Contracts – Fall 2013 (Prof. Gélinas)
Rui Gao
1.GENERAL INTRODUCTION ................................................................................................................................... 1
CONTRACT AND LAW IN PERSPECTIVES................................................................................................................................1
Why contract courses are mandatory ..................................................................................................................1
What does law bring? ..........................................................................................................................................1
Contracts and transnational governance .............................................................................................................2
Contracts, law and economy ............................................................................................................................................. 2
Choose your own law system by contracts ....................................................................................................................... 2
CONTRACTS AS VOLUNTARY UNDERTAKINGS ........................................................................................................................3
Legitimation of contracts .....................................................................................................................................3
Self-imposed legal obligations .............................................................................................................................3
Limitations in reality.............................................................................................................................................4
To keep in mind ....................................................................................................................................................4
Derogation of law by contracts ............................................................................................................................4
CONTRACT = THE LAW OF OBLIGATIONS .............................................................................................................................4
Liabilities in Common Law and Civil Law traditions (3) ........................................................................................4
Assessment of damages: K.O VS ECO ...................................................................................................................4
Case: Hawkins v McGee .......................................................................................................................................5
In general, what are the contract terms? ............................................................................................................6
Confusion! 3 common usages of the word “contract”: .......................................................................................6
COML AND CIVL AS TRADITIONS (DISTINCTIONS) ................................................................................................................6
History: Development of law in North America colonies ......................................................................................6
2. THE COMMON LAW AND CIVIL LAW TRADITIONS .............................................................................................. 9
COML tradition .....................................................................................................................................................9
Merging of com law and equity courts ............................................................................................................................. 9
Precedent over time ......................................................................................................................................................... 9
Common law theory ....................................................................................................................................................... 10
CIVL tradition......................................................................................................................................................10
Civil code ......................................................................................................................................................................... 10
Level of abstraction ......................................................................................................................................................... 11
3. WILLINGNESS TO BE BOUND AND OFFER AND ACCEPTANCE / EXCHANGE OF CONSENTS ................................ 12
CONSENT ...................................................................................................................................................................12
OFFER VS MERE PUFF ...................................................................................................................................................13
COML ..................................................................................................................................................................13
Leonard V Pepsico Inc. .................................................................................................................................................... 13
Carlill v Carbolic Smoke Ball Co ....................................................................................................................................... 14
CIVL ....................................................................................................................................................................15
PRELIMINARY NEGOTIATIONS (INVITATION TO TREAT) ..........................................................................................................15
COML ..................................................................................................................................................................15
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) .................................................................. 16
CIVL ....................................................................................................................................................................16
Lavoie c. Bernier.............................................................................................................................................................. 16
WILLINGNESS TO BE BOUND ...........................................................................................................................................17
COML ..................................................................................................................................................................17
Kleinwork Benson Ltd v Malaysia Mining Corp BHD ....................................................................................................... 17
Jones v Padavatton ......................................................................................................................................................... 18
CIVL ....................................................................................................................................................................18
PROHIBITED PRACTICES IN FORMATION .............................................................................................................................18
CIVL ....................................................................................................................................................................18
Richard v Time inc. .......................................................................................................................................................... 18
TERM, REVOCATION .....................................................................................................................................................19
COML ..................................................................................................................................................................19
Contracts – Fall 2013 (Prof. Gélinas)
Rui Gao
Shatford v B.C. Wine Growers ......................................................................................................................................... 19
Bristol, Cardiff, and Swansea Aerated Bread Company v Maggs .................................................................................... 20
Dawson v Helicopter Exploration Co. .............................................................................................................................. 20
CIVL ....................................................................................................................................................................21
CONSENSUS ................................................................................................................................................................21
COML ..................................................................................................................................................................21
Butler Machine Tool Co Ltd v Ex-Cell-O Corp Ltd ............................................................................................................ 21
CIVL ....................................................................................................................................................................22
Communauté urbaine du Québec c. Construction Simard-Beaudry ............................................................................... 22
ACCEPTANCE & COMMUNICATION RULES .........................................................................................................................22
IN BOTH CVL AND IN CML ............................................................................................................................................22
Entores v Miles Far East .................................................................................................................................................. 23
(Specific to) CIVL .................................................................................................................................................23
UNILATERAL CONTRACT .................................................................................................................................................23
COML ..................................................................................................................................................................23
CIVL ....................................................................................................................................................................23
PROMISE TO CONTRACT VS OFFER & ACCEPTANCE (CIVL)...................................................................................................24
Acceptance (taking up option) ...........................................................................................................................24
Summary: promise vs offer vs acceptance .........................................................................................................24
Conditions ..........................................................................................................................................................25
Effects of the “option” ........................................................................................................................................25
Cere c Neely .................................................................................................................................................................... 25
4. ESSENTIAL ELEMENTS OF CONTRACTS AND TYPES OF AGREEMENTS ............................................................... 27
GENTLEMAN'S AGREEMENTS..........................................................................................................................................27
PRE-CONTRACTUAL AGREEMENTS (AGREEMENTS TO AGREE) .................................................................................................28
COML ..................................................................................................................................................................28
Empress Tower v Bank of Nova Scotia ............................................................................................................................ 28
CIVL: ...................................................................................................................................................................29
BACK TO CONSENSUS: ESSENTIAL ELEMENTS ......................................................................................................................29
COML ..................................................................................................................................................................29
Raffles v Wichelhaus ....................................................................................................................................................... 29
CIVL ....................................................................................................................................................................30
Les Terrasses Holding v Saunders ................................................................................................................................... 30
MODIFIED ACCEPTANCE AND LAST SHOT COUNTER-OFFER ....................................................................................................31
CIVL ....................................................................................................................................................................31
Traditional COML ...............................................................................................................................................32
International sales..............................................................................................................................................32
US reform ...........................................................................................................................................................32
5. CONSIDERATION, CAUSE AND FORMALITIES .................................................................................................... 34
INTRO ........................................................................................................................................................................34
CONSENT AND REASON .................................................................................................................................................34
A. What is in the contract? .................................................................................................................................34
B.Why the contract?...........................................................................................................................................35
1.
“Contract” as “written agreement”: Formalities ......................................................................................35
General principle ................................................................................................................................................36
CIVL: ...................................................................................................................................................................36
2“Contract” as “agreement”: Justification for contract .............................................................................36
CIVL: cause .........................................................................................................................................................36
Cause of contract (CCQ) (cause subjective) .................................................................................................................... 37
Cause of obligation (cause objective) -> same to all similar contracts............................................................................ 37
Gift contracts: valid cause (CIVL) vs requiring consideration (COML) ............................................................................. 37
Ross & Hutchinson v The Royal Institution for the Advancement of Learning................................................................ 37
Contracts – Fall 2013 (Prof. Gélinas)
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COML: consideration ..........................................................................................................................................38
Definition ........................................................................................................................................................................ 38
What is the doctrine of consideration for ....................................................................................................................... 39
Peppercorn theory and nominal consideration .............................................................................................................. 39
Miami Coca-Cola Bottling v Orange Crush............................................................................................................... 39
Forbearance, detriment .................................................................................................................................................. 40
Hamer v Sidway .............................................................................................................................................................. 40
Dahl v Hem Pharmaceuticals Corp .................................................................................................................................. 41
Kirksey v Kirksey .............................................................................................................................................................. 42
Implied obligations as consideration .............................................................................................................................. 42
Wood v Lucy, Lady Duff-Gordon ..................................................................................................................................... 42
6. CONSIDERATION CONTINUED (ONLY IN COML) ............................................................................................... 44
Past consideration........................................................................................................................................................... 44
Roscorla v Thomas .......................................................................................................................................................... 44
Pre-existing duty/changed circumstances ...................................................................................................................... 45
Stilk v Myrick ................................................................................................................................................................... 45
Gilbert Steel Ltd v University Construction Ltd ............................................................................................................... 46
Williams v Roffey ............................................................................................................................................................ 47
Nav Canada v Greater Fredericton Airport Authority Inc ................................................................................................ 48
Estoppel, reliance ...............................................................................................................................................48
Waiver of right (Equitable doctrine of) ........................................................................................................................... 49
Central London Property Trust v High Trees House ........................................................................................................ 49
Is detrimental reliance a condition to promissory estoppel? ......................................................................................... 50
Exception (or incremental expansion?) .......................................................................................................................... 50
US: pressure to expand (cause of action/sword) ............................................................................................................ 50
Australia: pressure to expand (cause of action/sword) .................................................................................................. 51
Walton Stores v Maher ................................................................................................................................................... 51
Estoppel in Canada.......................................................................................................................................................... 52
7. INTERPRETATION AND INCORPORATION ......................................................................................................... 53
INTRODUCTION............................................................................................................................................................53
Rogers Cable Communications Inc .................................................................................................................................. 53
INTERPRETATION: TENSIONS ...........................................................................................................................................54
1-WHAT COUNTS AS PART OF THE CONTRACT? ..................................................................................................................55
Entire agreement or not .....................................................................................................................................55
COML Parol Evidence Rule .............................................................................................................................................. 55
CIVL “parole evidence rule” ............................................................................................................................................ 56
Signed and Unsigned Contracts .........................................................................................................................57
Thornton v Shoe Lane Parking Ltd. ................................................................................................................................. 57
McCutcheon v David ....................................................................................................................................................... 58
Incorporation......................................................................................................................................................58
CIVL: external clauses...................................................................................................................................................... 58
2-WHAT DO THE TERMS MEAN? .....................................................................................................................................59
Similarities in interpretation COML&CIVL: .........................................................................................................59
Differences .........................................................................................................................................................59
COML .............................................................................................................................................................................. 59
CIVL ................................................................................................................................................................................. 59
Extrinsic aids to interpretation ...........................................................................................................................60
COML .............................................................................................................................................................................. 60
CIVL ................................................................................................................................................................................. 61
IMPLIED TERMS ...........................................................................................................................................................62
WHY IMPLY TERMS TO CONTRACT?..................................................................................................................................62
IMMEDIATE AND BROADER CONTEXT (LINK WITH TOPIC 7 INTERPRETATION).............................................................................63
IMPLICATION OF TERMS/OBLIGATIONS .............................................................................................................................63
CIVL ....................................................................................................................................................................63
Contracts – Fall 2013 (Prof. Gélinas)
Rui Gao
Canadian COML ..................................................................................................................................................63
Contracts – Fall 2013 (Prof. Gélinas)
Rui Gao
INTRODUCTION TO CONTRACTS
1.General introduction
Themes:
- The law of obligations
- Contract as voluntary undertakings
- Common law and civil law as traditions
Required reading:
- CCQ, Table of contents for Book Five, Obligations
- CCQ, Arts 1372, 1378, 1385
- CCQ, Arts 1410-1414, 1590, 1607
- Hawkins v McGee, 84 N.H. 114 (1929)
- J.E.C. Brierley & R.A. Macdonald, eds, Quebec Civil Law: An Introduction to
Quebec Private Law (Toronto: Emond Montgomery, 1993) at 35-45
- C.G. Addison, A Treatise on the Law of Contracts, 2nd ed (London: W. Benning,
1849) at v-vii; 1
Contract and law in perspectives
Why contract courses are mandatory
1- Legal perspective:
a. Practicing lawyer
b. International organizations
c. Other laws based on contract law
d. Treaty law = politic, transnational
2- Political / economic perspective
a. Market economy is structured by contracts = freedom of contract
b. Prioritizing choice = contract
c. Consent, legitimization
3- Moral perspective
a. Promise
b. Agreement
c. Exploiting others
What does law bring?
 predictability and certainty
o legal reasoning is a different kind of reasoning, it is not a free flow of moral
arguments
o constrained reasoning there is a specific framework which makes the
results more predictable and more certain
o Why are predictability and certainty important?
 Dignity: they allow human beings to make a plan for their life by
giving them more space to plan their lives, to make the decisions in
the knowledge that certain things will remain stable.
Eg1: businessman can rely on effective tools and rules to establish
contracts with suppliers, etc.)
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Contracts – Fall 2013 (Prof. Gélinas)
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Eg2: human economic development
o Rule of law is the opposite of the rule of men/women  removes
discretional rules which hinder human dignity
o HOWEVER, it may be frustrating: predictability and certainly mean that we
have excluded some kind of moral reasoning  we have to accept a
certain measure of injustice in order to gain predictability and certainly.
 This is the fundamental tension of the law.
Contracts and transnational governance
Broad definition: regulation and management of human affairs and relationships.
 Note: this definition is close to definition of law
Contracts, law and economy
 Economical development is related to businessmen who participate to economic
activities by using enforced contracts.
 Crossing borders: one law, many laws; one court, many courts.
o We think of the law depending on the territory where we live.
Globalization: we can no longer think of other jurisdictions as exceptions.
o Difficulties: determine which law applies to a particular situation
Choose your own law system by contracts
 Whence resort to contract: making your own law, and your own court (leaving
coercion). Decision by force: seize by bailiff.
 4 examples:
1- Choice of law clauses
2- Choice of court agreements and Arbitration clauses
3- Industry-wide standard form contracts
4- Value chains and audits
1- Choice of law clauses
 Eg: “This Agreement, including any non-contractual obligations arising out of or
in connection with this Agreement, is governed by, and this Agreement shall be
construed in accordance with, English law.”
 Difficulties: some legal systems don’t give complete freedom to the parties to
decide which law applies.
 Channel Tunnel clause
“[the contract shall] in all respects be governed by and interpreted in accordance
with the principles common to both English law and French law, and in the
absence of such common principles (see uniDroit) by such general principles of
international trade law as have been applied by national and international
tribunals.”
 Limitations
o Mandatory Law
 Ex: currency controls, and the contract doesn’t respect the rules of
public policies. The State can declare that the contract is void to a
certain point where it breaks the public policy.
o Including limits on choice
2- Choice of court agreements and Arbitration clauses
a. Choice of court agreement
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Contracts – Fall 2013 (Prof. Gélinas)
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
Eg: “All disputes arising out of or in connection with this agreement shall be
resolved by the courts of the province of Ontario, to the exclusion of other
courts.”  creating predictability and certainty
b. Arbitration Clause
 Eg: “All disputes arising out of or in connection with this agreement shall be
resolved by arbitration under the Rules of the London Court of International
Arbitration.”
3- Industry-wide standard form contracts
- Standard-Form Contracts (adhesion): Software
- Industry-wide contracts:
o Insurance
o Construction
 Imposed by financial institutions
4- Compliance Audits
 Eg: H&M’s purchase order (PO) supplier contract:
“…we also reserve the right to appoint an independent third-party auditor of our
choice to conduct audits in order to evaluate compliance with our Code of
Conduct…”
 The Code of Conduct becomes “law” because it is imposed in contract. Verified
by 3rd party arbitrators.
 Eg2: Coca-Cola’s PO with a bottling plant supplier:
“In addition, the Company in its sole discretion may, through written notice to the
Bottler, appoint a third party as its representative to ensure that the Bottler
carries out its obligations under this Agreement…”
Contracts as voluntary undertakings
Contract = broadest appeal: pacta sunt servanda = contracts bind
Also a general principle of public law: treaty law
Legitimation of contracts
 Consent = powerful mode of legitimation
o Relies on agency and dignity
Agency = human being should be able to conduct his own life, rely on
other people to commit
Dignity = core idea of human rights
 Law of the parties
o If 2 people make contract, these people are legislating for themselves:
they lay down rules that they promise to obey.
o No impact on 3rd party.
o Therefore, the law recognizes the compelling nature of “contract law” and
enforces it by setting the right conditions which are legally binding, even
though a contract should be obligatory even without any law.
o Important: what makes a contract legally binding?
Self-imposed legal obligations
 Both CVL and CML: contracts are self-imposed obligations to which the law will
give effect
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Contracts – Fall 2013 (Prof. Gélinas)
Rui Gao

Recall that it is all based on consent, on free choice, on autonomy: auto-nomos =
choice of law
 1134 Code Napoleon: "Les conventions légalement formées tiennent de loi à
ceux qui les ont faites"
 Hand in hand with English liberalism of the industrial revolution
Limitations in reality
 Freedom to contract or not to contract: collective agreements in labour law
 Freedom to chose who to contract with: Quebec Charter rules concerning
discrimination
 Freedom to determine the content of the contract: vast amounts of compulsory
provisions inserted in insurance contracts
To keep in mind
 Fouillée: "qui dit contractuel dit juste" (individual and society)
 Lacordaire: "entre le fort et le faible, c'est la liberté qui asservit et la loi qui libère"
Derogation of law by contracts
 There are defaults rules can be set aside, departed from by contract.
 Mandatory rules = rules of public order/public policy
 Sometimes, the legal system lays down rules that you won’t be about to derogate
from by means of contract.
o Ex: rent an apartment. Lease is imposed by the law; the conditions of the
lease cannot be changed by contract. Contract cannot displace mandatory
laws.
C.C.Q. Book 5: obligations
Reflection questions:
 When a contract can be set to be binding?
 Whether claim? Whether obligations?
Contract = The law of obligations
Liabilities in Common Law and Civil Law traditions (3)
Notes: These are general categories in legal traditions, but not in specific legal systems
 Civil contractual liability
o Contractual liability: there is a contract that was breached.
 Unjust enrichment
 Some balance needs to be restored, even though no one is wrong.
o E.g.: pay back money if by mistake bank transfers money to your
account
 Civil extra-contractual liability
o Someone was negligent, damage/injury done, etc.
o No contract on which to base liability
Assessment of damages: K.O VS ECO
 Extra-contractual is defined based on contractual obligations.
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Contracts – Fall 2013 (Prof. Gélinas)
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Little book reference for torts
Bound by law: obligation to not put others' property at risk.
 E.g. you have a leaking gas can on your property and you smoke. You are
liable if something happens and neighbors get injured.
o No contract btw neighbors but legal relationship.
Liability/damages assessment: difference btw EC and C:
o Contractual: by comparing the actual result and the hypothetical result,
had the contract been carried out.
o EC: by comparing the situation before wrong was committed and the
actual situation.
 more realistic, more easy to assess
o
o

Case: Hawkins v McGee
Jurisdiction
New Hampshire (SC)
Hawkins (P) underwent surgery to repair scar tissue on his hand resulting from
burns he sustained from contact with an electrical wire. Dr. McGee (D) gave
Hawkins a 100% guarantee that he would be able to repair the scar tissue by
grafting skin from his chest to his hand. The surgery was unsuccessful and
Facts
Hawkins was left with a hairy hand. At trial, Hawkins sought damages for
breach of contract due to McGee’s failure to perform including pain and
suffering. The jury entered judgment for Hawkins but the judge ordered
remittitur. Hawkins refused and brought this appeal.
Issues
How are damages determined for breach of contract?
The plaintiff was entitled to expectancy damages plus incidental losses
Holding
resulting from the breach.
 Expectancy damages are damages sufficient to put the plaintiff in the
position he would have been if the contract had been performed.
 In this case, Hawkins was not entitled to damages for pain and suffering
because he would still have endured them had the procedure been
successful. Hawkins was entitled to the difference between what he sought
– a perfect hand, and what he received – a hairy hand. The plaintiff was
Reasoning
also entitled to incidental losses resulting from the breach.
 Hawkins could not bring tort claims against McGee because there was no
provable negligence.
 Normally a doctor’s claims regarding treatment do not form a contract such
that lack of success amounts to breach of contract. In this case however
McGee guaranteed that the operation would give him a 100% perfect hand.
Damages for breach of contract are expectancy damages: loss of value
Ratio
between expected results and actual results.
Comments
Inducement to contract: obligations imposed on doctor are higher
In Hawkins v McGee, what were the contract terms?
 Perfect hand? What is perfect though?
o How to interpret “100%”?
o As if the accident never happened?
o A normal and functional hand?
o Are the aesthetics included? (the relevance of the hand being hairy or not
for the “100% perfect” promise)
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Contracts – Fall 2013 (Prof. Gélinas)
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In general, what are the contract terms?
 Common Law jurisdiction: difficult to find the answers
o Shortcut: definition of contract: “codification” of the common law rules of
contract in the US.
 Note: Codification is never a perfect mirror of the law as the judge
would apply, codification only presents the law coherently.
o Contract = promises, for the breach of which the law gives remedies:
article 1 of the statement on contract
 CCQ: civilian definition, but similar on many ways to the COML one: they don't
focus on promise, but on agreement
o s.1378 CCQ: agreement of wills by which one or several obligate
themselves to one or several persons to perform a special prestation
 “prestation” s. 1773: object of contract is the "prestation" that a
debtor is bound to render to his creditor
Confusion! 3 common usages of the word “contract”:
1. Agreement
2. Legal relationship that arises from the contract in the first sense
a. "Contract may be terminated in a certain way" -> legal relationship may be
terminated
3. Paper on which contract is written. *attention though: not all contracts are
written*
COML and CIVL as traditions (distinctions)



COML TRAD: Law of England: Common Law (COML) vs Statute Law (SL)
o Common Law
 Made by judges through decisions
 Seen as default law, the law according to which everything else is
understood and interpreted.
o Statute Law = written law, interpreted according to rules of Common,
decisions made according to it are very narrow.
CIVL TRAD: Legislation = representation of rules known and practiced by people;
court decisions are NOT the default law
Customs VS coutumiers VS Code
o Roman Law shaped the customary laws (regional)
 e.g. New France time: no rules in France, but regional customs (of
Paris, of Normandy, etc.)
o Coutumiers = codified customs (informal codification of customary laws)
o Greater codification = Code Napoleon
History: Development of law in North America colonies
Reception of French customary laws in New France
 No code when civil law was received in Quebec (new France)
 1600s: Reception of French customary laws in New France
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Contracts – Fall 2013 (Prof. Gélinas)
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
1627, 1664: Coutume de Paris was officially in force in New France;
development of local customary law around the Customs of Paris (basis), the law
continued to evolve and eventually became the law in Canada ("Ancien Droit")
COML seen as universal: commonwealth to be
 1660s: Reception of English Law (SL and CL in the Atlantic Provinces)
 Development of local SL from 1758 (local legislature created)
 E.g. of the steps above:
1. You find a empty territory (not occupied by a "official" country)
2. It becomes a colony
3. British settlers brought the English Law
4. Nova Scotia (for example): Local colonial government applied the English
Law as in London at first
5. Then the local legislature changed local customary law over time.
How to know whether a SL applicable in England is also applicable in Nova
Scotia?
If the SL is adopted later than the date of creation of local legislature
(1758), it will not be received.
However, the COML (Common Law) is still received even after the
establishment of local legislature.
Continuity and Change
 1763: Royal Proclamation - English Law
o French Canadians refused to adopt the English Law and continues to
apply the Ancien Droit
 Uprisings in the Thirteen Colonies. In order to keep the F-C on their side, British
authorities passed the 1774 Quebec Act --- Canadian Law re Property and Civil
Rights (All public law remains English including criminal law)
 1791: Constitution Act: Lower and Upper Canada
o 2 distinct colonies with their own legislatures
o 1792: Property and Civil Rights Act (UC)
o The law prevailing in UC was Civil Law (based on 1774 Quebec Act), but
then the Loyalists enact their own Property and Civil Rights Act to part
from the Civil Law tradition, as they wish to stay strictly loyal to England.
 1804: Code Napoleon
 1841: Union Act: Canada East / Canada West (Separate legal systems, but one
legislature now)
o Canada East: all English Law
o Canada West: Civil Law for property and civil rights matters, and the rest
= English Law
 1865: Civil Code of Lower Canada
o How?
o Note: The name of the 2 parts of Canada was object of confusion at this
time in real life.
o Need for codification in the context of union act: confusion and opposition
btw the Canada East and Canada West
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Contracts – Fall 2013 (Prof. Gélinas)
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The civil law tradition was kept because the law in force continues to be
enforced until the competent authorities change them.
1867 BNA act: property and civil rights are provincial matters
o

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Contracts – Fall 2013 (Prof. Gélinas)
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2. The common law and civil law traditions
Themes:
- Introduction to the Civil Code of Quebec
- Comparing the common law and civil law traditions
- Introduction to methodology: “sources of law” in both traditions and doctrine of
precedent
Required reading:
- John D. McCamus, The Law of Contracts, (Toronto: Irwin Law, 2012) at 7-13
- Geoffrey Samuel, “Classification of Contracts: A view from a common lawyer”, in
Andres, Baldus & Dedek eds, Types of Special Contracts in Europe (Munich,
Sellier European Law Publishers, 2011), at 117-122
- A.W.B. Simpson, “The Common Law and Legal Theory” in A.W.B. Simpson, ed,
Legal Theory and Legal History: Essays on the Common Law (London:
Hambledon Press, 1987) at 359-382.
- Claire L’Heureux-Dubé, “By Reason of Authority or By Authority of Reason”
(1993) 27 UBCL Rev 1-18.
Recommended optional reading:
- K. P. Berger, ed, The Pratice of Transnational Law (Cornwall: Kluwer Law
International, 2001)
COML tradition
Merging of com law and equity courts
Supreme Court of Judicature Acts 1873-75 (England and Wales)
 Merging of common law and equity into one Court (on a procedural level)
 Notes: Beware of technical meaning (aequitas, ex aequo et bono = judge not
bound by legal rule, équité = civil law system term )
 Relevance
 Primacy of equity doctrines over common law doctrines
 Making strict stare decisis, as opposed to persuasive (not binding) precedent,
possible by creating a very clear hierarchy, with 2 characteristics
1. Single system of courts (equity + common law)
2. Hierarchy of courts
Precedent over time
 Decideratum :like cases should be treated alike
o concern for equality, coherence, predictability
o “court is a system”

Binding obligation to apply ratio of decisions made by courts above: stare decisis
 Obiter dicta:
o A statement made by judge that is not necessary to the decision ratio
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Contracts – Fall 2013 (Prof. Gélinas)
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Unlike the rationes decidendi (ratio of a case), obiter dicta are not the
subject of the judicial decision, even if they happen to be correct
statements of law.
Under the doctrine of stare decisis, obiter dicta statements are therefore
not binding, although in some jurisdictions, such as England and Wales,
they can be strongly persuasive.
Common law theory
 A system of binding rules VS a living source of reason(s)
 Influence of continental thinking about legislation as the ideal-type of law
 Development of positivist legal methodology that focuses on binary reasoning as
opposed to open-ended reasoning (COML)
 Binary thinking: valid VS invalid; in force VS not in force, etc. (constrains
reasoning for both appearance and reality of enhanced predictability)
 This is made possible by authority (legislator)
 This at the cost of reasoning based on weighing reasons (sometimes said that
law provides exclusionary reasons for action)
 Strict system of precedent favours the reason of authority (ratione imperii) =
binding precedents, rather than the authority of reason (imperio rationis) =
persuasive precedents
 This is done at a relatively low level of abstraction: rules = ratios of decisions =
come out of actual cases, low level of abstraction, +practical (common law) VS
principles (civil law)
CIVL tradition
Civil code
 On a plain level: it includes no more than ordinary and general statutes that have
no special paramountcy (not preeminent provisions)
 Deeper level: it is a social constitution
A Constitution
 Disposition préliminaire of the Civil code *very important*
o “Harmony with the Charter”
o The code has to be interpreted based on underlying general principles
 Importance of coherence
Broad scope
 Accessibility: all law in one place for all to see, legible
 Jus commune as foundational: starting point for exceptions
 Default rules for statutes and contracts
 Statutes = exceptions to the code:
o Sometimes a shifting in legal thinking --> code amendment
Internal coherence
 Économie générale (internal organization and logic) *not economics
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Interpreted in the light of what it itself provides = if you don't find the answer in
the provision, take a step back, go to the next level (articles -> paragraphs)
Highly structured: books, chapters, divisions, sections, paragraphs, articles
(circles)
Both mandatory and supplementary
Level of abstraction
 Higher than statutes, and often common law (droit commun) rules
 Inscrit dans la duree (like a constitution)
 Note on language: bilingual? The two languages should lead to the same
interpretation? Controversial cases…
 Detailed by doctrine in civil law tradition
 Judiciary (and Precedent) more important in Quebec than in other civil law
traditions (e.g. France)
 Law and factual situations
o Is VS ought to be
o Descriptive VS normative (prescriptive, evaluative, etc.)
o Judges find the law, then applies it to the facts (binary) -> Judge doesn't
make the law? No exercise of authority?
 Fear of judicial power
o Judge is putting law in dialogue with the facts: gives the
best interpretation she can to the legal sources in light of the facts (i.e.: in
light of the justice of the result produced by the application of the law)
 Closer to reality
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II. CONTRACT FORMATION
3. Willingness to be bound and offer and acceptance / exchange of
consents
Themes:
- Intention to create legal relations in the Common law and in the Civil law
- Offer and acceptance / exchange of consents
- Revocation and lapse
Required reading:
- CCQ 1390-1395
- Carlill v Carbolic Smoke Ball Co, [1893] 1 QB 256 (CA)
- John D.R. Leonard v Pepsico, Inc,United States District Court, Southern District
of New York 88 FSupp2d 116 (SDNY 1999), aff’d 210 F3d 88 (2d Cir 2000)
- Richard v Time Inc. 2007 QCCS 3390
- Kleinwort Benson Ltd v Malaysia Mining Corp BHD, [1989] 1 All ER 785 (CA)
- Jones v Padavatton, [1969] 2 All ER 616
- Lavoie c Bernier (Succession de) 2010 QCCA 342
- Pharmaceutical Soc of Great Britain v Boots Cash Chemists, Ltd, [1953] 1 QB
401 (CA)
- Entores v Miles Far East Corporation, [1955] 2 QB 327 (CA)
- Shatford v BC Wine Growers Ltd, [1927] 2 DLR 759 (BCSC)
- Dawson v Helicopter Exploration Co, [1955] SCR 868
- Bristol, Cardiff, and Swansea Aerated Bread Company v Maggs (1890), 44 Ch D
616
- CUQ v Construction Simard Beaudry, 1987 RJQ 2020 (CA)
- Butler Machine Tool Co Ltd v Ex-Cell-O Corp Ltd, [1977] 1 All ER 965
- Stephen M. Waddams, The Law of Contracts, 5th ed (Toronto: Canada Law
Book Inc, 2005) at 64-82
- I. Maurice Wormser, “The True Conception of Unilateral Contracts” (1916-1917)
26 Yale LJ 136
- Draft Common Frame of Reference, s. II.-4:102: “How intention is determined”
Reflection questions:
 How is a contract formed?
 What conditions need to be fulfilled?
 What kind of agreement is recognized by law?
 How to change a contract terms? How to terminate a contract?
Consent
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
A reason
A legal mechanism
Formalized: external VS internal
o Psychological attitude which must be externalized through exchange,
communication
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Operationalized: objective VS subjective
1386 CCQ:
The exchange of consents is accomplished by the express or tacit manifestation
of the will of a person to accept an offer to contract made to him by another
person.
Offer VS mere puff
COML
 Its validity is judged by the standard of the reasonable, objective person: how an
average person would understand it (Leonard)
 The intention can be demonstrated by actions (Carbolic Smoke Ball)
 Must use definite promissory language (Kleinwort Benson)
o Present tense statements of policy do not demonstrate intention, just indicate a
moral obligation (Kleinwort Benson)
o Repeated guarantees or inducements demonstrate intention (Hawkins)
o Cannot be a statement made evidently in jest (Leonard)
 Advertisements are generally not intentions to be legally bound (Carbolic Smoke Ball
in contrast with Leonard; below in “Preliminary negotiation (invitation to treat)”)
o Ad is invitation to treat (Leonard)
o Exception  explicit language in advertisement (Carbolic Smoke Ball)
The Pepsi case
US
Facts
Leonard V Pepsico Inc.
Pepsico (D) ran a promotional campaign in which consumers were invited to
acquire “Pepsi Points” by purchasing Pepsi products, and exchange them for
“Pepsi Stuff”. Leonard (P) received a catalog for use in redeeming “Pepsi Points”.
Television advertisements featured merchandise available through the promotion
including a Harrier Jet. Leonard saw the commercials and contended that the
commercial constituted a valid offer to acquire the jet for 7,000,000 Pepsi Points.
Leonard obtained a catalog and noticed that the order form did not include the
Harrier Jet. The catalog stated that merchandise could only be ordered via
original order form. The form also indicated that additional points could be
purchased for ten cents each. Leonard raised $700,000 in order to purchase the
7,000,000 points needed to acquire the jet.
Leonard submitted a completed order form together with a check and wrote in “1
Harrier Jet” at the bottom of the form. Leonard indicated that the check was for
the express purpose of purchasing the points needed to obtain a new Harrier jet
as advertised in the commercial.
Pepsico rejected the submission and returned the check, noting in its rejection
that the jet was not in the catalog and thus could not acquired through the
promotion. Pepsico apologized for any misunderstanding and informed Leonard
that the commercial was intended to be humorous and entertaining. Leonard sued
when Pepsico refused a formal demand to honor its offer. Pepsico moved for
summary judgment.
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Issues
Holding
Reasoning
Ratio
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What standard is applied in determining whether some communication
constitutes an offer?
Is an advertisement an offer?
The advertisement was not an offer. The plaintiff is not entitled to receive the
Harrier Jet
 Advertisements are generally not offers. The presumption is that there is no
definitive and operative offer to buy or sell goods by advertisement.
 Such ads are understood to be mere requests to consider and examine and
negotiate, unless the language used is plain and clear and that the
circumstances are exceptional.
 The expression of willingness of the offeree doesn’t transform an
advertisement into an offer.
 There is no contract unless the company cashed the check. The plaintiff
made an offer to Pepsi, which was not accepted.
 “The exception to the rule that advertisements do not create any power of
acceptance in potential offerees is where the advertisement is “clear,
definite, and explicit, and leaves nothing open for negotiation,” in that
circumstance, “it constitutes an offer, acceptance of which will complete the
contract.”
 The alleged offer is indefinite, and is a mere advertisement. An objective and
reasonable person would not have considered the commercial an offer. The
offer was clearly not serious, because the way the ad is presented is full of
fantasy and unrealistic scenarios.
Whether something constitutes an offer is determined under the objective
reasonable person standard. The general rule is that an advertisement does not
constitute an offer.
The key question was: Did the defendant intend to bind itself to offer the Harrier jet
in exchange for pts?
There was no intention to create legal relations: the context was not serious. It was
not an offer, but merely an ad which is not binding. The ad was an invitation to treat
(to make offers)
Concerning the fact that the plaintiff perceived the ad as an offer, the court had to
evaluate based on the "normally reasonable person standard" in the context. In this
case, a reasonable person would have perceived the ad as a mere puff.
Carlill case
England
Facts
Issue
Holding
Reasoning
Carlill v Carbolic Smoke Ball Co
The smoke ball Co. promised in an ad to pay £100 to anyone who used the ball
following the instructions and still got the flu. Mrs. Carlill used the smoke ball for
three months, three times a day, and still contracted influenza. $1000 (pounds)
has been deposited to show the company’s sincerity. Carlill claims the
$100. The trial court decided in favor of Carlill. The defendants appealed.
Is the advertisement a binding contract? If so, is it enforceable in point of law?
The plaintiff shall receive $100 reward. Appeal rejected.
Lindley L.J.
The language used in the advertisement shows the nature of a promise. The
$1000 deposited shows that the company was willing to prove its sincerity,
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which confirms the serious character of a promise. The promise is made to
anyone who performs the conditions; and anyone who performs the conditions
accepts the offer. It is a continuing offer. In this case, the notification doesn’t
need to precede the acceptance (exception to general rule). If ever a
notification is needed, in this case, notice of acceptance = notice of
performance. There was valid consideration because the person who accepts
the offer puts himself to some inconvenience at the request of the defendants
and the defendants has an advantage of selling more of the remedy.
Bowen L.J (adds to Lindley L.J.’s reasoning)
We have to read and interpret the advertisement in its plain meaning (how
would the public understand it?). His interpretation: $100 will be paid to any
person who shall contract the increasing epidemic after having used the carbolic
smoke ball three times daily for two weeks.
One who makes a unilateral offer for the sale of goods by means of an
advertisement impliedly waives notification of acceptance if his purpose is to sell
as much product as possible.
Actions can show sincerity of intention to be bound (depositing money in the
bank).
To make a contract, there must be a serious promise.
Difference with the general rule in case of offer with reward: the performance of the
conditions constitutes acceptance. There is no need of notification of acceptance.
Consideration (a COML feature, necessary to contract formation)
o "Any act of the plaintiff from which the defendant derives an advantage or benefit.
Or any detriment sustained by the plaintiff that derives from the performance of
the act to which the defendant expressly or implicitly consents.
CIVL
 1388 "offer"
An offer to contract is a proposal which contains all the essential elements of the
proposed contract and in which the offeror signifies his willingness to be bound if
it is accepted.
 1387 "Contract formed"
A contract is formed when and where acceptance is received by the offeror,
regardless of the method of communication used, and even though the parties
have agreed to reserve agreement as to secondary terms.
o Some of the terms of the offer may be absent, but a contract is formed
when the essential elements are present.
 Circumstances are important too.
Preliminary negotiations (invitation to treat)
COML
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The presumption in the retail industry is that advertisements are invitations to
treat.
An invitation to treat is not an offer. (Pharmaceutical Society)
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England
Facts
Issue
Holding
Reasoning
Ratio
Rui Gao
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern)
 Boots puts its drugs on the shelf, rather than behind the counter.
 Pharmaceutical Society requires a pharmacist to be present at the sale to
regulate what people buy
Does displaying the drugs on the shelf constitute an offer?
Appeal dismissed/For Boots
 Pharmaceutical Society contends that placing the materials on the shelf
constitutes an offer, and that the consumer accepts the offer when he takes
the package from the shelf and places it in his basket
o If this is the case, the pharmacist’s intervention is too late, and if he thinks
it is the wrong medicine, by the time the consumer makes it to the
pharmacist at the cash, it is too late for the pharmacist to say no because
the contract is already formed
 Pharm. Soc.’s argument would imply that the consumer is not able to put
something in the basket and then put it back once he finds a more desirable
item, because it would be breach
 Court finds that putting it on the shelf is an invitation to treat, that the
consumer makes the offer at the cash, and the pharmacist then accepts it.
Display of goods on a shelf is not an offer, just an invitation to treat.
CIVL

1389 "initiator of contract or person who determined the content"
An offer to contract derives from the person who initiates the contract or the
person who determines its content or even, in certain cases, the person who
presents the last essential element of the proposed contract.
Quebec
Facts
Issue
Holding
Reasoning
Ratio
Lavoie c. Bernier
Lavoie (A) wanted to buy the house at the asked price. Another person also
wanted to buy the same immovable for a higher price. Both communicated with
the real estate agent of the seller and signed a formal document of promise to buy
the immovable. The appellant claimed that by signing the promise to buy as the
asked price, he accepted the offer of the seller and is entitled to buy the house at
this price.
Does the document signed by the appellant constitute an acceptance of an offer
to sale from the seller, which would form a binding “avant-contrat”?
No, appeal dismissed
Judges: The offer to sell a house is not an offer to contract at the asked price.
Real estate agents cannot make potential buyers sign an acceptance of the
seller’s offer. The document is a promise to buy at the price proposed by the
potential buyer, it does not form a contract to contract nor a unilateral promise to
contract. The buyer makes an offer to the seller.
Real estate: the seller’s listing of sale is not an offer to contract at the asked price;
it is an invitation to treat (appel d’offres).
When a buyer proposes a price and signs a promise to buy, he makes an offer to
contract.
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Willingness to be bound
COML
The court's role is to "ascertain what the common intentions should be ascribed to the
parties from the terms of the document and the surroundings of the circumstances.
Canada
COML
Facts
Judicial
History
Issue
Holding
Reasoning
Ratio
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Kleinwork Benson Ltd v Malaysia Mining Corp BHD
Malaysia Mining Corporation Metals Ltd (MMC Metals) was a wholly owned
subsidiary of the defendant, MMC BHD. MMC Metals approached the claimant
KB Bank for a loan. MMC Metals was a relatively newly formed company lacking
in the size and resources of MMC BHD. The bank approached MMC BHD asking
if they would act as guarantor for the loan. MMC refused to act as guarantor but
stated they it was their company policy to ensure that their subsidiaries are
always in a position to meet their debts. In reliance of this letter of comfort the
bank advanced money to MMC Metals. MMC Metals subsequently went into
administration having not paid the loan. KB brought an action against MMC BHD
to recover their loss based on the assurance given in the comfort letter.
Kleinwort Benson Ltd obtained damages for breach of contract against the
defendants
Is the comfort letter a form of guarantee or contractual promise that is binding?
No; appeal allowed
 The words used didn’t express a contractual promise, but simply a
representation of facts in the circumstance of a comfort letter.
 However, the absence of express words of promise does not by itself
prevent a statement from being treated as a contractual promise.
 In this case, it cannot be treated as a contractual promise because the
context in which the comfort letter was made shows clearly that the parent
company doesn’t want to make a contractual promise.
 The comfort letter referred to company policy at that time. There was
nothing to stop the company changing its policy.
 International custom that comfort letters do not constitute a promise.
Comfort letters are not binding contractual promise. Context in which agreement
is formed can be considered when determining intention to create legal relations.
Some parts of the letter form a promise, some not. Part [2] of the letter could
form contractual obligations.
Wording of the document leads to this conclusion
Note: as opposed to CIVL, COML is reluctant to look outside of the contract in
order to determine the content of the contract.
The intention to be bound is essential in the formation of contract.
o Commercial background: it is presumed that the parties want any
agreements/promises to have legal effects. (as opposed to Jones which
concerns family matters)
o Since the MMC BHD did not intend to be bound by refusing to be
guarantor, the comfort letter alone can't lead to the formation of a binding
contract.
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The comfort letter that expresses merely the present intentions and the facts as a
statement is not promissory.
o However, if statements made in the letter are false when they were made,
there may be a tortuous liability.
Company policy: is it a technical term or a legal term?
o It may be a binding promise, depending on the setting. E.g.
return/exchange in retail stores
Difference with CIVL in analysis: good faith (in negotiating, forming, and fulfilling
the contract), not only the document itself
England
Facts
Issue
Holding
Reasoning
Ratio
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Jones v Padavatton
A mother promised to pay her daughter $200 per month if she gave up her job in
the US and went to London to study for the bar. The daughter was reluctant to do
so at first as she had a well paid job with the Indian embassy in Washington and
was quite happy and settled, however, the mother persuaded her that it would be
in her interest to do so. The mother's idea was that the daughter could then join
her in Trinidad as a lawyer. This initial agreement wasn't working out as the
daughter believed the $200 was US dollars whereas the mother meant Trinidad
dollars which was about less than half what she was expecting. This meant the
daughter could only afford to rent one room for her and her son to live in. The
Mother then agreed to purchase a house for the daughter to live in. She
purchased a large house so that the daughter could rent out other rooms and use
the income as her maintenance. The daughter then married and did not complete
her studies. The mother sought possession of the house.
Was there a legally binding agreement between the mother and the daughter?
No; only family agreement not intended to be binding
The agreement was purely a domestic agreement which raises a presumption
that the parties do not intend to be legally bound by the agreement. There was no
evidence to rebut this presumption.
Family arrangements are generally not intended to be binding. When there is no
intention to enter legal relations, there cannot be a contract.
Some kinds of relationship tell the judge that the parties did not intend the breach
of their "contract" to have legal consequences. --> family matters
However, there might be moral obligations in this case
CIVL

1388: An offer to contract is a proposal which contains all the essential elements
of the proposed contract and in which the offeror signifies his willingness to be
bound if it is accepted.
Prohibited practices in formation
CIVL
Quebec
Facts
Richard v Time inc.
In 1999, Mr. Richard received an envelope sent by the Respondents that
contained documents in English, one of which was entitled “Official
Sweepstake Notification”. After reading the documents, Mr. Richard
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Issue
Holding
Reasoning
Ratio
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Rui Gao
concluded that he had won US$833,337. He filled out the reply coupon and
subscribed to Time magazine. Since he did not receive his prize, he contacted
Time and found out that he would not be receiving a cheque because he did
not have the winning number. He also learned that the person who had
signed the documents as the sweepstake manager did not exist. Time
explained to him that the documents were merely an invitation to participate in
the sweepstake and that he could win only if he had received the “Grand Prize
Winning Entry” (which was not the case) and had returned it in time. Mr.
Richard therefore brought an action in damages against the Respondents
alleging breach of contractual obligations and violations of the Consumer
Protection Act.
Was the advertisement misrepresented?
Was a valid contract of subscription formed by receiving and sending the
sweepstakes?
Yes; no
The court asks how an average consumer would have understood the
advertisement in a 2 steps analysis:
1) What’s the general impression that the representation is likely to convey
to a credulous and inexperienced consumer
2) Is that general impression true to reality?
In this case, an average consumer would have thought that R had the winning
entry and had only to fill the form and return it to claim the prize. There is
misrepresentation according to Consumer Protection Act. Also, the defendant
omitted to mention important facts in the advertisement.
Misrepresentation in formation of consumer contract voids it (Consumer
Protection Act)
Special protection regime with special remedies
o presumption of prejudice; punitive damages beyond compensation of the
damages, as authorized by the Quebec's Charter of human rights
o These special protections are organized around the formation of
consumer contract (subscription) under the protection of Consumer
Protection Act
The regime doesn't respond to the usual "consent" reasoning: even if statement
is corrected before "formation of contract" (attract the consumer first, give all the
info just before finalizing the contract), the court would hold that the contract is
still tainted by false or misleading representation.
Term, revocation
COML
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Facts
Issue
Duration of an offer: reasonable amount of time
Shatford v B.C. Wine Growers
Shatford(P) mails his acceptance to an offer for a certain amount of loganberries
6 days after the offer was made. There was no term attached to the offer. BCWG
(D) refuses to perform contract. Plaintiff deposits a motion because he believes
that the contract was formed.
Is BCWG right in assuming that the offer lapsed?
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Holding
Reasoning
Ratio
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Issue
Holding
Reasoning
Ratio
Bristol, Cardiff, and Swansea Aerated Bread Company v Maggs
Maggs (D) made an offer to sell property to Bristol (P). Bristol’ representative sent
a letter as to its willingness to accept the offer. Several negotiations went on.
Finally, the parties couldn’t reach consent over modified clauses. Maggs revokes
the offer.
Were the 2 letters exchanged enough to form a contract?
No
Later requests show that negotiations were still taking place: there was no
concluded contract since counter-offers are still ongoing. Maggs was at liberty to
put an end to the negotiations by withdrawing his offer. He is also not obliged to
respect the 10 days term since it was not binding in an offer.
An offeror is the master of the offer. Revocation can take place anytime before
the offer is accepted, regardless of the promised term.
Counter-offer kills the offer.
Revocation of bilateral agreement is invalid
BC
Facts
Issue
Holding
Reasoning
Ratio
Yes (invalid acceptance)
Considering the perishable nature of the product, and the limited temporal nature
of the market at this time of year (April-May), 6 days is an unreasonable time to
expect to wait for acceptance. The reasonable time should be the same day or
the morning after.
Offers only remain open for a reasonable amount of time, determined by the
nature of the agreement and the product.
Revocation: anytime before acceptance
Facts
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Rui Gao
Dawson v Helicopter Exploration Co.
Dawson staked a mineral deposit in a remote area in British Columbia in 1931. In
1951, Helicopter Exploration Co. submitted a proposal to finance a stake in
Dawson’s claims, to which the latter responded favourably. The parties agreed
that the Dawson would show the H.E.Co. the deposits once the H.E.Co. could
locate a helicopter to access the site. Several months later, H.E.Co. informed
Dawson that although they had located a helicopter pilot, but that they no longer
considered the deposits to be of interest; Dawson did not reply. Shortly thereafter,
the H.E.Co sent an exploration party to the region in question and arranged to
develop the claims.
Does the agreement between the parties constitute a contract? Was revocation
valid?
Appeal allowed; Bilateral agreement (invalid revocation by HECo)
The H.E.Co.implied that it would fulfill the promise made in its proposal. The only
condition made this promise was the location of a helicopter pilot. In return,
Dawson promised to show.
The terms of the agreement were bilateral as they involved complementary action
by both parties. Unlike in the case of a unilateral contract, the offer by H.E.Co.
could therefore not be revoked before the completion of performance.
Promise implied by both parties in an agreement constitutes a bilateral contract,
and such a contract binds both parties to the performance of agreed terms.
After acceptance and formation of a bilateral contract, revocation is invalid.
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CIVL
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
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1390 CCQ
An offer to contract may be made to a determinate or an indeterminate person,
and a term for acceptance may or may not be attached to it.
Where a term is attached, the offer may not be revoked before the term expires;
if none is attached, the offer may be revoked at any time before acceptance is
received by the offeror.
1391 CCQ
Where the offeree receives a revocation before the offer, the offer lapses, even
though a term is attached to it.
1392 CCQ: an offer lapses if [1] no acceptation, [2] counter offer [3] death or
bankrupt
An offer lapses if no acceptance is received by the offeror before the expiry of the
specified term or, where no term is specified, before the expiry of a reasonable
time; it also lapses in respect of the offeree if he has rejected it.
The death or bankruptcy of the offeror or the offeree, whether or not a term is
attached to the offer, or the institution of protective supervision in respect of
either of them also causes the offer to lapse, if that event occurs before
acceptance is received by the offeror.
Consensus

Consensus ad idem (agree on the same terms, common understanding)/battle of
forms (commercial: parties want to use their own forms of contracts)
COML


Counter-offer kills the offer and clears the previous terms. Further answer =
acceptance of the counter-offer
The one who fires the last shot is the winner of the battle of forms!
Facts
Judicial
Butler Machine Tool Co Ltd v Ex-Cell-O Corp Ltd
Butler(R) made a quotation offering to sell a machine to the buyers Ex-Cell (A)
for 75, 535 sterling’s. The offer was stated to be subject to certain terms and
conditions which “shall prevail over any terms and conditions in the buyers’
order”. The conditions included a price variation clause providing for the goods
to be charged at the price ruling on the date of delivery. Ex-Cell replied by
planning an order for the machine. The order was stated to be subject to certain
terms and conditions BUT no provision for a variation in price. At the foot of ExCell’s order there was a tear-off acknowledgement of receipt of the order stating
that “We accept your order on the Terms and Conditions stated thereon”. Butler
completed and signed the acknowledgement and returned it to the buyers with a
letter stating that the buyers order was being entered in accordance with the
seller’s first quotation. When Butler delivered the machine it claimed that the
price had increased. Ex-Cell refused to pay contenting that the contract had
been concluded on the buyer’s rather than on the sellers’ terms and was
therefore a fixed-price contract.
For Butler (contract concluded on seller’s terms in the opening offer)
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History
Issue
Holding
Reasoning
Ratio
Rui Gao
On what terms was the contract concluded?
On the buyers’ term; Appeal allowed.
1) The sellers (Butler) by completing and returning the acknowledgement of
the order on June 5th, which was stated to be on the buyers’ terms and
conditions, had accepted the counter-offer on the buyers’ terms and could
not therefore claim to increase the price under the price variation clause
contained in their own offer.
2) The acknowledgement of the order of June 5th was the decisive
document since it made it clear that the contract was to be on the buyer’s
and not the seller’s terms.
The counter-offer kills the offer.
CIVL

Counter-offer kills the offer.
Quebec
Facts
Issue
Holding
Reasoning
Ratio
Comments
Communauté urbaine du Québec c. Construction Simard-Beaudry
 City (P) puts out a request for tenders for some sewer work (offer)
 CSB (D) puts a tender on a construction contract with the City (counteroffer)
 CSB forgot $200,000 in the estimate, so tried to increase the price
 CSB refuses to perform the contract at a loss
 Stipulation in original tender that stipulated companies were liable for
$200,000 in error, with no time limit
 Liability was later changed on the form that CSB gave as its bid, that said
construction company was only liable for errors up to $35,000, with a 6
month time limit
 City wants the difference between CSB’s bid and the next lowest (which the
City actually has to pay)
o Expectancy damages – wants the value of the promise (like Hawkins)
o City claims the tender was binding
 CSB claims that by accepting their offer, the City accepted the stipulations
on the tender (counter-offer)
On whose terms was the contract concluded?
On CSB’s terms.
By accepting S’s offer, the City accepted all the terms in it.
Last shot rule: the last accepted offer defines the contract’s terms
Battle of forms: the city requested all bidders to use its form, but CSB used its
own form. The city accepted the terms without thoroughly looking at the form.
Acceptance & Communication rules
In both CVL and in CML


General rule = rule of reception: acceptance must have reached the offeror in
order to form the contract
Exception = Post box rule: If the offer is made by post, the acceptance is
considered to be received at the moment when the letter is sent. (explained in
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Entores by contrast: the post box rule didn’t apply because Telex is not the same
as a letter)
o The Post box rule applies ONLY to acceptance based on the current law.
England
Facts
Issue
Holding
Reasons
Ratio
Entores v Miles Far East
Negotiation occurred by Telex between London and Amsterdam
 Plaintiff in London, defendant in Amsterdam (subsidiary of an American
company)
 Amsterdam sends offer, London modifies offer (thereby making a new
offer), Amsterdam sends acceptance
In which jurisdiction was the contract formed? When did the acceptance take
effect?
London; when the offeror received acceptance
Amsterdam is the jurisdiction if dispatching the acceptance is enough to make
the contract (as in the ‘mailbox rule’). London is the jurisdiction if the acceptance
must be acknowledged by the offeror (as is the case in person-to-person
contracts). The judge finds on the Telex the acceptance must be received
because it is more instantaneous than a letter.
Acceptance by Telex must be received by the offeror to form the contract.
(Specific to) CIVL
 Quebec: An Act to Establish a Legal Framework for Information Technology:
Communication is received when it reaches the server of the recipient and is
accessible to him.
 Silence as acceptance? No, but exceptions.
o 1394 CCQ
Silence does not imply acceptance of an offer, subject only to the will of
the parties, the law or special circumstances, such as usage or a prior
business relationship
Unilateral contract
In unilateral contracts, on one side we find merely an act, on the other side a promise.
COML



Concept = acceptance by performance
Revocation issue (common law) = offeror is the master of the offer. Power to
revoke the offer anytime before it is accepted. However, he has to show that the
person has been informed of the revocation
o Danger: "the flag pole" -> revoke the offer just before the person climbs to
the top and rips the flag off
If the parties agreed on complementary performance, it is no longer an unilateral
contract (Dawson)
CIVL

1395.
The offer of a reward made to anyone who performs a particular act is deemed to
be accepted and is binding on the offeror when the act is performed, even if the
person who performs the act does not know of the offer, unless, in cases which
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admit of it, the offer was previously revoked expressly and adequately by the
offeror
Some industries: acceptance by performance
Promise to Contract vs Offer & Acceptance (CIVL)

S.1396
An offer to contract made to a determinate person constitutes a promise to enter
into the proposed contract from the moment that the offeree clearly indicates to
the offeror that he intends to consider the offer and reply to it within a reasonable
time or within the time stated therein.
A mere promise is not equivalent to the proposed contract; however, where the
beneficiary of the promise accepts the promise or takes up his option, both he
and the promisor are bound to enter into the contract, unless the beneficiary
decides to enter into the contract immediately.
PROMISE
OFFER
To determinate person
Determinate or not (s.1390 (1))
Promisee must clearly indicate that he will consider
No action required from the offeree
and rely within the delay
Offeree has all of the essential elements to form a contract (essential terms) and has power to
form a contract by acceptance
A contract to contract, not the contract itself
Not a contract
 Synallagmatic (bilateral consent); s.1396 (2)
 Unilateral contract (only one party has an
obligation); s.1396 (1)
Promise survives promisor's death, bankruptcy
Offer dies with offeror or patrimony (in
(because it's a contract)
case of bankruptcy)
Acceptance (taking up option)
 Promise can be made reciprocal (levee de l'option) -> synallagmatic
 Still not the contract itself, unless the offeree makes this clear
 E.g. Real estate transactions
Summary: promise vs offer vs acceptance
1-Offer with term
2-From the moment the promisee indicates that he will consider it till he
replies within the term = offeror is bound by a unilateral promise to enter
proposed contract
3-Acceptance
a. bilateral promise to enter the contract, which is a contract in
itself but different from the proposed contract OR
b. by the proposed contract itself, if the offeree makes it clear
that he accepts the offer (not only the offeror’s promise to
enter the contract).
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Conditions
 Capacity to contract s.1385
o Promisor: at the time of promise
o Promisee: at the time of taking up the options ... despite the fact that
promise is itself a contract (if incapable to contract, then a simple offer).
 Legality of the object at the time of formation (taking up the option)
 S.1415
A promise to enter into a contract is not subject to the form required for the
contract.
Effects of the “option”
 Irrevocable until end of time limit
o If want to make offer revocable, need to make another contract where the
parties agree to make the offer open.
 Provision: "the offer is revocable at any time."
 Create a personal right: if the offer is revoked before the end of the term, the
offeree can claim damages (in case of loan, donation), or specific performance
(only in case of sale, excluding real property sale). S.1590
 In general, damages rather than specific performance even when possible
 To third parties: promise = “inopposable”, unless that person knew that there was
a promise btw the seller and another person. In that case, there's bad faith.
The promisee can set up against the third party.
 In COML, it would be under offer/acceptance framework. The promise to sell is
an offer that may be revoked at any time before a promise to buy is indicated.
 E.g. Cere
Quebec
Facts
Issue
Holding
Reasoning
Ratio
Comments
Cere c Neely
 N gives C an option on land (promise to sell), C gave N 200$ as
deposit.
o Price guaranteed at $4000
o Term 2 years
 Before the term expires, N sells the land to Reid
 Before he exercised his option, C agreed to sell the land to a third party
for $9000
Was the option binding? Does N owe C for the lost profit on his sale of the
option?
Yes; yes
 Option constitutes “une promesse unilatérale de vente”, though not a
real contract.
 C relied on the promise.
 C has a personal claim on the option, though no real right was created.
 Damages for amount of lost profit, but not brokerage or notary fees
because C’s resale was rash and not N’s problem.
 C cannot claim against Reid (who is a third party to the option).
Options are binding unilateral promises once the promisee indicates that he
will consider the offer.
If the case was in COML, there is consideration (200$ cheque) and would
make the promise binding. In CIVL, it is binding anyway.
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4. Essential elements of contracts and types of agreements
Themes:
- Incomplete and ambiguous agreements
- The mirror image rule
- Agreements to agree: pre-contractual agreements
- Extra-legal arrangements
Required reading:
- CCQ, Art 1396
- Terrasse Holdings v Saunders, [1989] RL 265 (CA)
- Raffles v Wichelhaus (1864), 2 H & C 906 (Exch)
- Cere v Neely, [1980] CS 1160
- Empress Towers v Bank of Nova Scotia, [1991] 73 DLR (4th) 400 (BCCA)
- Bernard Rudden, “The Gentleman’s Agreement in Legal Theory and in Modern
Pratice” (1999) ERPL 199
- A.W.B. Simpson, “Contracts for Cotton to Arrive: The Case of the Two Ships
Peerless” (1989) 11 Cardozo L Rev 287
- UN Convention for the International Sale of Goods, Art 19
- Uniform Commercial Code, Arts 2-207
- UNIDROIT Principles of International Commercial Contracts, Art 2.1.11
- Principles of European Contract Law, Art 2.209
Gentleman's Agreements


No law ever (no intent to create legal relations)
o To form a contract, there must be an intention to form the contract that
imposes legal obligations (eg. Family matters, priest and church ->
employment?)
o Document for joint venture, but it is clear that you don't want this to have
legal effects, only social pressure and other means to enforce moral
obligations
o Difficult to determine in law. Title of the document is sometimes
determinative, but not absolutely (e.g. comfort letter can give rise to legal
obligations even if you give it a name that doesn't imply legal obligations)
No law yet ("subject to contract" etc.)
o Standard clause when you are negotiating over a fairly long period, want
to make sure that the documents that the parties are exchanging during
negotiation don't have legal effect until a final agreement is reached.
o Useful, because in some circumstances, documents that are exchanged in
time of negotiation may be used against yourself in a claim that they have
legal effects.
o It is not universal though. You can't exclude torts obligations. When it
comes to contract terms, it is generally accepted that people can exclude
law to some contractual relationship.
o E.g. You can exclude the court by choosing arbitration.
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The law now generally recognizes the power of parties to oust the law by
choosing arbitration, or the jurisdiction that applies as long as there is an
international element in the contract.
Pre-contractual agreements (agreements to agree)

2 conceptions
1. The contract was validly formed at the pre-contractual stage.
2. No, the parties did not intend this document to have legal effect, they want
the contract to be formed when an official contract is signed.
In both traditions, if any essential elements of the contract is missing and has been
replaced by an agreement to agree, the contract is not completed.
The question of legal effect of pre-contractual documents is raised when a party brings
changes to important provisions of the contract and the other party doesn’t agree. The
other party will claim that the contract has already been formed.
COML

Agreement to agree gives no rise to legal obligations. It is not a guarantee in
itself. However, if there is a mechanism or a precise formula included in the
contract, the agreement is enforceable. The court will apply the formula
BC (COML)
Facts
Issue
Holding
Reasoning
Empress Tower v Bank of Nova Scotia
Empress is the landlord and the Bank, the lessee. There is a renewal clause in
the actual lease: the rent in a renewed lease will be the market price, as agreed
by the landlord and the tenant. If either party doesn’t agree, it can terminate the
contract.
Bank offered 5400$ and expresses its willingness to negotiate. It also justified the
price as recommended by analysts. Empress waits until the last possible day and
asks for 5400$ per month plus 15000$ up front.
Empress is seeking a writ of possession in court.
Was the renewal clause void for uncertainty or as an agreement to agree?
No + Empress negotiated in bad faith.
 Three categories of options
o Rent to be ‘agreed’ – usually unenforceable as it is an agreement to agree
o Rent to be established by a stated formula but no machinery is given –
court supplies machinery – may be enforceable
o Formula provided is defective, but machinery is provided – machinery
used to cure the formula
 “Court will try … to give the proper legal effect to any clause that the parties
understood and intended was to have legal effect”
 Effect of the renewal agreement in the instant case
o 3 elements: the parties will try to agree (1) on the market price (2), and if
they don’t reach agreement, either party can ask for termination (3)
o Therefore, the court’s interpretation is that the “landlord cannot be
compelled to enter into a renewal tenancy at a rent which it has not
accepted as the market rental”
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o
Ratio
Comments
However, there are two implied terms arising out of the renewal clause:
1- the “landlord will negotiate in good faith … with the objective of
reaching an agreement on the market rental rate
2- “agreement on a market rental will not be unreasonably withheld”
o These two terms are “implied under the officious bystander and
business efficacy principles in order to permit the renewal clause, which
was clearly intended to have legal effect, from being struck down as
uncertain”
 Towers cannot rent to anyone for less than Bank was willing to pay.
 If there was no framework to establish certainty as to terms, it would be an
“agreement to agree” (unenforceable); here the judge finds a framework to
validate the Bank’s reliance.
Mere agreement to agree is unenforceable, but an obligation to negotiate in good
faith is implied in cases of reasonable expectation to negotiate (while it is not in
mere agreements to agree)
 Note that there is a period of negotiation built in the contract (hint for the court
to find that the parties intended the renewal clause to be more than just
agreement to agree).
 Interestingly, there are two categories of options that are in play: agreement to
agree & stated formula (market price). Which one prevails?
 Court combined the two options to find that the parties imposed on themselves
an obligation to negotiate the rental in good faith. Mere agreement to agree on
the rental wouldn’t have the same effect since it is not clear enough to be
binding contract.
 COML: reminder that there is no general implied obligation to negotiate in
good faith, unless set by a contract (see 8-implied obligations)
 "Official standard": What the 3rd party would say as reasonable
 "Contract efficiency": What terms should be implied in the contract to make it
effective (see 7-interpretation and incorporation)
CIVL:


Agreement to agree = parties are bound to try to agree
Back to consensus: essential elements
Essential terms must be agreed upon for the contract to be formed.
COML
Essential features:
 Completeness
 Non ambiguity
 Preciseness (not too vague)
Raffles v Wichelhaus (Peerless ships)
Facts



R offers to sell W a load of cotton that was arriving by the Peerless from
Bombay
W refuses to pay for the cotton when R delivers it, because the cotton came
on a different ship than W thought
R says he meant the Peerless that left Bombay in December
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

Issue
Holding
Reasons
Ratio
Comments
W says he meant the Peerless that left Bombay in October
W claims this confusion means there was no meeting of the minds
(consensus ad idem)
 Plaintiff’s lawyer claims it is immaterial which ship it comes on – inessential
element
o Same quality of cotton, same origin, it just came on a different ship
o But plaintiff’s counsel submits the only reason to introduce the ship was to
determine liability if it sank – if the ship sinks the seller need not provide
the cotton
 At the time, arrival contracts like this were based on a specific arrival time –
prices fluctuated hugely and the buyer would base his estimate for the price
on when the ship was expected to arrive (could be thousands of pounds
difference in price)
Was the contract validly formed? Is the specification about the ship and the time
of delivery an essential element for the contract formation?
No contract (no meeting of the minds); Yes, it is an essential element
The ship on which the cotton arrives is an essential element since the arrival time
is different and price will vary considerably.
Meeting of the mind theory: the parties must agree on essential elements for a
contract to be validly formed. Any ambiguity on those elements voids the contract.
 Classical contract law doctrine – “required acceptance to be precisely the
same as the offer at the peril of being treated as no more than a new offer”
(MacNeil, at CB 209; Raffles)
o There can be no ambiguity in the terms of the contract to have
consensus ad idem (meeting of the minds)
 Rationalization of contract law in COML from CIVL inspiration, started in US
through this case.
o Roman law: contract = meeting of the mind. COML was inspired by this
idea.
CIVL

1388 CCQ. An offer to contract is a proposal which contains all the essential
elements of the proposed contract and in which the offeror signifies his
willingness to be bound if it is accepted.
Qc
Facts
Issue
Holding
Reasoning
Les Terrasses Holding v Saunders
Terrasses is a development company. Saunders is their employee. Most of the
locals are rent out, only the least appalling ones are left. Terrasses proposes to
give Saunders a bonus of “up to 60000$ to 70000$” if he rents everything out.
Saunders works hard and fulfilled the goal. Terrasses doesn’t want to give him
the bonus because the company’s finances are not doing well. Saunders
institutes an action to get specific performance the contract.
Was there a valid contract? Is Saunders entitled to recover the bonus, and on
which grounds?
No; Yes, for unjust enrichment
There was no valid contract formed, as the determination of the price is an
essential element of the contract and that uncertainty regarding it makes the
proposal by Terrasses not a valid offer to contract.
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Ratio
Comments
Rui Gao
As there was no consensus between the parties as to the amount to be paid, the
court cannot read an essential element into the contract for the parties.
However, on fairness ground, the court feels that Saunders should be entitled to
the promised bonus since he worked so hard because of the incentive. The only
way for the court to do so is through unjust enrichment (instead of through
contract law)
Meeting of the minds
Essential elements are needed for a contract to be valid
Contract must be based on parties’ intention
Abstention of the judiciary to formulate a term not intended by the parties
Unjust enrichment
 Mechanism/formula for determining the price = absent --> no contract
 The person invoking the contract has to prove its existence by providing
evidence of all the essential elements.
 Unjust enrichment --> judges determine the impoverishment suffered by
the respondent and decided the amount of damages due to him.
 Even if the parties both intended for the bonus to be between 60 000 and
70 000$, because there is not a precise amount, the essential terms of the
contract are too vague. There must be absolutely no ambiguity, otherwise,
it is an agreement to agree (on an essential element of a contract,
therefore no contract was formed).
Modified acceptance and last shot counter-offer
CIVL



1393 CCQ. Acceptance which does not correspond substantially to the offer or
which is received by the offeror after the offer has lapsed does not constitute
acceptance.
It may, however, constitute a new offer.
What does “substantially” mean?
o One hypothesis is with regard to “essential elements of the contract
contained in the offer”
o If acceptance differs on secondary elements, it is considered as a
legitimate one. Contract is formed.
 What if a secondary element is added to the contract by the offeree,
but unaccepted by the offeror?
There are two options.
1) The added secondary element is considered as a condition to
acceptance
a) Result: The offeree becomes the offeror of a counter-offer,
which kills the offer.
2) The second element forms a a separate offer in addition to
formation of a contract on the terms of the previous offer.
a) Result: The initial offer has been accepted, since the
essential elements are agreed upon.
There are no absolute rules on what are essential elements of a contract. It
depends on presumptions and on different industries.
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Traditional COML
 Acceptance must be the mirror image of the offer (it has to be on exactly same
terms). Otherwise, counter-offer (offer is rejected and completely off the table).
 "Last Shot Takes All" -> the last counter-offer that sets all the terms is the one
from which formation of contract derives.
 Silence upon a counter-offer is equivalent to acceptance of the additional terms
International sales
 CISG (Convention for the International Sale of Goods)
It is an international treaty that gives a code for international sales transactions
(only sales!), applicable in most countries, including Canada. It is the default law
that applies to contracts between a Canadian and an international party.
Article 19
1) A reply to an offer which purports to be an acceptance but contains
additions, limitations or other modifications is a rejection of the offer and
constitutes a counter-offer.
2) However, a reply to an offer which purports to be an acceptance but
contains additional or different terms which do not materially alter the terms
of the offer constitutes an acceptance, unless the offeror, without undue
delay, objects orally to the discrepancy or dispatches a notice to that effect.
If he does not so object, the terms of the contract are the terms of the offer
with the modifications contained in the acceptance.
3) Additional or different terms relating, among other things, to the price,
payment, quality and quantity of the goods, place and time of delivery,
extent of one party’s liability to the other or the settlement of disputes are
considered to alter the terms of the offer materially.
 UNIDROIT
It is used in commercial international contracts in all industries (not only sales), it
can be used in arbitration. It reconciles COML and CIVL.
Article 2.1.11
1) A reply to an offer which purports to be an acceptance but contains
additions, limitations or other modifications is a rejection of the offer and
constitutes a counter-offer.
2) However, a reply to an offer which purports to be an acceptance but
contains additional or different terms which do not materially alter the terms
of the offer constitutes an acceptance, unless the offeror, without undue
delay, objects to the discrepancy. If the offeror does not object, the terms of
the contract are the terms of the offer with the modifications contained in the
acceptance.
o
Writing confirmation with additional terms after formation of contract:
If a writing confirmation is sent after contract is formed, but it includes
additional or different terms, those terms become part of the contract,
UNLESS there is an objection, or a material alteration of the terms.
US reform
UCC 2-209
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1) A definite and seasonable expression of acceptance or a written confirmation which
is sent within a reasonable time operates as an acceptance even though it states
terms additional to or different from those offered or agreed upon, unless
acceptance is expressly made conditional on assent to the additional or different
terms.
2) The additional terms are to be construed as proposals for addition to the contract.
Between merchants such terms become part of the contract unless:
a) the offer expressly limits acceptance to the terms of the offer;
b) they materially alter it; or
c) notification of objection to them has already been given or is given within a
reasonable time after notice of them is received.
3) Conduct by both parties which recognizes the existence of a contract is sufficient to
establish a contract for sale although the writings of the parties do not otherwise
establish a contract. In such case the terms of the particular contract consist of those
terms on which the writings of the parties agree, together with any supplementary
terms incorporated under any other provisions of this Act.
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5. Consideration, cause and formalities
Themes:
- The bargain theory of consideration and mutuality of obligation
- Civilian concepts of object and cause
- The role and relevance of formalities
Required reading:
- Hutchison v The Royal Institution for the Advancement of Learning, [1932] SCR
57
- Hamer v Sidway (1891), 124 NY 538 (CA)
- L.L. Fuller, “Consideration and Form” (1941) 41 Colum L Rev 799 at 800-801
- Alan Brudner, “Reconstructing Contracts” (1993) 43 UTLJ 1 at 34-35
- Stephen M. Waddams, The Law of Contracts, 5th ed (Toronto: Canada Law
Book Inc, 2005) at 64-82.
- Draft Common Frame of Reference, s. II.-1:106: “Form”
Intro
What is needed for the minds to meet?
 COML: consideration
 CIVL: cause
 Some forms (formalities)
Why law enforces contract?
 Moral obligation to keep your words
 But not all contracts are enforceable
 Preservation of individual agency -> therefore human dignity
 Enhancement of values and wealth
Consent and reason
2 questions:
A. What's in the contract? (content)
a. Object of obligation (prestation)
b. Object of contract (legal operation; eg. Sale)
B. Why the contract? (justification)
a. Cause of contract (subjective reason to each party)
b. Cause of obligation (same for all similar contracts; objective, logical)
A. What is in the contract?
1- Object of obligation: What must each party do on the contract? (specific question)
CIVL: object of obligation = prestation
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
1371 CCQ.
It is of the essence of an obligation that there be persons between whom it exists,
a prestation which forms its object, and, in the case of an obligation arising
out of a juridical act, a cause which justifies its existence.
 1373 CCQ
The object of an obligation is the prestation that the debtor is bound to render to
the creditor and which consists in doing or not doing something.
The debtor is bound to render a prestation that is possible and determinate or
determinable and that is neither forbidden by law nor contrary to public order.
o It has to be 1) possible, 2) determinate/determinable and 3) not forbidden
by law nor contrary to public order
 Uncertainty of some of these concepts
 Determinate/determinable: specification on the object at sale (not
just a general description) or mechanism of determination (eg. Of
price)
 Public order: what is generally acceptable by society; not predefined, decided and assessed by judges depending on the cases
they hear.
2- Object of contract: What do both parties want to legally achieve with the contract?
(general, abstract question)
Legal operations (“tag” on certain contracts which are supposed to follow certain
provisions; eg. sale)
CIVL: object of the contract
 1412 CCQ.
The object of a contract is the juridical operation envisaged by the parties at the
time of its formation, as it emerges from all the rights and obligations created by
the contract.
o General context, objective that the contract aims at achieving
 1413 CCQ.
A contract whose object is prohibited by law or contrary to public order is null.
3- Distinguishing object of obligations vs object of contract?
 There are cases where the obligation of obligation is legal, but the object of
contract is illegal.
Eg. Someone tells you that he gives 100$ to you if you give peanuts to another
person. You agree, but the person is allergic to peanuts. The object of the
contract is to kill that person (illegal), but the object of obligation itself is to
perform a service (legal)
Comment: CIVL is more conceptual than COML
B.Why the contract?
1.
“Contract” as “written agreement”: Formalities
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General principle
Agreement between the parties is sufficient for a contract to be formed -> meeting of the
minds
No writing or any formalities needed.
CIVL:

1385 CCQ.
A contract is formed by the sole exchange of consents between persons having
capacity to contract, unless, in addition, the law requires a particular form to be
respected as a necessary condition of its formation, or unless the parties require
the contract to take the form of a solemn agreement.
It is also of the essence of a contract that it have a cause and an object.
Problems:
 Evidence (prove that an agreement exists)
 Justification of enforcement (why the law would enforce this particular contract)
o The court wants to find something intelligible and objective as reason
Why do we need legal formalities? (Fuller article)
 Evidentiary function: prove that contract exists
 Cautionary function: check against inconsiderate action
o Comments: Really? Sign a contract without reading…
o Heavier the ritual, more effective the cautionary function
o Channelling function: facilitate external test of enforceability and judicial
diagnosis
Draft Common Frame of Reference (European Private Law document) s.II.-1:106
1. A contract or other juridical act need not be concluded, made or evidenced in
writing nor is it subject to any other requirement as to form.
2. Where a contract or other juridical act is invalid only by reason of non-compliance
with a particular requirement as to form, one party (the first party) is liable for any
loss suffered by the other (the second party) by acting in the mistaken, but
reasonable belief that it was valid if the first party:
a. knew it was invalid;
b. knew or could reasonably be expected to know that the second party was
acting to that party’s potential prejudice in the mistaken belief that it was
valid; and (link to the theme of reliance/detriment/unconscionability)
c. contrary to good faith and fair dealing, allowed the second party to
continue so acting. (link to 8-Implied obligations)
2- “Contract” as “agreement”: Justification for contract
 COML: more concrete, the contract comes out from market place through
bargain (mutuality of benefit; consideration)
 CIVL: consent oriented: the contract comes out from the will (cause)
CIVL: cause
 Adopted from the canon law: enabling judges to look into the morality of people's
behaviors
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


Rui Gao
Movement of objectification of the cause over time. Judges don't have to look at
the psychological state of the parties.
Comment: The state controls the use of contract obligations to illegal objectives
CCLC: despite of the controversies, "cause" has been introduced, but the word
"consideration" was added. Result: confusion
Cause of contract (CCQ) (cause subjective)
o Psychological, personal and subjective (contrary to cause of obligation)
o 1410 CCQ.
The cause of a contract is the reason that determines each of the parties to
enter into the contract.
The cause need not be expressed.
Cause of obligation (cause objective) -> same to all similar contracts
 1371 CCQ.
It is of the essence of an obligation that there be persons between whom it exists,
a prestation which forms its object, and, in the case of an obligation arising out of
a juridical act, a cause which justifies its existence.
Gift contracts: valid cause (CIVL) vs requiring consideration (COML)
A gift contract has a valid cause under CIVL and is enforceable; in opposite to COML
law rules which require valid consideration for a gift promise, otherwise it is not a
contract, but only a naked pact.
 1824 CCQ.
The gift of movable or immovable property is made, on pain of absolute nullity, by
notarial act en minute and shall be published.
These rules do not apply where, in the case of the gift of movable property, the
consent of the parties is accompanied by delivery and immediate possession of
the property.
 1812 CCQ.
The promise of a gift does not constitute a gift but only confers on the beneficiary
of the promise the right to claim damages from the promisor, on his failure to fulfil
his promise, equivalent to the benefits which the beneficiary has granted and the
expenses he has incurred in consideration of the promise.
An interesting case that distinguishes well COML and CIVL
QC
Facts
Issue
Holding
Ross & Hutchinson v The Royal Institution for the Advancement of Learning
The father Ross promises to give 150000$ to McGill in exchange of the promise
of McGill to use that money to build the gymnasium. The son Ross promises to
give 200000$ to a funding event if 150000$ is included in the 200000$. Ross
(son) paid up to 100000$ but asks for extension of time because of financial
difficulties. McGill accepts his promissory note with time extended to 3 years
later. Then Ross went bankrupt, Hutchinson is the trustee. H refused to
pay100000$ to McGill when it tried to use the promissory note. McGill is suing
for getting the 100000$.
Was the gift contract legally enforceable?
Yes
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Contracts – Fall 2013 (Prof. Gélinas)
Reasoning
Ratio
Comments
Rui Gao

There was an arrangement whereby Ross father and the university
intended to be bound: there was an accepted offer.
 Ross son bound himself to contribute the sum of 200 000$ towards the
McGill Centennial Endowment Fund on the condition that the amount of
150 000$ which R had agreed to pay towards the gymnasium should be
included in the amount of 200 000$. This contract is valid because it has
a valid cause: liberality can be a cause in Quebec law.
 No consideration necessary in Quebec law, the Code only requires a
cause, which can be liberality.
If the case was in a COML jurisdiction, consideration would also be found.
 First gift contract: the father Ross promises to give 150 000$. There is
valid consideration given by McGill through the promise to allocate the
money to the construction of the gymnasium.
 Second gift contract: the son Ross promises to give 200 000$. Valid
consideration was that McGill promises that 150 000$ would be included
in this amount. (Mutual release about the first gift is seen as
consideration for the second gift)
o Note that it is tricky, since the second gift doesn’t have an
independent consideration
 Promissory note: was there consideration?
o Yes: McGill agreed to the promissory note against interest. Ross
son also receives some benefit because McGill is (indirectly)
waiving its rights to sue him for a period of three years (period of
extension) for not respecting the second gift contract.


“Natural obligations” is a CIVL legal notion. It is enforceable, and is in the
middle of legal obligations which are enforceable and moral obligations
which are unenforceable. Eg. Obligation to feed your children.
Intention libérale = liberality = gift = promesse de libéralité
COML: consideration
Definition
“A valuable consideration in the sense of the law may consist either in some right,
interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss
or responsibility given, suffered or undertaken by the other.”
“Court will not ask whether the thing which forms the consideration does in fact benefit
the promisee or a third party, or is of any substantial value to anyone. It is enough that
something is promised, done, forborne or suffered by the party to whom the promise is
made as consideration for the promise made to him.”
Promise can only be recognised if it is supported by consideration.
Consideration is proof of will.
Consideration for a promise = factors which the promisor considered and which
motivated his promising (what he will get in exchange of his promise; given by the other
party).
 Bargain theory of consideration; mutuality: contracts come from the market.
 Predictability issue: sometimes, courts may find that there is valid consideration,
but in other similar cases, courts may find that there is none.
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Link with formation of contract: the reason why an offer is in the offeror’s hands
and revocable at any time before it is accepted is that the offer is a blank promise
and has no consideration until it is accepted.
o However, you can make an offer firm (open and non-revocable during a
lapse of time) if you receive a counter-promise, which would create
consideration to a “contract to keep the offer open”.
 Peppercorn theory: you can literally give a peppercorn to make the
offer non-revocable.
Reminder: the contract is formed as an exchange and involves at least two
parties. However, we usually only examines consideration from one party’s
perspective since only one party is claiming in court.
What is the doctrine of consideration for
 3 superficial explanations:
o Ensure that bargains are substantially fair
a. But this explanation doesn't hold when we look at how consideration
is applied in practice: value equilibrium is not inquired by judge (Issue:
is consideration truly valuable?)
o Only promises relied upon by the other party is enforced by law
a. But consideration is only a promise to keep the promise made in the
actual contract.
o Consideration acts as a formality, even in cases where formality is not
required by law
a. But forms/cautionary function not needed, such as in commercial
contracts
 Deeper explanations
Economically: consideration treats legal subjects as rational beings who only
do what is advantageous to them economically speaking.
o Micro: distrust: no one impoverishes himself
o Macro: gratuitous promises are not productive: they are not ensuring the
most effective distribution of resources
 Critics: unrealistic to treat people as economic agents only
 People are not always rational
 Imperfect market: meritorious goods. Eg. Educational
services
Peppercorn theory and nominal consideration
 Minimal consideration: the Law will require real consideration, not illusory
consideration
o Miami Coca-Cola Bottling v Orange Crush
US
Facts
Miami Coca-Cola Bottling v Orange Crush
 Orange gave Coca-Cola the exclusive right to bottle and to distribute Orange
Crush.
 O agreed to supply its concentrate, and to advertise.
 C agreed to purchase concentrate, bottle it, “undertake to promote the sale
of orange crush”.
 The license was perpetual, but contained a proviso that said C could cancel
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Contracts – Fall 2013 (Prof. Gélinas)
Issue
Holding
Reasoning
Ratio





Rui Gao
the contract whenever.
 One year after the contract began O wrote to C saying that it would no
longer be bound.
 C is trying to enforce the contract and claims that O cannot cancel it.
Was the contract between O and C enforceable?
No, lack of mutuality and of consideration
Consideration is a promise for a promise.
However, C didn’t give any promise, since it could cancel the contract at any
time. A contract formed under such terms is unenforceable.
A contract is only enforceable and valid if there is real consideration.
Consideration must not be illusory. The right to terminate the contract at anytime
is not a real consideration.
But the court will not inquire as to the adequacy of the economic value of
consideration.
Severe inadequacy may be relevant to an inquiry into fraud, unconscionability or
undue influence but does not preclude a finding of good consideration.
Peppercorn theory: consideration can literally be only a peppercorn
o Not value-standardized; incommensurable
Nominal consideration: a dollar is good consideration (Thomas v Thomas; not in
reading list)
o Values are measurable, commensurable;
o 1000$ vs 1$
 If consideration is only about formality, it's okay, but if consideration
has other functions, it may be not accepted.
Either a peppercorn or a nominal consideration (1$ or even 1 cent) can make a
gift contract valid, because the parties have undergone the inconvenient of
casting the transaction in the form of an exchange.
Forbearance, detriment
 Hamer v Sidway (uncle and nephew case)
Hamer v Sidway
 William E. Story had promised his nephew, William E. Story II, $5,000 if
his nephew would abstain from drinking alcohol, using tobacco, swearing,
and playing cards or billiards for money until the nephew reached 21 years
of age.
 Story II accepted the promise of his uncle and did refrain from the
prohibited acts until he turned the agreed-upon age of 21. After
celebrating his 21st birthday on January 31, 1875, Story II wrote to his
uncle and requested the promised $5,000. The uncle responded to his
nephew in a letter dated February 6, 1875 in which he told his nephew
that he would fulfill his promise. Story I also stated that he would prefer to
wait until his nephew was older before actually handing over the (then)
extremely large sum of money. The elder Story also declared in his letter
that the money owed to his nephew would accrue interest while he held it
on his nephew's behalf. The younger Story consented to his uncle's
wishes and agreed that the money would remain with his uncle until Story
II became older.
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Contracts – Fall 2013 (Prof. Gélinas)
Rui Gao

Issue
Holding
Reasoning
Ratio
Comments

William E. Story I died on January 29, 1887 without having transferred any
of the money owed to his nephew.
 Story II had meanwhile transferred the $5,000 financial interest to his wife;
Story II's wife had later transferred this financial interest to Louisa Hamer
on assignment.
 The elder Story's estate (Sidway) refused to grant Hamer the money,
believing there was no binding contract due to a lack of consideration.
 As a result, Hamer sued Sidway for 5000$ + interest.
Was the agreement between the uncle and the nephew legally enforceable?
Yes
Defendant’s argument:
 The contract lacked consideration.
 The nephew will sustain a benefit from the agreement, not a detriment;
therefore there could not have been consideration.
The court found that:
 The nephew abandoned his legal right to use tobacco, etc., upon the
promise of his uncle.
Waiver of a legal right is sufficient consideration.
 Unilateral or bilateral contract?
o If it is a unilateral contract, the contract is only formed upon
complete performance (after 5 years of abstention from tobacco,
alcohol.)
o If it is a bilateral contract, the contract was formed when the
nephew accepted the uncle’s offer by promising that he will abstain
from any tobacco consumption. THIS IS THE APPROACH
ADOPTED BY THE COURT, even though it could read the
contract as an unilateral one. (see below, note on policy reasons)
 Consideration in unilateral vs bilateral contract
o Applying consideration in unilateral contract imposes difficulties.
 See Kirksey v Kirksey
o Consideration in bilateral contracts can be either benefit of one
party or detriment of the other party.
Dahl v Hem
Facts
Issue
Holding
Reasoning
Dahl v Hem Pharmaceuticals Corp
HPC promised to continue to provide a drug to patients who are willing to test its
efficacy if it is proved to be effective. The patients are suing because HPC didn’t
keep its promise.
Was a valid contract formed?
Yes, a unilateral one.
Defendant’s argument:
 The plaintiffs participated voluntarily and had the option to withdraw at
anytime, therefore there is no consideration given.
Court’s opinion:
 The plaintiffs underwent detriment to test the drug.
 There is a reward to provide the drug at no charge for a year upon
performance of double-blind test.
 The plaintiffs performed the condition.
 There was consideration from the detriment suffered by the plaintiffs in
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Ratio
Comments

performing the condition.
Detriment incurred by volunteers in the study is enough consideration.
Abstaining from something one has no right to do is not good consideration
(White v Bluett; not in the reading list)
 You can’t pay someone to not commit a murder
Examples of valid consideration
 Promise to forbear, or actual forbearance (loan endorsements between
bank and loan endorsers)
 Promise to not undertaking lawsuit
Note on this case:
 It is a unilateral contract (reward) just like Carlill; consideration must be
from both sides (benefit for the offeror).
Kirksey v Kirksey
Facts
Issue
Holding
Reasoning
Ratio
Comments

Rui Gao
Kirksey v Kirksey
The defendant (brother-in-law) promised the plaintiff (widow) comfortable living on
his property if she moved. The widow did, at great expense (abandoning her
assets and travelling 70 miles. After 2 years, the defendant kicked her out of the
comfortable land and put her into an uncomfortable house in the woods, from
which he kicked her out again after some time.
Was there a valid contract between the parties?
No; no consideration
The facts point to a unilateral gift promise, but there was no valid unilateral
contract for lack of consideration.
The plaintiff needs to give consideration in the form of benefit to the defendant
(offeror). Inconvenience incurred by her is insufficient consideration on its own.
Detriment incurred as a subsequent reliance is not valid consideration in a
unilateral contract.
By contrast, in Dahl and Carlil (both cases of unilateral contract), the offeror
retrieves a benefit from the reward promise.
This case could have been better decided under “no intention to give rise to legal
obligations to family matters”.
The case is difficult to reconcile with the rest of the case law.
Note on policy reasons in courts’ tendency to read a contract as bilateral when
possible
o Contract leads to unfair results, because the offeror can revoke the reward
anytime before performance; the parties are not of equal stands.
Implied obligations as consideration
 Wood v Lucy, Lady Duff-Gordon
Facts
Wood v Lucy, Lady Duff-Gordon
Lucy (defendant), a fashion designer, gives Wood (plaintiff) “exclusive right,
subject always to her approval, to place her indorsements [sic] on the designs of
others” as well as the exclusive right to sell her designs, and license others to
market them.
Lucy and Wood were to split the profits half-and-half.
Lucy marketed some stuff on her own, and kept all the profits.
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Contracts – Fall 2013 (Prof. Gélinas)
Issue
Holding
Reasoning
Ratio
Rui Gao
Wood is suing for breach of contract by Lucy.
Was the contract valid? Did Wood give consideration for half of the profits?
Yes; Yes
Lucy’s argument:
 The plaintiff did not give any consideration, because he did not promise to
do his best to market her designs.
Court’s opinion:
 Pursuant to the business efficacy principle, it was implied that Wood gave
a promise to put in reasonable effort to market Lucy’s designs, even
though the contract is silent on that matter.
 His implied promise constitutes enough considerations.
Business agents have implied obligations to put in reasonable efforts in any
business contracts.
Implied promises to put in reasonable effort constitute consideration.
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6. Consideration continued (only in COML)
Themes:
- Past consideration
- Changing circumstances
- Pre-existing Duty Rule
- Promissory Estoppel
- Protecting Reliance
Required reading:
- Roscorla v Thomas (1842), 3 QB 234
- Miami Coca-Cola Bottling Co v Orange Crush Co, 296 F 693 (5th Cir 1924)
- Dahl v Hem Pharmaceuticals Corp, 7 F3d 1399 (9th Cir 1999)
- Wood v Lucy, Lady Duff-Gordon, 118 NE 214 (CA 1917)
- Harris v Watson (1791), 170 ER 94 (HL)
- Stilk v Myrick (1809), 170 ER 1168
- Gilbert Steel Ltd v University Construction Ltd (1976) 12 OR (2d) 19 (CA)
- Central London Property Trust v High Trees House, [1947] KB 130
- Williams v Roffey Bros and Nicholas Ltd, [1991] 1 QB 1 (CA)
- Nav Canada v Greater Fredericton Airport Authority Inc [2008] NBJ No 108
- Walton Stores (Interstate) Ltd v Maher [1988] CLR 387 (HCA)
- Kirksey v Kirksey, 8 Ala 131 (Ala Sup Ct 1845)
- Restatement (Second) of Contracts § 90
Past consideration
 Past consideration is no consideration.
o Roscorla v Thomas
Facts
Issue
Holding
Reasoning
Ratio

Roscorla v Thomas
Roscorla bought a horse from Thomas. SUBSEQUENTLY, Thomas promised that
the horse was “sound and free from vice”. The horse was not sound.
Is the guarantee given by Thomas valid?
No; no consideration
 The price paid was only the consideration for the promise “to deliver the
horse upon request”.
 The guarantee constitutes a second promise
 There is no fresh consideration for the second promise
 “a consideration past and executed will support no other promise than
such as would be implied by law”
Subsequent promise made after formation of contract needs fresh consideration.
Past consideration is no consideration.
Lampleigh exception where a service had been rendered in the expectation of
compensation, giving rise to a claim for unjust enrichment (eg. Terrasses
Holdings v Saunders)
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Ontario Law Reform Commission: "A promise made in recognition of a benefit
received by the promisor or any third party from the promisee, should be
enforceable to the extent necessary to prevent unjust enrichment"
Moral obligation is no consideration
o Different approach CIVL:
 Legal obligations: enforceable
 Natural obligations: may be enforceable or not
 Contract made to perform natural obligations are
enforceable.
 Moral obligations: not enforceable
Pre-existing duty/changed circumstances
 Traditional rule: promise to do something one is obligated to do is not good
consideration; fresh consideration is needed.
o Even if the parties agreed to change terms, it there is pre-existing duty, no
consideration.
o Harris v Watson (sailors claiming extra pay when ship at danger; decided
on the basis of public policy);
Harris v Watson
 H was a seaman, W the captain
 When the ship was in danger, W offers H a pay raise if he will do extra
navigational duty
 H is claiming the wages
Is the captain’s promise enforceable?
No
Policy concern
“If sailors were in all events to have their wages and in times of danger entitled
to insist on an extra charge on such a promise as this, they would in many
cases suffer a ship to sink, unless the captain would pay any extravagant
demand they might think proper to make.”
Rule decided on policy considerations. Basis for Stilk.
Facts
Issue
Holding
Reasoning
Ratio
o
Facts
Issue
Holding
Reasoning
Stilk v Myrick (sailors promised equal share of the wage of the missing
sailors; lack of consideration);
Stilk v Myrick
 M was captain of a ship, two hands desert before arriving at Cronstadt
 M cannot find replacements in Cronstadt, and promises crew if he
cannot find two sailors at Gottenburgh, the crew will split the deserted
sailors’ wages between them for picking up the extra work.
Is the captain’s promise enforceable?
No; pre-existing duty & policy concern
 Defendant claims agreement is contrary to public policy per Harris
 Attorney-General, contra, distinguished it from Harris arguing the
agreement was not made during danger or pressing emergency
o Compensation was voluntarily offered
 Held there was no consideration “for the ulterior pay”
o Crewmembers had sold “all their services” for the duration of the
voyage, not a certain amount”
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o
Consideration for initial hire (services) cannot service the second
promise.
 Desertion is to be considered an emergency.
Fulfillment of pre-existing duty cannot constitute consideration.
Ratio
o
Canada
Facts
Issue
Holding
Reasoning
Ratio
Gilbert Steel (change $steel provided to building contractors)
Gilbert Steel Ltd v University Construction Ltd
 G promised to deliver steel to U for three separate buildings.
 U built the first two, and before U notified G of its intention of beginning
the third building, the steel mill raised the price, and warned of a further
increase to come
 They entered into a new contract for the new price
 Price went up again before full delivery, and discussed a new price
 G claims this was a new, binding, oral agreement
 G submitted a written contract, but it was note executed.
 U accepted delivery of the steel against invoices that reflected the
highest price, but only paid the lower one.
 G is suing to recover the unpaid invoices
Is the further agreement an enforceable contract?
No
 It is clearly an oral agreement, but is it supported by consideration?
Consideration
Plaintiff:
 Consideration was promise to rescind old contract, and guarantee a
‘good price’ on the new one (benefit to both parties)
 Plaintiff also argued that the greater credit extended by the offeree to the
offeror created an obligation on the offeror’s part, with the obligation
being consideration flowing from the offeree
o Held it is not
Court:
 No changes other than the change in price were discussed
o Did not replace the old agreement in toto, therefore not a new
agreement
o Therefore no consideration in mutual agreement to abandon
former contract
o No consideration possible to be found in vague reference to
‘good price’
Estoppel
Plaintiff:
 By accepting the invoices, U created G’s reliance (claim under estoppel)
Court:
 Estoppel can only be a shield, not a sword
 Need to prove reliance at a detriment, which cannot be proven.
Consideration
A contract with changed terms must be supported by fresh valuable
consideration. Alteration of a term is not an abandon of the former contract.
Estoppel
Estoppel can only be used as a shield.
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Estoppel can only be applied if the promisor waives an existing contractual right,
and the promisee relied on the waiver at a material detriment.
 Gilbert Steel is a Canadian case where all the arguments were
mentioned to justify the price increase without consideration under
traditional COML rules.
o Abandon of former contract for a new contract
o Benefit to the other party for paying more (securing a better price
for future projects)
 But the Ontario Court of Appeal still said no; traditional COML rules
apply
 “In order to find estoppel, the plaintiff must show that the defendants
have given away their contractual right to insist on the original price, and
also that the plaintiff relied on the waiver and suffered material
detriment.”
o The court may therefore find the detriment insufficient to apply
estoppel in other subsequent cases.
Comments
Problem in business: There is a need to renegotiate terms in many
industries (eg: construction). The doctrine of consideration doesn't allow a
flexible renegotiation.
o Foakes v Beer (not in casebook): promised partial payment of the debt
against release of debt
Shift re contractual obligations:
o Pre-existing contract no bar: Williams v Roffey (carpenter case)
o

England
Facts
Issue
Holding
Reasoning
Ratio
Comments
Williams v Roffey
 R is general contractor, hires W (carpenter) to fix 27 flats for a set price
 It becomes clear the original price will not be enough for W to finish the
job (esp. because W is in financial difficulty)
 R agrees to pay W a further £10300 (£575/flat) to finish it
 R only makes one payment of £1500
 W stops working
 R gets someone else, and because of it, goes over the time limit and
engages the penalty clause in R’s contract with his employer
Is the new agreement to pay more to W enforceable?
Yes
 It is agreed that the original price was too low, and in order to get the job
done in time and avoid engaging the penalty clause (benefit from 3rd party),
R had to pay W the extra
o Therefore agreement was in the interests of both parties
 No estoppel available, because it cannot be used as a sword to enforce a
higher price, only to remedy detrimental effects (Walton Stores)
Benefit to the offeror from a third party arising from offeror’s relationship with
the offeree is valid consideration.
 Moved the doctrine of consideration to another territory: consideration will
be found in variation to existing contract needs if the variation benefits to
both parties
o an argument invoked by the plaintiff in Gilbert Steel
 NOT APPLIED IN CANADA
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Economic duress and modifying contract without fresh consideration
o Nav Canada case;
New
Brunswick
Facts
Issue
Holding
Reasoning
Ratio
Comments
Nav Canada v Greater Fredericton Airport Authority Inc
 NAV has a contract to supply navigational equipment to GFAA
 GFAA wants to lengthen its runway, which requires NAV to move some of
its navigational equipment
 NAV feels it necessary to upgrade the navigational equipment, says GFAA
has to pay for it
 GFAA needs to put the runway in, so it says it will pay (economic duress)
 NAV moves the equipment, buys new equipment, and GFAA puts the
runway in
 GFAA says it won’t pay
Is the agreement between NAV and GFAA valid?
No; economic duress
 NAV had a duty to move the navigational equipment, and was in breach of
that duty
 Consideration for GFAA’s promise to pay was therefore N’s promise not to
breach its duty – not valid consideration
 Judge says there is no defensible reason to apply the pre-existing duty rule
o Over-inclusive because it admits renegotiations under economic duress
if there is minimal consideration
o Under-inclusive because it often prevents legitimate renegotiation
 Economic duress captures all the policy reasons behind Harris and Stilk
without the negative implications of the pre-existing duty rule
 Court is prepared to accept renegotiation without consideration as long as
there is no economic duress, but there is economic duress here, so no
contract
Forbearance from violating existing duties is not consideration.
Modifications to contract need not be supported by fresh consideration as long
as there is no duress.
Burden of proof of no duress on party seeking to enforce renegotiation.
Change in the traditional rule (variation to existing contract needs no fresh
consideration) ONLY applies in NB now. Obiter in the rest of Canada.
Estoppel, reliance
 Promissory estoppel comes as a remedy for the injustice served by the doctrine
of consideration.
o Source in Equity (reminder: COML and EL united under a same court's
jurisdiction; EL corrects unfair and harshness of COML)
 Promissory estoppel only happens in contractual relationships.
o One party promises waiver (not insisting on existing contractual rights)
against nothing in exchange;
o Under traditional COML, absence of consideration prevents the other
party from relying on it
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However, equity comes in and gives the promisee some protection and
validity to the waiver promise, if the promising party tries to enforce
something previously waived.
Conditions
o existing contractual relationship
o the waiver promise is intended to rely upon
o it is actually relied upon: there must be proof of "alteration of
the promisee's behavior"
Result: the promising party cannot enforce contractual rights that are already
waived.
o


Waiver of right (Equitable doctrine of)
 Since late 1800s
 One may waive a right under contract by his behavior or words
 Haghens v Metropolitan Railway Co (not in casebook)
o Landlord demanded repairs by tenant under contract, negotiations beyond
date of notice, failure, landlord seeks eviction of tenant but is found to
have waived his right to insist on strict performance of the agreement
because of his behavior: there was no intention of enforcing to the full
extent the legal rights that he had.
 High Trees.
England
Central London Property Trust v High Trees House
Facts
 Tenants (High Trees) agree to rent flats
 With the start of the war, demand for flats is down, and defendants can’t
pay full rent
o Landlord agrees to lower rent because of the changed
circumstances
 In 1945, landlord claims arrears on rent, saying reduction is not valid
because tenants did not provide consideration for reduction
Issue
Was the reduction an enforceable contract?
Holding
Yes; promissory estoppel; by Denning L.J.
Reasoning
 “courts have not gone so far as to give a cause of action in damages for
breach of [unsupported] promises, but they have refused to allow the party
making them to act inconsistently with them”
o Stems from equity
 “The promise, intended to be binding, intended to be acted on an in fact
acted on, is binding so far as its terms properly apply”
o It was understood the contract would last while demand was low,
which condition ended in 19457
o Therefore High Trees can claim arrears from 1945.
Ratio
A promise intended to be binding, intended to be acted on and in fact acted on, is
binding so far as its terms properly apply.
NUANCE: this case was later overruled and must be read in light of Combe v
Combe v Combe.
Comments This ruling seems to create a cause of action for enforcing promises made without
consideration provided by the promisee (use as a sword). In this way, it destroyed
the doctrine of consideration.
 Renegotiation of the terms without consideration
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However, overruled a few years later in Combe v Combe.


Combe v Combe
o Does the promissory estoppel create consideration? No.
o Promissory estoppel can only be used as a shield, not as a sword: it is not
creating a new right (no cause of action), it is only a protection offered to
the promisee of a waiver of an existing right
o Concessions create effective defenses to claims to enforce an already
waived right.
o Affirmative promises to do more are ineffective because they require
enforcement, and therefore consideration.
o However, in case of affirmative promises to do more, the promisee may
have a cause of action in tort for negligent or fraudulent misrepresentation.
Even if promissory estoppel doesn't give cause of action, it is still significant
o Standard “no waiver” clause in contracts
 "the failure to exercise or delay in exercising a right or remedy
provided by this agreement does not constitute a waiver of
the right or remedy in question"
 However, this clause may also be taken to have been waived…
Is detrimental reliance a condition to promissory estoppel?
 Area of uncertainty in both England and Canada
o High Trees clearly intended to overrule Foakes v Beer (partial payment "in
settlement" of debt)
o Courts have applied Foakes v Beer after High Trees (after establishment
of promissory estoppel)
o Question: Must reliance be shown to be detrimental?
 Yes : Post Chaser case (Eng HC 1982); Gilbert Steel
 No: other cases
o Conclusion: in Canada, reliance at a detriment is likely a condition to use
estoppel.
Exception (or incremental expansion?)
 recognized in England and Canada
o Proprietary Estoppel: gratuitous promises concerning the creation of
interest in land are, if relied upon, enforceable (may be used as a sword!)
o Crabb v Arun District Council (Eng. CA 1976)
o Why? It was felt that real rights are more significant; even though the
underlying principle is the same for all promissory estoppels
US: pressure to expand (cause of action/sword)
 US 2nd Restatement Rule 90: promise reasonably inducing action or forbearance
 "if injustice can be avoided only by enforcement of the promise"
 In force for many years, and doesn't seem to pose difficulties
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Australia: pressure to expand (cause of action/sword)
 Reaction to the restriction imposed in Combe v Combe
o Walton Stores v Maher
Australia
Facts
Issue
Holding
Reasoning
Ratio
Walton Stores v Maher
 W was going to lease land from M
 W wanted the old building torn down and a new one built
 M’s solicitor said the issue was time-sensitive if the demolition was to
start before Christmas
 The contract remained unexecuted, but W did not notify M of any
objection
 M began demolition
 W notified M in January that it did not execute the contract, and was
backing out
Does M have a cause of action despite the lack of a contract?
Yes; full expectation damages to M
Reasons (Mason CJ, Wilson J)
 Estoppel extends to voluntary promises where a departure from the
assumptions underlying the transaction would be unconscionable.
 Estoppel can be found when a party induces a reliance that a promise will be
performed or a contract come into existence, and that reliance brings
detriment to the expectant party.
 Does this doctrine apply to silence?
o Yes, in this case, because of the urgency of the situation
o Also because “the assumption on which the respondents acted … was
that completion of the necessary exchange was a formality”
o W was under an obligation to communicate its decision with M within a
reasonable time
o W’s “inaction … constituted clear encouragement or inducement to the
respondents to continue to act on the basis of the assumption which had
been made”
 Court implies a promise to sign the contract
Concurrence (Brennan J)
 “If a party induces the other party to believe that he, the former party, is
already bound and his freedom to withdraw has gone that it could be
unconscionable for him subsequently to assert that he is legally free to
withdraw.”
 Estoppel is not to compel the party to fulfil the expectation, but to avoid
detriment resulting
 To establish estoppel, plaintiff must prove
1. Assumption of a particular legal relationship existed or expectation one
would exist
2. Defendant induced that assumption
3. Plaintiff acts in reliance of the assumption
4. Defendant knew or intended him to do so
5. Plaintiff’s action or inaction occasioned detriment if the assumption is not
fulfilled
6. Defendant fails to avoid detriment
Estoppel can be an independent cause of action. It can be used in cases where
there is no pre-existing contractual relationship, to recover from detrimental
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Comments
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effects. It cannot be used as a sword if there is no detrimental reliance.
NOT GOOD LAW IN CANADA



Unconscionability brings PE into play in cases where one party
(promisee) is encouraged by the other party to rely on the promise,
as the breach of the promise would cause detrimental loss to
the promisee.
However, this is not really clear distinction from the American law
and the notion of unconscionability is not clearly portrayed as
bringing the PE in another ground.
6 criteria to make PE a sword.
Estoppel in Canada



Applied ONLY in cases where the parties are of equal stands.
Traditional doctrine: only as a shield
Detriment suffered: more likely a condition to estoppel
o Gilbert Steel (Ontario High Court decision)
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III. INTERPRETATION AND CONTENT OF CONTRACTUAL OBLIGATIONS
7. Interpretation and incorporation
Themes:
- Rules around the incorporation of terms
- Standards of interpretation in different legal traditions
- Parole evidence rule
- Course of usage(s)
Required reading:
- Dell Computer Corp v Union des consommateurs, 2007 SCC 34, [2007] 2 SCR
801
- Thornton v Shoe Lane Parking Ltd, [1971] 2 QB 163 (CA)
- McCutcheon v David MacBrayne, Ltd, [1964] 1 All ER 430 (HL)
- British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd, [1975] QB 303 (CA)
- John D. McCamus, The Law of Contracts, (Toronto: Irwin Law, 2013) at 197-211
- Rogers Cable Communications Inc, Application regarding Termination and
Assignment of the Support Structure Agreement with Aliant Inc, Telecom
Decision CRTC 2006-45
- Bruce Macdougall, Introduction to Contracts (Markham: LexisNexis, 2013) at 6669, 126-131
- Stefan Vogenauer, “Interpretation of Contracts: Concluding Comparative
Observations” in Andrew Burrows & Edwin Peel, eds, Contract Terms (Oxford:
Oxford University Press, 2007), at 123-129
- Arthur Allen Leff, “Contract as Thing” (1970) 19 Am U L Rev 131 at 137-147;
155-57
- Draft Common Frame of Reference, s. II.-8:101: “General rules”
Introduction
Rogers case ("comma" case)
Rogers Cable Communication
Canada
Facts
Rogers Cable Communications Inc
Dispute over the position of a comma in a contract clause. The clause was:
“Subject to the termination provisions of this Agreement, this Agreement shall be
effective from the date it is made and shall continue in force for a period of five (5)
years from the date it is made, and thereafter for successive five (5) year terms,
unless and until terminated by one year prior notice in writing by either party.”
At first, the CRTC held that the comma (see red) made the phrase “and thereafter
for successive five (5) year terms” parenthetical (which means, that can be
suppressed from the sentence without impacting on its meaning). If such a phrase
is really parenthetical, then the Aliant is entitled to terminate the contract at any
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time, regardless of whether the initial period five years has expired. In other
words, if the pink phrase is really parenthetical, then according to the overall
grammar of the clause, the initial five years period is not even necessary for the
agreement.
Then, the CRTC changed its mind and held that the initial term of five years is
indeed a minimum requirement for the agreement. Its change of mind was based
on the French version of that clause. In the French version, the comma is at the
correct place and does not suggest that the Aliant can really terminate the contract
at any time (even before the expiration of the initial 5-year period).
Issue
Holding
Reasoning
Ratio
Comments
Can the position of a comma be decisive when interpreting a contract clause?
No. “Crucial phrase[s]” cannot be concluded with a comma.
If the position of a comma can be given so much decisive importance, then
creating contracts would entail “unmanageable risks”. There would be too much
randomness.
Excessive “grammatical games” – like the “comma position” one used by the
CRTC – may not be played
 Make sense of the clause based on the industry context: it is a 5 years
contract, without possibility to cancel contract at any time
Interpretation: tensions



Objective vs subjective
o Objective = mostly COML: insists on not looking on subjective
understandings of the contract, but what a reasonable person in the same
circumstances would understand. Reasonable person = mediator
o Subjective = CIVL: more emphasis on the subjective intentions of the
parties
o Readings: These 2 approaches are not that much apart
 What judges say they do is one thing, but what they actually do are
not that different.
Plain meaning vs Teleological (purpose)
o Courts use dictionaries to understand plain meaning
o Courts may question what is the general purpose of the parties in
contracting
Text vs Context
o COML: textual, focus on text, grammar.
 Intentions are found in the text of the contract;
 Relying on what a reasonable person would understand rather than
what the parties thought when they drafted the contract
 Traditional exclusion of extrinsic evidence
o French Law: more emphasis on the parties' intention, the actual intention;
pay more attention to context (vs. text)
o German Law: objective, not much on textual.
o In most cases, the judges take into account common sense: what
reasonable parties would have intended when they drafted the contract.
o Now, there is a merging of the two approaches, again.
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Explicit vs Implicit
o Implicit terms that are so obvious that the parties didn't bother to write
them down
o COML style contract: the lawyers want to write everything down
 More predictability
 More costs
 Less confusion
o CIVL style contract: the lawyers don't write everything down, so there is
more importance given to implicit terms.
Distinction between 2 steps in "contract interpretation"
1. What counts as part of the contract?
2. What do the terms mean?
1-What counts as part of the contract?


Written terms, oral terms, or both?
o Both traditions insist on not imposing forms to contracts. However, it is up to the
parties to prove the existence of the contract.
If written
o Is this the entire agreement? Or is it just part of the agreement? Are there terms
elsewhere?
 The whole agreement clause (in many commercial contracts): what you find
in a particular document is the entire contract.
o Signed or unsigned
 There might the contract that was written down, agreed upon but not signed
 Or, there must be a contract that was never intended to be signed.
 Signed or unsigned might make a difference
Entire agreement or not
COML Parol Evidence Rule
 England: parole evidence rule
Where the parties have put their agreement in writing, evidence will not be accepted if it
would contradict/reduce/supplement the original terms of the contract
It is a rule in the substantive contract law (as opposed to rule of evidence): prevent the
enforcement of an oral agreement where the parties have subsequently their agreement
in writing; the judges exclude the evidence of what the parties have accepted when
negotiating the contract.

Canada: distinguish 2 versions of parole evidence rule
I. Parole evidence will be excluded where there is a written agreement (Eng & US)
II. Excluded if the judge can find that the parties have intended the written
agreement to be exclusive and complete.
Two steps:
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1. Was it the parties' intention to put everything in writing = whole and
entire agreement?
2. Yes -> parole evidence rule applies: it will be excluded
Comments
 Illustrates COML preference for objective, explicit, written text
 Not really a rule of evidence
 Not limited to oral exchanges because the rule will apply to emails exchanged
while negotiating the contract. (the name of the rule is misleading)
 About the question whether the written agreement submitted to the court is the
entire agreement (2 versions)
o UK/US version:
 2 steps in interpretation
1) In order to decide whether it is the entire agreement, the court
sees all the evidence
2) If yes (entire), the court excludes all other evidence
 More flexible
Canadian Courts: undecided, still open to traditional version: where written
appears on its face to be complete, parole evidence will be excluded.
More and more, closer to UK/US version
Many exceptions in application of traditional rules, which allows parole to
become an evidence to add to the agreement
Terms re Enforceability
Condition precedent (formal oral promise that the sale contract will be
signed now and that the seller will perform an action before the good is passed
over)
Passing of consideration (One contract was the consideration of the other
contract (interdependent contracts)
Collateral Contracts
Oral undertaking given in return for executing written agreement
Supplementing agreement or even contradicting
Fraud, undue influence, mistake affecting formation, misrepresentation of
term
Subsequent oral agreements, evidence re waiver or promissory estoppel
CIVL “parole evidence rule”
2863 CCQ.
The parties to a juridical act set forth in a writing may not contradict or vary the
terms of the writing by testimony unless there is a commencement of proof.
2865 CCQ
A commencement of proof may arise where an admission or writing of the
adverse party, his testimony or the production of a material thing gives an
indication that the alleged fact may have occurred.
Comments: you need a "trampoline" given by the adverse party in order to
advance evidence that would otherwise be unheard by courts; the courts will not
hear all evidence as in COML
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Signed and Unsigned Contracts
 Rule in L'Estrange v. Glancob (English case): you sign it, you've agreed to it.
o "I didn't read it/I didn't understand it/I can't even read" are not excuses.
o Enforce predictability and stability: not allowing people to challenge
contracts under these excuses
o Comments: strong precedent, hard to overcome today; however, today,
people often don't read contracts and click "I have read the conditions; I
understood them and I agree". The policy of this case is therefore under
pressure because of commercial/service contracts.
 Ticket rule: If a person knows or should have known there were rules on the
ticket, he is bound thereby (Parker v South Eastern Railways (1877))
o The precedent case is discussed in some the cases readings assigned in
this class.
Facts
Issue
Holding
Reasoning
Ratio
Comments
Thornton v Shoe Lane Parking Ltd.
- Plaintiff went to a garage to park his car. Before entering, he took a parking ticket
from the machine. When plaintiff drove by the machine, the door of the garage
was automatically opened so that the driver can get into the parking lot.
- Plaintiff parked in the garage. When he went back to the garage to retrieve his
car, he suffered an accident.
- Plaintiff claimed damage from the parking garage owner (defendant).
- Defendant argued that the ticket included a condition “exempting them from
liability”.
Can a party be bound by a condition included in a ticket issued just when he
enters into the agreement/accepts the offer (plaintiff in this case accepted the offer
and entered into an agreement when he entered the garage)
No
- Offer was accepted before the condition in question (the exempting condition)
was presented to the offeree.
- “The offer was accepted when Mr. Thornton drove up to the entrance and, by the
movement of his car, turned the light from red to green , and the ticket was
[already] thrust at him. The contract was then concluded […].”
- Plaintiff could not be bound to the exempting condition because he could not
know that the ticket was “issued subject to it”.
- Also, the defendant (company owning the garage) did not do “what was
reasonably sufficient” to give the plaintiff “notice” of the exempting condition.
The party that is the offeror must give reasonably sufficient notice of the important
conditions such as an exemption of liability before the offeree accepts the offer.
The contract is formed when the plaintiff gets the ticket because there is no way
out once you've entered the driveway. However, the moment of the formation of
contract does depend on the circumstances.
Logic to the ticket rule: it's not too late for you to take notice of the conditions on
the ticket. You can withdraw from the contract then.
 However, in this case, the court decided that the contract was formed
when the ticket was taken.
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Facts
Issue
Holding
Reasoning
Ratio

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McCutcheon v David
 McC got his friend McSporran to ship his car with DMB
 DMB has a form with boilerplate conditions on the back that include an
exemption clause
 McSporran forgot to sign the form
 The ship sank, and the car was lost
Is the exemption clause still enforceable even though the contract was unsigned?
Does this contract (sinking) import the same conditions from the previous
dealings, in which the appellant did sign the Conditions document?
No
 Signed contract is conclusive, except in cases of estoppel
 Previous dealings do not matter that much
 Without knowledge of terms in the signed contract, there can be no
contract
 “you cannot have a contract subject to uncommunicated conditions the
terms of which are known only to one side”
 Just because one side has inserted conditions in previous transactions,
does not mean they are implied in future transactions
 McS never signed the contract, so its conditions are not valid
 Implied strict liability of carriers applies in absence of a contract.
 No implication can be made against a party of a term which was unknown
to him.
No implication can be made against a party of a term which was unknown to him.
Previous dealings in and of themselves are not proofs of knowledge of the terms.
How is this case related to the ticket case?
o There was a blank ticket with no conditions. Even if he knows in detail
what the usual conditions would be, he is not bound by them.
o If the ticket says "for conditions, see …", it would have been a sufficient
reference.
o Comments: It is an artificial line drawn by courts.
Incorporation
CIVL: external clauses
 In Consumer (1384 CCQ) and Adhesion (1379 CCQ) Contracts
Dell Computer v. Union des consommateurs
 1435 CCQ
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 of it.
 External clause through a hyperlink -> is it an external clause in the contract?
 Not external at all (as if the "external clause" is written on the back of the
contract), so the conditions of 1435 CCQ do not apply.
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Functional equivalence is used when analyzing contracts made on the
web.
It’s not the same as saying "the conditions are findable at this address during
office hours" (inaccessible), the conditions are easily available to consumer who
only had to click on a hyperlink.
o

2-What do the terms mean?

British Crane: "The judicial task is not to discover the actual intention of each party:
is it to decide what each was reasonably entitled to conclude from the attitude of the
other"
o This insistence on reasonable interpretation is found in other COML jurisdiction
cases (Carlill)
Similarities in interpretation COML&CIVL:
 Common sense
Differences
COML: not to look at actual intention of each of the parties
 Words mean what the reasonable listener would understand in context (normally
evidenced by the plain meaning of the words)
o Exception: limitation of liability clauses
o Last resort: Contra proferentem = the person who drafted the contract has
the opportunity to be sneaky, contract may be interpreted against him.
o General rules of legal interpretation:
o effectiveness (prefer the interpretation of the clause that makes the clause
valid)
o interpretation of whole document (more civilian)
o ejusdem generis (examples in a list have limitative effect)
o expressio unius (no etc. = elements not mentioned are excluded)
o etc.
CIVL: find the common intention of the parties (necessarily done through looking at the
actual intention of each of the parties)
 Content wins over form (1425, 1431)
o 1425 CCQ
The common intention of the parties rather than adherence to the literal
meaning of the words shall be sought in interpreting a contract.
o 1431 CCQ
The clauses of a contract cover only what it appears that the parties
intended to include, however general the terms used.
 Contract must have an effect (1428)
o 1428 CCQ
A clause is given a meaning that gives it some effect rather than one that
gives it no effect.
 Contract must be interpreted as a whole (1427, 1429)
o 1427 CCQ
Each clause of a contract is interpreted in light of the others so that each
is given the meaning derived from the contract as a whole.
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1429 CCQ
Words susceptible of two meanings shall be given the meaning that best
conforms to the subject matter of the contract.
No reluctance to look at the context
o 1426 CCQ
In interpreting a contract, the nature of the contract, the circumstances in
which it was formed, the interpretation which has already been given to it
by the parties or which it may have received, and usage, are all taken into
account.
o

Extrinsic aids to interpretation
COML








Original COML approach: "Absent ambiguity, the parties' intentions must be
discerned from the four corners of the document, and extrinsic evidence may not
be considered."
Prenn v. Simmonds (H.L. 1971) reflects on traditional approach: "The time has
long since passed when agreements…were isolated from the matrix of facts in
which they were set and interpreted purely on internal linguistic considerations"
(underlines added by me)
o Matrix of facts = way out from literal interpretation
Reardon Smith Line (H.L. 1976): "…the court should know the commercial
purpose of the contract and this is in turn presupposed knowledge of
the genesis of the transaction, the background, the context, the market in which
the parties are operating."
o Genesis: understand what leads to contract
Definition of factual matrix: Investors Compensation Scheme (H.L. 1998):
"Subject to the requirement that it should have been reasonably available to the
parties, [the factual matrix] includes absolutely anything which would have
affected the way in which language of the document would have been
understood by a reasonable man"
o Reasonably available = no underlying subjective and secretly held
reasons
Now:
Exclusion of evidence concerning subjective intention (as opposed to common
intention)
o Applicable in principle, but in practice overruled by "factual matrix"
Exclusion as a rule of prior negotiations, prior drafts etc., except to show
generally the aim and genesis of the contract as part of its factual matrix
Traditional exclusion of subsequent conduct and statements now disappearing in
Canadian law (may be viewed as valid oral variation, which becomes a new
contract)
o Nothing prevents a new contract that overwrites the terms of the original
contract, as long as there is consideration and other exigencies for
contract formation
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CIVL

2864 CCQ
Proof by testimony is admissible to interpret a writing, to complete a clearly
incomplete writing or to impugn the validity of the juridical act which the writing
sets forth.
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8. Implied obligations
Themes:
- Good faith in the common law and the civil law
Required reading:
- BCN v Soucisse, [1981] 2 SCR 339
- Houle v CNB [1990] 3 RCS 122
- Provigo distribution v Supermarché ARG, [1998] RJQ 47 (CA)
- McKinlay Motors Ltd v Honda Canada Inc [1989], 46 BLR 62 (Nfld SC)
- Martel v Canada, [2000] 2 SCR 860
- Transamerica Life Canada Inc c ING Canada Inc, [2004] 68 OR 457 (CA)
- D. Kennedy, “Form and Substance in Private Law Adjudication” (1976) 89 Harv
L Rev 1685 at 1728-1737
- Draft Common Frame of Reference, ss. II.-8:101: “General Rules”, II.-9:101:
“Terms of a contract”, II.-9:104: “Determination of price”, s. III.-1:103: “Good
faith and fair dealing”
Recommended optional reading:
- CCQ, Arts 6, 7, 1375 (for a broader view of good faith in the CCQ)
- Baudouin, Jobin & Vézina, paras 196, 427-33 (implied obligations), paras 126-27,
132-33, 134-38, 155-58 (good faith)
- Smith, 280-81, 306-314
THEME
- Good faith in the common law and the civil law
CASES
- BCN v Soucisse, [1981] 2 SCR 339
- Houle v CNB [1990] 3 RCS 122
- Provigo distribution v Supermarché ARG, [1998] RJQ 47 (CA)
- McKinlay Motors Ltd v Honda Canada Inc [1989], 46 BLR 62 (Nfld SC)
- Martel v Canada, [2000] 2 SCR 860
- Transamerica Life Canada Inc c ING Canada Inc, [2004] 68 OR 457 (CA)
Implied terms




Not always distinguishable from "interpretation"
Some terms obligations are implied by the effect of law, which is why they are
treated differently
Somewhere between law, intention and fact
Confusion is fostered by cases (watch out): hard time distinguishing law and
intention
Why imply terms to contract?

Contracts can rarely be treated as complete
o Not all facts are known
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Future is uncertain
Negotiation cost/likelihood of use (not worth investing)
Focus on compliance not breach (trust is important in business negotiations,
businessmen don't want to focus on possible problems but on positive
achievements)
o Fragility of deal negotiation (hard to come to an agreement, don't want to raise
possible problems)
Courts will use context as source of terms where needed
o
o
o

Immediate and broader context (link with topic 7 interpretation)


Genesis and factual matrix focus on what passed between the parties, including
"subjective" usages or courses of dealing/course dealing (COML)
o "subjective" usage = way in which people are used to doing things
o Issue in British Crane
Broader context includes "objective" usages or custom usage (COML), industry
practices evolving independently of the parties, and legal approach to contracts, or
legal context
o Usage in particular industry/region/country: ways of doing things that are so
embedded in the area that they nearly become law
o Legal context (broader than relationship btw the parties); eg. Contract of sale is
concluded under law valid at that time
Implication of terms/obligations
2 starting points in Canada:
CIVL
 1434 CCQ
A contract validly formed binds the parties who have entered into it not only as to
what they have expressed in it but also as to what is incident to it according in its
nature and in conformity with usage, equity or law.
Canadian COML
 SCC decision in MJB Enterprises v. Defence Construction (1999) (not in case book)
o Based on custom or usage
 Not really distinguished in case law
o As incident of a class or kind of contract
 broad context, legal & industrial
o To give business efficacy to a contract (eg. Good faith) or as otherwise meeting
the "officious bystander" test as a term which the parties would say, if
questioned, that they had obviously assumed
 Officious bystander: both parties have to say that they would have obviously
assumed the term which implication is in question
Factual context
Context, Course of dealing, Usage
 COML: British Crane Hire Corp (see 7-interpretation)
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England
Facts
Judicial
history
Issue
Holding
Reasoning
Ratio
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British Crane Hire (P) v Ipswich Plant Hire (D) [1975]
o Defendants urgently required a crane, appellants quickly supplied one.
o Arrangements made over the phone
o Two previous transactions between parties, although IPHL manager
who ordered crane unaware of them
o Crane arrived and used before written contract signed
o First mishap: driver drove crane over marsh despite IPHL’s manager
telling him to wait for navimats, crane sank, removed expensively
o Second mishap: navimats arrived but machine sank into marsh again
The court of first instance found that the second mishap resulted from a
fault of the defendants who should have pointed a safer road to the
driver. The defendants appealed.
Who has to pay for the second mishap?
Appeal dismissed.
o The incident happened by bad luck, it is not caused by anyone’s fault.
However, the plaintiffs’ claim still succeeds on a different ground.
o Although previous dealings irrelevant, both parties are in the same
trade and are of equal bargaining power
o Defendants themselves use similar conditions when hiring out cranes,
both parties used a variation of a standard form
o Therefore conditions are incorporated into the contract by implication
(because both parties AWARE of them)
o Common understanding may be derived from conduct of parties: crane
requested urgently, delivered quickly, on the assumption that defendants
accepted plaintiff’s terms.
Sachs:
o Would be different if parties were from different walks of life
o Conditions of contract “are reasonable; and they are of a nature
prevalent in the trade which normally contracts on the basis of such
conditions.”
Where consent is not determined, knowledge of terms is necessary for
their implication into a contract. Knowledge requirement is satisfied by
the fact that conditions were part of industry standard.
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Industry Usage vs Standard
o Usage must be proved
o Standard is treated as matter of fact in court
 Phone conversation
o Not "course of dealing", but common understanding derived from parties'
conduct
 Implied terms/usages
o Implied term that the lent crane must be returned at the end of the period of
time.
CIVL: 1426 (interpretation of contract) refers to usage
[OBJECTIVE] USAGE
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COML
 Georgia Construction Co v. Pacific Great Eastern Eastern Railway Company (SCC
1929): "Usage…may annex an unexpressed incident to a written contract; but it
must be reasonably certain and so notorious that
 Question of fact which must be proved by evidence; reference to a standard practice
is not sufficient
CIVL
 1434 A contract validly formed binds the parties who have entered in to it not only
as to what they have expressed in it but also
Comment: sometimes, not easy to say whether the usage is "implied in term" or "implied
in law"
Usage & Implied Term
 Usage looks like customary law
 Especially if made to apply irrespective of parties' intent or knowledge
 UNIDROIT 1.9: "The parties are bound by a usage that is widely known to and
regularly observed …
o Usage must be law then…?
 But it is generally given effect as part of contract: as implied term
 That is what makes them relevant in an international contract irrespective of
governmental parties.
Exercise: hierarchy of rules (same for COML and CIVL)
Default legal rules, mandatory legal rule, course of dealing, written contract term, usage
1. Mandatory legal rule (derogation is not possible)
2. Written contract term (the main part of the law of the parties, intent, meeting of the
minds)
3. Course of dealing (law of the parties)
4. Usage ("default rule" but can be excluded by contract)
5. Default legal rule (derogation is possible)
Legal context
Implications from known legal categories of contract
CIVL: nominate contracts (contracts that receive special rules in CC, some will depart
from general rules, some are supplements)
 1377.
The general rules set out in this chapter apply to all contracts, regardless of the nature.
Special rules for certain contracts which complement or depart from these general rules
are established under Title Two of this Book (Nominate contracts, 1708ff)
Nominate vs Innominate
 N: precisely defined and regulated and correspond to common economic activities,
eg: sale, lease, gift, employment, insurance
 Innominate contracts include all other contracts and are governed by the general
provisions on contract
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
The distinction is important for courts to apply different rules about implied terms.
Judges may use analogy to apply rules to a contract very similar to a nominate
contract.
 Evolution: arbitration agreement was added in 1986 (2638 CCQ)
COML: "nominate" = "class" or "kind"
 "Nominate" contracts also a fact in the COML, with terms implied or imposed by
statutory or common law for certain kinds of contract
 Statute Law, eg.: Ontario Sale of Goods Act: quality and fitness for use condition
 Common Law (case law): MJB Enterprises v Defence Construction (SCC 1999):
Implication in 3 cases
o Based on custom or usage (
o As incident of a class or kind of contract
o To give business efficacy to a contract or as otherwise meeting the "officious
bystander" test as a term which the parties would say, if questioned, that they
had obviously assumed
 Officious bystander and business efficacy were 2 tests before, Canadian
case law brought the 2 as 1.
 Business efficacy is narrower now: necessary for business contracts to
work
 Eg. In both CIVL and COML, employment contract implies duty of loyalty to
employer and safe conditions for employee
Suppletive or Default vs Mandatory
CIVL
 Majority of rules are suppletive (terms applicable by default)
 Some are mandatory (terms that will apply in all cases)
 9 CCQ
In the exercise of civil rights, derogations may be made from those rules of this Code
which supplement intention, but not from those of public order.
Good Faith and Fair Dealing
 Known and recognized as a general principle in all civil law jurisdictions, and now in
every international instrument dealing with contracts.
 Code Napoleon, art. 1834 (contrat = loi des parties), 3rd paragraph
"Elle doivent etre executees de bonne foi."
 Commonly accepted and applied internationally
COML
 Commonwealth jurisdictions still reluctant to recognized a duty of good faith as a
general principle
 US: included in UCC in the 50s, and in the Restatement 2d in 1981
o Restatement "definition": "Every contract imposes upon each party a duty of
good faith and fair dealing in its performance and tis enforcement" -> Good faith
in performance, not in creating the obligation -> reluctance to impose duty of
good faith on people who negotiate contracts
Canadian Law
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Mess: implied duty of good faith in many cases on many basis, but no general
recognition
Law reform Commission of ontario recommended legislation a general duty to
perform in good faith to brig together loose doctrinal strands
o Comments: however, no general principle established
Accepted at COMl for some contract: employment, franchising
o Eg: Honda dealership case.
o 2nd condition of implication "as incident to a special kind of contract"
Also accepted in 3 respects on a case by case basis (more generally, not for special
kinds of contracts):
o Duty to cooperate in achieving the objectives of the contract
 "courts will readily imply a promise… to do all that is necessary to secure
performance of the contract"
 Eg. Seller of the land says to promotor that the land will be subdivided for
the buyer to develop. Duty to do something to subdivide.
o Duty to exercise discretionary powers reasonably:
 One cannot exercise a contract right in a way that "substantially nullifies the
contractual objectives or causes significant harm to the other contrary to the
original purposes or expectations of the parties
 View on importance of contractual purposes
o Duty precluding evasion of contractual obligations
 One cannot do indirectly what one has agreed not to do directly.
Comments: the formulation "good faith" is not usually used, but the idea is the same.
If you put all together, it's a picture of general duty of good faith.
Common law courts may speak of obligation of “good faith” in order to mitigate
situation of unfairness. BUT there is no consistent and coherent theory of good faith
in the common law.
Newfoundland,
COML
Facts
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McKinlay Motors Ltd v. Honda Canada Inc.
Honda and McKinlay (MM) dealership have long-standing
relationship. MM has an excellent sales and service
record. (highest sales compared to other dealers)
At Honda’s request MM begins renovation, but it proceeds slowly b/c
MM is unsure that allocation of cars would remain steady or increase
to support expense of renovation
Honda changes method for allocating cars to one
which favours discretion over the mathematical formula. K of
Adhesion. MM’s allocation decreases.
As a result of reduced allocation, MM begins to suffer economic
difficulties and does not move forward with the expansion.
Eventually Honda terminates MM’s contract (primarily for failure to
renovate)
- McKinlay is suing on basis that reduced allocation of cars was an
act of bad faith(??) and constituted a breach of the dealership
agreement.
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Issues
Holding
Reasoning
Ratio
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- [Note that Honda did have the right to terminate the K “at will”.]
Is Honda’s conduct in bad faith? Is M entitled to damages?
Honda is liable for breach of contract; breach of good faith
requirement implied in K. Damages awarded for proven losses
arising directly from the breach.
• Poor sales performance clearly not a factor in termination
• No other major deal received the large inventory reduction that M
did
• Extrinsic evidence (manager’s comments, etc) indicates bad faith
• “It is obviously an implied term of any such agreement that the
parties act toward each other in their business dealings, in good
faith”
• M is entitled to the lost income suffered from the bad-faith
allocation of inventory.
Good faith is an implied term in contracts, where there is a long
relationship with a power disparity.
Court suspects that Honda put McKinlay in the disadvantageous position by
exercising excessive discretion to "punish" McKinlay because he didn't do the
renovations.
Reasoning comments:
o "obviously assumed" -> 3rd condition (officious bystander test)
o "an agreement of this kind" argument -> 2nd condition of implied terms (as
incident of a class or kind of contract)
Termination was clean but the allocation of cars was in bad faith. Don’t know
whether implied in law or in fact
Good faith in negotiation
COML reluctance to recognized a general duty of good faith in either sphere of
contracts (formation, performance)
Ontario,
Martel v Canada
COML
Facts
• M is landlord for Department of Public Works
• Lease is nearly up, with option for renewal
• DPW dicked around with M, and let his chance to offer a good deal
expire
• DPW put the contract to tender, and dicked with M some more
• DPW picked another tender because it was cheaper
Issue
Does negligence extend to pure economic loss arising from precontractual negotiations?
Holding
No.
Reasoning
Iacobucci & Major JJ
 Prospect of causing deprivation by economic loss is implicit in
negotiating environment
 Proximity creates a prima facie duty of care (present here)
 Policy reasons against a duty of care during pre-contractual
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negotiations
o Object of negotiation works against recovery – transference
rather than loss of wealth, absence of harm on a social scale
o Could deter socially and economically useful conduct
o Interject tort law as after-the-fact insurance against failures to act
with due diligence or to hedge the risk of failed negotiations
through the pursuit of alternative strategies or opportunities
o Extending negligence into commercial negotiations would give
the court a regulatory function scrutinizing minutiae of precontractual conduct
o Would bring excessive litigation
No duty to bargain in good faith in Canadian law.
Ratio
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Rui Gao
The question if whether a duty to care can be imposed on the negotiation
1 analysis approach is offer and acceptance; tendering clauses, do they constitute
an offer? 2 steps process: pre-contract about the bidding process, then a separate
contract which is about the substantive contract (in this case, a lease; in CUQ vs
CSB, the construction contract)
Contract A (pre-contract) imposes obligations of fairness, to deal equally with all the
bidders.
Whether tortious liability can be imposed on parties negotiating.
o Proximity (Donoghue v Stevenson) is found here. The parties have an existing
contractual relationship which qualifies for the concept of proximity.
o What is missing to conclude that there is duty to care? Policy considerations
COML
Facts
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Issue
Holding
Reasoning

TransAmerica Life Canada Inc v ING Canada Inc
ING put NN Life up for sale
TA bought a bank (NN Life from ING)
TA, in its due diligence, found the band it was going to purchase had
issues
After the purchase, TA sued ING for not telling it about the issues
(misrepresented the value of NN Life through errors in accounting
practices)
ING contented that TA knew of the errors and was "willingly blind" and
breached the implies duties of good faith
Is there a duty of disclosure, based in good faith, in negotiations?
Open to Debate
Majority (O’Connor A.C.J.O) says it is up for discussion and should be
heard in court.
Dissent (Laskin J.A) says the equality of bargaining power means good
faith doesn’t apply and the whole thing is bullshit.
o ING seeks to use good faith to add to the contractual obligations
expressly agreed to by TA
o parties did not stipulate that TA had an obligation to disclose to ING all
facts that came to its attention
o ING cannot add such obligation to the TA, the relationship between
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Ratio
Commnets
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Rui Gao
the parties does not call for implying a duty of good faith
o This is not a contract between unequals where one party is vulnerable
to the bargaining strength of the other; both are large and powerful
insurers. The purchase agreement was sophisticated, detailed.
o The good faith duty was nowhere to be found in the agreement
o In the contract, neither party overlooked the question of disclosure. On
the contrary, disclosure obligations were specifically addressed and
imposed.
o ING, not TA, had a disclosure obligation during the Interim Period
o Presumably, if the parties wanted to impose the good faith obligation
on TA, they would have done that in the contract
o The good faith obligation was not even dealt with silence, it was
explicitly addressed in three places in the contract:
In negotiation of resolution of any dispute over the calculation of net worth
In working together to find a commercially reasonable solution to problems
caused by ING’s failure to obtain certain third party consents and waivers
In agreement on the text of any required pre-closing public
announcement-> no room for more implied duty of good faith
o The agreement seems to crystalize TA’s obligations in the Interim
Period
o In Canada, courts can imply a term in a contract in 3 situations:
3. Based on custom or usage
4. As the legal incidents of a particular class or kind of contract
5. Based on the presumed intention of the parties where the implied term
must be necessary “to give business efficacy to a contract or as
otherwise meeting the ‘officious bystander’ test as a term which the
parties would say, if questioned, that they had obviously assumed
o Only the last situation seems to fit this case, however, ING has not
asserted that such an implied term is necessary to give business
efficacy to the contract/ this term is one the parties would say they had
obviously assumed
o There is nothing obvious nor necessary in the implied term pleaded by
ING, it is inconsistent with the entire agreement
No duty of good faith in negotiations between two powerful sophisticated
actors and when the term in question is neither obviously assumed nor
necessary to the contract.
Tricky, unclear law
Paragraph 99: reiterating the conditions to imply terms by factual context (usage,
special contract, officious bystander)
Laskin J dissenting paragraph 93: in order to imply duty of good faith, you have to
find that the parties have not carved it out, but there are 3 clauses of good faith in
the contract, but not in the audit. Exclusio Unius (covered for the elements
mentioned, not for others)
"Necessary" -> business efficacy
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The parties didn't intend to include good faith of audit, otherwise they would have
included in the relevant clauses.
Comments: shocking that the parties could "not intend to include duty of good faith"
while internationally, the general rule is that this duty cannot be excluded.
CIVL
Provisions about how you exercise your rights
 6 CCQ
Every person is bound to exercise his civil rights in good faith.
 7 CCQ
No right may be exercised with the intent of injuring another or in an excessive and
unreasonable manner which is contrary to the requirements of good faith.
Good Faith re Obligations (CIVL)
Book on Obligations (not under title of contracts)
 1375 CCQ
The parties shall conduct themselves in good faith both at the time the obligation is
created and at the time it is performed or extinguished.
 Comments: before contract is created, and at termination
 Gives rise to ECO liability during negotiation (contrary to COML where there is no
liability and no duty of good faith during negotiations)
Meaning of "good faith"
 Subjective (opposed to bad faith)
o Malicious intent/a picture of the state of mind -> Traditionally
 Objective, broader (defined in Civil Code)
o Reasonable, loyal and honest
 Comments: "reasonable" standard as in so many other instances; then
again, what's reasonable? Equally profitable/fair for both parties? No, not
about the deal of the parties, but the behavior toward the other party
Status
 Generally mandatory (cannot be departed from in principle)
 Some of its applications can be excluded by contract (eg: reasonable notice)
Illustrations: CIVL cases
Qc
BCN v Soucisse (BCN = banque canadienne nationale)1981
Facts
• Dr. Groulx entered into a suretyship with the bank to cover existing and
future debts. He dies and the bank tries to collect debts from his heirs
(respondents).
• The respondents were unaware of the suretyship. The issue is only
about repayments for debts contracted after the surety’s death.
• When Groulx died, the bank contacted the heirs, but did not inform them
of the option to revoke the surety
• Debts were accumulated against the surety subsequent to the death
• BCN tried to call in the surety
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• Surety : A person who is liable for paying another’s debt or performing
another’s obligation. He does not receive any compensation for assuming
liability, and is directly liable to the creditor.
Issue
Is the contract enforceable despite BCN's bad faith?
Holding
No
Reasoning o Court of appeal concluded that only a surety of existing debts is a true
suretyship.
• Surety: incidental contract which necessarily assumes a principal debt
• Consent must exist each time a principal debt is created
• So, since heirs were unaware of suretyship, never gave consent for
advances made by bank to debtor
o Although Beetz upholds CA’s decision, disagrees with its reasoning
• Letters of suretyship signed by Dr. Groulx explicitly stated that suretyship
was to be binding on his estate and legal heirs, unless revoked by his
estate or legal heirs.
• A suretyship does not distinguish between present (obligation of
settlement) and future obligations (obligation of coverage).
• Issue in case is a suretyship, CCLC art.1937 must be applied to it:
• The obligations of the surety pass to his heirs
• Purpose of this type of surety is to avoid having to renew obligation every
time new credit is extended (so definitely do not need to have consent
every time)
o In Quebec, fin de non recevoir may be used, instead of ordering bank to
pay damages.
• Fin de non recevoir: A kind of peremptory exception, by which someone
defending an action can have it dimissed, without going into the substance
of the claim.
• Like estoppel in common law
o In case at bar, bank was at a fault by not disclosing existence of the
suretyship to the heirs
• So heirs did not have a chance to revoke suretyship before the new
credit was extended
o Bank had obligation, resulting from principle that agreements must be
performed in good faith, to inform heirs as soon as it learned of surety’s
death
o Bank unilaterally altered the situation to its advantage
• Sounds like unjust enrichment
o A fin de non-recevoir must be used to prevent Bank from benefitting
from their fault of not telling heirs about suretyship
Ratio
A court may imply a term of good faith into a contract. A fin de nonrecevoir may be used to prevent benefitting from that fault. Partial info is
misleading info.
 Duty to inform that the letters were revokable. The bank by not telling the heirs
increased its security because the heirs can reject the inheritance.
 Remedy: still alive; courts wonder whether the remedy is the provision itself
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Here, "fin de non recevoir" = you may have a right, but the court will not hear
your claim because you've been on bad faith.
Partial information is misleading information.
o
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Qc
Facts
Issue
Holding
Reasoning
Ratio
Provigo Distribution v Supermarché ARG [1998] RJQ 47 (CA) à CB 413
• ARG owned 4 food stores in Estrie, three of them are in Granby.
• P uses the segmentation strategy to achieve considerable success.
Following this strategy, P opened a discount store in Granby, Heritage.
The company owns and manages the store at the same time.
• P signed an agreement with ARG to bring ARG under the P brand, but
ARG would still be independently owned (like a franchise)
• ARG had to buy 90% of its stock from Provigo at regular Provigo prices
• Because ARG was held to previous pricing
agreements, Heritage was able to massively undersell ARG
Did Provigo act in good faith?
No
• At beginning of the trial, P opposed to provide many documents
regarding its strategy and financial situations for the following 4 reasons:
(but the objection was dismissed)
1. These documents are not part of the res gestae
2. Some of them are prior to the litigation
3. They are not statements of intention
4. They are not pertinent
• Franchising agreement has the following
characteristics: contrat à titre onéreux, synallagmatique et d’exécution su
ccessive. Il est parfois aussi un contrat d’adhésion, car il regroupe des
clauses types dont le contenu n’est pas ouvert à discussion.
• Franchising agreement is an ongoing agreement that involves reliance,
so there is an implied duty of good faith
• In the contract, there is no explicit clause that imposes obligations upon
the franchisor. However, the obligations in a contract are not limited to the
expressed terms.
• One of the fundamental obligations of the franchisor is to collaborate
and offer technical and commercial assistance.
• CCQ 1376 mentions the concept of good faith (but not necessary to
mention it in this case, for there is obvious civil fault)
• P retained the right to do whatever it wanted, like open discount stores
to compete with itself
• The duty of good faith implied a duty to collaborate with the franchisees
to minimize harm to their
interests.
• Causation: P not only failed to fulfill its duty, but used its expertise to
improve its own competitive advantage. Experts showed that P’s acts did
cause the loss suffered by ARG. Causation is well established.
Franchise agreements imply duty of good faith not to harm the franchisee
without notice.
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Minimum loyalty because affiliation contract forms a partnership
SCC
(CIVL)
Facts
Issue
Holding
Ratio
Comments
Houle v. National Bank of Canada
- Respondent (Houle Bros.) were shareholders in their family company
- Company had a credit line with Appellant Bank – security for loan
consisted of letters of surety The loan was a DEMAND loan, thus bank
had a K-ual right to recall with NO notice.
- 20 days after signing of trust deed, Appellant bank decided to recall
loan. It was aware of the impending negotiations of sale of the company
to new shareholders.
- Bank informed company of loan recall and took possession of the assets
three hours later
- Respondents closed sale of company but received $700,000 less than
expected. They are claiming this amount from the Appellant bank.
Did the bank abuse its contractual right? If so, can the Respondents as
third parties to the contract, ground an action in contractual liability?
Recall of loan without a reasonable delay amounted to an abuse of bank’s
contractual right to recall loan with no notice.
Respondents must ground action in extra-contractual liability. Damages
for $250,000
Abuse of a K-ual right is a breach of the implied K-ual obligation of good
faith. Criteria for abuse of K-ual right is not malice or bad faith but
“reasonableness”. Implied obligation to exercise K-ual right in a
reasonable manner. Now codified in Art 7 CCQ.
- The doctrine of abuse of contractual rights is part of Quebec civil law.
- The abuse of a contractual right gives rise to contractual liability; but,
third parties to the contract have no right of action in contractual liability.
- The bank did not abuse its contractual right to recall the loan (it had
reasonable explanation for doing so) however it abused its contractual
right to realize securities after the demand for payment was not met. The
contractual right was abused because the right was exercised
unreasonably (without sufficient delay) when the bank knew of the
impending sale of the company.
The Respondents are third parties to the contract. It is not appropriate to
lift the corporate veil. The Respondents must make a claim in extracontractual liability. The banks impulsive and detrimental repossession
and sale of the company’s assets after such a short and unreasonable
delay, while fully aware of the respondents’ imminent sale of their shares,
was a fault entailing its liability for the ensuing direct and immediate
damage caused to the shareholders.
Different from Soucisse as the Bank had an explicit right to call the loan
on demand. Easier way out would have been to pierce the corporate veil
and sue contractually or use 1053/1457. The code codifies jurisprudence
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through articles 6 and 7 and 1375.
Theories (3) re Abuse of rights
1. Individualist theory: doesn't look further than individual interests -> malice and in
bad faith in the exercise of your rights (traditional)
2. Social function theory of rights (Josserand): purposive look, if the person acts
contrary to what is expected of him based on his social function, there's been abuse
of rights regardless of reasonableness and intent (strict)
3. Reasonable use of right theory (reasonableness, basis of Qc objective good faith
definition); when a right is not performed in terms of the prudent or diligent
individual
o This is the theory adopted by SCC
Thoughts on Kennedy
 Formal justice VS substantive justice
 Predictability vs flexibility
 Narrow rules vs general principles
 Individualistic vs altruistic (community interests)
 Reciprocity (market) vs common aims (common good)
o Reciprocity: Fuller
Theory of Abuse of rights is central.
Contract law must change to include notion that K obligations must be performed within
the broader confines of Good Faith.
- Express K’ual rights and NOT a fundamental right.
Differences between Soucisse and Houle:
 Soucisse adds an obligation. Houle overrides a right. In this way Houle goes
further than Soucisse. The K, here, was not silent. It gave the bank expressly the
right to do what it did.
 If you imply an obligation of good faith which contradict a clause in the contract,
what trumps? Implied obligation of good faith overrides or tempers the express
condition.
Difference btw Good faith and Abuse of Rights
 The context in which doctrines are used is different. Abuse of rights only occurs if
there is indeed a right being abused.
 Similarities include: Good faith is the overriding concept. When one implies the
obligation of good faith in contradiction of a contractual right, that it becomes an
abuse of rights case. Notion of abuse of rights does not stand on its own – it is a
particular application of the good faith doctrine.
Difference btw Acting in Bad Faith and Not acting in Good Faith
• Old good faith test = If malicious and intention test (as in Civil prior to 1971 case).
Good Faith
• Test has changed. It is now the test of reasonableness.
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• There is a presumption of good faith in Art 2805.
Bad Faith
• Bad Faith is intentional and malicious. Bad faith is now relegated to fraud or other
specific K’s (e.g. insurance K’s)
• This difference and the new standard is firmly entrenched as of Houle. Now
entrenched in Art 6 and Art 7 CCQ.
Recap:
 CIVL: general principle of implied duty of good faith in all obligations, at all stages of
formation of contract
o The basis of the obligation of good faith is not the contract, because remedy can
be found under extra-contractual liability.
o Abuse of rights is a sub-concept of good faith even though it has its own
provisions in the CCQ
o Houle: good faith is acting reasonably, loyally, with honesty (objective definition
of good faith)
o Generally treated as a matter of public policy (impossible to validly exclude it by
contract), but there is a margin of parties autonomy on the basis of which they
can limit it by defining its application in their contract.
 US: duty of good faith in performing the contract which is legislated
 Rest of COML: reluctant to adopt good faith as a general duty in the performance of
all contracts. It is still seen as a term that may be implied in particular contracts.
o The general conditions for implying a term in a contract thus apply in assessing
whether good faith is an implied term.
 Usage
 Incident of a kind of contract
 Eg of how it implies good faith
 Franchising contracts/dealership agreement are where parties don't
have equal bargaining power. Good faith is more easily considered
as an implied term.
 Officious bystander test (obviousness of the implied term) / business efficacy
(term is necessary for it to work out well)
o Canada/COML: 3 grounds to recognize implied term of good faith at
performance stage ONLY; all together form a trend, but which is not based
on established law
 the parties have the duty to cooperate to achieve objectives of the contract;
 discretionary power based on contract must be exercised reasonably;
 parties can't attempt to circumvent contracts
o Mandatory vs non-mandatory implied term: sometimes, good faith can be
mandatorily implied and sometimes not, which means the parties can exclude
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IV THE KINDS OF AGREEMENTS THAT ARE NOT ENFORCED
9. Public policy / ordre public
Themes:
- The limits of private autonomy
- How contracts relate to, and promote or inhibit, “community values”
- Nullity of objectionable contracts
- Objectionable clauses in otherwise valid contracts
Required reading:
- Brasserie Labatt Ltd v Villa, [1995] RJQ 73 (CA)
- Cameron v Canadian Factors Corp, [1971] SCR 148
- In the Matter of Baby M, 109 NJ 396 (1988)
- X v B [2009] RJQ 445
- Rakhi Ruparelia, “Giving away the ‘Gift of Life’: Surrogacy and the Canadian
Assisted Human Reproduction Act” (2007) 23 Can J Fam L 11
- Draft Common Frame of Reference, ss. II.-7:301: “Contracts infringing
fundamental principles”, II.-7:302: “Contracts infringing mandatory rules”
Recommended optional reading:
- CCQ, Arts 8, 9, 1411, 1413 (public order in the code, more generally, and
contracts specifically)
- Baudouin, Jobin & Vézina, paras 135-108, 124-25 (public order), para 139 (link
between good faith and public order), paras 352-53 (object), paras 356-64 (cause)
and 369 show how public order and object/cause of content connect
- Smith, 245-47, 267-68
Distinctions
 Public Policy, Ordre public, Public Order, bonnes moeurs
 Ordre public de protection vs direction
o Direction: integrity of the state, order in society in literal meaning, good
morals
o Protection: protect people with less bargaining power (eg. Consumers),
quite often legislated provisions (eg. Consumer Protection Act)
o The distinction is useful in distinguishing effects of provisions
 Protection: the legislated provisions can only be invoked against
powerful parties
 Direction: any term that is against public order of direction would be
void.
o The distinction is rendered difficult by horizontalization
 Horizontalization: apply and include human rights
Fundamental principles (direct and indirect)
Eg. Quebec Charter
Direct application
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Contracts are void if they include discrimination (eg) by specific reference to provisions
of the charter.
Art. 12.
No one may, through discrimination, refuse to make a juridical act concerning
goods or services ordinarily offered to the public.
Art. 13.
No one may in a juridical act stipulate a clause involving discrimination.
Such a clause is without effect.
Indirect application
Through public order; even if the charter articles doesn't apply to a private relationship,
the provisions are still relevant to court decisions because judges consider their
underlying principles as public morality and apply them. The contract would be void if it
is inconsistent with public morality/order.
Limits to parties' autonomy
Difficulty brought is enormous
These human rights are defined broadly. If read literally, the actual right
would impede efficient solutions/way of doing. Eg. By the charter, it is
impossible to waive the right to integrity of the person/body. Therefore, it
would be impossible to undergo any medical operations if the provision is
broadly read.
What is read is not what can be done. There must management in reading
human rights provisions.
Common Frame of Reference: experiencing the same difficulty in
integrating human rights (as a part of public policy) in general obligations.
COML concepts
Illegality without reference to statute, on the basis of common law (droit common)
Statutory illegality
Mutual link and influence between common law and statutes (only one "public policy"
which should be the same by common law and by legislation)
Most famous judicial description: "Public policy is a very unruly horse, and when once
you get astride it you never know where it will carry you." (Richardson v. Mellish (UK
,1824)).
Baby M
US
Facts
Issue
Baby M
"William Stern (Stern) and Mary Beth Whitehead (Whitehead) entered into a
surrogacy contract. The contract stated that Whitehead would become pregnant
through artificial insemination using Stern’s sperm, carry the child to term, bear
it, deliver it to the Sterns, and do whatever was necessary to terminate her
maternal rights so Mrs. Stern could adopt the baby. Stern agreed to pay
Whitehead $10,000.00 after the child’s birth, on its delivery to him. Though she
did not want to, Whitehead turned the baby over to the Sterns after its birth. The
Sterns gave the baby back to her when she said she could not live without it,
but they believed she would give the baby back to them. When it became
apparent that she would not give the baby back, Stern filed a complaint seeking
enforcement of the surrogacy contract."
Can a surrogacy contract be valid?
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Holding
Reasoning
Ratio
Comments
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Rui Gao
No
The law prohibits giving or accepting money in an adoption. Baby selling
exploits all the parties involved. It does not regard the interest of the child or the
natural mother.
Parental rights can only be terminated when there has been a voluntary
surrender of a child to an agency or when there has been a showing of parental
abandonment or unfitness. A contractual agreement to abandon one’s parental
rights will not be enforced by the court.
No surrender of custody of a child can be valid unless the surrender is made to
a state agency and meets certain formalities.
The contract’s basic premise, that the natural parents can decide in advance of
birth, which one is to have custody of the child, bears no relationship to the
settled law that the child’s best interest shall determine custody.
There are, in a civilized society, some things that money cannot buy. It is
against public policy of the state to buy and sell babies.
A contract that is contrary to public policy cannot be enforced.
Interesting that the agreement was concluded by the bearing mother fully
willingly, but she was uninformed. There is the idea of protecting the integrity of
the consent.
The bearing mother's consent was anyway without importance. There are things
that money can't buy, even with the full consent of the "seller". Public policy
ensures fairness and put aside consent as irrelevant.
The idea of link: public policy as seen by common law courts vs as in
statutes
Courts rely on multiple statutes to define what public policy is on this matter:
finding coherence between and reconciling common law rules and statutes,
and formulate a legal rule
Adoption statute: to the possible extent, children should be brought up by
both of their biological parents
Baby theft: forbidden to pay to get a baby
Common law rule: custody should be decided based on the baby's best
interests
Surrogacy contracts are illegal: rights of parents are equal to those of the
child
Public order in the Code (CIVL)
8 CCQ. No person may renounce the exercise of his civil rights, except ot eh extent
consistent with public order.
9 CCQ. In the exercise of civil rights derogations may be made from those rules of this
Code which supplement intention, but not from those of public order.
1411 CCQ. A contract whose cause is prohibited by law or contrary to public order is
null.
1413 CCQ. A contract whose object is prohibited by law or contrary to public order is
null.
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Conditions: Baby X, 541 CCQ, 543 CCQ
Reminder: cause and object
Cause of contract: subjective reason of the parties and concrete (eg of an illegal cause
of contract: renting out furnished apartment for the purpose of prostitution)
- May not be written in the contract. It will likely not be stated explicitly if it is illegal.
Evidence needs to be provided to prove that the actual cause of contract is
different.
- Cause of contract of one party may not be known by the other party. Issue: which
party can raise question about validity of contract?
- Is the main concept that judges can rely on to annul a contract, (the other 3 concepts
are not that useful)
- Entirely different from consideration (COML), which is relevant in many other matters
in contracts. Cause of contract is only relevant in assessing validity of contracts on
public policy matter. In CIVL, cause is required in formation of contracts, but there is
always a cause. The only question is whether it is legal.
Object of contract: juridical operation envisaged by the parties at the time of its
formation
Cause of obligation: objective reason for the obligation: abstract and identical for similar
contracts (eg. Liberal intent for gift)
Object of obligation: prestation (1373 CCQ)
Baby X case
Qc
Facts
Issue
Holding
Reasoning
X v. B
B lives with X’s father and is infertile.
B and the father located a surrogate mother (S) and concluded a verbal contract
with her to pay $20,000 for the baby.
The child was conceived through artificial insemination (with the sperm of X’s
father).
During pregnancy, the biological mother maintained regular and frequent contact
with the couple.
The couple gave the $20,000 to the surrogate mother.
They decide to have S not sign the birth certificate of X, so that the father will be
the only legal parent, allowing him to consent to B becoming X’s mother by
adoption. The birth certificate was produced according to the agreement.
Two days after the birth of the baby, the surrogate mother signed a special
adoption consent, in which she identified herself and B’s spouse as the child’s
biological parents. She also consented expressly to give the child to B.
They argue that this course of action will best serve the child’s interests.
Was X's adoption of B is legally valid?
No
541. Any agreement whereby a woman undertakes to procreate or carry a child
for another person is absolutely null.
The judge opens with a long, boring and ultimately irrelevant discussion of various
laws, doctrines and controversies related to surrogacy.
He starts the important part of his argument at para. 54,
noting “l’adoption ne peut avoir lieu que dans l’intérêt de l’enfant et aux
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conditions prévues par la loi.” (a.543) He interprets the second condition broadly,
noting that it includes both the spirit and the letter of the law, and that this case
went beyond such conditions.
In other for the adoption to be valid, prior agreements and procedures must also
be valid. In this case, they are not, because they are against public order (not in
the sense of procedural law, but substantive law).
The proof reveals a “conspiracy” to carry out a paid surrogacy contract and get
around the law against such contracts by not completing the birth certificate; and
since Québec does not have a presumption of maternity, a blank certificate
guarantees hassle-free adoption by B [para. 66 is particularly evocative]. This may
be in the interests of the child, but the law cannot allow the child’s interests to be
instrumentalized and used to avoid concerns of public order [para. 69 is pretty
important].
Contracts contrary to public policy are of absolute nullity.
541 CCQ prohibits surrogacy. 543 CCQ sets out conditions of adoption.
The judge: you cannot use 543 to indirectly achieve what's illegal if done directly.
"aux conditions prevues par la loi": conditions of adoption are not sufficient,
general conditions of law must be fulfilled for adoption to be valid.
Similar to Baby M: uphold societal values and balanced with child's interest.
Determining Public Policy in CIVL
"read" by courts by gathering up public morality requirements and taking into account
existing laws and statutes (same as COML)
Status of written provisions not always indicated: mandatory or default (same as
COML)
May be expressed in terms of possible exclusion (i.e.: non-derogability)
Eg. 1474 CCQ.
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 shows gross
recklessness, gross carelessness or gross negligence.
He may not in any way exclude or limit his liability for bodily or moral injury
caused to another.
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.
He may not in any way exclude or limit his liability for bodily or moral injury caused to
another.
May be implicit
6 CCQ.
Every person in bound to exercise his civil rights in good faith.
Determining Public Policy in COML
Agreements to commit unlawful acts (crime, tort, fraud)
Agreements facilitating immoral conduct or undermining the institution of marriage
Undermining institution of marriage: promise to mary someone after
divorce/death of the actual spouse
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Agreements undermining the administration of justice (paying witnesses, paying one not
to press charges, Champerty)
Agreements undermining state interests (influence peddling, constraints on public
functions, trading with the enemy, restraint on free press)
Covenants in restraint on trade (non-competition clauses are now accepted but only
when it is reasonably limited in time and geographical scope)
Remedy in COML
Principle: illegal contracts are unenforceable
"No Court will lend its aid to a man who founds his cause of action upon an immoral or
illegal act" (Holman v. Johnson (1775) H.L.)
The court will not officially declare that the contract is void, it will only refuse to hear the
case.
Exception to the rule (link to difficulty of different subjective reasons to form the contract
in CIVL)
One party was unaware of the cause of illegality (eg. Renting the flat for
prostitution, landlord can still recover the rent)
One party is intended to be protected by the law making the act illegal (eg.
Consumer protection act protects consumers, not the retailers)
One party was victim of oppression, fraud, undue influence
One party has repented and resiled from the transaction before completion
(locus poenitentiae exception)
Court is however reluctant is giving a large scope to exception
Severability in COML
If you have a clause in a contract that is illegal, is the whole contract struck and
rendered illegal?
It is the same difficult exercise in constitutional review of a statute: only a provision is
unconstitutional, the whole act?
The contract will sustain (only the illegal clause will be void) in the following situations:
Remainder of the agreement can sensibly stand after excision of offending term.
Enforcement of the remainder of the agreement must be consistent with the public
policy or rule at issue
The traditional "blue pencil" test (which is still relevant where there is unequal
bargaining power; otherwise, use of notional severance increasingly frequent)
Blue pencil test: striking out some words in the contract to see if the contract still
makes sense
Only applies to written contracts
Notional severance: distinguishing some of the effects of the contract which are
unenforceable (for example, in some provinces)
Comments: courts don't want contract drafters to terrorize adherents by
writing clauses that are contrary to public policy and wait for courts to
reduce the contract to legally acceptable terms
General principle behind preference of notional severance over blue pencil test:
judges should not be writing the contract for the parties.
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Remedy in CIVL
1417 CCQ.
A contract is absolutely null where the condition of formation sanctioned by its nullity is
necessary for the protection of the general interest.
1418 CCQ.
The absolute nullity of a contract may be invoked by any person having a present and
actual interest in doing so; it is invoked by the court of its own motion.
A contract that is absolutely null may not be confirmed.
1419 CCQ.
A contract is relatively null where the condition of formation sanctioned by its nullity is
necessary for the protection of an individual interest, such as where the consent of the
parties or of one of them is vitiated.
1420 CCQ.
The relative nullity of a contract may be invoked only by the person in whose interest it
is established or by the other contracting party, provided he is acting in good faith and
sustains serious injury therefrom; it may not be invoked by the court of its own motion.
A contract that is relatively null may be confirmed.
Ordre public de direction: protecting overall societal value -> absolute nullity
Ordre public de protection: protecting particular groups of people (eg. Consumers) ->
relative nullity
Absolute nullity can be invoked by either party.
Relative nullity can only be invoked by protected party or a party that suffered harm.
Even if nullity is not pleaded, the court has the obligation to protect general societal
interest and therefore must intervene and decide upon absolute nullity case. It is not the
case in relative nullity cases.
Severability in CIVL (Code)
1438 CCQ.
A clause which is null does not render the contract invalid in other respects, unless it is
apparent that the contract may be considered only as an indivisible whole.
The same applies to a clause without effect or deemed unwritten.
The court may say: "clause without effect", "clause is deemed unwritten",
"inopposabilité" (cannot be used against a party but can be used against the other)
Qc
Faits
Brasseries Labatt v. Villa
En mars 1981, l'intimé, Pierre Villa, était engagé par la Brasserie
Labatt Limitée comme directeur général de la succursale de l'appelante à Québec.
À l'automne 1986, le poste de vice- président aux Affaires publiques à
Montréal devient vacant et lui est offert.
Les conditions de son engagement à ce poste
font l'objet d'un échange de correspondance entre lui-même et
le président de l'appelante, Pierre Desjardins (PD).
Lettre : Nous nous engageons à payer tes frais de déménagement à Mtl et
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nous débourserons les frais d'un appartement à Mtll jusqu'au 31 décembre 1986.
L'intimé loue un appartement, mais dans une lettre il fait état des difficultés qu'il a,
en début d'année scolaire, à
faire venir sa famille et suggère que l'échéance du déménagement soit repoussée
à mai 1987. PD agrée à cette demande le 20 octobre. Le 16 avril 1987,
le remplaçant de PD, Marcel Boisvert (MB) envoie une lettre à l’intimé.
Lettre :En octobre, il a été établi qu'une des conditions de votre nomination au
poste de VP affaires publiques, était que vous demeuriez à Montréal
avec votre décision de déménager à Mtl. A défaut de vous conformer
à cette condition votre emploi prendra fin.
L’ 'intimé répond : Vous m'imposez une condition d'emploi qui n'a jamais été négoci
ée. Il n'appartient qu'à ma famille de décider pour ellemême du choix de leur résidence.D’ici au
1er juillet prochain, j'établirai ma résidence permanente à Mtl, le
tout sujet aux indemnités convenues selon la lettre d'entente du 29 septembre.
Le 27 avril, intimé est congédié pour non-déménagement de part
la politique. L'intimé a poursuivi l'appelante en dommages-intérêts.
Question
Resultat
Analyse
Ratio
Le pourvoi porte à
la fois sur le droit de congédier et sur l'évaluation des dommages
Obligation est nulle; congédiement injustifié
Beaudouin—Condition est contraire à l'ordre public (art. 1373) et à l’art 10 de
la Charte droits et libertés qui interdit discrimination fondée sur l'état civil.
Congédier l'intimé pour défaut de
respecter l'obligation contractuelle qui lui était faite de déménager sa famille à Mtl,
est l'équivalent à le congédier parce qu'il est marié.
Paragraphe 21: "La condition est nulle parce qu'elle contrevient a l'ordre publique."
Gendeau—Cause du congédiement ne résulte pas de
son statut marital. L’obligation est contraire à l'ordre public
car l’employeur ne peut imposer à
son employé une façon de conduire sa vie maritale et familiale. La
clause viole l’art 5 de la Charte [protection la vie privée] donc, voila
un autre argument qui prouve que la clause contraire a l'ordre public.
TEST : Pour qu'une clause contractuelle soit discriminatoire et contraire à
la Charte, il suffit simplement que tel en soit l'effet.
Abusive clauses
Transsystemic example: the law is the same in COML and CIVL
Issue
Holding
Reasoning
Cameron v. Canadian Factors
 C’s contract with CFC included a non-competition clause for 5 years after he
worked there, extending to all Canada
 C quit CFC, started a rival company, stole its clients
Is the non-compete clause valid?
No, it is against public policy because it is too broad
Majority (Laskin J)
 Restraint covenants must be limited to time or space, and type of employment
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 Five year period is unreasonable and contrary to public order
Dissent (Pigeon J)
 Restraint clauses are interpreted restrictively
 a prohibition from representing a similar company is read to include a
prohibition against managing a competitor
 Restraint must limit either time or space, and type of employment (cannot be
too broad)
 This contract is limited to employment and space, time is unreasonable but
because he left the day after he’s fucked regardless what a reasonable amount
of time is.
Ratio
Restraint covenants must be limited in time or space. Unreasonable limits are
contrary to public order. Where the covenant is too harsh, it will invalidate the
contract (incentive to employers to draft reasonable contracts)
Comments The CIVL basis for Cameron is 2089 CCQ.
2089 CCQ.
The parties may stipulate in writing and in express terms that, even after the
termination of the contract, the employee may neither compete with his employer
nor participate in any capacity whatsoever in an enterprise which would then
compete with him.
Such a stipulation shall be limited, however, as to time, place and
type of employment, to whatever is necessary for the protection of the legitimate
interests of the employer.
The burden of proof that the stipulation is valid is on the employer.
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