing purpose of damages it to put the party whose rights have been
violated in the same position, so far as money can do, as if his rights had been
observed
2. In cases of breach of K, the creditor is only entitled to recover such part of
the loss actually resulting as was at the time of the K reasonably foreseeable
as liable to result from the breach
3. What was at the time reasonably foreseeable depends on the knowledge then
possessed by the parties
4. Knowledge “possessed can be of two kinds, imputed or actual”
5. To make the breaching party liable, it is not necessary that the breaching
party actually asked themselves what would be foreseeable if they
breached  focus instead on IF they had asked themselves, would it have
been reasonably foreseeable. Loss must not be seen as necessarily
occurring, only need to have been a serious possibility
Current case

Courts reject the argument that the defendants did not know more than the plain man
about the purchase of the boiler of the purpose to which they are commonly put to use
by different classes of purchasers, including laundries. Basically, they knew what the
boiler would be for and knew it was crucial for business.
 V would not have purchased the boiler for any other purpose than for business
In this case, the judge holds the defendants liable
 Reasonable persons in the shoes of the defendants must be taken to foresee, without
any express intimation, that a laundry, at a time where laundry was in demand, would
incur losses from the delay of delivery of the boiler.
 However, the defendants were not held to have known about the potential lucrative
dyeing contract, and would have had to have been told of these special
circumstances by V.
 Court dismisses the argument related to whether the thing being delivered was
intrinsically profit-making in itself
Ratio
In cases of breach of K, the party is only able to recover the part of the loss a reasonably
foreseeable man would see himself liable for in the circumstances at the time the K was
formed.
Koufos v Czarnikow (The Heron II) [1969] UK - CML // boat chartered to sell sugar arrives late,
market price fluctuated
Facts: Koufos chartered a ship from C with a load of 300 tonnes of sugar to carry to Basrah. A
reasonable prediction for the length of the voyage was roughly 20 days, but the vessel arrived
9 days past that, and was considered in breach of K. Koufos had the intention of selling the
sugar as soon as it arrived in Basrah, but C did not know this. They did know, however, that
there was a market for sugar in Basrah. Ultimately, the sugar sold at market price. However,
the market price had fallen since the recent arrival of another ship carrying sugar. Without the
delay, the sugar would have been sold for a higher price
Issue/holding
Is C entitled to damages for the difference in the price of the sugar it sold? YES, the loss was
not too remote
Reasoning
Hadley is the leading case with regard to the remoteness of damages
 The real question to ask in determining whether damages are too remote to award is
whether, on the information available to the defendant when the K was made, he
should, or the reasonable man in his position would, have realized that such a loss was
sufficiently likely to result from the breach of K to make it proper to hold that the loss
flowed naturally from the breach or that a loss of that kind should have been within his
contemplation
 In K law, where the party wants to protect itself from a risk that the other party
would find unusual, he can tell the other party before the K is concluded
 thus, liability is narrower for the defendant in K law (v torts)
In this case, the plaintiff can recover as the court disregards the principle enounced in
Victoria Landry


C was not made aware that Koufos wanted to sell the sugar, but knew of the
market in Basrah, and it can be imputed that they had knowledge it would be
sold. It can also be imputed that they knew that market prices generally fluctuate,
though they had no knowledge that the price was going to fall
However, since a drop in market price was reasonably foreseeable to be likely to
occur, and given their knowledge that market prices fluctuate, C is liable to
compensate K for their lost profit
Ratio
You cannot award damages where something is foreseeable yet unlikely to occur. It is only
appropriate to award damages where the damages suffered was a result which was likely to
occur in the great majority of cases.
Ciment Quebec Inc. v Stellaire Construction [2002] QCCA - CVL //company orders wrong type of
cement
Facts: C was hired by S to supply them with cement for an old and leaking dam. C gave them
the wrong kind of cement, i.e. one which was not appropriate for hydrological construction.
This forced S to stop the repairs, scrap the work it had done so far, and restart. Additionally, S
was in a financially precarious situation. The incident led their insurance company to revoke
their bond and the bank to recall their loans. S is claiming damages for the losses sustained due
to this incident and for the lost profits owing to their inability to complete other jobs in the
meantime
Issues/holdings
1. Is S entitled to compensation for its reliance? YES
2. Is S entitled to expectation damages? NO
Reasoning
Pursuant to art.1607 and 1613, the creditor of an obligation that was breached is entitled to
bodily, moral, and material damages that are a direct, immediate, and foreseeable consequence
of that breach.
 Directness: the condition of expressed the requirement of a causal link, and serves to
limit liability for cascading damages
 Foreseeability: foreseeability is theoretically grounded and justified in the will of the
parties, and in the ability to presage and provide for the consequences of breach
i. What is foreseeable is apprehended by considering what the objective, reasonable
person would have presaged at the moment of K formation. Thus, the information
and events that preceded K formation are relevant considerations as to what would
be a foreseeable consequence of breach.
ii. Where the breach is either intentional or caused by gross fault, the condition of
foreseeability is removed, and damages are awarded for the full scope of losses that
were the direct and immediate causes of the breach
in this case, C was in breach for not providing the right cement
 The evaluation of a causal link is an interpretation of the facts, not a question of law.
the judge is given wide discretion to pinpoint the moment where a link becomes too
convoluted to be sustained
 The real losses that were suffered were a direct and immediate consequence of the
breach. No action by S intervened to break the causal link. With regard to the lost

profits, there were intervening factors, such as the revocation of S’ insurance policy.
Accordingly, the loss was not a direct and immediate consequence
The losses in this case were foreseeable. The lost profit was not. A prudent and diligent
person would not have presaged that the failure to provide the right type of cement
would lead to the insurance company and bank taking the actions they did
C was unaware of the financial insecurity of the company

Ratio
(1) if one company makes a mistake and another company does not pick up on it, the first
company will be at fault if it was not reasonable for the second company to have picked up on
the mistake. The requirement of a causal link serves to limit the liability for cascading
damages, and is an interpretation of facts and not law
(2) A debtor is only held to the direct, immediate, and foreseeable consequences of their
breach, UNLESS it was an intentional fault or a “faute lourde” in which case they’re held to
all direct and immediate consequences, even if not foreseeable (art.1607 and 1613).
(3) Foreseeability is justified in the will of the parties, and their ability to presage and provide
for the consequence of breach, considering what the objective and reasonable person would
have known at the moment of K formation
E. Cost of Cure vs Diminution in Value
Cost of cure
 This is the monetary equivalent of specific performance
o Therefore, it accords best with the theoretical underpinnings of K law. However,
it is not always awarded (esp. in the CML; in the CVL, it is common to award
cost of cure in the same way it is common to award specific performance, and this
is because of its emphasis on the will of the parties).
Diminution in value
 A breach of K does not always result in significant loss, where loss is measured as the
resultant diminution in value
o Thus, the plaintiff is awarded only the diminution in value which results from the
breach
 There are arguments against this remedy
o Cons include:
 It encourages co-contractors to breach their Ks to the extent that the
breach does not lead to any substantial financial damages
 It undermines individual property rights, as it does not recognize that
people value their project subjectively
Ruxley Electronics v Forsyth [1995] UKHL - CML// pool builder v man picky about depth
Facts: F hired R to build a swimming pool in his yard. The K specified a specific depth, 7ft
6in. the pool was built at a depth of 7ft, which was still suitable for diving. There was no
diminution in value to the property. F is suing for full damages for the cost of making the pool
the correct depth, i.e. L21,600.
Issue/holding
Is F entitled to full damages for cost? NO, only loss of amenity L2K
Reasoning
Majority
Damages seek to protect the full expectation interest by repairing the loss suffered by the
victim
 They seek to place the victim in the position they would have been in had the K not
been breached
 The goal is not to sanction the breach or punish its author
Where the loss is greater than the diminution in value (where a personal preference is not
represented by the market value), the court may award the cost if it is reasonable to do so
Measuring pecuniary loss - 2 ways
(1) Cost of reinstatement
(2) Diminution of value/loss of amenity: (value promised - value due to defective performance
= diminution)
 in this case: diminution is 0 because there was no loss.
 Unreasonable: if out of proportion to the benefit obtained by reinstatement ex.
Windfall profits
 Reasonable: where the personal preference was so significant that breach was a failure
to accomplish objective. (1) Does the victim intend to use the damages to meet
personal preference. (2) Value of award in proportion to good gained by the victim
 there is no functional difference between the depths, value of damages far
outweighs the good from damages, no evidence F would rebuild the pool
Measuring non-pecuniary value
 Court recognizes value outside of the market, loss of amenity. F should get something
here, it was not the pool he paid for
 In this case, although F had a personal preference for a pool 7ft 6in. deep, the value of
the damages far outweighs the good that would come out of awarding the damages
 Where the breach is such that no significant difference exists in performance, no
pecuniary damages are awarded
Dissent
Where a person has a personal objective that is not met due to the other party breaching the K,
the law should compensate him for the loss
 The sum awarded should lie somewhere between the market value and the (often very
high) cost of achieving the personal objective
Ratio
Whether damages will be awarded for reinstatement will depend on:
1. Whether the victim intends to meet the personal preference not achieved due to the
breach and
2. The value of the award in proportion to the good to be gained
Costs will be awarded where it is reasonable
NOTES
To award cost of cure would be unreasonable
 Several reasons:
i. The court does not like awarding windfalls to plaintiffs
ii. there was no evidence F was going to use the money to cure the defect
iii. there was an unreasonable gap or disproportion between the cost of cure and
the diminution in value
Contrast this with the “ugly folly”
 If you had a hideous fountain installed in your yard, but the installers messed up and
broke it, you would get the cost of cure
 why? Because it is a thing you personally, subjectively want and enjoy. Thus, if it is
broken, you will want it repaired. It is very unlikely F was ever going to blow up the
pool and build a new one, as the current one functioned the way he had planned.
Security Stove & Mfg. Co. v American Ry. Express Co.
Facts: S manufactured a furnace and wanted to exhibit it at a convention and employed A to
ship the furnace. S made arrangement for the exhibit, such as renting space and booking a
hotel room. S also advised A of the purpose of the shipment. A assured S that it would arrive
before the specific date, but failed to deliver the shipment on time. Judgement was entered in
favour of S. A appealed, alleging S could only recover for loss of profits, which there was no
evidence of, and not for expenses incurred.
Issue/holding
Is the carrier responsible for the actual damages sustained by the shipper from the carrier’s
delay? YES
Reasoning
While it is true that S had already incurred some of these expenses, in that it had rented space
at the exhibit before entering into the contract with A for the shipment. Yet, S arranged for the
exhibit knowing that it could call upon A to perform its common law duty to accept and
transport the shipment with reasonable dispatch. The whole damage, therefore, was suffered in
contemplation of A performing its contract, which it failed to do, and would not have been
sustained except for the reliance by S upon A to perform it. it can, therefore, be fairly said that
the damages or loss suffered by S grew out of the breach of the contract, for had the shipment
arrived on time, S would have had the benefit of the contract, which was contemplated by all
parties, A being advised of the purpose of the shipment
Ratio
When a carrier has notice of peculiar circumstances under which a shipment is made, which
results in an unusual loss by the shipper in case of delay in delivery, the carrier is responsible
for the real damage sustained form such delay.
F. Non-Pecuniary Damages
Non-pecuniary (or moral, extra-patrimonial, intangible, or aggravated) damages
 Damages awarded for harm beyond financial loss
o Include suffering, mental or psychological distress, disappointment, frustration,
upset
CVL
 Art.1607: states that one is entitled to damages for moral harm (equally in K and ECOs)
 Art.1613: when assessing foreseeability in K matters, you look at the time the K was
formed, not the time of breach.
CCQ Art. 1607
Art.1607: the creditor is entitled to damages for bodily, moral, or material injury which is an
immediate and direct consequence of the debtor’s default.
CML
 Traditional approach
o “A K breaker is not in general liable for any distress, frustration, anxiety […]
which his breach of K may cause the innocent party.”
 This is a “stiff upper lip” mentality based on the fact that people willingly
enter into Ks. This was also justified by the difficulty of putting a dollar
amount on such intangible loss or harm
 The CML approach evolved slowly to resemble the CVL approach
o Initial exception was carved out from the general rule by Lord Denning in Jarvis
 “peace of mind” exception
 Thus, non-pecuniary damages were awarded where the very object of the
K was enjoyment or pleasure
o Fidler v Sunlife then established that there was no need to carve out such an
exception
 it stated that moral damages should be awarded in cases where it was
foreseeable at the time of the formation of the K that breaching the K
would cause distress and frustration
Jarvis v Swan Tours Ltd. [1973] UK -CML// man seeks non-pecuniary damages for disappointing
vacation
Facts: J decided to go on a skiing holiday to Switzerland on the basis of a brochure issued by
ST. But when he arrived, he found that may of the promises made in the brochure were not
there, including: no house party, host did not speak English, skis were not the appropriate
length, no special food and entertainment. “During the first week he got a holiday in
Switzerland which was to some extent inferior, and as to the second week he got a holiday
which was very inferior to what he was led to expect.’ J sued. At trial, J got the difference
between what he paid and what he got. J appeals this decision
Issues/holdings
1. Is J entitled to damages? YES
2. If so, in what amount? L125 (original package cost L63.45)
Reasoning
The statements in the brochure constituted representations of warranties
 Therefore, the breaches of them give J a right to damages
 Pursuant to the Misrepresentation Act, 1967, there is a remedy in damages for
misrepresentation as well as for breach of warranty
Traditionally, on a breach of K, damages cannot be given for mental distress
 Damages cannot be given “for the disappointment of mind occasioned by the breach of
K.”
 Damages were only available if the plaintiff suffered physical inconvenience
Denning: argues that the above limitations are out of date, and that in a proper case, damages
for mental distress can be recovered
 Examples of “proper cases” include:
1. K for a holiday
2. K to provide entertainment and enjoyment
 If the contracting party breaks his K, damages can be given for the disappointment,
distress, and frustration caused by the breach
 this assessment of the amount to award is no more difficult than the assessments
made every day in personal injury cases
 In this case, J booked the holiday far in advance and had been looking forward to it for
a significant period of time, and he should be compensated for this
 His holiday has been a “grave disappointment.” He went to Switzerland to ‘enjoy
himself with all the facilities which the defendants said he would have.’ Therefore, he
is entitled to damages for the lack of those facilities and the loss of enjoyment
Ratio
A plaintiff can recover for mental distress resulting from a breach of K in proper cases, which
include Ks for holiday and for the provision of entertainment and enjoyment. The quantum is
established subjectively.
Fidler v Sun Life Assurances Co. of Canada [2006] SCC from BC - CML //insurance company
refuses to pay legitimately disabled woman - punitive damages
Facts: F worked as a receptionist and was covered under a group-insurance policy by SL. K
stipulated an employee is eligible to receive long-term disability benefits 6 months after
becoming “totally disabled.” Totally disabled for first 2 years means their incapacity prevents
them performing their own job. Where incapacity continues after 2 years, it must prevent them
from engaging in any occupation. F began to experience chronic fatigue and was diagnosed
with fibromyalgia in 1990. She began receiving long-term disability benefits under the
insurance scheme. These benefits would expire after 2yrs unless F shows an inability to work
any job. In 1997, SL notified F that she would no longer receive any benefits as video
surveillance (private investigator hired by SL) demonstrated she was capable of performing
light or sedentary work. Medical evidence was inconclusive, though suggested F could
actually not work. When F instituted an action against SL, the company reinstated her benefits
and paid her all arrears with interest. F is suing only for non-pecuniary damages
Issues/holdings
1. Can F recover damages? YES
2. If so, what kind? Aggravated damages for mental distress because reasonably in
contemplation of the parties when entering K. Not punitive, deference for TJ’s findings
Reasoning
A. damages for mental distress for breach of contract
 Damages for breach of K should (with money) place the plaintiff in the same position
as if the K had been performed
 Since Hadley v Baxendale it has been law that damages must be ‘such as may fairly
and reasonably be considered either arising naturally…from breach of K itself, or
such as may reasonable be supposed to have been in the contemplation of both
parties” at the time the K was made

Mental distress, although potentially foreseeable, was traditionally excluded from the
ambit of this general principle
 “peace of mind” exception was created in Jarvis for Ks of pleasure and enjoyment
 “Aggravated damages’ in the context of damages for mental distress arising from
breach of K (rather than tort): describe an award that aims at compensation, but
takes full account of the intangible injuries, such as distress and humiliation, that may
have been caused by the defendant’s insulting behaviour
 Conclude that damages for mental distress of K may, in appropriate cases, be awarded
as an application of the principle of Hadley
 A plaintiff must still prove their loss
 The Court must be satisfied:
1. Than an object of the K was to secure a psychological benefit that brings
mental distress upon breach within the reasonable contemplation of the
parties; and
2. That the degree of mental suffering caused by the breach was of a degree
sufficient to warrant compensation. These questions require sensitivity to the
particular facts of each case
*the mental state need not be the dominant aspect or “very essence” of K
SL’s breach entailed a lack of income security, which would cause distress
F’s distress was medically observable
Insurance Ks are often made, and advertised, to bring peace of mind
B. punitive damages
No punitive damages awarded
 Punitive damages do not pursue compensation but rather retribution, deterrence and
compensation. They are an exceptional mechanism
 to warrant such damages, the conduct of the breach must depart markedly from
the normal standard of decency, it must be oppressive or malicious, so as to
constitute bad faith
*the mere breach of the K does not constitute an act of bad faith on the part of SL
had the determination as to whether they needed to continue payments been made in an
overwhelmingly inadequate manner or on the basis of improper considerations, it may
have been bad faith
SL acted “overzealously” - not bad faith
Ratio:
(1) Aggravated damages can be awarded when the object of the K was to secure a
psychological benefit, and therefore brings about mental distress in the event of a breach
which is within the reasonable contemplation of the parties
(2) Punitive damages should only be awarded exceptionally and in cases of obvious bad
faith
Whiten v Pilot Insurance
Summary: leading Canadian case on the role of punitive damages when an insurer acts in bad
faith when dealing with a claim.
 Established that punitive damages could be awarded not for simple breach but where
the breaching party’s conduct was deemed “malicious, oppressive, and high-handed”
which “offended the court’s sense of decency.” Furthermore, this must be accompanied
by an independent, actionable wrong (N.B. in the case of insurance Ks, there is an
obligation of good faith which might be breached). This means that punitive damages
must be accompanied by compensatory damages (though these can be nominal)
Facts: W suffered a total loss of their property in a fire that, including their personal property,
exceeded their policy limit of approx. $250,000. They had to move into alternative housing
which, at first, was paid for by their insurer, P. however, in an attempt to get them to settle for
a smaller amount, P’s lawyer built a case for arson and instructed his client to stop paying W’s
alternative accommodation.
G. Liquidated Damages and Penalty Clauses
Penalty clauses
 Damages awards are risky an can be lowered for many reasons, clauses stipulate your
own damages (in theory)
 They are essentially pre-estimated damages clause
o i.e. A and B agree on what will happen when there is a breach. These are esp.
popular with restrictive covenants, i.e. these are often accompanied by penalty
clauses
o Pros
 Predictability
 Damages from breach may be hard to valuate
 Does not overburden the justice system and saves court time assessing
DMGs (efficiency)
 Consistent with the theory of autonomy of the will re. allocation of
resources (economic)
o Cons
 Potential for abuse, i.e. they may provide the opportunity for oppressive or
unconscionable bargains
 Damages meant to be assessed at the time of breach, but penalty clauses
assessed at time of contract formation
What should the law, or the courts, do?
 One response is that they should do nothing
o That is, they should allow such clauses to stand
 This is esp. a view which is supported by an economic analysis of law
 However, there are cases in which the court will get involved
o This occurs where the actual damages suffered are much less than the stipulated
penalty
Both the CML and CVL assess penalty clauses in light of the damages actually suffered
CVL
 Art.1623 states that where the creditor has benefitted from partial performance, or the
clause is abusive (as defined by art.1437), it may be reduced (extends the concept of
abusive clause beyond consumer & adhesion)
o the question is whether the clause is abusive in relation to the damages suffered

compare “the greatest loss that could conceivably be proved” to actual
damages suffered: if penalty is lower, enforce. If penalty is higher, not
enforced
 Art.1611 states damages compensate for the amount of loss sustained and profit
deprived.
o Art.1621 states punitive damages have preventative purpose and can consider the
amount of gain debtor gained from breach
CCQ Art.1623
Art.1623: (1) A creditor who avails himself of a penal clause is entitled to the amount of the
stipulated penalty without having to prove the injury he has suffered. (2) However, the amount
of the stipulated penalty may be reduced if the creditor has benefited from partial performance
of the obligation or if the clause is abusive.
HF Clark Ltd. v Thermidaire Corporation Ltd. [1976] SCC from Ont. // penal clause disguised as
liquidated damages clause not enforceable
Facts: a K was signed between HFC and TC whereby HFC was made the exclusive distributor
of TC’s products in a specified area of Canada. This K replaced an earlier K which featured
two restrictive covenants. One was related to competition during the currency of the K. The
other was related to competition during the 3yr period following cancellation or termination of
K. This K hard marked differences from the earlier K related to successor covenants. The
covenant dealing with the sale of competitive products omitted reference to the 3yr period and
territory. The K also included a termination of agreement covenant which provided for
liquidated damages payable by HFC to TC of an amount equal to the gross trading profit
realized through the sale of competitive products. The K was lawfully terminated by TC. HFC
claimed wrongful termination of K, and TC counter-claimed for damages under the covenants
against competition
Issues/holdings
1. Are the restrictive covenants valid (based on their unlimited scope)? YES
2. Is the provision for liquidated damages enforceable? NO, it is a penal clause because
extravagant and unconscionable in comparison with the greatest loss conceivable from
breach
Reasoning
Majority
Issue (1): neither of the covenants against competition referred to a territorial limitation, and
the parties applied for rectification on the ground of a mutual mistake
 Reasonable construction of the covenants would, in the absence of indication to the
contrary, have limited them to the territory in any event
 the covenant being limited to territory either by construction or rectification,
they are not unreasonable restraints of trade being too broad. Therefore, they are valid.
Issue (2): it is always open to parties to a pre-determination of damages or their measure
 However, this must yield to judicial appraisal of its reasonableness
 a sum will be held to be a penalty if extravagant and unconscionable in amount
in comparison with the greatest loss that could conceivably be provided to have
followed from the breach (even where the exact amount is difficult to calculate).
Here, we are looking beyond the intention of the parties, as the mutual intent of the
parties is not enough to support such a clause
 the court has the power to strike down penalty clauses on the basis of equity
In this case, the stipulation for liquidated damages, of which the estimated loss of net
profits of TC is only 40% was disproportionate and unreasonable
 The liquidated damages stipulation in this case was a “grossly excessive and punitive
response to the problem to which it was addressed”
 Thus, it is a penalty clause (not a liquidated damages clause) and not enforceable.
TC, however, can still recover its provable damages for breach of covenant. There is
no question related to this, and it is clear that HFC breached the non-competition
covenants
Ratio
A sum will be held to be a penalty if extravagant and unconscionable in amount in
comparison with the greatest loss that could conceivably be provided to have followed
from the breach (even where the exact amount is difficult to calculate)
151276 Canada Inc. v Verville [1994] QCCS - CVL // penalty clause reduced as unreasonable
Facts: 151276 was renting a commercial building to V on a 5yr lease. While the lease was still
in effect, V abandoned the building and ceased paying monthly rent (business had decreased
dramatically). Damages were also caused to the premises when they abandoned it. 151276
properly advised V of his default and asked for the outstanding payment to be made, as well as
payment pursuant to a penal clause included in the lease which stated that it had a right “as
liquidated damages and indemnity equal to the total aggregate amount of all the rentals for the
remainder of the period of this lease, in addition to any amount owing for period previous to
the said cessations of the lease.” V claims that it had an agreement with a company
representative, W, to be released from the lease for a sum of $6,000 after which W changed his
mind and unilaterally terminated the K. 151276 denies this.
Issue/holding
Is 151276 entitled to the full quantum under the penalty clause? NO, reduced by court because
unreasonable
Reasoning
The right to exercise a penal clause is available to the creditor of an obligation where he
demonstrates that the debtor breached the K
 This operates on the premise that the breach causes a loss and the quantum of
damages is set to compensate for such a loss.
 thus, the loss need not actually be proven by the plaintiff. The breach is sufficient
Under Art.1623, the quantum of a penal clause may be reduced by the court where (1) the
obligation was partly performed or (2) where the obligation was abusive, including lesion
and bad faith, i.e. a clause whose application would be unreasonable at the moment at which it
was applied
 In this case, V has a small and limited business (sports cards) and had signed a lease far
longer than it normally would have
 Paid for the months during which they operated in the premises
 Also attempted to reach an equitable solution by negotiating a termination of the K
with 151276
151276 did mitigate its damages in this case
 Rented out the premises to another party
The penalty clause which contemplated 4yrs and 10 months would have been unreasonable in
the circumstances and was thus reduced to 14 months, which amounted to $14,600
Ratio
The quantum of damages for a penal clause may be reduced by the court where its application
at the current moment would be unreasonable.