Contracts – Midterm Course Summary
Damages
The Basics
1.
2.
3.
Expectation Damages
 The presumptive starting point for damages.
 Goal is to put the innocent party in the position they would have been in, had the contract been fully performed.
 Formula: [Reliance Damages] + [Lost Profits] = [Expectation Damages]
 If Expectation Damages are too speculative or are otherwise inappropriate, the courts may move to 2: Reliance
Damages.
Reliance Damages
 Goal is to put the innocent party in the position they would have been in, had they never entered the contract.
 Includes expenses incurred in reliance on the contract.
 Subject to the duty to mitigate.
 If there are no Reliance Damages, or if they are otherwise inappropriate, the court may move to 3: Restitution
Damages.
Restitution Damages
 The breaching party must give back the ‘unjust enrichment’ to the innocent party.
Cases
1.
Peeveyhouse v. Garland Coal:
 Facts: Garland agreed to perform expensive land repair when done, then breached. Court held that the cost of
performance was all out of proportion to the increase in value of the land, so awarded only that difference in value
($300.00 instead of $29,000.00.)
o Land restoration was an incidental clause in the contract.
o Court didn’t believe Peeveyhouses would use money to restore land.
o Economic waste: courts are sympathetic to efficient breach.
 Relevance: ‘Cost of performance’ is the normal starting point for expectation damages, but not where they are all
out of proportion to the benefit gained.
Problems in Damages
1. Consumer Surplus
 Applies only to consumer contracts, not commercial contracts.
 Nominal damages may be awarded to reflect ‘loss of amenities’.
 Consumer surplus = the amount above market value that you would be willing to pay. Courts may factor in
‘reasonableness’ of this value.
 Cases:
o Radford: Neighbour refused to build stone wall, which wouldn’t have affected land value. Court awarded
specific performance; ‘privacy’ was being contracted for.
o Ruxley: Pool was not built to specified dimensions, but this didn’t affect the property value. Court awarded
nominal damages.
2. Sale of Goods – Lost Opportunities
 Applies only to contracts for sale of goods (not land!).
 Occurs where someone breaches a contract to buy an item, so the seller has to then find someone else to sell it to.
 Standard formula: [Market Price] – [Sale Price] = [Damages]
 Where [Market Price] = [Sale Price], some reliance damages may be awarded if seller had to, for example, incur
extra advertising expenses.
 Special exception: Dealers
o ‘Lost Volume’: if the dealer must sell the same item twice, they have lost the opportunity to sell another
unit, and thus lost the profits on that unit.
o If Supply > Demand: damages are the lost profit from the sale.
o If Demand > Supply: there are no lost profits.
 Cases:
o Victory Motors: Car dealership case. Affirms the above principles.
3. Quantum of Expectations is Too Speculative
 Where it is almost impossible to know what the profits would have been, courts may move to reliance damages.
 Plaintiff cannot move to reliance damages when they exceed expectation damages. So if defendant can show costs
would have exceeded profits regardless, they can get around this.
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‘Chance at a Chance’: formula is [Expectation Damages] x [Probability of Success]. The ‘cutoff’ is 20% success
rate or less: below this, courts will not award expectation damages.
Cases:
o Anglia Television Ltd v. Reed: Actor backed out of a movie contract, and movie didn’t get made. Court
said plaintiff can elect for reliance damages (in this case pre-contractual expenses) where they can’t prove
what expectations were. Important: actor was a sophisticated party in the movie industry, so should have
contemplated those expenses. This case is often distinguished on that basis.
o Bowlay Logging v. Domtar: Bowlay relied on Anglia, thinking they could elect reliance damages, but
Domtar proved Bowlay had underestimated costs and would have lost money regardless. Court held
reliance damages should not be used to put plaintiff in a better position than they would have been in via
performance.
o Hicks: Beauty contest. Established ‘Chance at a Chance’ formula.
o Tex Mall: Agent failed to get property re-zoned, but courts said there was only a 20% he would have
succeeded anyway; applied ‘chance at a chance’ formula.
o Carson: Oil drilling is very speculative; ‘chance at a chance’ was too low to award any expectation
damages at all.
o Eastwalsh: Established 20% or less cutoff for ‘chance at a chance’ damages.
Remoteness
 The Hadley Principle: Damages must 1) arise naturally from the breach and 2) be in the reasonable contemplation of the
parties at the time of contract formation.
o ‘Arise Naturally’: the kind of predictable consequences that would normally arise from such a contract.
o ‘Reasonably Foreseeable’: based on what parties knew, and what they ought to have known. (Party
sophistication will be factored in.)
 The burden is on the defendant to establish that a damage was too remote.
 Special circumstances: where unusual damages would result from breach:
o The onus is on the relying party to communicate those issues.
o The other party must accept the special risks.
 Cases:
o Hadley v. Baxendale: Broken mill shaft. The seminal case setting out the Hadley rule.
o Victoria Laundry: Lucrative dyeing contracts could not be claimed, because they failed to notify the other party.
However, engineers were a sophisticated party, so general knowledge of laundry works was imputed to them.
Thus, normal loss of profits could be claimed.
o Horne v. Midland: Shoe manufacturer during the Napoleonic wars. Delivery was late, and thus refused.
Manufacturer had told carrier that prompt delivery was important, but not why, so special profit loss could not
be claimed. This case introduced principle that defendant must also accept the special risks.
o Cornwall: Cornwall lost a contract because Purolator delivered their tender late. Special circumstances had
been communicated, and Purolator was deemed to have accepted them because of their advertising about their
reliable delivery.
Non-Pecuniary (i.e. psychological harms) Damages
 The general rule is that there is no compensation in contracts for non-pecuniary damages. In order to move away from
this presumption, you must fit your case into one of the narrow categories of exceptions. (Such as aggravated damages,
which required an independent actionable wrong.)
 Post-Fidler, this is no longer necessary; mental damages are treated as physical damages, can flow directly from the
breach, and can be claimed so long as they fit the Hadley rule re: reasonable foreseeability.
 Mental distress damages are part of ‘general damages’, which also includes expectation, reliance and restitution. The
other two kinds of damages are ‘aggravated’ damages and ‘punitive’ damages, discussed below.
 Requirements to claim mental distress damages:
o Plaintiff must prove that a psychological benefit was part of the contract.
o The damage resulting from breach must have been reasonably foreseeable (based on actual or imputed
knowledge) at time of contract formation.
o The degree of distress must be sufficient to merit damages.
o In employment contracts, this works differently. (See next section.)
 Cases:
o Attis v. Gramophone Co.: Lays out the ‘no recovery for non-pecuniary damages’ rule.
o Jarvis v. Swan Tours: Bad Swiss vacation. Since ‘enjoyment’ was an essential element of the contract, it could
be recovered for.
o Farley: ‘Enjoyment’ doesn’t need to be the core of the contract, just a very important part of it.
o Wilson v. Sooter Studios: Bad wedding photos. Court awarded $1000.00 for ‘consumer surplus’.
o
o
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Wharton v. Tom Harris Chevrolet: Luxury car with bad sound system. Court held that because it was a luxury
item, part of the contract was for pleasure. Also, the mental distress arose not from the breach itself, but from
physical discomfort caused by the breach.
Warrington v. Great West Life: Disability insurance wouldn’t pay out on chronic fatigue syndrome. Court held
that all insurance contracts are ‘peace of mind’ contracts, but the decision not to pay must also be made in bad
faith before mental distress damages are available.
Fidler v. Sun Life Insurance: Another ‘chronic fatigue syndrome’ case. Here her policy required that she be
unable to do any job, whereas SLI’s video surveillance suggested to them that she could work. Aggravated
damages were awarded by SCC, but not punitive damages. Lays out modern principles for psychological
harms.
Damages in Employment Contracts
 There are four kinds of employment damages:
o 1. Reasonable Notice Damages
 Employer may fire employee at any time for any reason, but it is implied in every employment
contract that they will give reasonable notice.
 Reasonable notice can be given either via advance notice or equivalent pay, at employer`s option.
 Courts award reasonable notice damages as a period of time. It is up to the parties to determine
the dollar value of that amount of time.
o 2. Wallace Damages
 A ‘bump up’ on the Reasonable Notice period, (usually an extra 1-6 months), where manner of
firing was in bad faith.
 Court held that the damages flowed not from the breach itself, but from the manner of the breach.
 No longer applies to Mental Distress, but may be used where the manner of firing makes it harder
for you to get a new job for other reasons, such as where employer falsely alleges fraud.
o 3. Aggravated Damages
 Requires an IAW, usually found in a breach of statute or nominate tort.
o 4. Punitive Damages
 See next section
 Cases:
o Vorvis: Employee was humiliated and bullied into leaving. Court found an independent actionable wrong,
and so awarded mental distress damages as aggravated damages.
o Wallace: Courts couldn’t find an IAW, so introduced Wallace Damages instead.
o Keyes: Took Mental Distress out of Wallace Damages and made them a separate head of damages.
Punitive Damages
 Exceptionality: Punitive damages are very rare. They require an IAW and reprehensible behaviour. The IAW can come
from tort, breach of statute, or breach of another important term of the contract.
 Rationality: The court must tie the damages to at least one of the following rationales: punishment, deterrence or
denouncement.
 Proportionality: the amount awarded should be the bare minimum necessary to achieve the rational objective.
 In insurance contracts, the court will imply two terms in the contract which can form the basis of an IAW:
o 1. The Duty to Pay: the insurance company must pay when the thing that is contracted for is lost or destroyed.
o 2. The Duty to Act in Good Faith: the insurance company must review all evidence in their possession, and
must also investigate any other evidence if they are aware of its existence.
 The insurance company may not delay payment so as to put financial pressure on the claimant.
 The insurance company may not go looking for loopholes in the contract; if they decline to pay, it
must be based on a reasonable interpretation of the contract.
 The insurance company does not have to be correct – if they make a mistake in good faith,
punitive damages will not be awarded.
 Cases:
o Whiten v. Pilot Insurance: Insurance company tried to fake evidence that claimant had committed arson on their
own house, thinking they could not afford to pursue litigation.
o Fidler v. Sun Life Assurance: see above.
Mitigation
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The plaintiff may not recover damages which they could reasonably have avoided after the breach.
The burden is on the defendant to show insufficient mitigation. The plaintiff may then defend the measures they took (or
didn’t take). The standard is what a reasonable businessperson/consumer would have done, but the courts tend not to
second-guess the efforts of the plaintiff given that they probably had to scramble.
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Impecuniosity: plaintiff bears the risk, b/c it is unreasonable to expect the other party to have the financial stability of the
plaintiff in mind at time of contract formation.
o Narrow exception: in the case of a consumer contract for land, if specific performance is impossible, courts may
allocate risk of impecuniosity to the defendant.
Doctrine of Election: in a fully executory (i.e. neither party has begun performance) commercial contract, where one
party announces an anticipatory breach (i.e. “I will not perform on the relevant date), the other party may elect to
perform rather than accept the repudiation of the contract. If they accept repudiation they must mitigate and may then
sue for breach, but if they elect to perform they need not mitigate and can sue for the value of the contract.
o Qualification 1: this is only available where the plaintiff can perform the contract unilaterally, i.e. with ho
assistance from the breaching party.
o Qualification 2: this is only available where the plaintiff has a legitimate interest in performance, financial or
otherwise. This is quite hard to prove.
Cases:
o Payzu Limited v. Saunders: Based on bad information, defendant cancelled plaintiff’s line of credit, but still
offered to sell silk at a discount. Plaintiff refused out of pique. Court held that plaintiff should still have dealt
with defendant in order to mitigate damages b/c it is more economically efficient. (Personal feelings are not
relevant to commercial contracts, except contracts for personal services.)
o Roth v. Tyler: Establishes narrow exception to impecuniosity rule. Courts couldn’t order specific performance
because man who sold the land didn’t own it.
o White and Carter v. McGregor: Ads were put on dustbins despite repudiation of contract. Established doctrine
of election.
o Finelli v. Dee: Contractor could not elect to perform because they required defendant’s permission to go on his
land and pave his driveway.
Time of Measurement of Damages
 Presumptive rule: Damages are measured from the time of the breach.
 However, the court may, at its discretion, set another date up to and including the date of trial, where:
o The value of the goods contracted for is fluctuating rapidly in the marketplace, and,
o The plaintiff is seeking specific performance.
 Cases:
o Asamera Oil Corp. v. Sea Oil: Loaned shares were not returned, and had gone up rapidly in value. Plaintiff
sought specific performance because it could not mitigate – there were no other shares to be bought. Court set
time of damages closer to the date of trial.
Equitable Remedies
Specific Performance
 A court order to perform the contract.
 Damages are the presumptive remedy. Specific performance is available only where the plaintiff can establish that they
are inadequate.
 Specific performance is always a discretionary remedy. The court is never required to award it.
 Specific performance is almost never awarded in commercial contracts, and is never awarded in personal service
contracts.
 Unique goods will generally qualify for specific performance.
o Goods can be unique by their nature, or due to circumstances.
 In contracts involving land, the presumption used to be reversed – specific performance was the presumptive remedy.
This is no longer the case (because of ‘cookie-cutter’ development lots), but it is still very easy to establish that land is a
unique good.
 Cases:
o Sky Petroleum: Cheap gasoline was held to be a unique good during the oil crisis.
Injunctions
 A court order to stop breaching a contract.
 Three doctrinal requirements for an injunction to be awarded:
o 1. A negative clause in the contract (i.e. a promise not to do something.) This will occasionally be implied by
the courts, but must usually be explicitly stated.
o 2. The plaintiff must show that damages are inadequate. (Usually because they are too difficult to quantify.)
o 3. The effect of the injunction must not amount to specific performance. (Particularly in contracts for personal
services – the injunction must not effectively force you to remain with your former employer.)
 Non-competition clauses: an agreement not to compete with, for example, an employer you are leaving, or a business
you have just sold. A form of negative covenant.
o
o
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If these are too severe because they unduly constrain one party from going out into the marketplace and earning
a living, the court may strike them down fully or partially as a ‘contract in constraint of trade.’
However, the court has distinguished between ‘compelling’ someone to perform an contract and merely
‘inducing’ them to because it is more attractive than the remaining post-injunction options.
Cases:
o RBC v. Merryl-Lynch: RBC employees were recruited en-masse by Merryl-Lynch. They also called their
clients before moving and told them about the switch. The courts upheld the non-competition clause and
awarded heavy damages.
o Lumley: Opera singer was barred from singing in anyone but the plaintiff’s opera-houses. Court said this was
not specific performance because she didn’t have to sing. Time and place (injunction was only for three
months, and only applied to England) may have played a factor in this decision.
o Warner Bros Pictures In v. Nelson: Bette Davis had a negative covenant that she would not act for any other
companies. Warner Bros showed that damages were too speculative, and courts held that it was not specific
performance because she could earn some other living.
Contract Formation
Basic Theory
 Three steps to contract formation:
o 1. Offer
o 2. Acceptance
o 3. Consideration
 Factors courts will consider in deciding whether there was a contract:
o Unfair surprise: were the parties aware that they were taking on legal obligations?
o Reasonable expectations: people who receive promises should be able to count on them wherever possible,
particularly when combined with reasonable reliance.
o Reasonable reliance: did the promisee rely on the promise made? Was that reliance reasonable?
Offer
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Objective test: would a reasonable third party, listening in, conclude that the offeror was serious and intended to be
bound? (Smith v. Hughes)
o The courts do not consider the actual motives of the parties.
Invitations to Treat vs. Offers:
o Invitations to Treat are not legal offers, though they can be difficult to distinguish from them. They are
invitations to negotiate.
o Examples: Ads in newspapers, price stickers in stores, etc.
o Offers are specific and comprehensive. All the terms of the offer must be present.
o If something is missing from an offer, such as the price to be paid, the courts will generally not enforce it.
Time-limitations on offers:
o Offers are time-limited and can be terminated at any time up to acceptance.
o There are four ways to terminate an offer:
 1. An express term in the contract indicating how long the offer remains open.
 2. Where the offer is silent as to time limit, the offer will ‘lapse’ after a ‘reasonable time’. What
constitutes a reasonable time will be determined according to circumstances.
 For example, offers for market exchange of goods whose value fluctuates rapidly may be
considered to lapse quite quickly.
 3. Rejection or counter-offer: the offer is terminated as soon as the other party rejects it. If they make a
counter-offer, the original offer is terminated and they become the new offeror and you the new
offeree.
 4. Revocation: An offeror may explicitly revoke the offer.
o Extending time-limits through ‘options’:
 An offer may be extended beyond the ‘reasonable time period’ by an express term of the contract.
However, consideration must be paid for this ‘option’.
 If the offeror accepts the ‘option’, they are contractually bound to hold the offer open for the specified
period and may no longer revoke it.
Cases:
o Smith v. Hughes: A farmer had a contract to provide oats to a stable-owner. The farmer thought the contract
was for new oats, which horses don’t like, while the stable-owner assumed it was for old oats. The stableowner refused the shipment and the farmer sued. In court, the stable-owner attempted to have the contract
declared invalid because the term ‘oats’ was too vague.
o Lefkowitz: A store advertised a valuable coat at $1.00 for the first three customers. Lefkowitz got up early and
was one of the first three in line. The store reneged. Normally advertisements are treated as ‘invitations to
treat’, but in this case the court said that the store had made a clear offer and was obviously not unfairly
surprised.
Acceptance
 Two main types of acceptance:
o 1. Bilateral contracts:
 There is an exchange of promises.
 Generally in these cases, the courts have little difficulty inferring a promise to perform.
o 2. Unilateral contracts:
 The offeror has not asked for a return promise. Instead, acceptance is to be indicated by performance.
(Such as offering a reward for a lost pet.)
 The offeree is not considered to have accepted until they perform, and generally speaking, they must
fully perform.
 Theoretically these contracts can be revoked at any time up until acceptance. However, courts will
sometimes try to imply other terms and clauses into a unilateral contract where they feel that there are
issues, such as reasonable reliance or unjust enrichment. Very rarely, they will even imply a term that
the offeror will not revoke the offer.
 Communication of acceptance:
o Acceptance must be communicated, so that the offeror knows and is aware of their liabilities.
o The convention is that the mode of acceptance should correspond to the mode of offer, unless the contract
specifies otherwise. (I.e., an offer in writing should be accepted in writing, etc.)
o Where problems arise, the courts will use an objective standard: for example, if the offer was in writing, was it
reasonable under the circumstances to give oral acceptance?
o Silence is never acceptance. You must do something, even if it’s just nodding your head. This rule is
reinforced by consumer protection legislation.
o Legislation has clarified that humans and machines can form contracts, and in some circumstances a machine
communicating with another machine can form a contract.
Uncertainty in Contract Formation
 Courts are reluctant to ‘fill in the gaps’ in contracts because of the risk of unfair surprise.
 Categories of ‘gaps’:
o Incomplete Contracts:
 Contract does not specify a key term, such as price or goods.
 Courts will almost never enforce these contracts.
 In rare cases, the courts may imply a term, if it is a standard term of the trade in question and would
not unfairly surprise the parties.
o Vagueness/Ambiguity:
 It is not clear what the parties were agreeing to be bound to. They have used a term, but it is not clear
what it means.
 The courts will apply rules of interpretation similar to those used in statutory interpretation. If they can
find a reasonable interpretation of the contract that clears up the problems, they will adopt it as the
content of the contract. If they are still uncertain, they will not enforce the contract.
o Agreements to Agree:
 The contract states that at some point in the future, the parties will negotiate one of the key terms of the
contract. (I.e. ‘the parties will, from time to time, negotiate the rent.’)
 As a general rule, courts will not enforce these. There was no concrete offer on the table, only an
agreement to negotiate.
 Exception: where such a contract contains an arbitration agreement, the courts will enforce it to the
extent of telling them to go seek arbitration, because the parties have already agreed on what to do in
the case of a dispute.
 Duty of good faith: Courts will occasionally imply a ‘duty to bargain in good faith’, but this is highly
contentious. It is technically good law because of Empress, but is rarely followed and has never been
adopted by the SCC. (It is sometimes applied to consumer statutes, but this is because of statutory
requirements which do not apply to commercial contracts.)
 Cases:
o Foley v. Classique Coaches: Foley sold some of his land to Classique Coaches; part of the agreement was a
long-term deal to buy gas from him, at a price to be agreed on ‘from time to time.’ There was also a negative
covenant that they would not buy gas from anyone else. Classique breached, but the contract had an arbitration
clause, so the courts were able to enforce it to the extent of saying ‘go see an arbitrator’.
o Courtney & Fairburn Ltd. v. Tolani Brothers: There was an agreement to negotiate an agreement, allowing a
5% margin for profit. The court finds this to be too vague, and declines to enforce the contract. They also
decline to imply a ‘duty to bargain in good faith’. (This court says that there is “no such duty in contracts.”)
o
o
Smith v. Hughes: A farmer had a contract to provide oats to a stable-owner. The farmer thought the contract
was for new oats, which horses don’t like, while the stable-owner assumed it was for old oats. The stableowner refused the shipment and the farmer sued. In court, the stable-owner attempted to have the contract
declared invalid because the term ‘oats’ was too vague.
Empress Towers Ltd v. Bank of Nova Scotia: Bank of NS was renting from Empress. The contract said they
could renew their lease by giving notice to Empress, at which point the rate would be determined based on
current market rate, ‘as agreed on by both parties.’ If unable to agree, either party could terminate the lease.
Empress refused to respond to Bank of NS’s offer, then tried to invoke their option to kick them out. The court
implied a duty to bargain in good faith. This was partly motivated by policy considerations – market
inefficiency of the cost of moving a business, reasonable reliance of Bank of NS, unfair surprise, and the fact
that Empress seemed to be masking its true motive of holding Bank of NS ‘hostage’ for $15k that had been
stolen from an employee of theirs at the bank several years previously. The minority would have held the
contract invalid for a different reason – the agreement to agree was too vague. He disagreed that there is any
duty to bargain in good faith.
Consideration
 Courts generally don’t concern themselves with whether there is sufficient consideration; rather, they are only concerned
with whether there was any consideration.
o Exception: You cannot give less money for more money and have it count for consideration.
 There are various policy factors underlying court decisions in this area. Courts do not usually refer to them directly, but
they may influence whether and how they apply other doctrinal tests.
 Three ‘institutional policy factors’:
o 1. The Evidentiary Factor:
 The best evidence for a court is writing, and they will always give it more weight.
 Where appropriate, courts will look at other writings such as notes, meeting minutes, etc. to determine
the meaning of a written contract.
o 2. The Cautionary Factor:
 Here the courts will consider whether the parties intended to enter into binding legal relationships.
 The courts want to ensure that parties deliberate carefully before entering into a contract.
o 3. The Channelling Function:
 The courts want a simple test, so that parties know what they have to do in order to have an
enforceable contract.
 Other policy factors:
o 1. Unjust Enrichment:
 A moral concern that people shouldn’t get windfalls or uncontracted-for benefits at the expense of the
other party.
 The desire to avoid this may inform a court’s decision as to whether to enforce a contract.
o 2. Reliance:
 Especially reasonable reliance, and particularly where the actions taken in reliance by one party have
been to their detriment. Courts are very sensitive to this.
o 3. Utility/Private Ordering:
 Should this sort of promise be enforced in a public forum such as a court, or should it be sorted out
privately by the parties?
 Deeds:
o Also known as ‘formal contracts’ or ‘contracts under seal.’
o Courts will enforce these, even though there is no consideration.
o To be enforceable, a deed must be:
 In writing,
 Signed by the promisor, and
 Placed under a seal.
o The placing of the seal satisfies the three institutional policy factors:
 Evidence: The seal provides visual evidence that the promisor knew they were entering into a legally
binding relationship:
 Caution: The court presumes that the promisor deliberated before placing their seal. It is very difficult
for a promisor to rebut this presumption.
 Channelling: it provides parties with a clear method to ensure that their promises are enforceable.
o Deeds can be used to make gifts legally enforceable.
 Informal Contracts:
o All non-deed contracts, whether oral or written, are informal contracts. They require consideration.
o There are three types of informal contract which must always be in writing:
 1. Any contract involving an interest in land.
 2. Suretyships.
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 3. Consideration for the promise to marry. (This basically means paying someone to marry someone.)
The Doctrine of Consideration:
o Consideration is something that gives a benefit to the promisor, or causes a detriment to the promissee.
o Consideration must ‘move from the promissee to the promisor’.
o The plaintiff must show that he has ‘bought’ the defendant’s promise. Consideration is the ‘price paid’ by the
plaintiff for the defendant’s promise.
o Consideration can take many forms:
 Conferring a benefit
 Undertaking a detriment (i.e. giving something up)
 Forbearance (giving up a legal right)
 Performance (in a unilateral contract)
 A return promise (an ‘exchange of promises’ is a valid type of bilateral contract.)
Past Consideration:
o The benefit or determent that constitutes consideration must be contemporaneous with the promise given.
o A promise to pay made after an act has already been performed is ‘past consideration,’ and will not be held
valid by a court. “Past consideration is no consideration.”
o Concerns about past consideration:
 Floodgates: courts would be opening themselves up to fraudulent claims where people who didn’t ask
for performance, get it and are then pressured into paying. (Particularly in the case of deceased
persons, who can’t answer the claim.)
 Deliberation may be absent (promises can be made rashly), or there may be no reliance, reasonable or
otherwise.
 Courts want to prevent unjust enrichment, but also want to ensure that any benefit received was
actually asked for.
o Two exceptions to the “past consideration is no consideration” rule:
 1. Past consideration will be adequate where the detriment was undertaken at the request of the
promissor, or performance was made in expectation of a reward. (Lampliegh) (For example, if your
basement floods and you call in a plumber, the courts will probably say there was a contract even
though you never discussed price, because a plumber expects to get paid.)
 2. Implied requests for service: for example, a suicide was treated by a doctor but she died. He billed
the family, and the court implied a request for his services on the part of the family. (Matheson
Hospital v. Smiley) Relief here is the restitutionary measure.
Cases:
o Thomas v. Thomas: Just before dying, Mr. Thomas asked his executors to ensure his wife got a life-interest in
his estate. Later, one of the executors died, and the other tried to argue that there had been no consideration and
so no valid contract. (In other words, the life estate was an unenforceable gift.) The court held that the $1/year
she was required to pay for maintenance of the estate was consideration. (The court probably wanted to enforce
the reasonable expectations of Mr. Thomas, but needed a way to get around the statute of frauds, which says
that any contract involving land must be in writing.)
o White v. Bluett: Dad agreed to forgive his son’s debt if he’d stop whining. Son argued that this was a unilateral
contract, and he performed by not whining until he died. But court said son didn’t have a legal right to whine,
so it wasn’t forbearance when he didn’t do it, and thus it didn’t count as consideration.
o Hamar v. Sidway: Uncle promised $5000.00 to his nephew in exchange for five years of ‘clean living’. On
Uncle’s death, nephew claimed this was a unilateral contract and he had given consideration by performance.
Defendant argued there was no consideration because no benefit moved to the promisor. The court finds there
was consideration of forbearance, as the nephew gave up his legal rights to smoke, drink etc. One important
factor was that the uncle had written to the nephew saying that he had earned the money, but the uncle would be
holding it on interest for him until he was older. This plays strongly on the evidentiary and deliberative factors.
(Nowadays plaintiff might argue it was a peace-of-mind contract, so there was benefit for the promisor.)
o Eastwood v. Kenyon: An executor was responsible for care of Sarah, whose parents were dead. The estate was
not sufficient to pay for her upbringing, so he paid out of his own pocket, which she definitely benefited from.
On reaching the age of majority, she promised to repay him, and even paid interest for one year. She then got
married, and her husband also promised to repay. However, when he attempted to collect, the courts said the
promises were past consideration, so there was no contract.
o Lampleigh v. Brathwait: Exception to the past consideration rule. If the plaintiff performs an act without the
parties agreeing on payment at the time, the subsequent promise to pay is enforceable if the act was undertaken
at the request of the promisor or with expectation of compensation.
o Matheson Hospital v. Smiley: Exception to the past consideration rule. Doctor’s failed treatment of a suicide
was deemed to be based on an implied request for services from the family, so he could bill them.
Mutual Promises
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Mutual promises are good consideration; but, they can’t be illusory. (E.g. “I promise to pay you $1k if you promise to
take it.”)
Firm offers:
o A ‘firm offer’ is where a party offers to sell X product at Y price for Z period of time.
o The doctrinal issue is that although the firm offer indicates that it will be held open for Z period of time, there is
no consideration, and so technically the offeror can still revoke the offer at any time up until acceptance.
o Ways to get around this problem:
 An ‘option’ contract, wherein one party gives the other consideration in exchange for holding the offer
open for a specified period of time.
 Placing the offer under seal.
 Making a reciprocal promise to purchase a minimum amount.
 Making a reciprocal promise not to buy from anyone else.
o Different approaches to resolving problem cases in firm offers:
 The two-contract approach (GNR v. Witham): The offer constitutes a non-binding ‘framework
agreement’, while each order constitutes a separate binding contract.
 The ‘implied bilateral contract’ (Dawson)
 The ‘implied unilateral contract’ (Ayerswood): sometimes used where the parties can’t or won’t find a
mutual exchange of promises, and there isn’t enough data to imply them.
Cases:
o Great Northern Railway Co v. Witham: Witham made an agreement with GNR to sell them certain goods at a
certain price if GNR ordered them during a 12-month period. GNR’s first two orders were filled, but the third
was refused. They alleged that there was no consideration, so the ‘framework agreement’ wasn’t binding. The
court accepts this, but holds that the third order was a valid contract. (They characterize this as a unilateral
contract, where placing an order was performance, and so constitutes both acceptance and consideration.)
o Wood v. Lucy, Lady Duff-Gordon: Lucy, a fashion designer, enters into an agreement with Wood that he will
get exclusive rights to market designs she has endorsed, and split the profits 50/50. The agreement is to last one
year, after which it is revocable by either part at 90 days notice. Lucy placed her endorsements on other
people’s products and kept the products herself. When Wood sued, she alleged there was no consideration from
Wood to Lucy, and thus no valid contract. However, the court implied a promise on Wood’s part to give his
‘best efforts’ to market the designs, and this promise constitutes consideration. Policy factors in Wood’s favour
included unjust enrichment, reliance, evidence of promises and of deliberation in the form of written
agreements, and so on.
Reliance on Firm Offers in Unilateral Contracts
 Reasonable reliance is by far the most important policy consideration for unilateral contracts. There would be
considerable potential for unjust enrichment and unfair surprise if you could revoke your offer when someone has taken
substantial steps towards performance.
 Courts frequently try to protect reasonable reliance by elevating unilateral contracts or even standing offers to the level
of contracts, frequently through the artifice of consideration.
 The courts stated in Ayerswood that in a unilateral contract, the offeror is not permitted to revoke the offer once
performance starts.
o It may be possible to get around this by giving ‘reasonable notice’ of the revocation. What will constitute
‘reasonable notice’ will depend on circumstances, such as how far along in their performance the other party is.
 Cases:
o Dawson v. Helicopter Exploration Co: Helicopter said they would give Dawson a 10% interest in a stake if he
would show them where it was. Dawson agreed and undertook considerable reliance. The courts implied
promises on both sides in order to create a bilateral contract. Dawson had implicitly promised to take them to
the stake, and Helicopter had implicitly promised not to go looking for it themselves.
o Ayerswood Development Corp v. Hydro One Networks Inc: Ontario Hydro made a unilateral offer to the world
to reimburse them if they constructed a building according to more energy-efficient standards by a certain date.
This involved massive reasonable reliance, as Hydro knew that builders would rely on the reimbursement to
offset the additional costs. Hydro revoked the offer suddenly, but the courts said that you cannot revoke a
unilateral contract once performance starts. Note that this case has not been adopted by the SCC, but lower
Ontario courts follow it, and it is persuasive in other jurisdictions.