Page 1 of 94
Remedies for Breach of Contract .................................... 8
Damages ......................................................................................................................... 8
The Three Categories of Damages .............................................................................. 8
The Compensation Principle ....................................................................................... 8
Peevyhouse v. Garland (diminution in value, essential vs. incidental, deterrence
against “windfalls”) ................................................................................................ 9
Radford v. De Froberville (essential vs. incidental, damages vs. equitable
remedies, unjust enrichment) .................................................................................. 9
Ruxley Electronics and Construction Ltd. v. Forsyth (economic waste,
introduction of non-pecuniary damages, consumer surplus) ................................ 10
Victory Motors Ltd. v. Bayda (supply and demand and entitlement to expectation
damages, precursor to mitigation)......................................................................... 10
Contract Law and Social Ordering ........................................................................... 11
LAW AND ECONOMICS ....................................................................................... 11
Other Aspects of the Compensation Principle .......................................................... 11
Anglia Television Ltd. v. Reed (pre-contract expenditures, uncertain expectation
damages) ............................................................................................................... 12
Bowlay Logging v. Domtar Ltd. (reliance damages exceeding expectation
damages) ............................................................................................................... 12
Chaplin v. Hicks and Kinkel v. Hyman (chance of a profit is compensable) ....... 12
Limits on the Award of Damages: Remoteness ....................................................... 13
Hadley v. Baxendale (reasonable foreseeability of loss) ...................................... 13
Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd. (application of
reasonable foreseeability concept) ........................................................................ 13
Implied Acceptance of Special Circumstances ..................................................... 14
General factors to consider in deciding whether damages are too remote ........... 14
General purpose of limiting damages through remoteness ................................... 15
Special Problems and Circumstances ....................................................................... 15
Jarvis v. Swan’s Tours Ltd (Contracts for pleasure, non-pecuniary damages) ..... 15
Wilson v. Sooter Studios Ltd. (non-pecuniary damages for a peace of mind K) .. 16
Wharton v. Tom Harris Chevrolet Oldsmobile Ltd. (non-pecuniary damages,
requirement of “sensory experience” discomfort) ................................................ 16
Warrington v. Great-West Life Assurance Co. (contracts promising peace of
mind, aggravated damages) .................................................................................. 17
The Test to Employ to Find Non-Pecuniary Damages ......................................... 18
Aggravated Damages (don’t use this term) and Employment Contracts .............. 18
Punitive Damages ................................................................................................. 19
Limits of the Award of Damages: Mitigation .......................................................... 19
General Notes on Mitigation ................................................................................. 20
Doctrine of Election: ............................................................................................. 21
Date of Assessment of Damages........................................................................... 21
Equitable Remedies .................................................................................................... 22
General Comment on Equitable Remedies ............................................................... 22
Requirements for an order of specific performance ................................................. 22
Injunctions and undue restraint on trade ................................................................... 23
Page 2 of 94
Formation of Contract ................................................... 23
Offer and Acceptance ................................................................................................. 23
Test Applied .............................................................................................................. 23
Termination of Offers ............................................................................................... 23
Acceptance of offer ................................................................................................... 24
Communication of acceptance .................................................................................. 24
Contracts made by mail (Postal Acceptance Rule) ................................................... 24
Where is a contract made? (Jurisdictional issues) .................................................... 24
Email contracts.......................................................................................................... 25
Uncertainty in Formation of Contract (unenforceability of agreements to agree,
incomplete agreements, or contracts with ambiguous or missing essential terms)
....................................................................................................................................... 25
Foley v. Classique Coaches (vagueness in price, arbitration clause, ongoing
relationship) .............................................................................................................. 25
Courtney and Fairbairn Ltd. v. Tolaini Brothers (Hotels) Ltd. (unenforceability of
“agreement to agree”, one time (not ongoing) relationship)..................................... 26
Empress Towers Ltd. v. Bank of Nova Scotia (good faith) ...................................... 26
Other notes on good faith:......................................................................................... 27
Policy Rationale for Legal formalities (e.g., consideration) .................................... 27
Legal formalities ....................................................................................................... 27
Statute of Frauds ....................................................................................................... 27
Consideration .............................................................................................................. 27
General Comments on Consideration ....................................................................... 28
Consideration and gifts ............................................................................................. 28
Past Consideration .................................................................................................... 28
Mutual Promises (i.e., Consideration continued) ..................................................... 29
Great Northern Railway Company v. Witham (Mutual promises, framework
agreements) ............................................................................................................... 29
Wood v. Lucy, Lady Duff-Gordon (implied obligations)......................................... 29
Firm Offers and Unilateral Contracts ...................................................................... 30
Introductory Comments (Read!) ............................................................................... 30
Dawson v. Helicopter Exploration Co Ltd (unilateral vs bilateral contract) ........ 31
Can offer be revoked when performance on a unilateral contract has commenced? 31
Going Transaction Adjustments (GTAs) ...................... 32
Policy considerations justifying GTA’s: ................................................................... 32
Harris v. Watson (old case. either an unreasonable application of the doctrine of
consideration or a holding that legal GTA not found if modification made under
duress) .......................................................................................................................... 32
Stilk v. Myrick (old case. strict application of the doctrine of consideration,
concerns about duress found in a GTA) ................................................................... 32
Raggow v. Scougall (Rescission and creation of new contract to validate a GTA.
finding of a GTA by holding that old contract was voided by the mutual
acceptance of the GTA. New contract is in place with new terms. This gets
around the problem of fresh consideration, one way of doing it) ........................... 33
Page 3 of 94
Stott v. Merit Investment Corporation (Finding of a valid GTA when there is
forbearance on the right to sue) ................................................................................. 33
DCB v. Zellers (cases without any legal merit cannot rely on forbearance) ......... 34
Gilbert Steel Ltd. v. University Construction Ltd. (estoppel cannot be used as a
sword, only as shield) .................................................................................................. 34
Williams v. Roffey Bros and Nicholls (Contractors) Ltd. (UK Case: GTA may be
found when a practical advantage is found to be the consideration) ..................... 35
Pao On v. Lau Yiu Long (Economic duress or fraud, if found, GTA will be
unenforceable) ............................................................................................................. 35
Foakes v Beer (Debt settlement. Payment of a lesser sum for a greater sum is not
good consideration [but there is an exception]) ....................................................... 35
NAV Canada v. Greater Fredericton Airport Authority (NBCA finds that K
modification unsupported by consideration is binding provided there is no
economic duress. IMPORTANT case because it will be found in counter
arguments) ................................................................................................................... 36
Step by step – how to approach a GTA issue: .......................................................... 36
Reliance as a basis for the enforcement of promises
(Promissory Estoppel) .................................................... 36
Difference between estoppel and promissory estoppel ............................................ 37
Elements of promissory estoppel ............................................................................... 37
Central London Property Trust Ltd v. High Trees House Ltd (application of
promissory estoppel as a shield) ................................................................................ 37
Combe v Combe (gratuitous promise means no consideration and no contract
even if relied upon)...................................................................................................... 38
Criticisms of the sword/shield distinction in estoppel ............................................. 38
United States ............................................................................................................. 38
Arbitrariness of the sword/shield distinction ............................................................ 38
What is reasonable reliance? ..................................................................................... 38
Third Party Beneficiaries and Privity of Contract ...... 39
Background ................................................................................................................. 39
Avoidance of contractual “box” ................................................................................ 39
The Problem with Privity of K as applied to insurance contracts and the resultant
case law ........................................................................................................................ 40
London Drugs v. Kuehne & Nagel (employees may benefit from exclusion clause
in lease btwn Landlord and Tenant business) .......................................................... 40
Laing Property Corp v. All Seasons Display (application and development of
London Drugs) ............................................................................................................ 41
Remaining problems: Fate of employees ................................................................. 41
Fraser River Pile & Dredge v. Can-Dive Services (3P insurance benefits aren’t
just for K’s of service)................................................................................................. 41
But note: this concept doesn’t just apply to insurance contracts. It could apply to
any case where there is indemnity, exclusion of liability, etc. ................................. 42
Horizontal and Vertical Privity ................................................................................. 42
Representations and Warranties ................................... 42
Page 4 of 94
Representations and Warranties table and definitions ........................................... 42
Policy considerations: ................................................................................................. 45
So if you found a misrepresentation? Head over to the parol evidence rule and
discuss that................................................................................................................... 45
Concurrent Liability in Contract and Tort: Negligent
Misrepresentation ........................................................... 45
Esso Petroleum Co v. Mardon (concurrent liability in K and tort) ....................... 45
Other essential comments about concurrent liability in K and Tort ..................... 46
Concurrency (pros/cons of suing in tort/contract) ................................................... 46
Mistake ............................................................................ 47
Categories of Mistake ................................................................................................. 47
Mistake in Formation ..................................................... 48
Intro with test and policy factor comments .............................................................. 48
Raffles v. Wichelhaus (mistake. Outdated concept of consensus ad idem) .......... 48
Hobbs v. Esquimalt and Nanaimo Railway co (objective reasonable person test
for finding of mistake in formation) .......................................................................... 49
Rectification (the test)..................................................... 49
Mistaken Payments......................................................... 50
Budai v. Ontario Lottery Corp (reliance on mistaken payment) ........................... 50
Mistaken Assumptions ................................................... 50
Introduction ................................................................................................................. 51
Sherwood v. Walker (mistaken assumption regarding nature of subject matter) 51
Bell v. Lever Brothers Ltd (Mistaken assumption regarding essential quality) ... 51
Solle v. Butcher (Equitable jurisdiction/relief of mistaken assumption. Read this
as it might be applicable whenever mistaken assumption is found) ...................... 52
Examples where equitable jurisdiction might be used: ........................................... 53
Frustration ...................................................................... 53
Krell v. Henry (frustration of commercial purpose of contract, test for
frustration)................................................................................................................... 54
ALCOA (Magnitude of risk unforeseen, reformation) ........................................... 54
Re Westinghouse Electric Corp (Mere fact that K becomes expensive is not
sufficient) ..................................................................................................................... 54
Amalgamated Investment v. John Walker (difficulty of finding frustration in land
contract) ....................................................................................................................... 55
KBK No. 138 Ventures Ltd. v. Canada Safeway Ltd (Canadian case, finding
frustration in land contract when unforeseen fundamental change in land occurs.
Use this case as the test for frustration) .................................................................... 55
Remedies for frustration and the Frustrated Contract Act .................................... 56
Control of Contract Power ............................................ 56
Mensch ......................................................................................................................... 57
The chain of gifts ......................................................................................................... 57
Page 5 of 94
Contract Interpretation.................................................. 58
Renner, The Institutions of Private Law .................................................................. 59
Federal Commerce & Navigation Co. v. Tradax Export SA (the importance of
consistency in standard form contracts) ................................................................... 59
Scott v. Wawanesa (the problem with strict enforcement of standard form
contracts) ..................................................................................................................... 60
Techniques of Control – SEE THIS IF NEGLIGENCE ISSUE ............................ 61
The Parol Evidence Rule ................................................ 61
Bauer v. Bank of Montreal (SCC) -- collateral agreement that contradicts the
written agreement is inadmissible due to the parol evidence rule.......................... 63
The way courts get around Bauer: ............................................................................ 63
Gallen v. Allstate Grain Co. – This will occur when the contradictory oral evidence
is unequivocal. The court may state that reliance on the oral representation was
reasonable, and that the oral representation did not contradict the contract, but
merely added or varied the written terms. ................................................................ 63
Zippy Print Enterprises v. Pawliuk (an example of somewhat sophisticated
commercial parties not having to rely on the strict wording of the contract, parol
evidence rule not applying to a specific representation) ........................................... 63
Bank of Nova Scotia v. Zackheim (Ontario case, unlike the others) – PER excluded
evidence of oral innocent misrepresentations that contradicted the written terms of a
guarantee. .................................................................................................................. 63
Factors Influencing Application of PER (read this for the test): ........................... 64
Standard Form Contracts .............................................. 64
Advantages................................................................................................................... 64
Disadvantages .............................................................................................................. 65
The Ticket Cases ............................................................. 65
Parker v. South Eastern Railway (party is bound to unsigned agreement with
reasonable notice, test to employ) .............................................................................. 66
J Spurling v. Bradshaw (Lord Denning, the more unreasonable the clause, the
greater the notice required. The “red hand” rule) .................................................. 67
Thornton v. Shoe Lane Parking (application of Lord Denning’s “red hand” rule,
unreasonable condition in a ticket) ........................................................................... 67
Interfoto (Thornton/reasonable notice doctrine applies to clauses generally, not
just exemption clauses) ............................................................................................... 68
Signed Contracts and Fundamental Breach ................. 68
Canadian Approach to Fundamental Breach .......................................................... 69
Hunter Engineering Co. Inv v. Syncrude Canada Ltd. (doctrine of fundamental
breach is a rule of construction only, better to use unconscionability, sophisticated
commercial parties aren’t subject to it, perhaps consumers though) .................... 69
A Possible Exception – Exclusion Clauses Continued . 70
Tilden v. Clendenning (application of Llewellyn’s Solution? Signature rule no
longer in effect? The importance of taking reasonable steps to bring unusual
terms to consumer’s attention) .................................................................................. 71
Page 6 of 94
With signed waivers for risky activities: in the absence of unconscionability,
fraud, misrepresentation, the traditional rule I that signature is a manifestation of
assent: Delaney v. Cascade River Holidays (BCCA, 1981) .................................... 73
Ochoa v. Canadian Mountain Holidays .................................................................... 73
Karroll v. Silver Star (circumstance when a waiver of liability is accepted [use this
case for the relevant law], agency exception to privity rule)................................... 73
Note: Where signature rule has been overruled tends to usually be, common thread
of inequality of bargaining power, particular in consumer context and particularly
with standard form contracts ..................................................................................... 75
Ecommerce and control of contractual power ............. 75
Econtract enforceability ............................................................................................. 75
General rules of contract law apply to ecommerce ................................................... 75
Shrink wrap contracts ............................................................................................... 75
Click-wrap contracts ................................................................................................. 76
Browse-wrap ............................................................................................................. 76
Kantiz v. Rogers Cable Inc (enforceability of arbitration clause where notice of
contract changes given on a website) ........................................................................ 76
Comments on arbitration clauses: ............................................................................. 77
Introduction to three contractual doctrines that regard
fairness of bargain .......................................................... 77
If you talk about any one of these in exam, you must discuss all three ................. 77
Duress .............................................................................. 78
Economic duress.......................................................................................................... 78
Pao On (the test for economic duress, accepted by Canadian courts) ................... 78
Gotaverken Energy Systems (Canadian example of the Pao On case) .................. 79
Stott v. Merit Investments (a contract made under duress can be ratified and
made enforceable) ....................................................................................................... 79
Undue Influence .............................................................. 80
Categories of undue influence: .................................................................................. 80
Bank of Montreal v. Duguid (ONCA. Constructive notice of undue influence.
The duty of a bank to find and avoid undue influence) .......................................... 81
Unconscionability ........................................................... 82
The basic test per Morrison v. Coast Finance (BCCA, 1965) with factors applied
from other cases: ......................................................................................................... 82
Unconscionability – Private versus Public grounds ................................................. 83
Henningsen v. Bloomfield Motors (American case. Contextual analysis to finding
inequality of bargaining power) ................................................................................ 83
Consumer Protection Legislation (IMPORTANT if a
question regards a consumer transaction) .................... 84
Business Practices and Consumer Protection Act ................................................... 84
Page 7 of 94
Rushak v. Henneken (BCCA: Duty for suppliers to disclose when they have
specific negative information that may or may not be accurate about the product)
....................................................................................................................................... 85
Illegality ........................................................................... 85
Quick note on penalties and forfeitures .................................................................... 85
Illegality ....................................................................................................................... 86
Common law illegality: ............................................................................................... 86
Statutory Illegality: ..................................................................................................... 87
Framework/strategies for certain question types
(START HERE): ............................................................ 87
Employment law, wrongful dismissal, constructive or direct ................................. 87
Injunctions in employment contracts ........................................................................ 88
Breach of contract resulting in a potential damage claim (including nonpecuniary damages) .................................................................................................... 89
Is there a binding contract (focus on relational contracts)? ................................... 91
Is there a binding contract (focus on gifts)? ............................................................. 92
Is there a binding contract? ....................................................................................... 93
Page 8 of 94
Remedies for Breach of Contract
Damages
The Three Categories of Damages
Courts primarily award damages, but may award equitable remedies such as specific
performance or an injunction
Restitution: “corrective justice”, prevents unjust enrichment to def., i.e., prevention of
gain to def., (if I agree to buy something for $80 and def. gives me nothing, def. was
unjustly enriched by $80 and I could receive that in restitution)
Reliance: “restorative justice”, prevent harm to victim, recovery of costs plaintiff might
have incurred as a result of relying on the contract (cost of title search for instance, etc).
judge would award restitution damages + reliance damages = good a position as
before the contract was entered
Expectation: “distributive justice”, secure benefit of contract to victim, either award
specific performance, or the monetary value of the specific performance (e.g., amount of
profit that would have been earned after buying a house that increased in value). In this
case, expectation (expected profit) + reliance damages = making the plaintiff whole
Reasons for Expectation Damages:
a) Psychological expectation: sense of moral injury if someone breaks a
promise
b) Will theory: consent to contract creates some sort of private law btw
the parties – K creates a law btw the 2 parties, it is for the courts to
enforce that law
c) Economic explanation: K is property; once K is made, there is a
proprietary/econ int in the promise w/respect to future entitlements; K
w/respect to future entitlements has some sort of present value
d) Juristic explanation: Expectation damages are the norm b/c of
judicial policy that expectation measure promote a particular ordering
of the world
C + D = value exists b/c law protects it and expectancy exists b/c
of recognition of future value
Nominal Damages: damages awarded where there is not material loss
experienced
The Compensation Principle
Page 9 of 94
Peevyhouse v. Garland (diminution in value, essential vs. incidental,
deterrence against “windfalls”)
Facts: Plaintiff – Peevyhouse (farmers, owner of land, lessor)
Defendant – Garland (Coal mining company, lessee of land)
Def. leases land from Plaintiff for coal mining. Agrees to restore excavated land to its
original state after use. Fails to carry out this part of the contract. At the same time,
market value of land falls considerably. Cost of remediation far exceeds what Plaintiff
would receive for remediated land on the open market.
Holding: Plaintiff only entitled to receive full market value of the land as if it were
remediated. Thus, plaintiff receives damage award that is a fraction of the true cost of
remediation.
Reasons: Diminution in value, cost of performance (remediation) out of proportion to
value gained. Belief that this would result in a windfall for plaintiff who would take the
money and not remediate the land. Also the remediation clause was only incidental to the
contract – in courts view, was not essential that the remediation be performed.
What this case stands for: Courts do not want to grant “windfall” damages in
commercial contracts. Victim of contract breach should only receive what he needs to be
“whole” as if the contract were performed. Unfair on its surface, but the fact is that if
Garland remediated the land, market value of land would not have changed that much.
IMPORTANT DISSENT: What about Garland being unjustly enriched? Wasn’t
reclamation essential to the contract? If it was, then Garland should have paid the cost
regardless.
Radford v. De Froberville (essential vs. incidental, damages vs. equitable
remedies, unjust enrichment)
Facts: Plaintiff: Radford, seller of a portion of his land
Defendant: De Froberville, purchaser of land
Def. agreed to build an expensive stone wall between the land he purchased and the
plaintiff’s as part of the contract. Defendant failed to do so. Def. argued that Plaintiff
entitled to nominal damages only as wall would not have increased market value of land
that much. Or, Def. should only have to build a cheaper wooden fence.
Holding: Defendant liable for the cost of building the wall.
Reasons: Court found that agreeing to build the expensive stone wall was an essential
element of the contract. For instance, Plaintiff agreed to take a discount on sale price on
the basis that Def. would build this stone wall. Allowing the def. to build a cheaper wall
would constitute unjust enrichment.
Page 10 of 94
What this case stands for: “Essential” vs. “Incidental” distinction. If essential to the
contract, one can demand full compensation for non performance even if won’t result in
market value increase. Damages awarded instead of specific performance – court doesn’t
want to supervise the building of a fence. Purpose of contract – psychic satisfaction?
Ruxley Electronics and Construction Ltd. v. Forsyth (economic waste,
introduction of non-pecuniary damages, consumer surplus)
Facts: Forsyth: Defendant, owner of property
Ruxley: Contractor, hired by Def.
Pltf. contracted to build pool for Def. Pltf. fails to build it to exact specifications (wasn’t
deep enough) but the difference is inmaterial. Def. refuses to pay anything and demands
pool be completely redone.
Holding: Pltf. entitled to value of his work less a nominal deduction for “loss of a
pleasurable amenity”.
Reasons: Contract was substantially performed. Court recognizes that not building it to
exact specification was a intangible “loss of amenity” and granted a small monetary
award. Court did not believe def. would rebuild an entire pool – chance of unjust
enrichment was great.
What this case stands for: Courts do not advocate economic waste. E.g., courts didn’t
think the pool should be ripped up for this minor issue – high chance def. wouldn’t have
done it and would have been unjustly enriched. Still entitled to something –
compensation for consumer surplus (personal subjective value). Value to customer less
market value equals consumer surplus.
Victory Motors Ltd. v. Bayda (supply and demand and entitlement to
expectation damages, precursor to mitigation)
Facts: Victory Motors Ltd.: Plaintiff, tried to sell a car to Bayda
Bayda: Defendant, purchaser of car
Def, backs out of vehicle purchase. Pltf. demands expectation damages.
Holding: Pltf. entitled to expectation damages
Reasons: Supply and demand issue. Supply exceeded demand, so Pltf. was left with a
car he could not sell.
Page 11 of 94
What this case stands for: Supply and demand. If supply exceeds demand, pltf may
seek compensation because pltf will be left with something he couldn’t sell. If demand
exceeds supply, pltf should receive nothing since he can avoid the loss by selling to
someone else (mitigation). Perhaps some award for reliance damages, but nothing else.
Contract Law and Social Ordering
CONTRACT: a promise the law will enforce; private ordering; plan for future exchanges
- dec as to whether there is a contract or not will often be remedy-driven
Executory: K for future performance
Executed: performance of K obligations are complete
Partially Executed: partial performance under a K
LAW AND ECONOMICS
Market principle: rational voluntary exchange based on perfect information produces the best
outcome (maximizes social welfare)
Contract law minimizes transaction costs by introducing certainty and facilitating
exchange.
Enter Contracts to:
i. Contain opportunism in non-simultaneous exchanges
ii. minimize transaction costs (fill in gaps, consistent application of legal rules)
iii. allocate risks
iv. minimize opportunity costs (cost or value of the best foregone alternative use of a
resource)
Wieger critique:
a) focus on efficiency obscures and validates inequality present in the system
b) w/in the economic model there is no criteria for valuing different choices or types of
exchange (all are treated the same)
i. assume all indivs have autonomous, stable preferences, are motivated by
self-int and act rationally
ii. choices appear as distinctions btw “preferences” – need to look at the
context in which people make choices (i.e. real or perceived constraints, role
or respons to others, psychological motivations, etc.)
c) notion of consent is a fiction – consent and freedom of choice are ideological concepts
i. paying attention to the context of inequality invariably complicates the
general claim that voluntary exchange enhances individual welfare
d) clear patterns of inequality in relationships justify legislative constraints that attempt to
equalize the power relationship (e.g. health and safety legislation, labour codes,
marriage, separation agreements, surrogacy arrangements)
Other Aspects of the Compensation Principle
Page 12 of 94
Anglia Television Ltd. v. Reed (pre-contract expenditures, uncertain
expectation damages)
Facts: Anglia Television: Plaintiff, movie producer
Reed: Defendant, prospective main character
Pltf. incurs significant cost in preparing to produce a film. Pltf. then contracts with Def.
to be the main character. At the last minute, Def. backs out. Pltf unable to find new main
character in time, has to cancel film and lose a lot of money.
Holding: Def. liable for pre-contract expenditures.
Reasons: Pltf can claim pre-contract expenditures provided they were reasonably in the
contemplation of the parties as likely to be wasted if the contract were broken. Pltf can
claim either this, or expected profit, but not both.
What this case stands for: If expectation damages are too speculative, pltf can claim
wasted expenditure (i.e., reliance damages). This includes pre-contract expenditures that
were reasonably foreseeable to defendant. PROVIDED that a contract is actually entered
into. Incurring expense in hopes a contract will be entered into = no dice.
Bowlay Logging v. Domtar Ltd. (reliance damages exceeding expectation
damages)
Facts: Bowlay Logging: Plaintiff, contracted to log Domtar’s land
Domtar: Defendant, allowed logging of his land by pltf
Dispute in contract arose, pltf sues and claims reliance damages since profits were
uncertain
Holding: Pltf only entitled to reliance damages that don’t exceed expectation
Reason: If pltf received all reliance damages, he would have received more money than
what he expected even if contract were successfully performed.
What this case stands for: Reliance damages cannot exceed expectation damages. E.g.,
if pltf expects $1,000 profit but spent $1,200 performing the contract, can only sue for
$1,000 (not defendants fault that contract was unprofitable).
Chaplin v. Hicks and Kinkel v. Hyman (chance of a profit is
compensable)
Page 13 of 94
In Chaplin the plaintiff missed out on a chance she was entitled to receive to win a beauty
pageant which would had resulted in monetary benefits. The court found that the loss of
a chance is compensable.
In Kinkel, the court found that the plaintiff had a ten percent chance of profiting if the
contract had been carried through. Thus, as long as there is reasonable probability of
the plaintiff realizing the profit, he is entitled to it. However, it is to be reduced by
the expected percentage chance of profiting (in this case, it was reduced by 90%).
Comment: There must be a measurable, reasonable chance of pltf realizing revenue
Limits on the Award of Damages: Remoteness
Hadley v. Baxendale (reasonable foreseeability of loss)
Facts: Hadley: Plaintiff, owner of a mill
Baxendale: Courier service
Pltf’s crank shaft breaks, causing all production to stop. Pltf orders new one, arranges for
Def. to deliver it. Def. delivers later than expected. Pltf sues for loss of profit during that
period.
Holding: Def not liable for lost profits
Reasons: Contract breaker is only liable for those losses that are reasonably foreseeable
as arising from the contract break. This is the principle assumed, in the absence of the
communication and acceptance of special circumstances not normally reasonably
foreseeable. Wasn’t reasonably foreseeable that the mill would stop production.
What this case stands for: Very important case, creates the principle of reasonable
foreseeability in contracts. Contract breaker only responsible for breaches that are
“arising naturally” i.e., in the usual course of things, or in the reasonable contemplation
of the parties – in other words, losses that are reasonable foreseeable. A contract can
stipulate special circumstances and force certain things to be in “the reasonable
contemplation” of the parties. Usually the defendant would want to be paid extra to take
on this liability. Mere communication of special circumstances is inadequate – both
parties must agree to them – there are exceptions to this rule though (see below).
Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd.
(application of reasonable foreseeability concept)
Facts: Victoria Laundry: Plaintiff, launderer business owner buys boiler from defendant
Newman Industries: Defendant, sells boiler to plaintiff
Page 14 of 94
Pltf buys boiler from Def. Pltf tells Def. that the boiler was needed ASAP. Def. is very
late in delivering boiler. Pltf claims lost profit, including lost profit from lucrative
contracts
Holding: Def. must pay lost profit from ordinary business contracts. Lucrative contract
profits were not reasonably foreseeable.
Reasons: Def. knew pltf needed boiler ASAP, that boiler was essential to the business.
Lost profits were therefore in reasonable contemplation of def. The lucrative contracts
were not reasonably foreseeable however – knowledge of them wasn’t communicated for
instance.
What this case stands for: Application of the principles of Hadley v. Baxendale. In this
case, a shipping delay did lead to an award for lost profits because the defendant was
reasonably aware that these lost profits would result. Lucrative contracts were special
circumstances that were not communicated or agreed to. “Ordinary course of thing”
losses is what was compensable.
Implied Acceptance of Special Circumstances
-
acceptance of special circumstances might be found implied in a contract if
communication of them is made beforehand and defendant still opts to enter
contract. This depends on circumstances. E.g., in Cornwall Gravel the court
considered how Purolator creates consumer expectations through its advertising.
Also, court in Cornwall thinks the test for reasonable foreseeability is an
objective (reasonable person) and not a subjective (what parties actually
thought) test.
General factors to consider in deciding whether damages are too remote
-
Express Contractual Provisions – this could limit liability (e.g., dry cleaners and
their “exclusion clauses”) to a certain amount
-
Degree of probability (what would ordinarily be expected in the circumstances?)
-
Communication of special circumstances (then was it necessary to enter a
special contract or can acceptance be assumed? Depends on fact situation)
-
Defendant’s knowledge (compare a common carrier like Baxendale to the
manufacturer in Victoria Laundry who knew the use and importance of the boiler)
-
Nature of defendant’s business (does it have special expertise? What’s being
offered to plaintiff?)
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Sophistication of parties (the more sophisticated the parties, the more likely
foreseeability will be found. Again, compare Baxendale to Victoria Laundry)
-
Ordinary allocation of risk (what are the ordinary marketplace expectations as
to who assumes what level of risk? This should be reasonable – def. not
necessarily liable for exceptional losses – pltf should have gotten insurance in that
case)
-
Proportionality (courts don’t want to impose extensive liability for a breach of
contract to provide an ordinary service at a low price (dry cleaning for instance))
General purpose of limiting damages through remoteness
*unlike restitution and reliance damages, expectation damages have no built-in limits
Damages are not limited to K price, you can claim for consequential damages. Rules of
remoteness are a means of constraining expectation damages, where there are no express K
provisions (e.g. standard form consumer K’s specify “exclusion clauses” limiting liability)
RULE: Damages that are too remote are not recoverable. (Hadley v. Baxendale)
General Policy: achieve fair balance btw the reasonable expectations of the promisee and the
risk of unfair surprise to the D, if held responsible for an unexpected liability (constrain
expectation damages)
Factors to Consider In Deciding Whether Damages are Too Remote: (when applying
objective test for remoteness – crt will look at these in balancing reas expecs v. unfair surprise)
Special Problems and Circumstances
Jarvis v. Swan’s Tours Ltd (Contracts for pleasure, non-pecuniary
damages)
Facts: Jarvis: Plaintiff, lawyer who paid for a vacation offered by Def.
Swan’s: Def. Organizer of Tour
Def advertises a vacation tour that sounds very pleasurable. Pltf finds the vacation to be
anything but pleasurable. Sues
Holding: Def. must pay for cost of tour and for loss of enjoyment
Reasons: This was a contract for pleasure. No financial damages, but the “point” of the
contract was an enjoyable trip. It wasn’t, so the defendant must pay
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What this case stands for: Courts generally do not like to award non-pecuniary
damages in contracts because of the need to distinguish btwn contract and tort, and the
fact that ppl shouldn’t expect non-pecuniary damages in commercial trade. But in this
case, this “pigeon hole”, since the contract was entirely about pleasure, the court saw
that non-pecuniary damages make sense in this context. Arguably, these are “special
circumstances” made foreseeable as found in Hadley v. Baxendale.
Other note: This is not entirely new. See Ruxley. This is an example of being
compensated for consumer surplus. Consumer’s value less market value = consumer
surplus.
Wilson v. Sooter Studios Ltd. (non-pecuniary damages for a peace of
mind K)
Facts: Wilson: Client plaintiff, ordered photographer services from Def
Sooter: Def, provider of photography services
Def provided extremely inadequate photography services for the plaintiffs wedding. Pltf
demands cost to re-assemble wedding party.
Holding: Pltf entitled to non-pecuniary damages but not to the cost of re-assembling the
wedding.
Reasons: Contract for pleasure/enjoyment, so non-pecuniary damages are foreseeable.
Having to re-assemble wedding was not reasonably foreseeable. Also, chance of unjust
enrichment is high.
What this case stands for: Canadian case confirming what’s stated in Jarvis. Judge
notes: non-pecuniary damage awards are small in most cases unless there is
aggravation or punitive damages required.
Wharton v. Tom Harris Chevrolet Oldsmobile Ltd. (non-pecuniary
damages, requirement of “sensory experience” discomfort)
Facts: Wharton: Pltf purchaser of Cadillac
Tom Harris: Def seller of Cadillac
Pltf buys Cadillac with defective sound system (produces a very annoying buzzing sound
making it unusable). Takes almost 3 years for Def to repair. Non-pecuniary damages are
claimed
Holding: Pltf is entitled to non-pecuniary damages
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Reasons: Implied warranty that sound system would work. Buzzing sound constituted
compensable inconvenience and frustration
What this case stands for: Wharton’s contracted wasn’t directly for pleasure like a
vacation or for enjoyment like wedding photos. But the court says if contract breach
causes mental suffering due to a sensory experience (and not just general
disappointment) then non-pecuniary damages are in order
Three principles are established (This is the most recent case law and should be cited)
a) a contract breaker is not in general liable for distress, etc, which the breach of
contract may cause
b) the rule is not absolute. Where a major or important part of the contract is to give
pleasure, relaxation, peace of mind, damages will be awarded if the fruit of the
contract is not provided.
c) In cases not falling within “peace of mind” damages are recoverable for
inconvenience and discomfort caused by the breach and the mental suffering
directly related to the inconvenience and discomfort. BUT THE CAUSE must be
A SENSORY EXPERIENCE as OPPOSED TO MERE DISAPPOINTMENT.
The effects must be foreseeably suffered during a period when defects are
discovered.
Warrington v. Great-West Life Assurance Co. (contracts promising peace
of mind, aggravated damages)
Facts: Warrington: Plaintiff, the insured
Great-West: Defendant, the insurer
Pltf contracts chronic fatigue syndrome. Overwhelming evidence that this disease was
legit. Despite this, insurer refuses to pay and waits until days before trial to change its
mind.
Holding: Pltf entitled both to mental distress damages and aggravated damages
Reasons: Insurance contracts are supposed to provide insured with peace of mind.
Insurer used “hard nosed burdensome tactics” that made pltf even more ill to try to get
out of its obligations.
What this case stands for: Contracts offering peace of mind, e.g., insurance contracts,
can arise to non-pecuniary mental distress damages when def doesn’t deliver on their
promise. This case also introduces aggravated damages – unreasonably disputing a
claim and playing with the court system in that way may cause a judge to award damages
for aggravation.
See Fidler v. Sun life Assurance Co. of Canada for a case with comparable facts and
a comparable outcome. This comes down to Hadley v. Baxendale – were non-
Page 18 of 94
pecuniary damages reasonably foreseeable? They sure are when the contract is
entirely based on securing “peace of mind”. Not necessarily so when the mental
distress is incidental.
The Test to Employ to Find Non-Pecuniary Damages
1) Object of contract was to secure a psychological benefit – this brings mental
distress upon breach within the reasonable contemplation of the parties
2) Degree of mental suffering was enough to warrant compensation
3) The “thin skull rule” requires communication of special circumstances
Aggravated Damages (don’t use this term) and Employment Contracts
-
at common law, employees terminated without cause are entitled to either
reasonable notice or severance pay equivalent to what would have been received
under reasonable notice
-
as long as this is provided, at common law, non-pecuniary damages are not
allowed. Cannot claim for the inconvenience and upsetting nature of being
terminated
-
if the employer’s conduct in terminating an employee is “independently
actionable” then non-pecuniary damages may be awarded.
-
What does “independently actionable” mean?
-
In Honda Canada Inc. v. Keays the SCC developed this concept which is as
follows: Aggravated damages are awarded when the employer breaches its duty
of good faith in the manner of termination causing mental distress to the
employee. For instance, fraud or defamation. Also, independently actionable
requirement doesn’t necessarily exist
-
However, an independently actionable wrong is required to earn beyond the
Wallace extension
-
Also note: employees have to give reasonable notice (RBC Dominion v. Merrill
Lynch)
-
“Wallace bump up” is gone unless you were terminated in a particularly heavy
handed way that made it take longer for you to find a job
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Punitive Damages
-
similar to aggravated damages, but rarely awarded. Awarded when the conduct is
highly reprehensible – “high-handed, malicious, arbitrary”
-
Action must be independently actionable wrong (IAW) separate from the main
cause of action
-
In Whiten v. Pilot Insurance, the insurer intentionally and purposely took steps to
avoid paying compensation for the Whitens home that burnt down. Accused them
of arson, knowing that the claim was baseless
-
Pilot’s IAW was breach of its implied contractual obligation of good faith, this
was separate from the main cause of action (failing to pay out under the insurance
contract)
-
Pilot had to pay $1,000,000 in punitive damages – courts are wary however of
awarding great sums. Usually restricted to less than $100,000
-
standard of appellate review: a reasonable jury, properly instructed could have
concluded that an award in that amount, and no less, was rationally required to
punish the def’s conduct; insurance K is K for peace of mind, D breached its duty
to act in good faith, thus punitive damages are warranted in this case
Policy Framework for Punitive Damages (PD)
- Exceptionality: PD is an exception to the general rule of contracts. Must
preserve the distinction between tort and contract after all. Thus, it is to be
awarded only in rare circumstances where the defendant acts in a highly
reprehensible manner
- Rationality: PD must be tied to one or more of the following: punishment,
deterrence or denunciation
- Proportionality: PD must be proportionate to the circumstances of the case. Was
the misconduct deliberate? What was defendant’s motive? Did defendant know
it was wrong? Did defendant abuse its position or exploit a vulnerability of the
plaintiff? What was the level of harm directed at plaintiff and what happened or
could have happened because of it? This could increase the award of PD.
- If compensatory or criminal penalties would meet the policy objectives, then
PD won’t be awarded. Only award the smallest amount of PD necessary to
accomplish the objective – notwithstanding that courts must not give companies a
“license” to engage in such bad conduct
Limits of the Award of Damages: Mitigation
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General Notes on Mitigation
-
basic premise is that plaintiff cannot recovery for costs that could have been
reasonably avoided
-
various rationales for it: for instance, thought to be unfair to make defendant
liable for losses that plaintiff could have avoided because often, the defendant
can’t do anything about the plaintiff’s inaction
-
see Payzu Limited v. Saunders for instance. Defendant refused to deliver silk on
time and at agreed discount price, so plaintiff sued for difference between contract
price and market price. Court rejected this claim because plaintiff should have
bought silk elsewhere and sold it (albeit at a reduced profit). For example, Retail
price is $2.00 normal contract price is $1.50. But pltf could buy elsewhere at
$1.75. Thus, pltf can only claim for $0.25 per unit, not $0.50.
-
however, plaintiff can claim for additional reasonable costs incurred in trying to
avoid a loss (cost of reselling) resultant from the contract breach
-
if plaintiff completely avoids his loss (for instance, ends up selling a product for
an even better price than under the breached contract), the plaintiff can only
receive nominal damages
-
also remember how supply/demand applies – if too much supply, pltf might be
unable to mitigate. Apeco of Canada v. Windmill – tenant failed to take up
commercial space, landlord rented to someone else. On its face, landlord
mitigated, but other substitute space (which the new tenant might have used) was
available so court found the loss unavoidable
-
if pltf is entitled to specific performance, there is no obligation to mitigate
damages. In substitution, sometimes the court will grant monetary damages that it
deems are the equivalent of specific performance (see more about this in next
unit). Occurs in the context of purchasing “unique” items
-
Defense to failure to mitigate: Impecuniosity. If plaintiff can’t afford to mitigate,
the defendant might be on the hook for a greater amount. This is rare however and
defendants are usually not expected to take on this risk – one reason is that
impecuniosity is seen as being too remote. Courts might grant leniency to noncommercial actors however. Remoteness is the key consideration
POLICY CONSIDERATIONS:

Sophistication of the parties: courts generally
require parties (especially commercial actors) to
maximize profit by making the best alternative K
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


possible, even if that means continued dealing
w/K-breaker (Payzu)
unfair surprise: a D may be unfairly surprised if
liability is imposed b/c the P has insufficient
funds to mitigate its loss
unjust enrichment: if one party can choose the
date at which to assess damages, it can give
that party an unfair advantage (Asamera)
economic waste: choosing to perform a K
instead of avoiding losses may result in
economic waste (McGregor)
Doctrine of Election:

-
See White and Carter (Councils) Ltd. v. McGregor. Here McGregor states he
doesn’t want the city (plaintiff) to advertise on garbage bins after he enters a
contract. City places ads on garbage bins anyway and sues for lost profits.
 Court allows the City’s claim. That’s because they were under an executory
contract, a contract for future performance, vs an executed contract where
performance of contractual obligations is complete (i.e., purchase of a good)
 When there is an executory contract and a breach is anticipated or a
repudiation (you tell me you aren’t going to perform) the plaintiff has two
options
o Accept the repudiation and immediately sue for damages. Contract is
terminated in this case
o Disregard he repudiation and treat the contract as still in effect (which
is what the City did in McGregor)
Limitation on these two options: If plaintiff has no legitimate interest, financial or
otherwise, in performing contract, plaintiff may not perform it
Also, Canadian courts are reluctant to accept this principle. Seems to run contrary
to principles of mitigation. A few cases are cited where a contractor enters the
property even after being told the contract was repudiated – one defense is that
contractor didn’t have permission to enter the property
Date of Assessment of Damages
-
at what time are damages to be measured? Generally, at the time of the breach
(not literally – courts will devise a reasonable time). E.g., when a contract for
sale of goods fails, purchaser must go into market and mitigate at that time. Any
additional losses at that point result from failure to mitigate, not because of the
breach
-
courts can grant pre-judgment interest and take into account inflation when
granting a damage award to reflect the fact that the time of breach and the time of
judgment can be great
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Asamera Oil Corp v. Sea Oil. Contract to loan shares to def. which def. failed to
return on time. At time of breach, share price was $0.29. over the ensuing years,
share price varied immensely and ended up at $21 at time of judgment. SCC
found pltf had duty to mitigate by purchasing replacement shares, but did not
award damages based on original share price – based it on price of $6.50.
rationale: given the unique situation with the shares, was unreasonable to expect
plaintiff to purchase replacement shares at time of breach. The point – courts
have discretion to take into account special circumstances that make
immediate mitigation unreasonable.
Equitable Remedies
General Comment on Equitable Remedies
-
specific performance is rarely granted – that’s because of historical reasons
(equity only supplements common law), ideological reasons (the idea of
compelling people to do things is not favoured), practical reasons (damages are
more convenient for plaintiffs who don’t want to deal with hostile defendants),
administrative reasons (difficult for courts to supervise), its adverse impact on
mitigation (in that it allows pltf to avoid having to mitigate), and because of the
hardship it can impose on defendants (shifts burden of mitigation on defendants)
Requirements for an order of specific performance
-
-
Unique goods: E.g., heirlooms and rare works of art. Many goods can fit under
this category, basically, something “one of a kind” that’s difficult to get a similar
version of
Land: However, with “cookie cutter” subdivisions, one is no longer guaranteed
specific performance (see obiter remarks in Semelhago v. Paramadevan in the
SCC)
-
Special circumstances for relational contracts (agreements for an ongoing rel’ship
like a lease): Specific performance may be a preferred resolution in such
circumstances particularly when monetary damages are too difficult to calculate.
For instance, Sky Petroleum Ltd. v. VIP Petroleum Ltd. where the court granted an
interim injunction ordering the defendant to sell gas at contract price until the
issue was resolved at trial.
-
Important exception – Personal Services Contracts: Courts never order specific
performance of personal services contracts, both independent contractor and
employment contracts. Beware of positive covenants
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Injunctions and undue restraint on trade
-
used to enforce negative covenants (clauses obligating a party not to do
something)
common example is a non-compete clause when a business is sold
overly broad negative covenant clauses will be struck down as a restraint of
trade or as unconscionable. For example, see Warner Bros v. Nelson where the
clause said that the defendant could not work in any other kind of employment
during the contract – court found that too broad and restricted it to similar
employment in the entertainment business
o special considerations in entertainment business: in Lumley v. Wagner
court held that it would issue injunction to encourage or put pressure on
one party to continue to work for the employer; found when employee
promises not to work for another similar employer for the duration of the
contract
o courts try to recognize and avoid enforcing negative covenants that are in
reality positive obligations (which would amount to specific performance
which courts never impose). Trend now is for courts to simply grant
damages in these cases involving entertainment/sports rather than
injunctions
Formation of Contract
Offer and Acceptance
Test Applied
-
courts use objective, not subjective test when determining if an offer has been
presented, or if it was something else (invitation to treat)
advertisements can be invitations to treat if clear, specific, and if the reasonable
expectation coming out of the ad is an offer, and if the offeror would be unfairly
surprised if it wasn’t
Termination of Offers
-
-
express term (e.g., contract stipulates a fixed term when offer is open)
lapse – offer expires after reasonable period of time (what is reasonable depends
on facts of the case). To avoid lapse, parties can create an “option” (like the
option to purchase you are aware of). Options require consideration/deposits
rejection/counter offer. If offeree rejects offer or counter offers, the original
offer is dead
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-
Revocation – general rule is that form of revocation must match that of the offer.
But offers made with consideration or under seal cannot be revoked
Acceptance of offer
-
bilateral contract is the most common form – e.g., one person promises to buy
something, other person promises to sell something
unilateral contracts are where acceptance is made through performance. E.g.,
reward for return of a lost item
problem with unilateral contracts: what if offer is revoked once offeree has
commenced, but not completed performance? Potential unjust enrichment if
offeree came close to performance but had “rug pulled from under him” at last
moment
Communication of acceptance
-
acceptance must be communicated
offeror may stipulate method of acceptance
silence may not indicate acceptance in most circumstances. Some unusual
exceptions – if parties’ prior dealings made silence a reasonable way to accept
when method of acceptance is not stipulated, general rule is that it should match
the mode of the offer
Contracts made by mail (Postal Acceptance Rule)
-
-
postal acceptance rule: contract is formed when offeree puts notice in mail box
doctrinal rationale: post office is like the “agent” of the offeree and offers are
immediately accepted when in the hands of an agent
postal acceptance rule is not set in stone. Might not be used if rule would lead to
unfair surprise or be contrary to reasonable expectations – court might require
offeror to inquire if no notice was received
see Schiller v. Fisher – parties stipulated that communication would occur “as
soon as possible”. Therefore, when contract was initialed on the 1st, it was
considered accepted on the 1st even though contract wasn’t mailed until the 3rd
and received on the 7th. Basically, saying to return the contract “as soon as
possible” meant that the postal acceptance rule was no longer necessary –
initialing was sufficient to be the method of acceptance, and the defendant only
had to mail it “as soon as possible”
Where is a contract made? (Jurisdictional issues)
-
postal acceptance rule – contract is created where the acceptance is mailed
faxes – see Eastern Power – contract was created in Italy where letter setting out
terms of negotiation originated and where accepted reached the offeror
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-
general rule is the contract is created where acceptance is communicated, but
courts do not strictly interpret this rule and will apply common sense
Email contracts
-
-
communication of acceptance can occur by clicking an icon (e.g., the “I agree”
button)
can also occur by email. Offeree is considered to have received it when they are in
a position where they are capable of retrieving the email (normally this means
after you click “send”), acceptance is complete when email is received by the
server
the computer program is considered the “electronic agent”
Uncertainty in Formation of Contract (unenforceability of
agreements to agree, incomplete agreements, or contracts with
ambiguous or missing essential terms)
Foley v. Classique Coaches (vagueness in price, arbitration clause,
ongoing relationship)
Facts: Foley: Plaintiff, seller of land, supplier of petrol to def
Classique: Def. purchaser of land and petrol from Foley
Def bought land from pltf at reduced price on condition that def buys petrol “at a price to
be agreed by the parties in writing and from time to time”. Deal works fine for 3 years
when def tries to back out claiming the contract was vague
Holding: There is an enforceable contract and the def must pay
Reasons: Ongoing relationship – contract worked fine for 3 years. Petrol price wasn’t
completely indefinite as contract has allowance for arbitrator to determine price if parties
can’t agree. Petrol purchase agreement seemed attached to sale of land which was sold at
discount on basis of def buying petrol from pltf. Implied term that petrol shall be
supplied at reasonable price and reasonable quantity.
What this case stands for: Willingness of courts to imply terms into contracts. Note
that arbitration clause makes vagueness on price more certain. Courts will consider the
degree to which the parties are/have committed to each other.
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Courtney and Fairbairn Ltd. v. Tolaini Brothers (Hotels) Ltd.
(unenforceability of “agreement to agree”, one time (not ongoing)
relationship)
Facts: Courtney: Plaintiff, builder, supposed to build hotel for def
Tolaini: Def, land owner, supposed to contract pltf to build hotel
Def agrees to Pltf to have pltf build hotel on basis that they “negotiate fair and reasonable
contract sums”. Pltf agrees to find financier for def. Pltf finds financier, but parties
could not agree on price to build hotel.
Holding: There was no valid contract and def. may back out.
Reasons: no arbitration clause (implied), unenforceable “agreement to agree”,
fundamental matter left vague so there was no contract, what if parties can’t agree on
price?
What this case stands for: The basic principle that courts do not enforce
vague/ambiguous “agreements to agree”. There must be some stronger degree of
certainty – past history of successful dealings in an ongoing contract, arbitration clause,
etc. INTERESTING NOTE: Could pltf have sued for reliance damages in time/cost
spent finding a financier for pltf? Unjust enrichment (missing out on finders fee)?
Empress Towers Ltd. v. Bank of Nova Scotia (good faith)
Facts: Empress: Landlord plaintiff
Bank: Tenant defendant
Lease states that it’s renewable “at the market rental prevailing… as mutually agreed”
and that if parties cannot agree, lease ends. Both parties agree on market rent per month
but pltf wants additional $15,000. Def refuses
Holding: Valid contract between parties at market rent without the additional payment
Reasons: Bad faith – pltf and def had already agreed on a market rent. Demanding more
money after (on the last day as well) was bad faith – landlord should not have
unreasonably withheld agreement.
What this case stands for: When a contract exists already, there is an implied duty to
act in good faith. DISSENT felt that this ruling came too close to interfering in normally
valid negotiations. This case is not cited widely. What if pltf rolled his demand into
market rent? Probably would have gotten away with it.
Page 27 of 94
Other notes on good faith:
-
-
-
no tort duty of care (good faith) in pre contract negotiations (Martel Building v.
Canada (2000, SCC) for obvious reasons (not being able to posture would be
absurd)
when there is an existing contract, the matter of whether or not good faith is
required is unclear and depends heavily on the facts (see Empress Towers)
McKinlay Motors – defendant purposely took steps to drag his feet in delivering
supplies to pltf so that pltf would go out of business. Didn’t breach contract, but
court found def acted in bad faith and ordered damages paid
no SCC case as of yet but more and more jurisdictions are recognizing an implied
duty to act in good faith when a contract is made
Policy Rationale for Legal formalities (e.g., consideration)
Legal formalities
1. Evidentiary function – evidence of existence of contract
2. Cautionary function – ensure that parties deliberate before they contract
3. Channeling function – provide a simple and external test of enforceability of a
promise (rules that everyone can learn easily and abide by)
Policy benefits: prevent unjust enrichment and needless reliance cost, facilitate business,
evidence/deliberation
Examples of legal formalities – Statute of Frauds and Consideration
Statute of Frauds
-
-
certain contracts (regarding land, cosigners) must be evidenced in writing
limited exception – in cosigning, when cosigner does an act that makes it appear
an agreement exists. In land, when someone does something other party may
reasonably rely upon which changed that parties position and would be
inequitable
in those cases, restitution or reliance damages may be awarded
Consideration
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General Comments on Consideration
-
-
-
the requirement that both parties must be offering a “promise” that has “value” of
some kind to have a valid contract
promise can be monetary (pay $100, transfer title to a house) or an action
(painting a house) or another promise, or giving up of something meaningful
(forbearance)
if a contract is executed under seal (aka a deed) it is binding even if one side
doesn’t offer consideration. If I promised to give you $100 as a gift and made the
promise under seal, the promise is binding
if parties do not understand what seal means however, court may not enforce
agreement. Courts want to see an intent to be bound
broadly speaking, consideration need not be an exchange of commercially equal
promises, but it must be set up in the form of an exchange
Consideration and gifts
-
Thomas v. Thomas: Agreement giving widow life interest in return for $1 per
year and her promise to maintain the property. Found to be a binding contract.
Rent was paid to executors, not landlord so a contract existed btwn widow and
estate. Adequacy of consideration is irrelevant to courts. Other comment: It’s
a gift dressed up as a contract, still enforced.
-
White v. Bluett: Son agrees to “stop complaining” provided Father forgive his
debt. Father dies, estate sues Son. Son’s contract with Father not binding. No
evidence that contract exists. Judge says agreement to “stop complaining” is no
consideration.
-
Hamer v. Sidway: Nephew agrees to stop smoking, drinking, etc until he’s 21 in
return for $5,000 from his uncle. Binding contract found. Evidence of contract
existed (letters, etc). Reliance was found (nephew gave up those activities).
Promise of value for a promise of value. A promisor does not have to benefit
from the contract.
Past Consideration
-
-
-
past consideration is no consideration. E.g., I paint your room for free then two
months later come back and demand payment for services. No contract in this
case. Consideration must be contemporaneous
exception: if the past act was done at the request of the promisor (then it’s like a
normal contract with a deferred payment). Then if promise says “I will pay $20”
it’s quantifying the legal obligation. Enforceable.
other exception: when plaintiff performs act without parties agreeing on amount
of payment at the time, court might imply obligation to pay (restitutionary relief)
Page 29 of 94
-
-
other exception: provision of medical services to unconscious or incompetent
patients – it is assumed they want the service even though they cannot
communicate acceptance at the time. Restitutional remedy here
Eastwood v. Kenyon – executor plaintiff borrows money from estate to take care
of infant daughter def. when def reaches full age, promises to repay money.
Later backs out. Court says there is no contract and that the money borrowed
from the estate was a gift
Mutual Promises (i.e., Consideration continued)
-
Mutual promises “I promise to buy your house a month from now, you promise to
sell your house a month from now” are binding
Promise can’t be illusory “I promise to pay you $1000 if you promise to take it” –
no value in this promise. The promise must be to do something of value
Great Northern Railway Company v. Witham (Mutual promises,
framework agreements)
Facts: GNRC – Pltf, purchaser of supplies
Witham – Def., a supplier
Pltf and def enter a framework agreement where def agrees to “stand ready” to accept
orders for a defined period. Some orders are requested and filled. Pltf makes an order,
def refuses to comply saying that there was no contract and no consideration.
Holding: Framework agreement is not binding, but the pending orders were. Def had to
fill those orders.
Reasons: A form of a unilateral contract. And when one side has performed, the other is
obliged to perform as well. “York” example – If I say “I will pay you $100 to go to
York” and you go and do so, I must pay you. Analogy is then – if I will give you an
order, you will supply it at contract price. Pltf gave order, thus, def had to fill it.
What this case stands for: Framework agreements (agreements to “stand ready” to
supply) are not binding without consideration or seal (transform into an enforceable
option contract). But orders made within the framework agreement are binding and must
be filled. (other comment: had pltf agreed that def would be exclusive supplier, that
would have been consideration and made framework agreement binding in and of itself.)
Wood v. Lucy, Lady Duff-Gordon (implied obligations)
Facts: Wood – pltf, agreed to market def’s fashion label on clothing and split profits
Page 30 of 94
Lucy – def fashion designer, agreed to have Wood be exclusive distributor of her
name
Pltf gains exclusive right to place def’s endorsement on clothing – to place her designs on
sale, to license to others, and to market them in exchange for 50% of all revenues
received. Def sells on her own, claims no contract because the pltf was no obliged to do
anything.
Holding: Def broke contract and is liable to pltf.
Reasons: The contract did not obliged pltf to do anything. But court found that it was
proper to imply an obligation on the pltf to use reasonable efforts to market the Def’s
goods. “The law has outgrown its primitive stage of formalism when the precise word
was the sovereign talisman”
What this case stands for: Courts can imply obligations into contracts.
Firm Offers and Unilateral Contracts
Introductory Comments (Read!)
-
open contracts can be made irrevocable when made under consideration or seal
(then it’s like an option contract)
firm offers (promise not to revoke) require seal or consideration. E.g., subject free
real estate contract. Technically revocable, but made under seal so it is not
problems arise when the time between offer is made and time of acceptance is
long
Example diff btwn unilateral and bilateral contract
-
-
-
I will pay you $500 if you find my dog (unilateral, acceptance on performance.
No binding obligation to find dog)
I will find your dog. In exchange, you will pay me $500 (bilateral exchange of
promises, contract is made upon acceptance of promises. Binding obligation to
find the dog.
technically, offeror can revoke right up to the minute before performance. But
courts try to minimize chance for unfairness by considering the factor of
reasonable reliance. For instance, in Carlill v. Carbolic Smoke Ball co. the
advertisement was as such that the court found ppl could reasonably rely on the
def carrying through its obligation. It was an “offer” to the world, and those who
met its requirements essentially contracted with the def.
Errington v Errington father gifted downpayment to home to son, agreed to pay
property taxes. Said his son had to make mortgage payments and when mortgage
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was paid off, house would be his. Courts find this enforceable – two contracts –
first, pay mortgage and house will be yours. Second implied contract, as long as
you pay the mortgage you may remain in possession (an implied promise not to
revoke contract #1)
Dawson v. Helicopter Exploration Co Ltd (unilateral vs bilateral
contract)
“Real life application” of the dog example. Court found that contract was not unilateral
as claimed by def (def claimed “if you find the claims, we will pay you”) but that it was
bilateral btwn the parties (“I will help you find claims. You will pay me for doing so”).
Enforceable contract.
Can offer be revoked when performance on a unilateral contract has
commenced?
Depends on fact situation – potentially revocable with proper notice.
Ayerswood Development Corp v. Hydro One Networks (Ontario) – def offered substantial
subsidy to those who create energy efficient buildings by June 31. Pltf undertakes to
build such a building – to do so required significant time and development cost, but still
files for subsidy as of June 30. However, just before that, def suddenly revoked its offer.
Ontario court found that def could not revoke its offer once performance
commenced (too much reasonable reliance by the time def revoked).
Baughman v. Rampart Resources – BC authority for the same above situation. “once
offeree has embarked on performance it is too late for the offeror to revoke his offer.”
Note: Once performance has begun, doesn’t mean there is a contract just yet. It means
the offeror can’t revoke until the “option period” expires. Consideration and contract is
still found only on performance.
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Going Transaction Adjustments (GTAs)
Policy considerations justifying GTA’s:
Why to enforce modifications? Party autonomy, reliance, reasonable expectations and
unjust enrichment. Recognition of commercial advantage of entering the GTA even if
consideration doesn’t exist prima facie.
Why not to enforce modifications? Exploitation, ransom, fraud and economic duress
(Harris)
Harris v. Watson (old case. either an unreasonable application
of the doctrine of consideration or a holding that legal GTA not
found if modification made under duress)
Facts: Plaintiff was a seaman aboard the defendant’s ship. When the ship was in danger,
pltf sought increased salary in return for “overtime” pay. After ship came to dock, def
refused to pay.
Holding: Pltf’s case was dismissed.
Reasoning: Old “rule of the sea” – when freight is lost, wages are lost too. Concern that
seamen would always insist on extra wages when ship was in danger and potentially
purposely put the ship in danger to gain these wages (no GTA when duress is found).
What this case stands for: One could see this either as an unreasonably strict
application of the doctrine of consideration, or an application of a policy concern – no
enforcement of contract modifications when made under duress. Note that future
maritime cases change the law.
Stilk v. Myrick (old case. strict application of the doctrine of
consideration, concerns about duress found in a GTA)
Facts: Virtually identical to Harris, except that the ship was not in danger. Ship crew
was understaffed, captain (defendant) could not find more crew members so he offered to
pay the existing crew (plaintiff) more for “overtime.”
Holding: Plaintiff’s claim dismissed.
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Reasoning: No consideration given by the pltf’s for their increased wages. Ship was in
a “constructive” emergency as it still had to make its way back to London. A promise to
do what you are already contractually obliged to do is not good consideration.
What this case stands for: Strict application of the doctrine of consideration. Court
tries to construe this case as being one where there was an “emergency” and the def. was
made to pay more under duress. Note that future maritime cases change the law.
Raggow v. Scougall (Rescission and creation of new contract to
validate a GTA. finding of a GTA by holding that old contract
was voided by the mutual acceptance of the GTA. New contract
is in place with new terms. This gets around the problem of
fresh consideration, one way of doing it)
Facts: Pltf agrees to take a pay cut from def. employer during war time so that business
could continue. After war ends, pltf turns around and sues def. claiming the pay cut was
made without consideration. Pltf claims no consideration for the promise to accept a pay
cut so the new agreement was void.
Holding: Plaintiff’s claim dismissed.
Reasoning: The parties entered into a new agreement in writing. While the new
agreement did not expressly state as such, this had the effect of rescission again the old
contract.
What this case stands for: Find a GTA by claiming that there are two contracts, the
new one annuls the old one. Other comment: Perhaps the def’s agreement to stay in
business was valid consideration? No need to make a finding of “two contracts” if that’s
the case.
Comment: In an exam, look for words like “Revised agreement”, etc. This could point
to a rescission and creation of new contract.
Stott v. Merit Investment Corporation (Finding of a valid GTA
when there is forbearance on the right to sue)
Facts: Pltf was a broker working for def. Pltf becomes liable for $60k debt because of
action by his supervisor. Pltf agrees to enter a settlement to pay the 60k debt over a
certain time period in return for keeping his job. Pltf leaves company and now demands
refund in full on the basis that the loss was the supervisor’s fault and not his own. Def.
counterclaims for the balance of the debt.
Holding: Pltf’s claim fails. Def’s counterclaim is successful.
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Reasoning: The def. had forbearance on the right to sue. Forbearance is good
consideration if 1) reasonable claim 2) bona fide belief in claim and 3) no concealment
of material facts. Pltf acknowledged in written settlement and in subsequent conduct
(making payments) that the debt was valid.
What this case stands for: Forbearance on the right to sue is good consideration.
Forbearance on the right to sue means agreeing not to sue. If you sign a settlement
agreement, you must pay in full even if you think their claim was lacking strong merit.
This principle is in part premised on a desire to promote settlements and finality.
Other comments: Could one say that the def’s agreement to let pltf continue working
was valid consideration? Could one say pltf was under economic duress when he agreed
to the settlement (e.g., pay or get fired?).
DCB v. Zellers (cases without any legal merit cannot rely on
forbearance)
(Note on forbearance. See DCB v. Zellers. Pltfs daughter stole from Zellers,
merchandise returned unharmed. Zellers demanded $1,000, pltf paid $225 towards it
then later sued to get it back. Court found forbearance was invalid argument as Zellers
had no right whatsoever to demand $1,000 from pltf. Case was without any legal merit –
court strongly emphasized that the Zellers solicitor should have known this. I think this
circumstance would be rare in that regard.
Gilbert Steel Ltd. v. University Construction Ltd. (estoppel
cannot be used as a sword, only as shield)
Facts: Pltf agrees to sell steel to Def. Price settled. Steel mill notifies Pltf of pending
price increase and that there may be future price increases. New written K with increased
prices – new price doesn’t reflect entire increase. K for one year.
Oral agreement to pay more. Pltf provides written K but not executed. Pltf provides steel
but uncertain due to accounting errors if def. is paying increased price. When pltf finds
out that def. isn’t, demand for payment of balance is made and def. declines to pay
increase.
Holding: Pltf’s claim fails.
Reasoning: No valid consideration for oral contract. Cannot ask for more when you are
already contractually obliged to provide it. Cannot rely on estoppel as basis for claim
(that def’s conduct clearly suggested that it had given its right up to cheaper prices and
that pltf was supplying steel on basis that it was relying on its belief that there was a valid
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contract) as estoppel is valid only as a shield and not a sword. “mere” change in price not
necessarily sufficient to find “2 contract” rule per Raggow.
What this case stands for: Estoppel cannot be used as a sword only a shield in Canada
– cannot be used as a cause of action. “mere” change in price not necessarily sufficient to
find “2 contract” rule per Raggow but price could be such a fundamental term that
rescission must be found.
Williams v. Roffey Bros and Nicholls (Contractors) Ltd. (UK
Case: GTA may be found when a practical advantage is found to
be the consideration)
Facts: Def is contractor, pltf is subcontractor. Pltf agrees to provide services at a certain
price. Work begins, pltf finds that contract price is too low and he will lose a lot of
money. Def agrees to pay pltf more to complete job. Def later fails to pay increased
sum.
Holding: Pltf’s claim is successful
Reasoning: No economic duress found. Commercial advantage – when a party
undertakes to make a payment because doing so will give it an advantage arising out of
the continuing rel’ship with promise, new bargain will not fail for want of consideration.
What this case stands for: A commercial advantage is sufficient consideration,
provided no economic duress is found. Consider in real estate addendums that say “for
good and valuable consideration.” Both parties are agreeing that there is value in the
addendum. However, this is a UK case. Consider this case together with NAV Canada.
Pao On v. Lau Yiu Long (Economic duress or fraud, if found,
GTA will be unenforceable)
Foakes v Beer (Debt settlement. Payment of a lesser sum for a
greater sum is not good consideration [but there is an
exception])
Common law rule: If you owe $200, you cannot make the other party agree that your
payment of $100 will extinguish the debt.
Exception: Enforceable if made under seal. Enforceable if expressly accepted by
creditor in satisfaction of Law and Equity Act (a BC statute). Good idea as in “real life”
sometimes collecting the entire debt is not possible. Better to settle, better for courts to
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permit settlements such as these. Exception of course is if made under economic duress
or by fraud, but that’s a separate issue.
NAV Canada v. Greater Fredericton Airport Authority (NBCA
finds that K modification unsupported by consideration is
binding provided there is no economic duress. IMPORTANT
case because it will be found in counter arguments)
What this case stands for: Elimination of sword/shield distinction in New Brunswick,
provided no economic duress.
Comment: The practical effects of NAV Canada are similar to Roffey bros. Roffey is
stated in positive terms in that it finds a commercial advantage in a GTA lacking
traditional consideration. This case merely asserts that consideration is unnecessary
when an existing contract is in place.
Step by step – how to approach a GTA issue:
First say there was no consideration and so there was no valid GTA (Gilbert Steel)
Then say we ripped up the contract and made a new one
Then say we should adopt a flexible view of what consideration is roffey (roffey was
about “practical advantage” not “commercial advantage”)
Then try the nav canada case, no consideration unless duress (so bring up duress if
needed, especially if def knew of a troubling financial situation)
Then maybe argue reputation would be damaged so bad we don’t need a legal response
here
Also ask if promissory estoppel may be involved here if there’s reliance
Then as last resort, if it fits in, could you say the contract was frustrated in the
circumstances? Go through frustration test.
Reliance as a basis for the enforcement of promises
(Promissory Estoppel)
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Difference between estoppel and promissory estoppel
What is promissory estoppel?
Reliance is not consideration (doctrinally)
Common law estoppel: A party is barred from denying or alleging a certain fact or state
of facts because of the party’s previous conduct and when someone has detrimentally
relied on that represented. E.g., “I was at the corner store last night”. Cannot be used as
a cause of action (sword and shield distinction)
Promissory estoppel: Question of estoppel as to future conduct (ie, when a promise is
made about future conduct). Also cannot be used to found a claim of action. If that were
allowed, since reliance is not consideration, then consideration would no longer be
needed to form a contract. E.g., “I will sell you ten applies for $10”
Elements of promissory estoppel
-
existing legal relship (existing contract)
a clear promise or representation intended to be relied upon (subjective). It could
be oral and outside the contract, or it can be within a clause in the contract
made with intention that it be relied upon
reliance (see below for definition of reasonable reliance); and
no compelling reasons to excuse person from representation (eg, duress)
Central London Property Trust Ltd v. High Trees House Ltd
(application of promissory estoppel as a shield)
Facts: Pltf landlord agrees to accept reduced rent during WWII from def. After war, pltf
demands full rent (reneges from his promise).
Holding: Pltf’s claim for full rent during the war period is dismissed.
Reasons: A promise that is intended to be binding, intended to be acted upon and is in
fact acted upon, is binding so far as its terms properly apply.
What this case stands for: Sword and shield distinction remains. Courts have not gone
so far as to give a cause of action in damages for the breach of such a promise, but they
have refused to allow the party making the promise from acting inconsistently with it. In
that sense only, a promise gives rise to estoppel.
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Combe v Combe (gratuitous promise means no consideration
and no contract even if relied upon)
Facts: Divorce. Husband agrees to pay spousal maintenance of $1,100 annually. No
payment. 7 years later, wife sues for arrears.
Holding: Pltf wife’s claim is dismissed.
Reasons: Promise not enforceable. Promissory estoppel cannot be used to create new
causes of action where none existed before. It only prevents a party from insisting on
strict legal rights when it would be unjust, having regard to the dealings btwn the parties.
What this case stands for: Doctrine of consideration still firmly in existence. It’s a
necessity to the formation of a contract, although not of its modification or discharge.
Criticisms of the sword/shield distinction in estoppel
United States
Reliance may be used as a sword and shield. If used as a sword, no expectation damages,
just reliance.
Arbitrariness of the sword/shield distinction
If defendant agrees to pay more, e.g., I will buy 10 apples for $20 instead of 10 apples for
$10, consideration from pltf is required. Pltf cannot sue def for paying the full amount as
that would be using estoppel as a sword and not a shield.
If def agrees to accept less, e.g., I will buy 5 apples for $10 instead of 10 apples for $10,
no consideration is required. If def. claims for 10 apples, pltf can use promissory
estoppel as a defence.
The point: To get around the sword/shield distinction, if supplier wants to get a higher
price for his product, have the buyer agree to accept less for the same price and not the
same quantity for a higher price. Arbitrary.
What is reasonable reliance?
Consider the following:
- nature of rel’ship: past dealings, custom, understanding btwn parties
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-
-
-
type of transaction: commercial agreement where business ppl are likely to know
that others will rely on their words, have the parties taken the time to put the
promise in writing or to use other formalities?
Was reliance foreseeable? Was it invited or requested by the promisor – to what
extent was or should the promisor have been aware of the reliance and its
consequences? Unfair surprise
Values/consequences: What are the consequences of liability or not liability:
social utility of enforcing this type of promise
Third Party Beneficiaries and Privity of Contract
Background
3rd party (3P) has no rights under a K. 3P cannot enforce K. Even where purpose of K is
to benefit 3P.
Rationales
Doctrinal rationale – not a party. No consideration. 3P could prevent modification since
3P rights could be seen as crystallized.
Economic – encouragement of market based concepts, support nascent capitalism. Self
reliance. Minimize liability.
Avoidance of contractual “box”
Trust, assignment and agency: categorize the 3P as beneficiary (trust) or assignee
(assignment). More commonly, view B as agent for 3P so that 3P is in direct Ktual
rel’ship with A.
Trust: B is trustee, C is beneficiary. C can now enforce terms of trust directly against B
and 3P’s (eg “A”) whom B has contracted. Eg. 4P gives money to B on basis that they
are trustee for 3P. B deposits money in bank. Even though K is with A (bank) and B,
Susan can enforce K against A in her capacity as beneficiary.
Assignment: B assigns rights of contract to 3P. 3P can now enforce K against A. Found
often when creditors sell their debts to collection agencies.
Agency: Principal grants authority to agent to act on his behalf. If agent enters into a
contract with “C,” that person (C) can now enforce the contract directly against the
principal. In this case, if agent is sued, agent can then look to principal for
indemnification.
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OR, find a contract where one appears not to exist (Sperry Rand where the representation
by the manufacturer created a warranty).
Four criteria for agency to be found which would get the agent off the hook for personal
liability (Scruttons Ltd. v. Midland Silicones Ltd)
1.
2.
3.
4.
Negotiating parties must have intended that the 3P benefit from the K.
Contracting party must also be contracting as agent of the 3P.
Party that acted as agent for the 3P must have had the authority to do so.
Must be consideration moving from the 3P to the non-agent party.
The Problem with Privity of K as applied to insurance contracts
and the resultant case law
The problem: ABC insurance company grants policy to Landlord, Landlord leases
property to tenant business. Insurance contract states that Landlord will not sue tenant if
there is a fire (landlord already has insurance, no need for both landlord/tenant to get
insurance), i.e., landlord’s subrogation rights are waived. However, tenant’s employees
are not protected by this contract.
Employee burns down building. Landlord cannot sue tenant. ABC subrogates landlord
(takes its position) and sues the employees. Employees not protected by terms of lease
and are personally liable for the loss of the building. (This is what happened in
Greenwood, a case now distinguished into oblivion)
Solutions: Employees should take out first party insurance before they work (not
realistic).
London Drugs v. Kuehne & Nagel (employees may benefit from
exclusion clause in lease btwn Landlord and Tenant business)
Facts: Employees negligently damage transformer being stored for pltf. Exclusion
clause prevents pltf from suing business, so they sue employees directly.
Holding: Claim dismissed.
Reasons: Limitation of liability expressly or impliedly extends benefit to employee. If
the employee is acting in the course of their employment and providing the very services
provided in the contract when the loss occurs, the exclusive clause will apply to them.
What this case stands for: Elimination of “Greenwood” situation, relaxation of doctrine
of privity as applied to exclusion clauses.
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Laing Property Corp v. All Seasons Display (application and
development of London Drugs)
BCCA applies London Drugs:
1. Limitation of liability clause must expressly or impliedly extend benefits to
employees seeking to rely upon it
a. BCCA expands on relevant factors to determine intention:
i. Identify of interest btwn employer and employee as to performance
of employer’s contractual obligation – do employees have primary
responsibility for performing services under K?
ii. K’ing party would know that services under K would be performed
by employee (objective test, reasonably foreseeable?)
iii. Services in question clearly performed by employees and tenant
would have known this. Clear that parties intended for certain
party to bear the risk. Allowing recovery against employees would
allow the clear meaning of lease to be overturned
b) Was the service that caused the loss one of the services that the lease
contemplates will be performed by the employees?
Remaining problems: Fate of employees
1. Employer may have no insurance/limitation clause. No 3P benefits for employees
if no insurance exists.
2. Even if insurance/limitation clause, employer might not ensure that it extends to
employees.
3. Employer may decide not to have insurance extend to employees to save money.
Employee options:
- ensure insurance coverage extends to employees
- ensure employee benefits from waiver of subrogation
- employee self-insures (not realistic)
- employee obtains indemnity from insurer
Fraser River Pile & Dredge v. Can-Dive Services (3P insurance
benefits aren’t just for K’s of service)
Facts: Insurance K btwn insurer and boat owner. Boat sinks due to charterer’s
negligence. Insurer sues charterer (the 3P). Claims London Drugs doesn’t apply (it was
in the context of services).
Holding: Insurance company’s claim dismissed.
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Reasons and what this case stands for: 1. Proof of intention that 3rd party charterer
was to benefit from K. Insurance K referred to charterers. 2. Activities performed by 3rd
party are the very activities contemplated as falling within scope of K – chartering of
boat. Charterer is off the hook.
But note: this concept doesn’t just apply to insurance contracts.
It could apply to any case where there is indemnity, exclusion of
liability, etc.
Horizontal and Vertical Privity
Vertical privity – buyer within the distributive chain who did not buy directly from the
defendant
Manufacturer
|
Distributor
|
Retailer
|
Consumer
Chain may be broken by bankruptcy, exemption clauses, limitation periods, absent seller.
Found when buyer might want to sue manufacturer for defects in the product and bypass
retailer/distributor. In many cases there will be a chain of liability instead of a direct
action by plaintiff against manufacturer.
Horizontal privity:
Seller
|
Buyer – User
Relates to a person who is not a buyer within the distributive chain but who uses
consumes or is affected by the product. The remedy is tort?
Representations and Warranties
Representations and Warranties table and definitions
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Classification
Mere puff
Innocent misrepresentation
Remedy
Interest Protected
None
Caveat Emptor
Rescission** if K has yet to Restitution (prevent unjust
be completed. If K is
enrichment)
already complete, no
remedy (Redican) test
below
Negligent misrepresentation Reliance damages
Reliance
(Tort, won’t be found much
at all on exam)
Fraudulent
Rescission and reliance
Reliance
Misrepresentation (Tort,
damages
won’t be found much on
exam)
Warranty*
Expectation damages
Reasonable expectation
Condition*
Repudiation and
Reasonable expectation
expectation damages (have
to go to heart of K)
Innominate term (Hong
Damages or repudiation
Reasonable expectation
Kong Fir)
depending on whether
found to be warranty or
condition)
* Parties could agree to make all terms a condition or otherwise identify what’s a
warranty and what’s a condition in a good contract.
** Terminate/rescission/repudiate often used interchangeably. But rescission is equitable
remedy – a court order. A party does not rescind. Repudiation is the party’s right to
terminate when there’s a breach of K.
Mere Puff: Legally meaningless statement used to encourage a purchase “This car’s a
beauty.” Doctrinally too vague. When might it be found? Is it part of an advertisement
too? That might point to puffery.
Representation: A statement of fact that may give rise to liability if found untrue (ie,
misrepresentation).
1. Innocent misrepresentation
1. representation of fact that turns out to be false
2. material
3. induces the making of K, relied upon
4. maker did not know correct facts
a) policy concerns: caveat emptor v. unjust enrichment
a. Examples: Redgrave v Hurd (rescission of K to buy house and law
practice. Deposit returned since K was not complete, but no reliance
damage for moving costs.
b. Redican v. Nesbitt (contract executed. No rescission)
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c. Ennis v. Klassen (Contract for BMW. Misrep as to type discovered after 3
days. Court rescinds on basis that there is an implied term of reasonable
expectation)
2. Fraudulent/negligent misrepresentation
i. See table
Warranty: Representation that’s elevated to term of K. If untrue, K is breached and
expectation damages are awarded.
1. Concept of collateral contract/warranty.
a. K1 – contract for sale of horse. K2 – if you enter K1, I promise it is a
racing horse. Unilateral K, performance of which is entering into K1.
remedy is expectation damages.
i)
cases
a. Heilbut Symons (purchase of shares in rubber company. Seller of stocks
never says it’s a rubber company, investors trusted based on reputation of
seller. Allocation of risk, investors should beware and do more due
diligence. No warranty found)
b. Dick Bentley (misleading statement about miles on engine. Court says
statements are prima facie warranty if:
i. Representation
ii. Made in course of dealings
iii. For the purpose of inducing other party to act (important issue)
iv. Induces entry into K (reliance)
v. Reliance is reasonable (rebut this inference if can prove innocent
misrepresentation)
1. other comment: This gets rid of 2 contract approach)
c) Murray v. Sperry Rand (statements that forage harvester would meet farmer’s
needs. Manufacturer liable. One can be liable for breach of warranty even if
there is no contractual rel’ship’ to whom warranty is given. Collateral warranty
found – manufacturer promises that anyone who buyers our product from a
retailer will get a product that has the qualities laid out in the advertisement. The
buyer choosing to buy constitutes valid consideration for this unilateral contract.)
d) Fraser-Reid (sale of new house. No drain tile. When a home hasn’t been
completed yet, implied warranty that it will be habitable. But when house is
already complete, caveat emptor. House was already complete at time of sale.
This argument fails.
Homebuyer still gets compensated because of representation that seller has
disclosed all outstanding building code infractions. Court said that builder
knowingly breached the building code and so not putting in drain tile [an
essential component of a home] is a breach of warranty)
Condition: A term that goes to the root of the contract, the breach gives right to repudiate
and expectation damages.
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Innominate term (Hong Kong Fir): Determination after the fact if a term was a
warranty or a condition. In this case, term of K says ship should be shipworthy. What is
shipworthy? Technically a missing light (easily replaced) breaches shipping regulations
and isn’t shipworthy until it’s fixed. Wide range of possible breaches, minor to major.
Summary and policy consideration: Courts don’t want to help ppl get out of bad deals.
Policy considerations:
Policy approach: protect reliance and reasonable expectations of one party while
avoiding unfair surprise.
Economic approach: Who should bear the risk that the representation is wrong? Who
could have avoided the risk at the least cost?
Remedial approach: Categorization is remedy driven. Justice is done btwn the parties by
selecting the appropriate remedy.
For example: Royalty rocker problem. Condition and entitled to profit? Or mere
warranty and entitled to reliance? Or innocent misrep. And no remedy since K was
performed?
So if you found a misrepresentation? Head over to the parol
evidence rule and discuss that
Concurrent Liability in Contract and Tort: Negligent
Misrepresentation
Esso Petroleum Co v. Mardon (concurrent liability in K and tort)
Facts: Esso misrepresents the potential sales ability of a gas station to the defendant.
Mardon loses a lot of money.
Holding: Mardon may claim in tort -- negligent misrepresentation. Mardon may not
claim expectation damages, but he can claim lost opportunity cost in his reliance claim
which essentially amounts to expectation damages in this case.
Reasons: No guarantee that the site would be profitable – no warranty found in that
regard. But Esso had special knowledge and skill in assessing the gas station site. Much
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better position to forecast its future earning potential. Reliance. Duty to use reasonable
care arises in tort.
What this case stands for: Concurrent liability in K and tort.
Other essential comments about concurrent liability in K and
Tort
Finding negligent misrepresentation (tort) – Hedley Byrne
- duty: special rel’ship between speaker and receiver – speaker provides
“information, opinion, or advice”
- representation false
- provided negligently – did not meet standard of care
- reasonable reliance
- damage (detrimental reliance)
Why a traditional reluctant to recognize tort?
- commercial is arena of contract
- risks should be allocated by contract
- floodgate concerns regarding economic loss (Hercules Management)
- words are different from acts: potential plaintiffs unlimited
- words exist forever
- economic not physical loss
Concurrency (pros/cons of suing in tort/contract)
-
SCC affirmed in BG Checo that one may sue in contract and in tort
However, the contract can limit tort liability with an exclusion clause. Must be
done in clear terms
Pros of suing in Contract:
-
may stipulate a more stringent obligation than tort law would impose
don’t have to establish standard of care
damages may be higher in contract if, for instance, special circumstances were
communicated
can claim expectation damage in contract, tort can only claim reliance
Cons of suing in contract:
-
often shorter limitation period than tort because contract limitation period starts at
time of breach, not time of discovery like tort
contract may stipulate a less stringent obligation than tort law will impose
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-
(not really a con) but reliance damage in tort and expectation damages are often
equivalent anyways since one can claim opportunity cost and money thrown away
on venture in tort
See pages 713-715 for the low chance that an exam question discusses professional
liability in tort/contract
Mistake
(Mistake is the “excuse of last resort” in contract law. Courts don’t like to help ppl get
out of bad deals on this basis.)
Categories of Mistake
(these terms are often used interchangeably, not necessarily expected on exam.
Emphasize policy framework instead – that of risk allocation)
Common mistake
Both parties make same mistake. Both parties mistaken regarding some underlying
fundamental fact. E.g., agreement to buy a Da Vinci. I think it’s real, you think it’s real,
it’s actually a copy. If it being a Da Vinci is found to be a fundamental term, void
contract on basis of mistake.
Mutual Mistake
Parties at cross purposes. One party has one perception about the contract while the other
has a separate one. For example, I think the contract is to buy a car, you thought it was to
sell a motorcycle.
Whether the K is enforced will depend on whether, objectively, one interpretation of the
facts is preferred.
Unilateral mistake
One party is mistaken about an important fact and the other person knows or ought to
have known about the mistake. Unconscionable, possibly fraudulent.
E.g., I think I’m buying a real Da Vinci and you know I’m mistaken and that it’s actually
a fake. Generally, restitution damages are paid.
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Mistake in Formation
Intro with test and policy factor comments
1. Residual category for relief
2. General Rule (objective test – Hobbs)
1. if there is a true ambiguity
2. regarding an important/fundamental term
3. no reason to prefer one party’s understanding over the other
4. the agreement may be void for mistake
3. Result – No contract. Despite an apparently valid contract, no K because there has
been a serious misunderstanding about the nature of the K.
4. Policy Issue: Assignment of risk – who ought to bear the risk? Who ought to bear
the consequences of the mistake in question? Reasonable expectations/unfair
surprise. Reliance/caveat emptor
5. Factors to consider
1.
Price: May be relevant in determining reasonable expectations
2.
Knowledge and skill of parties: Less likely to find mistake made by a
person who possesses or who should possess substantial
knowledge/skill.
3. Ease of avoidance: Who is in best position to avoid mistake? Who can
avoid it the cheapest?
4.
Common usage of the trade: May indicate expected allocation of risk,
and a sense of what the parties probably expected.
5. Knowledge of ambiguity – snapping up: If one party aware of
ambiguity, they should presumably be bound to clear it up. Courts don’t
like to help ppl “snap up” advantages that lead to inequitable results.
Problems with finding mistake
1. caveat emptor – law should not provide a remedy for regret
2. Function of contract can be seriously impaired if it were easy for a person to
avoid it by claiming mistake
3. Protection of third parties – if A sells to B and B sells to C, C is vulnerable if A
claims mistake
4. Risk allocation – it’s the function of a contract, not the courts, to allocate risk.
Mistake is a broad tool for courts to use in that regard.
Raffles v. Wichelhaus (mistake. Outdated concept of consensus
ad idem)
Facts: Def agrees to buy cotton from pltfs ship “peerless”. A different ship with same
name comes first, def buys from that person. Def refuses to deal with pltf afterwards.
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Holding: Pltf’s claim dismissed.
Reasons: None given. Presumably accepts defendants submission that there was a latent
ambiguity and that pltf meant one ship while the def assumed it was another. No
consensus ad idem (meeting of the minds) therefore no contract.
What this case stands for: Early 19th century decision. Essentially used a “subjective”
test.
Hobbs v. Esquimalt and Nanaimo Railway co (objective
reasonable person test for finding of mistake in formation)
Facts: Pltf buys “land” from def. Def claims “land” does not include mineral rights,
only surface rights. Pltf disagrees, sues for specific performance.
Holding: Pltf obtains specific performance.
Reasons: Def should have known better. Company, large part of it a land company,
should have known that land would include mineral rights. Unreasonable and careless
mistake. Dissent claims essential that there is a mutual mistake and would have
dismissed the appeal.
What this case stands for: Objective reasonable person test is used to find mistake.
Also consider Staiman Steel v. Commercial and Home Builders Ltd.
Similar findings to the above, application of an objective test. Court states that “only
when circs are so ambiguous that a reasonable bystander could not infer a common
intention will a court find mistake”. Court must decide what reasonable third parties
would infer to be the contract from the words and conduct of the parties who enter it, not
the actual intention of the parties.
Rectification (the test)
Performance Industries v. Sylvan Lake is the leading case on rectification. Rectification
is where a court essentially rewrites the contract, though not to the same level as
reformation (a remedy found in the USA). It’s more for instances where a contract might
say the land is 10 by 10 feet when yards was intended.
Four legal requirements for rectification:
1. Plaintiff must prove existence and content of the inconsistent prior oral
agreement.
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2. Plaintiff must provide the precise wording in which the prior intention can be
expressed in the written instrument (“precise form”).
3. There must be “convincing proof” of the prior agreement (beyond a balance of
probabilities but less than beyond a reasonable doubt)
4. The plaintiff must show that the defendant knew or ought to have known of the
mistake in the written document and that to refuse rectification would result in
equitable fraud which is an unconscionable result that gives the defendant an
unfair advantage.
Other factors considered are disparity in bargaining power and sophistication of parties.
Otherwise, courts will not rectify. Great reluctance to overturn written documents on the
basis of inconsistent oral agreements. Parol evidence rule – evidence cannot be admitted
to vary the terms of a written agreement. Reasonable person is not the test – if the above
four requirements aren’t met, courts won’t imply a term.
Mistaken Payments
General rule is repayment on basis of unjust enrichment/restitution.
Exception: Change of Position (reliance). No repayment if defendant/payee has
reasonable relied, such that it would be unfair to require the repayment.
Example Gift or discharge of indebtedness (change of position vis-à-vis a third party).
E.g, I discharge debt, you spend money elsewhere as a result, I cannot then claim against
you.
Budai v. Ontario Lottery Corp (reliance on mistaken payment)
Facts: Lottery ticket win of $5.00. Computer error informs pltf that he won $835.40.
Spends $480.00 on a party with friends in the result.
Holding: Lottery must lose $480 on the basis of negligent misrepresentation.
Reasons: He held the expensive party in direct reliance of the mistaken payment.
Comment: If he used the money to pay rent, since he had to pay his rent any way, there
would be no detrimental reliance and he would have to refund the lottery corp in full.
Mistaken Assumptions
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Introduction
Mistaken assumption: Mistake that goes to the motive or reason for entering into the
contract.
Cases highlight the tension between the values of certainty and predictability (caveat
emptor) and unfair surprise, regret and unjust enrichment on the other.
Essential issue is risk allocation – did parties allocate the risk of mistake?
Second issue is fairness: Will one party be unjustly enriched if contract is enforced?
Courts rarely grant relief on the basis of mistake. General principle remains caveat
emptor.
Sherwood v. Walker (mistaken assumption regarding nature of
subject matter)
Facts; Farmer sold cow, banker bought it, paid $80 on the basis that it was barren. Later
found that the cow was with calf and actually worth $800 since it could breed.
Holding: Contract void.
Reason: Thing contracted for did not exist. Parties contracted for a barren cow, but this
is a breeding cow. Went to the very nature of the thing (a fundamental mistake).
Dissent: Parties contracted for cow. Cow exists. Cow is the only fundamental
term. Neither knew whether or not she could breed. Differing assumptions as to
the value of the bargain and each party took its chances.
Factors: Pltf banker did not disclose that he thought she could breed. Unjust enrichment
in that regard?
Contra: Def. was a breeder while Pltf was a banker. Def. had special knowledge and
should have known better.
Bell v. Lever Brothers Ltd (Mistaken assumption regarding
essential quality)
Facts: Lucrative severance agreement for two senior employees. Employer
subsequently discovers that employees had been engaged in insider trading and that it
would have had cause to fire without notice.
Holding: Employer’s claim dismissed
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Reasons: No mistake re substance. Mistake does not render the severance agreement
entirely different. No mistake regarding performance (the bonuses, etc, presumably
reflected past superior performance). Policy of certainty and predictability regarding
compromises/settlements. Power relations – employer takes risks when it settles.
What this case stands for: In finding the above, the court articulated the following three
types of operative mistaken assumptions:
1. identity of contracting parties: intention is to contract with specified individual
only: “negatives consent”. K void
2. existence of substance matter: Where subject matter of K is assumed to be in
existence by both parties but is not. Or if contract for sale of item you already
own. Consent nullified. K void.
3. Quality of subject matter. K void where mistake of both parties as to the
existence of some quality which makes the thing without the quality essentially
different from the thing as it was believed to be. A mistake regarding the
substance must be a fundamental underlying assumption.
Solle v. Butcher (Equitable jurisdiction/relief of mistaken
assumption. Read this as it might be applicable whenever
mistaken assumption is found)
Facts: Def renovates a house and rents it to pltf at a rate above that permitted by rent
control. Both parties though rent control didn’t apply. Def relied on pltfs statement to
that effect.
Pltf claims rent control applies and that he’s entitled to recovery of difference in rent.
Def counters that lease was entered into on basis of mistake and asks that lease be voided.
Holding: Lease set aside on terms that allowed landlord to apply to have rent increased
to previously agreed amount.
Reasons: Subject matter of K wasn’t entirely different from what it was thought to be
(lease isn’t essentially different from rent controlled lease).
Applied equity. Equity will relieve a party from the consequences of mistaken where K
entered into:
1. Under a common and fundamental misapprehension
2. It can do so without injustice to third parties
3. Unconscientious/unreasonable for the other party to avail herself of the advantage
Essentially, equity will accept the existence of the contract, but it will then relieve the
parties of future obligations under the contract. K is voidable on terms (directed by the
court).
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Equitable jurisdiction was overturned in UK by “The Great Peace” decision but remains
the law in Canada.
Other comment: Negligent misrepresentation wasn’t available at this time.
Examples where equitable jurisdiction might be used:
-
fraud
material misrepresentation
mistake by one party (re: terms or identity) and other knows but remains silent
common assumption regarding a fundamental fact or rights and party not at fault
Equitable remedies in mistake – remember that. Losses don’t necessarily lie where they
fall in that case, judge may require them to be shared.
The ability to do equitable remedies and setg aside contracts on terms essentially is the
power of reformation
Frustration
Mistake – assumption regarding existing facts
Frustration – assumptions regarding future events.
Frustration is essentially like mistaken, but occurs when a contract is already in place and
not yet complete.
Examples:
Impossible to perform (easy cases)
Promise to marry: Promisor dies
Contract for portrait: Painter loses sight
Music hall lease: Music hall burns down (Taylor v. Caldwell)
Undue hardship: Event imposes an inordinate and unexpected expense.
Policy Context: Assignment of Risk
Who should bear the risk of the unforeseen event?
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The mere fact that a K becomes more difficult to carry out is not sufficient in and of
itself. Unexpected event must constitute a fundamental change in the bargain: “A radical
change in circumstances”
Historical development has moved beyond “impossible to perform” frustration:
Krell v. Henry (frustration of commercial purpose of contract,
test for frustration)
Facts: Def. leased room for purpose of watching King Henry coronation event which
was cancelled. Def paid a $25 deposit. Pltf sues for remaining $50.
Holding: Pltf’s claim dismissed but def loses deposit. Parties discharged from future
performance. Purpose of lease was not lease of room, but lease of room to view
procession.
Reasons: Test for frustration (similar to test for mistake):
a)
b)
c)
what is the foundation of the K, having regard to all circumstances?
Was performance of K prevented?
Was the frustrating event reasonably in the contemplation of the parties at
the date of the contract? If they thought about the risk, no frustration.
ALCOA (Magnitude of risk unforeseen, reformation)
Long term K for supply of aluminum. Parties agree to objective pricing formula.
Formula is flawed, doesn’t respond to massive increase in cost of electricity.
Court finds mistaken assumption and frustration. Remedy is reformation (USA case, not
available in Canada but Solle and Butcher [rectification] comes close)
Other comments: ALCOA was very long term K. Parties agreed that ALCOA should get
a profit and that ALCOA would not accept risk of price increase in commodity.
The ability to do equitable remedies and setg aside contracts on terms essentially is the
power of reformation.
Re Westinghouse Electric Corp (Mere fact that K becomes
expensive is not sufficient)
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To encourage sale of nuclear reactors, Westinghouse offers uranium at fixed price.
World price more than triples. Westinghouse is on the hook despite this unexpected
increase.
Comment: Distinguishable from ALCOA in that parties did not agree Westinghouse
would profit? Westinghouse accepted risk of price increase.
Amalgamated Investment v. John Walker (difficulty of finding
frustration in land contract)
Def. advertises warehouse for sale for occupation or development. Pltf offers. Vendor
asked if there was any proposal regarding designating the building as heritage – vendor
says no. K signed, next day the property is listed as a historical site causing value to drop
immensely.
Held: No frustration. Purchaser is liable. Risk was entirely foreseeable. Subject matter
is not different – land is land and land was conveyed.
Allocation of risk: Pltf is developer, should have purchased an option. Did pltf assume
risk by asking for disclosure?
Comment: This is a UK case. KBK (follows) is more persuasive.
KBK No. 138 Ventures Ltd. v. Canada Safeway Ltd (Canadian
case, finding frustration in land contract when unforeseen
fundamental change in land occurs. Use this case as the test for
frustration)
Facts: Safeway owns a land parcel, advertises it as prime development opportunity
zoned C-2 at the time. KBK offers, enters contract.
KBK pays deposit. City on its own motion (highly unusual occurrence) rezones land to
CD-1 (much lower density). Land falls in value immensely.
KBK claims K is frustrated.
Holding: K is frustrated, KBK is entitled to return of deposit.
Reasons: BCCA reviews case law and applies the following test:
Event: Must occur after formation. Must not be self-induced. Must not have been
foreseeable at the time the contract was signed.
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Impact: Must be more than mere inconvenience – must make contract fruitless. Must be
radical change in K (completely affects nature, meaning, purpose, effect and
consequences of K. Change must be permanent. Affect basic underlying assumption of
K.
Unanticipated risk occurring after formation and not foreseen. No allocation of risk in K.
K said
BCCA distinguishes this case from Victoria Woods where the seller in that case only had
“mere knowledge” of buyer’s intent to redevelop. BCCA says Safeway had more than
that for these reasons:
1. Ad specifically referred to zoning designation and set out permitted uses
2. K contained a clause which specifically stated buyer’s intention to redevelop
3. Purchase price was specifically calculated on basis of PSR (development
potential) – agreement was kind of like a joint venture
4. K silent as to allocation of risk
ARGUMENTS FOR/AGAINST FRUSTRATION. ONE PARTY WILL SAY
FORESEEABLE. BUT THE OTHER WILL SAY “RADICAL CHANGE”. ALSO
CONSIDER POLICY CONTEXT – ASSIGNMENT OF RISK.
Remedies for frustration and the Frustrated Contract Act
Historically, when frustration is found, court relieves parties of future obligations. Any
losses were “left where they lay”. See Taylor v. Caldwell for this – would be tenant lost
deposit because it was already paid. He didn’t have to pay any more rent however.
However, almost all common law provinces have enacted legislation to take into account
reliance costs other parties might have incurred. See BC’s Frustrated Contract Act for
instance. That act requires reliance costs to be apportioned equally in the absence of an
agreement to the contrary within the K.
Example: You contract me to bake a cake for your party. I start baking cake. Party is
cancelled because of unforeseen disastrous event. You haven’t paid me yet – you don’t
have to pay me anything as K was frustrated. Normally I would suffer cost of baking
materials on my own (my reliance) but Frustrated K Act states that we will share the loss
equally.
Control of Contract Power
Introduction
-
a market based system isn’t the only way goods and promises are exchanged in
the present and future, some critical theories:
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Mensch
-
-
-
leftie Marxist
wrote “Freedom of Contract as Ideology”
concept that in the capitalist system of contracting, the assumption that the state is
not implicated in the outcomes of free market bargaining is false, contracts are
enforced by the state after all
developed the concepts that duress excludes economic pressure from the legal
definition
example: coercion is inherent in each party’s legally protected threat to withhold
what is owned
ownership is a function of legal entitlement, every bargain is a function of the
legal order
legal decisions revolve around what extent bargained for advantages should be
protected as rights
in that regard, contract law is an example of how the state can use its power
through the law to keep the wealthy in their current class standing
capitalist system of private property is inherently coercive – coercion lies at the
heart of every bargain – this is in contrast to classical liberalism which states that
economic pressure does not vitiate consent
question: What is free and voluntary consent? At what point does voluntary
consent end and coercion arising from social context begin?
The chain of gifts
-
-
-
in the economy of the Anishabeg, economic exchange cannot be understood apart
from kinship, where all social interaction is conditioned by kinship
concepts of markets, communism, etc, do not apply in an Anishabeg community
as all economics are strictly “personal”
Anishabeg “economics” involves a sharing of gifts where exchange produces both
economic benefit and a feeling of good will that cements the social bond
the closer the kin relationship between people, the greater the reliance, and
therefore the implication of trust
exchange would balance out in the long run
known as “general reciprocity” and is found within households and among
members of a nuclear family
found in non-native families as well, e.g., Christmas, no insistence on exchange of
equally valuable gifts “it’s the thought that counts”
however, exchange between very distant kin or strangers, expectation that there
be an immediate exchange of equally valuable gifts
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-
-
-
-
this is not a market exchange since it’s still in the form of a gift and still carries
social implications
explains “Indian giving” – Indian would give a gift to a white man, white man
would simply say “thanks” and not reciprocate. This was against custom so to
speak and so the Indian would ask for the gift back
“blessed” to give and receive” – as a resource becomes scarce, anishabeg
members become more anxious to give it away – e.g., deer meat given to family,
then extended family, etc, deer is shared by a greater number of people – direct
opposite of market system which would encourage hoarding
on the other hand, once deer meat is given away, expectation that one would
receive something in return – thus sharing is like a “life insurance policy”
ultimately, cooperative giving started in the family, husbands gave meat and
skins, wives gave cooked food and clothing, children received food and clothing
and gave blueberries and firewood, all members of the family given the same
respect for their efforts; this produced a sense of interdependency, security and
satisfaction
Contract Interpretation
MacNeil, The New Social Contract
Five elements of promise in exchange, always to be viewed in their particular society:
1. The will of the promisor
2. the will of the promise
3. present action to limit future choice
4. communication
5. measured reciprocity
Nonpromissory exchange projectors lack one or more of the elements of a promise and
they come in many forms. Examples: custom, status, habit and other internalizations,
command in hierarchal structures, and expectations created by the dynamics of any status
quo.
The “limited role of the promise”
-
-
every promise is always “two” promises – the sender’s and the receiver’s. the
resulting nonmutuality ranges from subtle to gross differences in understanding.
Every promise is essentially incomplete. These differences are reconciled by
bringing into the picture something other than the promises themselves – this
something is a nonpromissory projection of exchange into the future
as a result in part, individuals and societies view promises as less than absolute;
promise breaking occurs frequently and is expected
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Renner, The Institutions of Private Law
-
-
Marxist, held extreme view of the lawyer’s function
Lawyers are responsible for upholding positive law
E.g,. a loan between two persons, it is the lawyer’s responsibility to ascertain all
the relevant legal norms and apply them to the case at hand
It is not the lawyer’s responsibility to consider anything else – for instance, the
role of the loan in the economic system or its effect on classes or in society as a
whole – social repercussions are the realm of the economist and sociologist
It is not the object of positive legal analysis to investigate the origin of the
common will, its essence, its growth or decay
Federal Commerce & Navigation Co. v. Tradax Export SA (the
importance of consistency in standard form contracts)
Facts: A ship was delayed from docking because of congestion. The question came to
be who should bear the cost of the delay – the ship owner or the charterer? The standard
form contract said one of the parties (which party is unclear and irrelevant) should bear
the risk, even though there was a sense that this was not just.
Holding: The standard form contract should be enforced as its written
Reasons: Need for efficiency and certainty in the interpretation of contractual
obligations. Efficient allocation of risk demands that both parties are able to order their
affairs against the backdrop of knowledge of liability. “… parties who have bargained on
equal terms in a free market should stick to their agreements.”
What this case stands for: Importance of consistent interpretation of contracts
generally, especially in widely used commercial contracts.
Other comments:
Benefits of predictability and strict enforcement: efficiency in bargaining – faster.
Facilitates shopping – comparison of various charter rates. Facilitates administration of
contract – both parties will understand duties.
Concerns with predictability and strict enforcement: Presumes knowledge – equal access
to law. Conservative – great reluctance to change. Equity – unfairness.
Context: See MacNeil – since every contract is necessarily incomplete, note that
contracts, even standard form ones are influenced by a host of additional considerations
such as circumstances, objectives, expectations, habit and custom. Strict enforcement
gives these additional considerations less credit than deserved.
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Scott v. Wawanesa (the problem with strict enforcement of
standard form contracts)
Facts: Insured’s son intentionally burns down the family home. The insurance contract
clearly states that “insured” extends to the named insured’s children and that if anyone
intentionally damages the insured property, the insurance will not cover the damage.
Holding: The defendant is off the hook
Reasons: Clear and unambiguous language. In that case, the court must enforce clear
meaning unless the contract is unreasonable or has an effect contrary to intention of
parties. Must enforce standard contracts strictly.
Important dissent:
The contract isn’t free of ambiguity. What’s unclear is whether or not exclusion from
insurance should apply only to the wrongdoer insured or to the innocent insureds as well.
Conflicting Canadian authority – BC courts say the exclusion does extend to all parties,
Ontario says it doesn’t.
Reference to the United States: Historical view was considering whether the interests at
stake were joint and several. If joint, then no recovery. Why?
1. Person cannot benefit from wrongdoing – directly or indirectly
2. Deter crime
3. Prevent fraud
Modern approach in the United States: Depends upon contract and whether the co
insureds have promised the same performance – or a separate performance by each. Has
each insured promised that all insured parties will preserve property or have they just
promised that he or she will preserve his or her property?
What does intuition tell you? If you bought an insurance contract, wouldn’t you assume
that you were covered if someone else, an ex-spouse for instance, burned down the house
with your possessions? You did nothing wrong after all.
Counter from insurance company: Son is protected from being sued through subrogation
by having his name included.
What this case stands for:
-
the problem with strict enforcement of standard contracts
underlying theme of the dissent’s argument: contra proferentum (preference
against the drafter of the contract) because as an institutional insurance company,
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it can always redraft its contract. Meanwhile, the Scott’s have lost out in a big
way
reasonable expectations of the parties: person unversed in niceties of insurance
law would assume coverage
Interesting comments from the text:
-
majority acted like it had no choice in its decision. The fact was, as shown by the
dissent, it had a choice and made one.
Insurers now know a sneaky position they can take in similar circumstances.
Insured individuals remain unlikely to consider in detail the risks they run
Techniques of Control – SEE THIS IF NEGLIGENCE ISSUE
-
courts can read down/up contract provisions to expand obligations or narrow the
scope of exemptions
see Fraser-Reid – court was unwilling to create an implied warranty for new
homes because of the concern of how that would affect the housing market
however, the SCC “found” a warranty in a clause that stated there were no
outstanding building code infractions – buyer’s expectations were protected at
expense of builder’s
-
judges have sometimes held that exclusion of any warranty or condition does not
work if there was a negligent misstatement – tort law is used to compensate for
the potential unreasonable strictness of contract law
-
judges are unlikely to find that exemption clauses exclude liability for negligence.
After all, finding negligence means finding fault – not proper that anyone should
avoid liability when he or she has been guilty of fault
judges also use contra proferentum (see Wawanesa case for definition)
contra proferentum is justified on the basis that the party who drafted the contract
could have avoided the ambiguity and, not having done so, should bear the risk of
an unfavourable interpretation
-
The Parol Evidence Rule
(no assigned cases to read)
-
no extrinsic evidence is considered part of a contractual arrangement between two
parties when there is a clear and unambiguous written contract
Rationale
Protects the sanctity of a contract that has been reduced to writing:
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1. Administrative/adjudicative ease. More convenient and efficient for judges to
rely on written contracts
2. Prevent Fraud/Perjury. Written contract protects the expectations of a party who
relies upon the agreement and avoids rewriting the parties’ agreement based on
contested evidence
3. Enhance certainty: Written document provides objective evidence of the
agreement.
4. Efficacy of commercial documents: The rule bolsters the efficacy of commercial
documents and standard forms. It facilitates business, reduces transaction costs,
and protects reliance.
5. Prevent unfair surprise: Encourages parties to plan carefully and include all
relevant terms in the written contract. Prevent unfair surprise from someone
making a casual statement and having the other rely upon it
6. Control Agents/Employees: Who might carelessly modify their employer’s
contract
The Concern
“exclusion” or “entire agreement” clauses that state there are no other
warranties/representations outside of the contract, yet one party relied on such a warranty
to be induced into the agreement.
Exceptions to the parol evidence rule (procedural side of the rule)
1. Interpretation: Extrinsic evidence can clear up an ambiguity in the contract.
2. Invalidity: Extrinsic evidence can show the contract is invalid because of lack of
intention, consideration or capacity
3. Misrepresentation: Extrinsic evidence can show there was an innocent,
negligent, or fraudulent misrepresentation
4. Mistake: Extrinsic evidence can show there was a mistake as to the nature or
effect of the agreement
5. Rectification: Extrinsic evidence can correct an error/mistake in putting the
agreement in writing.
6. Condition precedent: Extrinsic evidence can show there was a separate
agreement along with the written agreement
7. Collateral contract/warranty/agreement: Extrinsic evidence can show there
was a separate agreement along with the written agreement
8. Unconscionability: Extrinsic evidence can show that the contract was brought
about through unconscionable means.
9. Statutory override/consumer contracts: The BC Business Practice and
Consumer Protection Act states that the parol evidence rule cannot exclude or
limit the admissibility of evidence relating to the understanding of the parties as to
a particular provision or the consumer transaction itself.
10. Modification and discharge: Extrinsic evidence can show the contract has been
modified or terminated
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11. Equitable remedy: Extrinsic evidence can support a claim for an equitable
remedy
However:
Extrinsic evidence that contradicts the written contract is usually almost always
inadmissible.
Bauer v. Bank of Montreal (SCC) -- collateral agreement that
contradicts the written agreement is inadmissible due to the
parol evidence rule. This is the case, even though the evidence can be admitted.
Note that in this case, court wasn’t entirely convinced that the oral evidence was sound
either.
The way courts get around Bauer:
Gallen v. Allstate Grain Co. – This will occur when the contradictory
oral evidence is unequivocal. The court may state that reliance on
the oral representation was reasonable, and that the oral
representation did not contradict the contract, but merely added or
varied the written terms. Classic case of “reading down” the exclusion clause and
contra proferentem
Also comment: The judge in this case stated that the parol evidence rule is not a “rule”
per se but merely a strong presumption in favour of the written contract. “if evidence is
clear that the oral warranty was intended to prevail, it will prevail”
Zippy Print Enterprises v. Pawliuk (an example of somewhat
sophisticated commercial parties not having to rely on the strict
wording of the contract, parol evidence rule not applying to a specific
representation) – “a general exclusion clause will not override a specific
representation on a point of substance which was intended to induce the making of the
agreement unless the intended effect of the exclusion clause can be shown to have been
specifically drawn to or acknowledged by the other party”
Note: This was a franchisee/franchisor case where the franchisee might not have been as
experienced and there might be an inequality of bargaining power issue in the
background.
A swing-back to Bauer:
Bank of Nova Scotia v. Zackheim (Ontario case, unlike the others) –
PER excluded evidence of oral innocent misrepresentations that
contradicted the written terms of a guarantee. Court distinguished Bauer on
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the basis that there was no evidence of misrepresentation. In this case, the defendant (!)
was trying to admit evidence of a misrepresentation.
Factors Influencing Application of PER (read this for the test):
Varies
------------------Presumption in favour of written K strengthening---------
Adds a term
Varies a term
Contradicts
1. Determine if oral rep. is a warranty
2. If yes, then harmonize if possible. Read the oral warranty and contract together.
If no contradiction, no problem
3. Contradiction? If yes, then per Bauer strong presumption that written contract
governs.
Other influencing factors.
1. General: intent, reliance, reasonable expectations, unfair surprise
2. Nature of Change/conflict: is it a serious conflict/contradiction?
3. Nature of document: Clarity of wording? Read by parties (knowledge)?
Intended to be whole agreement?
4. Bargaining relationship: Power relationship? Standard form contract?
Evidence of devious practice?
5. Nature of representation: Clarity/significance. Credibility of evidence
Finally, refer to statutory overrides, if any (they exist in BC).
Standard Form Contracts
-
also known as “contracts of adhesion”. Terms are generally set by one party and
contract is offered on a “take it or leave it” basis
come in a variety of forms, etc. sometimes the entire contract is standard,
sometimes a clause is standard
under what circumstances are these contracts enforceable? Remember, written
contracts themselves are merely pieces of paper and are not the contract itself.
They are evidence of a contract
Advantages
1. Reduce transaction costs: Eliminate the need for bargaining in every
transaction. Standard forms permit economies of scale, reducing transaction costs
too.
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2. Terms are based on past experience: They are worked out over time to most
efficiently allocate risk and allow parties to plan with certainty and predictability.
3. Fixed meaning: Standardized terms come to acquire this and this cuts down on
judicial risk that a clause will be interpreted in an unexpected way.
4. Control agents: Who might not have the authority to strike individual
negotiations. Consistency.
Disadvantages
1. Notice and Knowledge: Often in small print. Typically not read by
unsophisticated parties. Protect the expectations of one side only – the party that
drew up the agreement
2. No bargaining: Offered on a take it or leave it basis. Weaker party might not be
able to shop around because of a monopoly.
3. Knowledge differential: Party that drafts the contract generally has better
knowledge about usual risks and problems associated with the deal. Customer
usually lacks this info
4. Expectations defeated: Standard contracts can be used to defeat the expectations
of the customer, especially when an agent makes inconsistent representations
(parol evidence rule might kick in)
Commentary:
Kessler – criticizes courts for protecting weaker parties by reading down standard
contracts and creating ambiguities. This creates confusing and contradictory decisions
that make standard contracts less efficient and is bad for everyone in the long run.
Havighurst – The terms of a contract often set out a standard of performance far higher
for the weaker party while minimizing the stronger party’s responsibility. He expresses
concern for situations where there is unequal bargaining power, or where there is risk of
“fly by night” operations – in these situations where non-legal pressures won’t suffice to
ensure performance, he argues that the law should step in and limit the freedom of
contract of the stronger party.
General rule for signed documents: Party signing a written document is bound by its
terms whether he read them or was even aware of them (L’Estrange, Eng. CA, 1934).
Ignorance is no defence.
The Ticket Cases
-
i.e., cases where one party does not actually sign the written agreement to effect a
contract
common law courts developed the doctrine of reasonable notice: if there is no
knowledge of conditions, a person is bound if there was reasonable notice that the
ticket contained conditions
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Parker v. South Eastern Railway (party is bound to unsigned
agreement with reasonable notice, test to employ)
BUT ALSO LOOK BELOW – KARROL, ETC – FOR THE CANADIAN
VIEWPOINT
Facts: Ticket received for storage of bag at railway. Bag lost. Value of bag was $25 but
ticket limited damages to $10.
Holding: Liability limited to $10
Reasons: (three concurring judgments)
Judge Mellish:
When one party does not sign the contract, evidence must be shown to show assent.
Evidence may be:
1. actual knowledge that the document contained conditions; or
2. reasonable steps taken to provide notice that the document contains conditions
Law essentially treats signature and notice as substitutes. “The railway company…
must… do (what is) sufficient to inform people in general that the ticket contains
conditions… a particular plaintiff (ought not be excused) on account of his exceptional
ignorance or stupidity or carelessness.”
When applied to case at bar:
Actual knowledge?
- pltf knew ticket contained writing
- did not read: no knowledge
- thought it referred to receipt for $
Reasonable steps?
- handed ticket
- ticket said “see back” (back contained conditions)
- notice posted on wall to same effect
Judge Baggallay:
While he agreed with Mellish, this judge noted that the practice of issuing tickets was
unusual. Nowadays it is common; arguably there is a presumption that people know
tickets contain conditions.
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Judge Bramwell:
Common understanding: standard form conditions are binding b/c people know and thus
accept that there will be terms in a contract set out in writing.
HOWEVER: Imposes an implied understanding that terms will not be unreasonable (this
reasoning hasn’t been picked up by subsequent courts. No general rule exists).
What this case stands for: Doctrine of reasonable notice.
J Spurling v. Bradshaw (Lord Denning, the more unreasonable
the clause, the greater the notice required. The “red hand” rule)
Summary: The more unreasonable a clause, Lord Denning argues, the greater the notice
which must be given. Some clauses arguably need to be in red ink with a red hand
pointing to the clause (and sometimes you actually see this in modern contracts).
Thornton v. Shoe Lane Parking (application of Lord Denning’s
“red hand” rule, unreasonable condition in a ticket)
Facts: Pltf suffers personal injuries in def’s parkade. Sign at entrance says : All cars
parked at owner’s risk. Pltf read ticket but only for the time of entry. Saw writing but
did not read. Ticket said “subject to posted conditions”. Posted conditions inside
provided exclusion for liability for personal injury.
Held: Def can’t rely on exclusion notice.
Reasons:
1. Technical reason: Denning invoked law of offer and acceptance and concludes
that contract was formed when pltf moved forward and obtained his ticket.
Words on ticket could not alter contract since contract already formed at that
point in time because the ticket was received. Personal injury exclusion was a
GTA w/o consideration.
2. Insufficient notice per Parker: Def acknowledges that notice was inadequate.
Denning states that such a draconian and unreasonable term requires explicit
notice (red ink/hand)
3. Actual knowledge: Pltf looked at ticket and knew it contained writing. Def
argues he must have known it contained conditions. Denning replies that no
evidence to the effect that he knew. No evidence that he knew of this condition –
the exclusion of liability (likely not a good argument nowadays). Here, Denning
expands the doctrine of reasonable notice to require knowledge of actual
exempting condition rather than simply notice that there is a condition.
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4. Sign: “All cars parked at owner’s risk”. Pltf did see this. Why not binding?
Refers to property only – not personal injuries.
Comment: Why do I think this term was unreasonable? Parking garages exist to
store property. Seems like a stretch to have a parking garage consider matters of
personal injury.
What this case stands for:
Resolution reflects
-
interpretation as a technique to avoid an unfair result
contra proferentem
Note different avoidance techniques:
1. Use of rules WRT offer/acceptance
2. Interpretation: exemption applies only to property damage
3. Reasonable notice – expansion on Parker to actual notice of specific exempting
condition
4. Denning alludes to the fact that an exempting condition could be void for
“unreasonableness” (not accepted widely by the courts)
Interfoto (Thornton/reasonable notice doctrine applies to
clauses generally, not just exemption clauses)
Summary: The invoice had unreasonable repayment conditions in fine print that were
not industry standard. Court finds that unreasonable terms in unsigned agreements OK
with specific notice and proof that other party accepted them.
Signed Contracts and Fundamental Breach
-
-
not to be confused with repudiatory breach where the innocent party may treat the
contract as at an end when the other side fails to deliver on a substantial term
(condition)
fundamental breach – is the guilty party permitted to rely on the exclusion clause
where there has been a fundamental breach of contract?
Is it a rule of law or a rule of construction?
UK Approach to Fundamental Breach
Interplay between Lord Denning and the House of Lords
Page 69 of 94
-
-
according to lord denning, it is a rule of law and applies regardless of the parties’
intentions. See Karsales Ltd. v. Wallis and Harbutt’s Plasticine Ltd v. Wayne
Tank & Pump co. In these cases, the guilty party breached the contract in a
fundamental way (provided very shoddy goods) and tried to rely on exclusion of
liability clause but could not
according to HoL (higher level courts) it is a rule of construction (interpretation)
only and they confirmed this view in Photo Production
Facts: Security guard starts a fire in the building he was supposed to protect. Contract
btwn Photo Production and the Security company states that there is no liability for the
security company. HoL rules in favour of security company.
Reasons:
1. Fundamental breach of contract brings contractual obligations of performance to
an end
2. the exclusion clause survives and the issue is whether the clause applies to the
loss in question
3. the HL considers the reasonableness of the clause
a. clearly worded
b. only a modest charge for services
c. def had no knowledge of value of property or of fire precautions
d. pltf is the cheapest avoider and insurer (property insurance cheaper than
liability insurance)
e. no inequality of bargaining power
Note: The need for a Lord Denning style rule of law approach has been substantially
reduced by legislation – UK’s Unfair Contract Terms Act. Renders some exclusion
clauses void and subjects others to a test of reasonableness.
Canadian Approach to Fundamental Breach
Hunter Engineering Co. Inv v. Syncrude Canada Ltd. (doctrine of
fundamental breach is a rule of construction only, better to use
unconscionability, sophisticated commercial parties aren’t
subject to it, perhaps consumers though)
Facts: Syncrude contracts for 14 conveyor systems, including gearboxes. Def’s contract
provides one year warranty with exclusion for all other warranties/conditions. System
failed after 15 months. Value of contract was $4,000,000. Value of gears was $115,000
and cost of repairs was $100,000 each.
Holding: The def is saved by the warranty and exclusion clauses
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Reasons:
Majority:
-
-
doctrine of fundamental breach is a rule of construction only
many courts still treat the doctrine as a rule of law
o problems:
o uncertainty – a game of categorization illustrated by lower court decisions
o exclusion clauses can be fair and reasonable
o unfair surprise and unjust enrichment: in commercial context, exclusions
are reflected in price
o unevenness of doctrine – why restrict doctrine to exclusion clauses? Other
clauses may be as harsh
o doctrine cloaks the real enquiry – unfairness
solution: unconscionability – if it exists, def shouldn’t be able to rely on the
exclusion clause
Exclusion clause is upheld. Clear and unambiguous. No evidence of unconscionability.
Minority (concurring):
-
agrees with majority with the problem of having the doctrine be a rule of law, but
disagrees with relying on unconscionability
problem with unconscionability: this is assessed at time of contract formation
only. A clause may be fair at time of signing, but may become unfair later on
further, unconscionability requires inequality of bargaining power
What this case stands for:
-
law unsettled in Canada
judges agree that in typical commercial transaction, proper approach is to give
effect to the clear wording of the exclusion clause
little distinction between “unconscionability” and “unfair and unreasonable”
doctrine makes sense as a rule of law in consumer context, but in commercial
context, exclusion clauses are rational, efficient and should be upheld
A Possible Exception – Exclusion Clauses Continued
The Problem
-
it is usually artificial to find consent in a typical “boilerplate” contract in the
consumer context (this is not necessarily the case with contracts negotiated
between sophisticated commercial actors)
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Llewellyn’s Solution
In standard form contracts, the law should recognize that the parties have agreed to a
broadly formed contract, with reciprocal terms:
-
consumer agrees to be bound by the terms of the standard form contract (ie agrees
to be bound by unknown terms); and
seller undertakes not to impose any manifestly unreasonable or unfair terms
Tilden v. Clendenning (application of Llewellyn’s Solution?
Signature rule no longer in effect? The importance of taking
reasonable steps to bring unusual terms to consumer’s
attention)
Facts: Def signed a car lease contract stating that his liability was limited to nil provided
he did not drink alcohol whatsoever while driving.
Accident. Charged and pled guilty to impaired driving but claims not actually impaired.
Trial judge accepts that he was not impaired.
Holding: Pltf cannot rely on the exclusion clause
Reasons:
Dissent: The dissent would have affirmed the signature rule and held in the pltf’s favour.
Clear concern for certainty, business efficacy and market ordering. Limitation is
reflected in price.
Dissent did not want to inquire into reasonableness of terms. Why?
1. Too complicated: price, availability of insurance, competitive nature of market –
floodgates; and
2. threatens the entire foundation of contract law: parties make bargains, not the
courts
Also, the def did not breach the contract in a mere technical way (in the dissenting
judge’s opinion).
Majority:
Majority found the clause was unreasonable (drinking a single glass of wine shouldn’t
eliminate liability)
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Customer had no actual knowledge of the term and no reasonable steps were taken to
bring it to his attention. Had he known, court concludes he would not have signed the
contract (is this a valid assumption?)
Court applies purposive interpretation to signature rule. Rationale for signature rule is
that signature is a good manifestation of assent to the terms upon which the other party
can rely. Reliance here is not reasonable:
-
speed of transaction
length of document
fine print
(clearly, the contract is meant not to be read)
Tilden (pltf) ought to have known there was no actual assent. Reliance of signature was
unreasonable. Clerk saw that contract was signed without reading.
What this case stands for: Where party seeking to rely on contract knows that the
signature of the other party does not reflect the true intention of the signer and the other
party is unaware of the stringent and onerous provisions which the standard form
contains, then:
“ the party seeking to rely on such terms should not be able to do so in the absence of
first having taken reasonable measures to draw such terms to the attention of the other
party.”
Comment: Post-Tilden, courts have not applied Tilden broadly. Courts continue to
uphold standard form contracts and signed waivers of liability even when those waivers
have not been read. Courts may, instead, read down the contract or rely on something
else like unconscionability.
Other comment: The court is taking a subjective approach to finding expectations. This
makes contract law very complicated and very difficult for solicitors to draft standard
forms that protect his clients interests.
See Karroll v. Silver Star: Tilden is only applicable in limited circumstances: where
person knew or had reason to know of other’s mistake as to its terms.
What kind of circumstances is Tilden valid?
-
hasty
informal
clause inconsistent with rest of contract
absence of opportunity to read
length and amount of small print
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Signed Waivers: Risky activities
With signed waivers for risky activities: in the absence of
unconscionability, fraud, misrepresentation, the traditional rule I
that signature is a manifestation of assent: Delaney v. Cascade
River Holidays (BCCA, 1981)
Ochoa v. Canadian Mountain Holidays
Summary: Japanese business man injured while heli-skiing. Court upheld the waiver
even though pltf did not speakd or read English.
Why?
Limited Tilden to its facts. In Tilden:
-
signing of doc was hurried
no opportunity to read it
clause was part of lengthy document
substantially inconsistent with overall purpose of contract
Court held that pltf in this case was intelligent and resourceful, that he knew the doc
affected his legal rights and that he had access to a translator.
Trial judge noted however: “Any waiver seeking to cover negligent conduct must surely
contain something more than the word negligence…” largely because the lay meaning of
negligence and the legal meaning differ considerably.
Karroll v. Silver Star (circumstance when a waiver of liability is
accepted [use this case for the relevant law], agency exception
to privity rule)
Facts: Pltf signs waiver form, participates in ski race and is injured when someone walks
onto the course.
Def argues signature rule. Pltf argues lack of reasonable notice of terms in standard
form.
Holding: Def is not liable because the waiver is valid
Reasons:
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Tilden is only applicable in limited circumstances: where person knew or had reason to
know of other’s mistake as to its terms.
What kind of circumstances is Tilden valid?
-
hasty
informal
clause inconsistent with rest of contract
absence of opportunity to read
length and amount of small print
In Karroll, reasonable person would not have known that Karroll was not assenting.
Why?
- pltf signed knowing it was a legal document
- release consistent with purpose of contract
- hazardous activity
- short, easy to read
- she had signed such a release before
Silver Star (def) took reasonable steps:
- capitalized heading
- short, sufficient time to read
Comment:
-
in a usual commercial situation, there is no need for this rule. It’s safe to assume
that the parties know what they are doing
this assumption, however, isn’t necessarily valid in consumer context, especially
when inequality of bargaining power exists
Other Comment: Remember to consider distinguishing between what was fair at signing
and what has now since become unfair. Refer to Syncrude minority dissent in that
regard.
Consider distinguishing between negligence and gross negligence? Recognize that there
is no legal difference however.
Cases like these seem to come down to the reasonableness of the impugned clause. If
unreasonable, courts are likely to read it down one way or another. Unreasonableness
seems to come from clauses that are inconsistent with the rest of the contract because this
raises an issue of notice.
Note: Vernon Ski Club successfully relied on agency exception to privity rule:
1. release made it clear that club was intended to be protected by the waiver
2. release made it clear that silver star was contracting on behalf of its agents as well
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3. silver star had authority from club to contract on a release of liability on its behalf
4. Vernon ski club gave consideration for the release (in the form of assisting in the
management of the race)
Note: Where signature rule has been overruled tends to usually be,
common thread of inequality of bargaining power, particular in
consumer context and particularly with standard form contracts
Ecommerce and control of contractual power
Radin, “Humans, Computers and Binding Commitment” – the contract as
consent/contract as product distinction
Contrasts two views of contract:
- contract as consent: the doctrinal view of contract law – the terms of contract are
binding because they are based on agreement
- contract as product: the terms of the contract are features of the product
(warranties, etc). When I buy Microsoft Word I get functionality and a clause
saying I can only sue Microsoft in Washington State. The clause is part of the
product and part of the value of the commercial exchange
Radin says that policy makers must decide which kind of terms must be brought to the
attention of the buyer and which kind of terms must be simply excluded on autonomy
grounds.
Econtract enforceability
General rules of contract law apply to ecommerce
-
BC Electronic Transactions Act: electronic transactions have legal effect; offer
and acceptance can be communicated electronically
Categories of electronic agreement by method of indicating agreement
Shrink wrap contracts
-
notice of terms/conditions of the contract inside the sealed plastic or on a user’s
computer screen after installing software
Page 76 of 94
-
-
terms and conditions state that using product or keeping product beyond a certain
period bind the user to the terms and conditions (see Radin, “it’s part of the
product”)
courts (American ones at least) have enforced shrink-wrap agreements; reasoning
that opening a package and retaining the product are sufficient acts to demonstrate
acceptance of terms
Click-wrap contracts
-
users are required to click an icon “I agree” usually. Being required to scroll
through the document is akin to turning the page of a contract. Binding: Rudder
v. Microsoft (1999, Ont SCJ). Application of l’estrange signature rule applies
when consumer clicks “I agree”
Browse-wrap
-
-
-
-
user interacts with website, e.g., by downloading a program. Website will display
terms and conditions somewhere on it with a statement that the user of the
software is bound by it
American courts (Specht v. Netscape) have not found this binding. Also in
Specht, the statement “please review” is a mere invitation to read, not a condition
Uncertain in Canada, arguably insufficient notice is provided here. OTOH, if
sufficient notice were offered and if the action required shows acceptance of the
terms, there is no reason not to enforce the contract
Also, arguably, the distinction btwn browse-wrap and the other contract types is
illogical and arbitrary. A sticker on a box may be less conspicuous than large
print lettering on a website
Also, courts ought not to unduly restrict the development of new technologies and
new industries by using old fashioned rules that are insensitive to the realities of
ecommerce
Kantiz v. Rogers Cable Inc (enforceability of arbitration clause
where notice of contract changes given on a website)
Facts: Customers sign a user agreement stating that Rogers may change
terms/conditions of agreement at any time (this clause eliminates the need for
consideration). Finding the user agreement on the website is arguably difficult.
Holding: The contract is binding on the consumer
Reasons: Dealing with the def meant the consumer pltf had an obligation to check the
website from time to time. Notice of amendment had been posted by Rogers on the
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Customer Support section of the website. Pltf’s could have discontinued their service.
Arbitration clause was not “hidden” or “buried”
Comments on arbitration clauses:
-
new phenomenon in Canada, relatively
since arbitration is very expensive, it often allows corporations to escape
responsibility
can’t always be used e.g., custody disputes. Court has inherent jurisdiction
consumer protection in some provinces
o none exists in BC
o in Alberta, arbitration clause must be approved by the ministry
o in Ontario, the clause cannot apply to things falling under the consumer
goods/services act
o in Quebec, cannot apply to disputes regarding less than $5000
On the other hand, if the business does a material change to the good/service being
provided on a continuous basis to a consumer, the Consumer Protection Act states that
such a change causes the goods to be regarded as unsolicited (consumer doesn’t have to
pay for them). Material change, however, doesn’t refer to circumstances where the price
changes.
Introduction to three contractual doctrines that regard
fairness of bargain
If you talk about any one of these in exam, you must discuss all
three
Substantial degree of overlap between the 3, so consider all of them where possible
Duress (common law)
- a coercion of will that vitiates consent. The focus of the analysis is on the
pressure exerted by one party on another: the proverbial “gun to the head”.
Commonly occurs in a GTA situation
Undue influence (equity)
- the focus is on the improper exercise of influence by someone in a special
relationship of trust and confidence. Commonly found in a formation of contract
situation
Unconscionability (equity)
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-
technically, found only in a formation of contract situation. The focus is on the
overall commercial morality of the bargain by looking to the inequality of
bargaining power and the resulting bargain. All considerations made at the time
the contract was entered into
Duress
Focus is on voluntariness of consent – a coercion of will that vitiates consent (Pao
On)
Physical threats and intimidation (obviously) result in a finding of duress
Economic duress
Port Caledonia: 1903. Ship was about to crash into another boat. Tug offers
assistance, but demands an unreasonable sum of $1000. Court rejects this
“unreasonable” contract and reduces the amount owed to $200.
D&C Builders: 1966. Pltf does construction work for $480, then sends the bill to def.
Def knows that pltf is about to go bankrupt. Def says to pltf that unless he accepts $300
and abandons the rest, he will pay nothing. Court finds no valid consent – held to
ransom.
Does this case reflect an appropriate line between legitimate business pressure and
coercion? What about a bankruptcy sale? Perhaps the difference is that D&C was in the
context of a going transaction.
Pao On (the test for economic duress, accepted by Canadian
courts)
Four factors:
-
was consent made under protest?
Was there an alternative course open to the pltf?
Did the pltf seek legal advice?
Did the pltf take prompt steps to avoid the contract?
If the answer is yes to parts 1, 3-4, and no to part 2, economic duress likely exists. True
cases of economic duress are rare, however, as there are usually other options available
such as legal remedies.
Page 79 of 94
Comments:
The original “coercion of will” theory has been criticized for involving a difficult inquiry
into the psychological state of the party. It means that it likely won’t apply in the
commercial context. It’s been replaced with two criteria: 1) the lack of practical
alternatives and 2) the illegitimacy of the pressure
Regarding the illegitimacy of the pressure. Look at the nature of the pressure and the
nature of the demand. A threat to sue is legitimate and so it normally won’t count. Is the
threat a bona fide belief with respect to the enforcement of rights or is it more akin to
blackmail? Does the threat breach a tort or a statutory duty? See D&C Builders – did
one party use knowledge of financial stress in an exploitative way?
Whether or not the pltf had independent legal advice is an important factor to Canadian
courts.
Gotaverken Energy Systems (Canadian example of the Pao On
case)
The pltf company was induced into changing the construction contract from “fixed price”
to “time plus materials” because, while construction was underway, they were losing
substantial amounts of money.
The court found that:
1.
2.
3.
4.
the pltf agreed to the contract under protest
the pltf did not seek legal advice
the pltf had no effective remedy or option but to agree
the pltf took steps to avoid the contract as soon as it was completed
Stott v. Merit Investments (a contract made under duress can be
ratified and made enforceable)
The pltf, stott, arguably entered the settlement agreement with his company under duress
(sign it or be fired, no option for legal advice, etc).
However, the pltf’s subsequent conduct (continuing to make payments after two years,
lack of complaints, etc) ratified the contract and made it legal. Two years later, he could
not be said to be acting under duress.
Summary: A contract entered into under duress is voidable but not void ab initio. It can
subsequently be made enforceable.
Final comment on duress – fairness of bargain:
Page 80 of 94
Fairness of the bargain is doctrinally irrelevant. The issue is one of consent. However,
almost all cases of duress involve bargains that the coerced party claims are unfair.
Undue Influence
Introduction:
Equity’s version of the common law doctrine of duress. Occurs when one party is
induced by another in a relationship or trust, confidence, or dependence to enter a
contract.
Unclear in Canada whether or not the underlying bargain must be unfair. In the UK, the
focus is on the undue influence itself. It doesn’t matter if the agreement is unfair or not.
Usually occurs when someone is persuaded to do something that is not in their best
interests.
Categories of undue influence:
Actual undue influence – pltf must prove the wrongdoer exerted undue influence
Presumed undue influence – a rel’ship of trust/confidence exists and it is presumed that
the wrongdoer abused this relationship. If so, the def must prove that the transaction was
entered into freely. One way to rebut this presumption is to show the pltf obtained
independent legal advice (ILA):
Two categories of “presumed” influence situations
1. de jure: rel’ships that raise the presumption of undue influence. Solicitor/client,
doctor/patient, parent/child, trustee/beneficiary, priest/worshipper, army and
police
2. De facto: a rel’ship of trust and confidence
Note. Married persons do not fall under category 1. They can fall under 2 if:
1. trust and confidence was placed in partner in relation to family affairs; or
2. sexual/emotional ties btwn parties provide a “ready weapon” for undue influence
– interests are overborne by fears of damaging the rel’ship
Presumption of UI can also be rebutted if it’s shown that the pltf had a “free and
independent mind”. Relevant factors include commercial knowledge, experience,
sophistication, and independence.
Page 81 of 94
Bank of Montreal v. Duguid (ONCA. Constructive notice of
undue influence. The duty of a bank to find and avoid undue
influence)
Facts: The pltf wife signed a promissory note for her husband. The husband
subsequently defaults and they separate as well. Bank seeks payment from pltf wife.
Holding: The pltf must pay the loan
Reasons and what this case stands for:
A contract may be set aside if the other party has actual or constructive notice of the risk
of undue influence.
Constructive notice occurs when:
1. the transaction on its face is not to the financial benefit of the spouse; AND
2. there is a substantial risk that the spouse has committed a legal or equitable
wrong. In other words, the husband/wife are in a rel’ship which raises the
suspicion of undue influence
To avoid trouble, banks should:
1.
2.
3.
4.
meet with spouse privately
explain extent of liability
warn of the risk; and
urge the person to obtain ILA
Where UI is probable, bank must insist on ILA.
If a bank has actual knowledge of UI, it likely cannot rebut the presumption despite
advising ILA, etc, and it should not deal with that client.
Note: Failing to do the above doesn’t make the agreement invalid. It means the bank
doesn’t have a defence when it turns out there is actual or presumed UI.
Applying the above principles to the case at bar, the court upheld the guarantee. It found
that:
1. Bank did not have a duty to disclose an opinion as to the quality of the investment
2. Bank had a duty to inquire as to whether or not there was UI. It failed to do so
and therefore had constructive notice of the potential.
3. However, there was no evidence that the pltf wife reposed trust and confidence in
the husband. She did not leave decisions on financial affairs to him.
4. The pltf wife was a realtor and would have understood the significance of signing
the loan (free and independent mind).
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Comment: The dissent would have overturned the agreement on the basis that the wife
had strong emotional ties to the husband – she feared damage to the marriage if she did
not sign. Refer to Weigers, “Economic Analysis of Law and “Private Ordering” – the
emotional element of a marital relationship is not emphasized enough in our law.
Also, according to the dissent, her being a realtor is not determinative. It offers no
evidence as to her level of knowledge.
Quick note on the feminist view:
Requiring ILA doesn’t resolve the power imbalance. The wife will likely sign away any
way, even if it isn’t in her best interest to do so.
Unconscionability
The basic test per Morrison v. Coast Finance (BCCA, 1965) with
factors applied from other cases:
Note: These considerations are made at the time the bargain is entered into.
Unconscionability is considered only at time of contract formation.
1. Inequality of bargaining power
a. Factors:
i. Relationship of trust/confidence (Bundy)
ii. Weaker party relies on the other and the other knows it (Bundy)
iii. Relation with family members
iv. No legal advice (Bundy)
v. Language barrier (Lidder)
vi. Lack of sophistication (Lidder. For instance, Lidder is uneducated
man, ICBC is sophisticated monopoly)
vii. Initiating a meeting on short notice (Lidder)
viii. Dissuading the other from seeking ILA, including misleading the
other about the benefit of ILA (Lidder. The court hated this one)
ix. Degree of need and the availability of options
x. Opportunity to read the terms – access/speed of transaction
xi. Whether terms are intelligible or in plain language, whether
misleading and/or usual/unusual
2. The person with a superior bargaining position takes advantage of that
position and gets the other to sign a substantially unfair agreement
a. Factors:
i. Inadequate consideration (Bundy) – giving substantial life savings
to a financial venture not worth saving
ii. Misrepresentations about material facts (Lidder)
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iii. Assignment of risk: Did the contract assign risk to the party least
able to safeguard against the loss without compensation for this
fact (e.g., reduced price)
Mere inequality of bargaining power is not sufficient. The claimant must also prove that
the bargain was substantially unfair.
Inequality of bargaining power may be overcome by obtaining ILA.
Unconscionability – Private versus Public grounds
Private grounds: Duress, undue influence, and unconscionability are all said to reflect
private grounds for refusing to enforce a contract: the specific bargain of these parties is
unfair.
Public grounds: Contrary to public policy. However, there are other grounds for refusing
to enforce a contract that are said to be public in nature. One of the most important of
these is a contract that is void as being against public policy.
Henningsen v. Bloomfield Motors (American case. Contextual
analysis to finding inequality of bargaining power)
Not picked up heavily in Canada. But it’s noteworthy for its contextual analysis of
bargaining power:
Nature of product
- essential like a household utensil?
Market domination
- only a handful of sellers (monopolistic)? No options?
- Cartelization (standard forms used by all manufacturers)?
- No real competition?
Superior knowledge
- repeat player; both in terms of K drafting and litigation
Resources
- money; access to legal services
- advertising – did it create a certain expectation of the product that’s subsequently
denied through contract? Did the advertising distort expectations by giving a
certain impression of some characteristic (e.g., safety)?
Law
-
ability to contract out of common law or statute (this points to power imbalance)
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silence of the law: absence of consumer protection legislation
inability for the consumer to access legal services
Consumer Protection Legislation (IMPORTANT if a
question regards a consumer transaction)
Policy Reasons for Consumer Legislation
To ensure fairness and to protect consumers in cases of
-
-
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monopoly (competition laws)
externalities: (regulation of safety hazards and pollution)
Informational failures: (where there are asymmetries in information, particularly
with complicated products, Competition Act, Food and Drug Act, etc, protect
against fraud and deceptive practice, and impose disclosure requirements and
mandatory government education)
Transaction costs: cooling off periods, cancellation rights, etc, far cheaper than
dealing with complaints/litigation
Paternalistic concerns: transaction may not be in consumer’s best interest in the
long term (e.g., cigarettes) and so government may need to step in with mandatory
requirements (e.g., labeling on cigarettes about the dangers)
Redistributive concerns: rent controls, statutory warranties, etc, reflect
distributive concerns
Business Practices and Consumer Protection Act
(relevant sections are in supplementary materials. BRING THEM for exam)
As applied to the exam, these Acts are used for issues of deceptive acts and practices
and unconscionable transactions in a consumer transaction
Two big points about these acts
1. Section 3: Any waiver or release of the protections of rights, etc, under these acts
is void except to the extent that the waiver is expressly permitted by this Act
2. Reversal of burden of proof: Supplier has burden of proof to show that it did not
commit or engage in a deceptive or unconscionable act or practice (Sections 5(2)
and 9(2))
NOTE: If the sale regards a used good, these Acts may not apply in the same way.
Usually cannot contract out of these Acts when it involves new goods sales or leases.
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Rushak v. Henneken (BCCA: Duty for suppliers to disclose
when they have specific negative information that may or may
not be accurate about the product)
Facts: The dealership knew the used car came from an area in West Germany where
many cars had rust problems. It also knew that an undercoat was applied that could be
covering up rust damage. The dealership said that the car was “one of the best” and that
the undercoat seemed to look good. However, it advised the buyer to get it inspected, but
only offered a general warning and did not disclose the vehicle’s specific history. The
buyer did not undertake an adequate inspection and found severe rust damage later on.
Holding: The dealership is liable for the cost of repairing the rust damage
Reasons:
No undue pressure was put on the buyer to buy. There wasn’t necessarily a deliberate
intention to deceive. But the dealership committed a “deceptive act” under the Trade
Practice Act.
“Puffery cannot… excuse the giving of an unqualified position as to quality when the
supplier has factual knowledge indicating that the opinion may in an important respect
very well be wrong…”
The dealership should not have described the car as a “good vehicle” “one of the best of
its kind” and “very nice” without noting that there might be extensive rust under the new
undercoat.
The dealership knew that an intrusive inspection (removing the undercoat) would be
needed to find the true extent of the rust damage, yet it failed to advise the buyer. Had
the dealership advised this sort of inspection, it likely would have been off the hook.
What this case stands for: In a consumer transaction, where the supplier has factual
knowledge of a likely latent defect of great importance, it must disclose this fact to the
buyer. Note that this case doesn’t apply to circumstances where the supplier has an
honestly held opinion about the car and lacks specific knowledge that such an opinion
might be wrong.
Illegality
Quick note on penalties and forfeitures
Law and Equity Act
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Relief against penalties and forfeitures
24 The court may relieve against all penalties and forfeitures, and in granting
the relief may impose any terms as to costs, expenses, damages,
compensations and all other matters that the court thinks fit.
Distinguish between liquidated damages and penalties
Liquidated damages are a fair/genuine pre-estimate of damages.
Penalties are extravagant/unconscionable in comparison to the loss that would have
normally occurred
Example: House being built. Liquidated damages clause for delay:
$150 per day = cost of hotel and storage of furniture. Reasonable?
$2000 per day = likely a penalty
Forfeiture: Agreement to lose $200 if you fail to pay $100 by March 31. Illegal penalty
Note: Courts reluctant to find penalty with contracts between sophisticated commercial
entities.
Illegality
Courts may decline to enforce a transaction because it violates public policy as expressed
by the common law or by statute. The question is when public policy overrides the
contracting parties’ interests.
Easy cases:
Criminal law: Contracts for drugs, blackmail, murder, etc, are unenforceable.
Specifically worded statutes: The statute may specifically state that no remuneration may
be earned if the individual is not licensed or permitted by the Act (Real Estate Services
Act).
Hard cases will regard trivial illegality or where the statute does not address how
contracts are affected. For instance, unlicensed plumbers doing minor plumbing jobs.
Common law illegality:
Courts can refuse to enforce a contract contrary to public morals:
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contract to commit a tort
contract injurious to public life – the sale of public offices
Older cases: Courts have refused to uphold co-habitation agreements or insurance
policies on brothels.
Statutory Illegality:
The classical approach was unreasonably rigid. See Rogers v. Leonard (1973 Ont. HCJ)
where the court refused to enforce a real estate contract because it fell on a Sunday
contrary to the Lord’s Day Act despite full knowledge and consent of the parties.
The modern approach under Sidmay Ltd. v. Wehttam Investments states the statute must
first be properly interpreted. Not being in administrative compliance with the Act doesn’t
necessarily make the contract void.
Do the offences created by administrative non-compliance regard contracts? For whose
benefit was the legislation passed?
The modern approach under Still v. Minister of National Revenue (1998 FCA):
A court will not enforce the contract when, in all circumstances of the case, it would be
contrary to public policy, reflected in the relief claimed, to do so.
Courts will factor in the consequences of voiding the contract, including the social utility
of the consequences and the determination of the class of persons for whom the
prohibition was enacted.
Back to the plumber example: The court probably would not enforce a contract where
the person acted like he was licensed yet he was not, and carried out a substantial job
(requiring a permit for instance).
The court probably would enforce a contract where a “handyman” repairs a toilet, fixes a
sink, etc, with the customer fully knowing that the handyman is unlicensed.
Framework/strategies for certain question types (START
HERE):
Employment law, wrongful dismissal, constructive or direct
READ THE QUESTION CLOSELY. PICK OUT ALL THE FACTS
Page 88 of 94
STATE THE ISSUE, THE PRINCIPLE, AND APPLY TO THE FACTS
1. assuming the employee was wrongfully terminated, either directly or
constructively
2. mitigation – did the employee have an opportunity to mitigate damages? If so,
he/she will have to take reasonable, but not extraordinary steps to do so. The
employer will have to prove that the employee did not mitigate as the employee
should have
3. Payzu: a plaintiff may be required to have continued dealings with the defendant,
but often not in the case of employment contracts (i.e., employer accuses
employee of theft)
4. in this case however, there was no animosity or tension, no criticism of the
employee, court would likely find she had to keep working with the employer
5. was the method of termination so heavy handed and disreputable that it made it
more difficult for the employee to find a new job? This is a defense against
mitigation and may require a longer notice period (Wallace bump up)
Injunctions in employment contracts
READ THE QUESTION CLOSELY. PICK OUT ALL THE FACTS
STATE THE ISSUE, THE PRINCIPLE, AND APPLY TO THE FACTS
1. three requirements for an injunction
a. contract must have a negative covenant
i. does the contract contain a negative covenant?
ii. If It doesn’t could one be implied? (Lucy) e.g., argue that
employees shouldn’t compete for customers with their employer
iii. Counter argument against implying one: Is it a full time job or part
time? Is it a “contract” job? What’s the nature of the employment
(an experienced free lancer will obviously want to work elsewhere
if he works part time)
b. damages must be inadequate or too speculative
i. Could the employer simply claim the amount of profit if a specific
account was lost? Then damages would be adequate
ii. Counter argument: employer argues they are losing incidental
benefits, e.g., reputation, referrals, etc? Difficult to calculate these
damages
iii. Could the employee release confidential business information of
the employer? This too points to speculative damages
c. result of injunction must not be tantamount to specific performance
(Warner Bros)
i. could employer argue that the injunction only tempts the employee
to work for him and not compels him (Lumley)?
ii. Counter argument: courts in recent years have relaxed the
compulsion requirement, even prohibiting someone from pursuing
their chosen occupation is compulsion (Warren, Page One)
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iii. Factors that further argue for compulsion: complexity of the job,
whether the employee is employed only part time
iv. Note however, that in cases where the def was to do something
(e.g., paint a pic) and did so and fails to deliver, specific
performance may occur.
Breach of contract resulting in a potential damage claim
(including non-pecuniary damages)
READ THE QUESTION CLOSELY. PICK OUT ALL THE FACTS
STATE THE ISSUE, THE PRINCIPLE, AND APPLY TO THE FACTS
1. But first, why not equitable remedies like specific performance? Did question say
not to consider them? Is it not a unique good, etc?
2. General policy framework
a. Protecting the reasonable expectations of the plaintiff
b. Not placing an unfair burden on the defendant
3. Mitigation: should pltf have mitigated? How? Doctrine of Election?
Anticipatory Breach? Supply/demand issue making mitigation a requirement or
unnecessary?
4. Two forms of damages that could be sought
a. Monetary “normal” damages
i. Can restitution damages be claimed? Articulate what they would
be. Disgorgement of profits? Or, payment for services rendered
when the wrong service is rendered for the purpose of earning
more fees. Are these damages too remote? Go through
remoteness section.
ii. First, can expectation damages be claimed? Articulate what they
would be. This puts the pltf in a position as if the contract had not
been breached. This could be the cost of performance.
Remember, a chance at a profit is compensable, although to a
lesser degree. However, there must be a measurable chance of
profit. One could also argue that the chance of a profit wasn’t
reasonably foreseeable. Are these damages too remote? Go
through remoteness section.
iii. If expectation damages are too uncertain, one can only claim
reliance damages (Anglia). Articulate what those would be. They
could be pre-contract expenditures for instance (Anglia). Precontract expenditures must be reasonably foreseeable.
Remember, reliance damages can’t exceed expectation damages
and so the def may want to argue that pltf is only entitled to these.
Are these damages too remote? Go through remoteness section.
iv. Counter argument: Cost of performance exceeds the value gained,
diminution in value (Peevyhouse). Was the breach incidental or
primary to the contract?
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1. Supplementary arguments: expectation damages would
sanction economic waste (Ruxley, Jacobs)
2. No bad faith, an innocent breach
3. Def. was not unjustly enriched (or was he? Provide counter,
counter argument in that case)
4. Would expectation damage award unjustly enrich plaintiff?
v. could pltf argue that the breach wasn’t incidental to the contract?
That it was primary? Courts must enforce sanctity of the contract.
1. further arguments. Bad faith is irrelevant, contract law is
about compensation to plaintiffs not penalizing defendants
vi. was intentional of contract non-pecuniary? Peevyhouse wouldn’t
apply in that case
vii. argument that something is not incidental to contract: “insistence”
on the clause, or paying more than market value
viii. In that case, entitled to consumer surplus at least
ix. Could pltf say the lost items had special and unique value (Sooter
and Ruxley) and thus warranted additional compensation?
x. Could defendant argue unfair surprise if clause was unusual?
Would a reasonable party to the contract, given his/her expertise,
recognize if it was an unusual clause?
xi. Were damages reasonably foreseeable (Hadley)? Also discuss
communication of special circumstances, and payment for them,
and special knowledge of defendant (if he had any)
xii. Policy arguments? Would it be fair for the def to have to pay
damages here?
b. Non-monetary damages (non-pecuniary, mental distress) *CITE
WHARTON’S THREE PRINCIPLES IF ARGUING THIS. REFER TO
OUTLINE *
i. Policy: Courts reluctant to grant damages for mental distress
(Addis), tort law is the normal avenue
ii. Remember, some costs that are related to non-pecuniary
(counseling, medication) are properly categorized as pecuniary
iii. Exceptions (see outline).
iv. Was object of contract to secure psychological benefit that brings
mental distress upon breach within the reasonable contemplation of
the parties?
v. Could pltf claim this was a “peace of mind” contract? Consider
age of pltf. Consider statements like “rest assured” or “you’re in
good hands”. Distinguish such statements from fluff.
vi. Could pltf claim this was an enjoyment contract? Counter
argument: there are very few examples of enjoyment contracts and
courts do not wish to expand this definition.
vii. Could pltf claim this contract was to enhance reputation?
viii. Did the breach result in sensory unpleasantries? See outline
ix. Do the mental damages suffice to warrant compensation? Merely
being annoyed is not enough.
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x. Was def’s conduct tortious or independently actionable?
Aggravated damages perhaps
xi. (ALWAYS consider this) Was the distress based on special
circumstances that were made reasonably foreseeable (by paying
more for instance, cite Hadley)? Could def. counter by saying that
he was not aware of those circumstances (not communicated)?
Could pltf argue that communication was implied by paying more?
Could def counter that the additional payment was for something
else? Discuss reasonable foreseeability and refer to (Victoria)
Could pltf argue that def knew him and should have known better?
Could def argue that cases involving reasonable foreseeability for
non-pecuniary damages are unusual (Newell and Weinberg) or
narrow (Insurance contracts) and ought to be distinguished on their
facts?
xii. Punitive damages???? Careful to not identify it when it was
actually a tort.
Is there a binding contract (focus on relational contracts)?
READ THE QUESTION CLOSELY. PICK OUT ALL THE FACTS
STATE THE ISSUE, THE PRINCIPLE, AND APPLY TO THE FACTS
1. Policy Considerations
a. Was there reasonable expectation that the service will be provided? Or
would that constitute unfair surprise?
b. Is there evidence the promise was made?
c. Was there deliberation? Or was it just an informal promise. Arguments
for deliberation are that they took into account special circumstances
d. Would not finding a contract unjustly enrich the def?
e. Was there substantial and reasonable reliance?
f. Private ordering or utility of enforcing the contract: if it was a clear
commercial context and if notions of consumer protection apply, a
contract ought to be found
2. should plaintiff have mitigated? How? Doctrine of Election? Anticipatory
Breach?
3. was there a clear offer and acceptance? Or was it merely an invitation to treat? If
invitation to treat, when would it/should it become a contract? How might
defendant counter argue this point?
4. Could it be argued to be just a casual, point of information made by the def. and
with no intention of being bound by it?
5. Was it a bilateral exchange? If so, what were the promises?
6. could it be argued that it was a unilateral contract? If so, how would that be
articulated? What appears more likely to a court – unilateral or bilateral contract?
7. what was the consideration? Consideration must be a benefit or detriment (to
plaintiff or def, depending on circumstances) or a mutual exchange of promises
that have value
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8. Could it be argued that the promises were made after the first contract was already
made? In that case, those promises wouldn’t be binding on the first contract.
a. However, it could create a “two contract” situation, e.g., a contract to buy
the computer (first contract), and a contract to service it (second contract)
9. could it be argued that it was a framework agreement (GNR)? Was there
consideration for the framework? If so, could the defendant revoke it due to lack
of consideration? What if a request for service/supplies is made under the
framework agreement? Will that be binding?
10. could it be argued that an essential term was uncertain or vague and therefore
making the contract unenforceable?
a. Counter arguments: good faith negotitations would solve the problem
(weak, see Courtney).
b. Or, a “formula” offers certainty. Counter argument: courts don’t like to
“make bargains for the parties” . Courts more likely to find this if there
hasn’t been a long term rel’ship and no evidence of severe reliance and
unjust enrichment
c. Or, there is an arbitration clause that will ultimately solve the problem.
d. Or could the court imply something into the contract?
Is there a binding contract (focus on gifts)?
READ THE QUESTION CLOSELY. PICK OUT ALL THE FACTS
STATE THE ISSUE, THE PRINCIPLE, AND APPLY TO THE FACTS
1. general policy framework
a. reasonable expectations of the plaintiff
b. avoiding unfair surprise to the defendant
2. the test for determining whether a communication was intended to be legally
binding is objective (Smith v Hughes)
a. did the parties contemplate an exchange. If so what was being exchanged
for what?
b. Could def argue he did not intend to be bound and that it was an invitation
to treat or a non-binding gift promise?
3. Should plaintiff have mitigated? How? Doctrine of Election? Anticipatory
breach?
4. could def argue that the terms of the offer were uncertain and vague? If so, how?
Consider things like time of delivery, the status of the promised gift if
circumstances change. Could the courts imply something into the contract?
5. could def argue that it was a unilateral contract? State how it would appear that
way
a. counter: courts find bilateral contracts where it can (Dawson) and that a
bilateral contract appears more likely
b. counter: potential for unfairness. There was a mutual exchange of
promises, so what if one doesn’t appear to be of equal commercial value.
Return promises are good if they are value.
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c. Counter: mutual cooperation is required. Therefore, it is a bilateral
contract
d. Counter: implied promise not to revoke (Errington)
e. Counter: reasonable reliance (explain how)
6. underlying policy factors
a. is there good evidence of a contract? Must the contract be in writing?
b. Did def revoke offer? Could point to a contract then
c. Was there deliberation? Or was the offer made in a casual, informal
situation, “coffee talk.” If this was the case, there might be an “intention
to be bound” issue and the judge could scrap the agreement
d. Would there be unjust enrichment if the contract wasn’t enforced? How?
e. Were there reliance damages? How might principles of pre-contract
expenditures apply if so?
f. Is this a type of contract courts should enforce or should be left to private
ordering? Is there social utility for it? Or should courts be reluctant to
enforce gift promises.
Is there a binding contract?
READ THE QUESTION CLOSELY. PICK OUT ALL THE FACTS
STATE THE ISSUE, THE PRINCIPLE, AND APPLY TO THE FACTS
7. general policy framework
a. reasonable expectations of the plaintiff
b. avoiding unfair surprise to the defendant
8. Policy Considerations
a. Was there reasonable expectation that the service will be provided? Or
would that constitute unfair surprise?
b. Is there evidence the promise was made?
c. Was there deliberation? Or was it just an informal promise. Arguments
for deliberation are that they took into account special circumstances
d. Would not finding a contract unjustly enrich the def?
e. Was there substantial and reasonable reliance?
f. Private ordering or utility of enforcing the contract: if it was a clear
commercial context and if notions of consumer protection apply, a
contract ought to be found
9. should plaintiff have mitigated? How? Doctrine of Election? Anticipatory
breach?
10. was there a clear offer and acceptance? Or was it merely an invitation to treat? If
invitation to treat, when would it/should it become a contract? How might
defendant counter argue this point?
11. was it a bilateral exchange – a mutual exchange of promises? If so, what were the
promises?
12. could it be argued that it was a unilateral contract? If so, how would that be
articulated? What appears more likely to a court – unilateral or bilateral contract?
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13. what was the consideration? Consideration must be a benefit or detriment (to
plaintiff or def, depending on circumstances) or a mutual exchange of promises
that have value
14. could the defendant have revoked the contract? Was it a standing offer that could
have been revoked (GNR)?
15. Could it be argued that the promises were made after the first contract was already
made? In that case, those promises wouldn’t be binding on the first contract.
16. could it be argued that an essential term was uncertain or vague and therefore
making the contract unenforceable?
a. Counter arguments: good faith negotitations would solve the problem
(weak, see Courtney).
b. Or, a “formula” offers certainty. Counter argument: courts don’t like to
“make bargains for the parties” . Courts more likely to find this if there
hasn’t been a long term rel’ship and no evidence of severe reliance and
unjust enrichment
c. Or, there is an arbitration clause that will ultimately solve the problem.