Law-110-Contracts

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IV. CONTENT OF THE CONTRACT ................................................................................................... 3
1. Formality: The Writing Requirement...........................................................................................................3
Bauer v. Bank of Montreal (1980 SCC) – parol evidence rule .................................................................................. 3
Gallen v. Butterley (1984 BCCA) – oral evidence may be admissible ...................................................................... 3
2. Misrepresentation and Rescission: Representation and Terms..................................................................4
2.1 Misrepresentation and Rescission ................................................................................................................................ 4
Redgrave v. Hurd (1881 Eng CA) – K can be rescinded for misrepresentation ........................................................ 4
Smith v. Land & House Property Corp. (1884 Eng CA) – opinion as misrepresentation .......................................... 4
Kupchak v. Dayson Holdings (1965 BCCA) – equity may grant rescission ............................................................. 4
Redican v. Nesbitt (1924 SCC) – cannot rescind for innocent misrep in executed K ................................................ 5
Esso Petroleum v. Mardon (1976 Eng CA) – negligent misrep actionable in tort and K .......................................... 5
Sodd Corp. v. N. Tessis (1877 Eng) – special relationship creates duty of care ........................................................ 5
BG Checo Int'l Ltd. v. BC Hydro & Power Authority (1993 SCC) – can sue concurrently unless K indicates
otherwise .................................................................................................................................................................... 5
V.K. Mason Construction Ltd. v. The Bank of Nova Scotia (1985 SCC) – negligent misrepresentation test ........... 6
S-244 Holdings Ltd. v. Seymour Building Systems Ltd. (1994 BCCA) – equitable rescission ................................ 6
2.2 Representation and Terms ........................................................................................................................................... 6
Heilbut, Symons & Co. v. Buckleton (1913 Eng HL) – warranty vs. innocent misrep ............................................. 6
Leaf v. International Galleries (1950) 2 K.B. 86; (1950 Eng CA) – warranty vs. condition ..................................... 7
3. Parol Evidence Rule........................................................................................................................................7
4. Classification of Terms ...................................................................................................................................7
Hong Kong Fir v. Kawasaki Kisen Kaisha Ltd. (1962 Eng CA) – intermediate terms ............................................. 7
Krawchuk v. Ulraychova (1996 AB Prov. Ct.) – applies test from HK Fir ............................................................... 7
Wickman v. Schuler (1974 Eng HL) – breach of condition must be material and reasonable................................... 7
5. Discharge by Performance or Breach ...........................................................................................................8
Fairbanks v. Sheppard (1953 CC) – can recover for substantial completion ............................................................. 8
Sumpter v. Hedges (1898 Eng CA) – can recover for your contribution (quantum meruit) ...................................... 8
Howe v. Smith (1884 Eng CA) – deposit made as guarantee of performance not recoverable ................................. 8
Markland Associates Ltd. v. Lohnes (1973 Eng NSSC) – defective work is not a breach ........................................ 9
Stevenson v. Colonial Homes Ltd. (1961 Eng CA) – can recover part payment, not deposit ................................... 9
6. Standard Form Contracts and Exclusion Clauses .......................................................................................9
Machtinger v. Hoj Industries Ltd. (1992 SCC) .......................................................................................................... 9
6.1 Unsigned Documents ................................................................................................................................................... 9
Parker v. South Eastern R.Y. Co. (1877 Eng CA) – reasonable notice req for unsigned K ....................................... 9
Thornton v. Shoe Lane Parking (1971 Eng QB) – wide exclusion clauses req explicit notice ................................ 10
McCutcheon v. David MacBrayene (1964 Eng HL) – previous dealings must prove knowl .................................. 10
6.2 Signed Documents ..................................................................................................................................................... 10
Tilden Rent-A-Car Co. v. Clendenning (1978 Eng CA) – signature may not be adequate...................................... 11
Delaney v. Cascade River Holidays (1983 BCCA.) – waiver's language in circumstances .................................... 11
Schuster v. Blackcomb Skiing Enterprises (1995 BCSC) – application of Delaney ............................................... 11
6.3 Standard E-contracts .................................................................................................................................................. 12
Zhu v. Merrill Lynch (2002 BC Prov. Ct.) – online disclaimers cannot be too broad ............................................. 12
Dell Computer Corp v. Union des consommateurs (2007 SCC) – e-K must be accessible ..................................... 12
6.4 Fundamental Breach .................................................................................................................................................. 12
Karsales v. Wallis (1956 Eng CA) – Denning's formulation of fundamental breach .............................................. 12
Photo Production v. Securicor Transport Ltd. (1980 Eng HL) – overturns Denning............................................... 12
Hunter Engineering v. Syncrude Canada Ltd. (1989 SCC) – complicates Photo Production; freedom of K
generally upheld w/ exceptions ................................................................................................................................ 13
Fraser Jewellers Ltd. v. Dominion Electric Protection Co. (1982 ONCA) – reconciles Hunter .............................. 13
Sale of Goods Act, s. 20........................................................................................................................................... 13
Solway v. Davis Moving & Storage Inc. (2002 ONCA) – applies Hunter .............................................................. 13
V. EXCUSES FOR NON-PERFORMANCE OF CONTRACT .......................................................... 14
1. Duress.............................................................................................................................................................14
Pao On v. Lau Yiu Long (1980 Eng JCPC) – establishes economic duress ............................................................ 14
Gordon v. Roebuck (1992 CA) – claimant must prove econ duress unjustifiable ................................................... 14
2. Undue Influence ............................................................................................................................................14
Geffen v. Goodman Estate (1991 SCC) – establishing presumption of UI; rebuttal ............................................... 14
Royal Bank of Scotland Plc. v. Etridge (2001) – duty of stronger in non-commercial rel ...................................... 14
3. Unconscionability ..........................................................................................................................................15
Morrison v. Coast Finance Ltd. (1965 BCCA) – establishing presumption of UC; rebuttal ................................... 15
Marshall v. Can. Permanent Trust Co. (1968 ABSC) – UC doesn't require knowledge .......................................... 15
Harry v. Kreutziger (1978 Eng CA) – Lambert introduces community std test ...................................................... 15
Business Practices and Consumer Protection Act, ss. 4-10 ..................................................................................... 15
4. Illegality .........................................................................................................................................................15
J.G. Collins Insurance v. Elsley (1978 SCC) – restraint of trade weighed with other concerns .............................. 16
Still v. Minister of National Revenue (1998 Eng CA) ............................................................................................. 16
VI. REMEDIES...................................................................................................................................... 17
1. Damages .........................................................................................................................................................17
1.1 The Interests Protected............................................................................................................................................... 18
1.2 The Expectation, Reliance and Restitution Measures ................................................................................................ 18
McRae v. Commonwealth Disposals Commission (1951 Aust. H.C.) – reliance damages ..................................... 18
Sunshine Vacation Villas Ltd. v. Hudson Bay Co. (1984 BCCA) – either expectation OR reliance damages ....... 18
Attorney General v. Blake (2001 Eng HL) – restitution rare but possible ............................................................... 18
2. Quantification................................................................................................................................................18
Chaplin v. Hinks (1911 Eng CA) – damages for lost opportunity ................................................................................... 18
Groves v. John Wunder (1939 Minn. C.A.) – economic feasibility of K does not reduce damage amount ............ 18
Jarvis v. Swans Tours (1973 Eng CA) – mental distress, loss of enjoyment recoverable in K ................................ 18
Ruxley Electronics and Construction Ltd. v Forsyth (1996 Eng HL) – imperfect result is not total failure ............ 19
3. Certainty, Causation and Remoteness ........................................................................................................19
Hadley v. Baxendale (1854 Eng) – test for remoteness: arising naturally? special circumstances? ........................ 19
Victoria Laundry v. Newman (1949 Eng) – foreseeability is enough; redefines Hadley test .................................. 19
Koufos v. Czarnikow (The Heron II) (1969 Eng) – adds probability to Victoria Laundry test ............................... 19
Whiten v. Pilot Assurance (2002 SCC) – applies test from Vorvis for punitive damages ....................................... 20
Fidler v. Sun Life Assurance (2006 SCC) ............................................................................................................... 20
5. Mitigation ......................................................................................................................................................21
White and Carter (Councils) v. MacGregor (1962 Eng HL) .................................................................................... 21
6. Time of Measurement of Damages ..............................................................................................................21
Semelhago v. Paramadevan (1996 SCC) – damages in lieu of specific performance; calc date of trial .................. 21
7. Liquidated Damages, Deposits and Forfeitures .........................................................................................21
Shatilla v. Feinstein (1923 SK) (1923 Sask. Prov. Ct.) – penalties and liquidated damages ................................... 21
H.F. Clarke Ltd. v. Thermadaire Corporation Ltd. (1976 SCC) – judicial appraisal of reasoonableness ................ 22
J.G. Collins Insurance Agencies Ltd. v. Elsley (1978 SCC) – penalty clause and freedom of K ............................ 22
Stockloser v. Johnson (1954 Eng CA) ..................................................................................................................... 22
8. Equitable Remedies (Specific Performance and Injunctions) ..................................................................22
John E. Dodge Holdings Ltd. v. 805062 Ontario Ltd. (2003 Eng CA) – what is "unique" property? ..................... 22
Warner Bros. v. Nelson (1937 Engl KB) ................................................................................................................. 23
Zipper Transportation v. Korstrom (1997 Eng QB) ................................................................................................. 23
Zipper Transportation v. Korstrom (1998 Eng CA) ................................................................................................. 23
IV. CONTENT OF THE CONTRACT
1. Formality: The Writing Requirement
General (B & P pp. 271-277; 294-295)
 Promise under seal can be unsupported by consideration
 Some legislation exists around writing requirement
o Statute of Frauds (1677) – writing requirement in K for land (s. 4), goods, wares and
merchandise valued at over $10 BP (s. 17)
o Sale of Goods Act, R.S.A. 2000 c. S-2 – slightly more flexible: s. 6: goods over $50, s. 8: written
w/ or w/o seal, or orally, or combination, or implied by conduct
 Overall, statues have writing requirements for
o Land K (i.e. lending, purchase)
o Indemnity (to be responsible for another's debts, e.g. insurance)
o Guarantee (only if person defaults)
 No particular form unless specifically stipulated but essential terms required unless can be reasonably
inferred or are established w/ parol evidence
 Some movement away from policy of requiring contracts to be in writing
 Non-compliance with statutes renders K unenforceable but not invalid; distinction important b/c allows K,
equitable remedy of part performance, act as consideration for new K
Arguments for abolition of writing requirement
 No justification for particular list supplied
 Not in accord with social practices
 Places unjustifiable hardship on litigant who loses otherwise good claim on purely technical defence
Arguments for writing requirement
 Evidentiary function for essential terms, level of details is useful
 Possibly leads parties to take K more seriously
Bauer v. Bank of Montreal (1980 SCC) – parol evidence rule
F P was shareholder who gave personal guarantee believing that he would be given book debts. Bank did not
register book properly so P was fully liable for all debts. P claimed K should be interpreted contra proferentum
(ambiguous term construed against interests of the party that imposed its inclusion in the K; ct will favour
innocent party); exclusionary and LLC was unconscionable; induced to enter K by representation of agent of
bank e.g. assurances, misrepresentation
I Should bank's oral assurances be interpreted as an oral collateral agreement? NO
Parol evidence rule: oral evidence which varies or contradicts the main written K is inadmissible
Gallen v. Butterley (1984 BCCA) – oral evidence may be admissible
F Farmers purchased crop upon oral assurances. Crop failed, farmers sued successfully for breach of warranty;
appealed
I Should trial judge have admitted oral assurances? YES
Oral and written evidence should be interpreted harmoniously to avoid inconsistency and contradiction
Oral statement may be relevant and may be admitted if
 Written agreement is not whole K (but should not assume oral assurances form collateral K)
 Statements support K (but collateral K will not be established if inconsistent/contradicts)
 Correct mistake or error in K
 Show misrepresentation
NB: Individually negotiated document is stronger than standard printed form
2. Misrepresentation and Rescission: Representation and Terms
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Important terms:
o Parol evidence rule; contra proferentum (see above)
o Entire agreement clause – written K to be taken as entire agreement, oral agreements and
negotiations should not be considered
Misrepresentation
 Elements
o More than opinion
o False statement of past or present fact; cannot be an opinion or future fact
o Reliance on statement induces person to enter agreement
o CL does consider intent, knowledge, duty (i.e. innocent, fraudulent, negligent misrepresentation)
 Effect
o Makes K voidable (can continue or step out)
 Remedies
o Rescission (equitable remedy, restitutio integrum), also damages (depends on type of misrep)
o To claim rescission, must act in timely manner
 Burden of proof
o Is there a duty to investigate (caveat emptore)? No!
2.1 Misrepresentation and Rescission
Redgrave v. Hurd (1881 Eng CA) – K can be rescinded for misrepresentation
F D entered K to purchaser P's house and share in P's business. P claimed business was profitable, offered
paperwork that D did not examine. D discovered business was worthless, refused to complete transaction
I Can D recover? YES, K rescinded, deposit returned.
Establishes principles of misrepresentation (= material false representation):
 Does not require intent or knowledge of offeror
 Cannot fail for negligence of offeree
 Must induce offeree to enter the K
 Defence: offeree has knowledge of falsity or does not rely on representation
 Remedy: rescission ("A man is not allowed to get a benefit from a statement which he now admits to be
false")
Smith v. Land & House Property Corp. (1884 Eng CA) – opinion as misrepresentation
F D purchased hotel from P on statement that lessee was "a most desirable tenant." Tenant had history of late
rent payments to P, eventually went bankrupt. D refused to complete
I Can P defend itself because it expressed an opinion, not a fact? NO
When facts are not equally well known to both sides, a misleading opinion functions like a misleading fact
Kupchak v. Dayson Holdings (1965 BCCA) – equity may grant rescission
F P swapped its property for shares in D's hotel. D misrepresented hotel earnings, P refused to continue
mortgage payments. D had built apartment on ½ of P's property
I Can P rescind? YES, awarded rescission, compensation for value of property, interest
General rule: no rescission for misrepresentation if:
 3rd party has acquired rights
 Restitutio in integrum is impossible
 Action to rescind is not taken in reasonable time ("doctrine of laches")
 K is executed (exception: fraud)
 Injured party affirms K
Equity does what is just, though it cannot always restore parties precisely to the state they were in before the K
 Ct has discretionary powers; extends reach of equity in this case
 Treats compensation as a form of equitable relief
 Because D acquired P's property fraudulently, ct ought not to bar rescission
Redican v. Nesbitt (1924 SCC) – cannot rescind for innocent misrep in executed K
F D purchased leasehold interest in P's house without prior inspection. Keys and cheque exchanged, but D
ordered stop-payment on cheque upon seeing property for first time
I Can D rescind? NO, K was executed, parties received full consideration
Rescission not allowed for innocent misrepresentation if K is executed unless benefit provided differs in
substance from that promised
If fraudulent misrepresentation, rescission may be granted even if K is executed
Impossibility of restitution will prevent rescission unless that impossibility has been caused by the guilty party
Esso Petroleum v. Mardon (1976 Eng CA) – negligent misrep actionable in tort and K
F Esso leased gas station to Mardon. Because of location, sales much lower than Esso's representation. Esso
cut off supplies, claimed possession and overdue rent. Mardon counterclaimed for breach of warranty and
negligent misrepresentation
I Is there a contractual warranty? YES; factual statement by party claiming to have special skill/knowledge,
made w/ intention and success of inducing party to enter K. Esso liable for Mardon's capital losses: $$ put into
business and lost, overdraft, loss of earnings, interest
Negligent misrepresentation inducing K gives rise to action in tort (negligence) and contract (breach of collateral
warranty)
A party has duty to use reasonable care in their representation if they claim special knowledge/skill and act to
induce another to enter a K (Hedley Byrne)
Breach of a collateral warranty gives the right to damages
NB: Usually warranties pertain to present or past facts. In this case, breach of warranty found regarding future
facts
Sodd Corp. v. N. Tessis (1877 Eng) – special relationship creates duty of care
F D (professional accountant + trustee in bankruptcy) misrepresented the value of inventory of a furniture store
he was trying to sell. P relied on those statements
I Is D liable? YES, special relationship and reliance. P gets damages.
Liability for negligent misrepresentation may be found in K and tort where there is a special relationship creating
a duty of care
BG Checo Int'l Ltd. v. BC Hydro & Power Authority (1993 SCC) – can sue concurrently unless K indicates
otherwise
F Checo entered K to install electrical towers/lines for D. Assumed right of way would be cleared prior to
commencement to work; was not, causing difficulties to P. D knew work was inadequate, relied on LLC
I Can Checo sue concurrently? YES. LLC did not negate Hydro's duty of care. Mere fact that the parties have
dealt with a matter expressly does not mean they intended to exclude all rights to sue in relation to that matter
Can sue in tort and K concurrently unless valid K expressly indicates otherwise
 K obligations > tort obligations  likely pick K b/c higher duties
 Tort obligations > K obligations  dealt with by exclusion clause or LLC in K
 Tort + K obligations same  concurrently or alternatively

May be affected by limitation periods
V.K. Mason Construction Ltd. v. The Bank of Nova Scotia (1985 SCC) – negligent misrepresentation test
F P entered K with developer based on bank's assurances of sufficient finance. P substantially completed work
when developer ran out of $$; bank sold development but did not have sufficient funds to compensate P
I Is bank liable for negligent misrepresentation or breach of K? NM based on Esso, Sodd, Hedley Byrne. P
awarded expectation damages and wasted expenses.
Set out four-part requirements for negligent misrepresentation
1. An untrue statement
2. Statement negligently made
3. Special relationship giving rise to a duty of care
4. Reliance on the statement was foreseeable
S-244 Holdings Ltd. v. Seymour Building Systems Ltd. (1994 BCCA) – equitable rescission
F Subcontractor gave tender for phase I of building project. Contractor mistook it as a bid for entire project. Work
partially completed, then subcontractor quit the job. Other contractors hired
I Is rescission possible? YES b/c equitable. Subcontractor paid for his work.
SCC extends Denning's position on rescission from Leaf v. Int'l Galleries
 Usually rescission is barred when K is executed (unless: fraud, substantial error, complete failure of
consideration)
 However, equity may allow rescission in innocent misrepresentation even if K executed
 Rescission can sometimes be inequitable because it is "all or nothing"
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2.2 Representation and Terms
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Hierarchy taxonomy of statements: "Mere puff" ----- (Mis) Representations ----- Terms (warranty)
Types of misrepresentation:
o Innocent  remedy is rescission; if not possible, damages may be awarded
o Negligent  remedy is damages
o Fraudulent  remedy is damages
In terms of warranty, what is said before K is treated as an actual term in the K and the remedy for its
breach is damages
If other party breaches a condition, CL gives right to innocent party to terminate its primary obligation
(performance of K)
If other party breaches a warranty, innocent party still has to carry on primary obligation but still has the
right to sue for damages
Has to be a serious breach to give damages and relief from performance
Diplock J.: "primary obligations" – within K, "secondary obligations" – created through breach of K
Innominate term – not really clear on the face whether they are warranty or condition
Breach of term  damages in K; can sue in tort if it is warranty
Repudiation – show intention not to be bound by terms of K; innocent party can choose between
accepting repudiation or continuing w/ K (do not confuse w/ rescission)
Heilbut, Symons & Co. v. Buckleton (1913 Eng HL) – warranty vs. innocent misrep
F R purchased shares from rubber merchants. Shares turned out to be for another company, did poorly. R sued
for fraudulent misrepresentation or breach of warranty
I Did A breach their warranty? NO, no collateral K
Person not liable for damages for an innocent misrepresentation

If rescission not possible, no other remedy
Affirmation at the time of a sale is a warranty, otherwise it is an innocent misrepresentation
Warranty is a collateral contract to the main contract
 Sole effect is to vary or add terms to the main K, thus viewed with suspicion
 Rare; must be proved strictly to show intention to contract
 In order to succeed at proving breach of warranty, must show fraudulent misrepresentation or equivalent
recklessness
 Remedy: damages
Leaf v. International Galleries (1950) 2 K.B. 86; (1950 Eng CA) – warranty vs. condition
F P purchased painting represented to be authentic, discovered it was fake when he tried to resell it 5 years later
I Can P claim rescission? May be available (see below), but not for P b/c K executed for 5 yr
Rescission may be available for innocent misrepresentation even after execution if no other option is available
and innocent party behaved reasonably
 If term of K is condition … remedy: rescission as long as buyer has not accepted goods (otherwise:
damages)
 If term of K is warranty … remedy: damages
3. Parol Evidence Rule
MacDougall 67-71
Gallen v. Butterley
BPCPA s. 187
4. Classification of Terms
Hong Kong Fir v. Kawasaki Kisen Kaisha Ltd. (1962 Eng CA) – intermediate terms
F D contracted with P to charter a fitted, well-maintained ship. Terms: if delays, P would extend K.
D discovered that ship required repairs which ultimately lasted 7 months, after which D repudiated K and P
brought action for wrongful repudiation.
I Did D repudiate K wrongfully? Yes, b/c D still had 17 months of use
Adds to classification: intermediate terms – neither conditions nor warranties
Test: nature of event + practical effect – does it deprive party to perform or substantially the whole benefit of K?
 If yes … condition – breach: repudiation
 If no … warranty – breach: damages only
Krawchuk v. Ulraychova (1996 AB Prov. Ct.) – applies test from HK Fir
F P purchased D's horse and discovered health issue, contrary to vet's letter that D had provided. Vet admitted
knowledge of health issue, but stated it was non-serious and had been fixed
I Can P repudiate? NO, breach of warranty b/c can still ride horse. Damages only.
Wickman v. Schuler (1974 Eng HL) – breach of condition must be material and reasonable
F Schuler entered agreement granting Wickman the sole right to sell its products according to an aggressive
sales strategy. Wickmain failed to comply strictly and Schuler repudiated their agreement, claiming these failures
amounted to a breach of condition and conferred and absolute right to terminate the agreement
I Can Schuler terminate the agreement for a trivial breach? NO, language of contract should be interpreted in a
reasonable way ("condition" can mean "terms")
K should be interpreted as a whole to determine definition of "condition" (ordinary vs. specific)
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To terminate a K, a condition that is breached must be material in fact (not merely in language)
Reasonableness is relevant
5. Discharge by Performance or Breach
Rescission is restitutionary, equitable measure, return individual to where they would have been if not for the
breach (backward-looking)
Damages put individual in position he/she would be in for completion of K (forward-looking)
Pacta suut servanda – "contracts must be performed strictly no matter what"
e.g. contract not completed, or not up to quality stipulated
How do you discharge a contract?
 Performance
 Breach
 By agreement of parties
 Frustration – when K prevented from being fully performed b/c unforeseeable event
Consider extent to which party in default may be able to enforce agreement
 Cutter v. Powell – sailor who died during voyage from Jamaica to Liverpool; family was his denied salary
b/c "entire K"
 "Entire K" – work must be fully performed before hirer is liable to pay lump sum
Consider extent to which defaulting party who cannot enforce the agreement may have some other remedy to
recover the value of benefits conferred on other party through partial performance
 E.g. if contractor completes 4/5 of building project before becoming insolvent and unable to complete
 E.g. if purchaser pays deposit or partial payment of purchase price before becoming insolvent and
goods are easily resold at a profit to another purchaser
B & P 479-481
Fairbanks v. Sheppard (1953 CC) – can recover for substantial completion
F D hired to make soap-chip machine, but stopped before finishing and demanded more money to complete. P
refused, sought return of $1,000 payment and termination of K
I Can D recover money owed to him if work is substantially complete? YES, but not here. Machine is unusable
and conduct is abandonment of K
Recovery for a K to do work for a lump sum is possible if the work is "substantially" completed
 Loosens general rule (no recovery until work is fully completed)
Party who wants to recover must provide evidence from which any new K to accept and pay for work done could
be inferred
Sumpter v. Hedges (1898 Eng CA) – can recover for your contribution (quantum meruit)
F P abandoned lump sum building project; D completed work himself. P sought quantum meruit
(restitutional remedy – get back what benefit/work you have conferred to another side prior to breach; quatum
valebat – services)
I Can P claim quantum meruit? NO, gave D no choice
Quantum meruit requires that P give D option to take/not benefit of work done
 Distinction is important: if D had accepted, new K formed, maybe D could recover
 Mere fact that D remained in possession of land is not evidence that new K formed
Howe v. Smith (1884 Eng CA) – deposit made as guarantee of performance not recoverable
F P placed $500 deposit and part payment of purchase-money for property. K stated that if P defaulted, D could
resell and all expenses would be made good by defaulter. P defaulted
I Can P recover his deposit? NO. Also, P waited too long for performance
Deposit money paid as guarantee that K will be performed is irrecoverable unless K provides otherwise
(Exception: if depositor has lost all rights to performance by other party to K)
Part-payment is simply a payment of a part of the K price
Markland Associates Ltd. v. Lohnes (1973 Eng NSSC) – defective work is not a breach
F Homeowners displeased w/ renovations; refused to pay balance
I Can builder recover? YES, agreed price less cost of correcting defects
Not every breach absolves employer of promise to pay; only when breach goes to root of K (e.g. abandonment)
If work is done badly and defects have been/can be remedied, counts as substantial performance
Builder should have agreed price less the cost of correcting defects or omissions
Stevenson v. Colonial Homes Ltd. (1961 Eng CA) – can recover part payment, not deposit
F A sued for return of down payment after refusing delivery of cottage. D alleged money was deposit that was
forfeited
I Is money a deposit or partial payment? Partial payment. K was drawn up and supplied by D but still ambiguous;
if seller uses uncertain language, Ct will not imply terms for his benefit
Deposit or part payment? Ct will look at intentions, circumstances, evidence
 If deposit … no return
 If part payment … recoverable
6. Standard Form Contracts and Exclusion Clauses
MacDougall 145-161
Machtinger v. Hoj Industries Ltd. (1992 SCC)
A reasonable notice period is an implied term of tan employment K and the intention of the contracting parties is
not relevant to terms implied as a matter of law (but only to terms implied as a matter of fact)
The test for implication of a term as a matter of law is necessity or whether the term sought to be implied is a
"necessary incident" of the K
6.1 Unsigned Documents
Parker v. South Eastern R.Y. Co. (1877 Eng CA) – reasonable notice req for unsigned K
F P deposited bag at railway station, given ticket with clauses limiting liability on back. Bag lost
I Is it P's obligation to make himself aware of condition? NO, obligation on company b/c unsigned
General rule for signed documents: agreement proved with signature; immaterial that party has not read the
agreement and does not know its contents (exception: fraud)
Unsigned documents: party imposing condition or exclusion clause has to take reasonable steps to give the
other party notice of this condition
 Objective test: did party imposing condition do what was reasonably sufficient?
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If P unaware of condition … not bound did not see/know about writing … not bound
If knew or believed … bound
If knew of writing but not whether it included conditions … company must make it obvious
Ct will consider context and whether it is reasonable to assume P has knowledge/accepted
Thornton v. Shoe Lane Parking (1971 Eng QB) – wide exclusion clauses req explicit notice
F P injured in parking lot. Ticket referred to conditions posted within lot, disclaimed liability
I Is P bound by conditions? NO, P not given reasonable/sufficient notice of condition b/c K concluded upon
acceptance of ticket at entrance
Ct should not bind party by unusually wide exclusion clauses unless they are drawn to attention in an explicit
way
McCutcheon v. David MacBrayene (1964 Eng HL) – previous dealings must prove knowl
F Freighter sank, car lost. Carrier had liability exclusion clause, but car owner had not signed it. Carrier tried to
rely on previous dealings to have exclusion clause implied
I Can exclusion clauses be implied from previous dealings? NO, carrier failed to prove owner acquainted with
conditions in previous dealings
Previous dealings are relevant only if they prove knowledge of the terms, actual and not constructive, and assent
to them
6.2 Signed Documents
Negotiations ----- K ----- Performance ----- Discharge
Promissory estoppel – promise for future facts, but no valid K b/c no consideration
Misrepresentation – false statement about past or present that would induce one to enter K; K appears to be
valid, no breach during performance
Seek different remedies for each: PE – to avoid injustice, ct will construct K; M – get out of K b/c of false
statement
Hypothetical
Classification of terms
 Significant when party is seeking specific remedy other than damages
 Are color & CD player conditions?
 Is Mr. Davis deprived of whole benefit of car? Transportation/marketing?
Standard form K most common form nowadays
 Very little bargaining
 Level of knowledge is different
 Understanding of terms is different
 (Usually drafter in better position … reallocating risks that could be unusual and opt out of statutory
provisions)
General rule: provisions are usually enforceable if they are properly incorporated, cover event that has
happened and not contrary to statute … but not all clauses enforced by all ct at all times
Ct and legislators have developed several ways to control SFC
1. Statutes
2. Challenge incorporation
1. By notice (unsigned K)
2. By previous dealings (trade usage and custom)
3. By signature (signed K)
3. Challenge content
 Interpretation
 Reasonableness, fairness
 Doctrine of unconscionability
What is difference b/t Schuster and Tilden?
 Experienced skier
 Not signed in a hurry
 Nothing hidden

Discussion of standard form contracts for ski lift
 No meeting of the minds, especially over more minute details
 Then again, person must recognize and understand risks
 Onerous terms
 These K are generally enforceable, but are scrutinized
Tilden Rent-A-Car Co. v. Clendenning (1978 Eng CA) – signature may not be adequate
F D had a car accident. Rental agreement said that the rental company's insurance would not cover accidents
occasioned while the driver was intoxicated
I Does the exclusion clause apply? NO b/c express terms inconsistent with detailed clauses; driver did not
assent to terms and Tilden did not believe he assented
In modern practice, many standard form K signed without being read or understood
 Signature does not represent true intention or awareness of provisions
 Parties seeking to rely on terms need to take reasonable measures to draw attention to
 terms
 Party denying knowledge need not prove fraud, misrepresentation or non est factum
Delaney v. Cascade River Holidays (1983 BCCA.) – waiver's language in circumstances
F White-water rafting waiver signed moments before trip. Participants drowned
I Was waiver sufficient for company to disclaim liability? YES in split-decision
 Majority: deceased knew would not be taken on trip unless they signed; signature should be treated
agreement
 Dissent:
o Past consideration: release imposed additional and onerous terms to a K that had already been
finalized
o No consideration for signature b/c operators required to take him regardless of whether signed
o Insufficiency of notice: language of release was misleading: "standard" induced sense of
security, "loss or damage" did not mention injury or death, did not refer to supply of inadequate
equipment e.g. inadequate lifejackets
Language of waiver must be interpreted in regard to whole purpose of relationship between parties or nature of
venture involved
Schuster v. Blackcomb Skiing Enterprises (1995 BCSC) – application of Delaney
F P injured during ski package holiday. P read bold part of waiver, not small type on reverse
I Can D rely on waiver? YES, P was familiar with programme and document b/c repeat customer. Given
opportunity to read, knew she was affecting legal rights by signing.
Signator can be bound by waiver if he voluntarily enters legal relationship and agrees to be bound by terms of
document
Application of Delaney's two-step test: 1) Reasonable steps to bring to consumer's attention; 2) Purpose of the
relationship and the nature of venture involved
6.3 Standard E-contracts
Zhu v. Merrill Lynch (2002 BC Prov. Ct.) – online disclaimers cannot be too broad
F P sold shares with D's internet trading site, but cancelled transaction. Made same transaction again, but first
hadn't been cancelled, so sold twice as many intended shares. P purchased additional shares for more, sued D
for difference. D has limited liability clause that warns clients that cancellations should be confirmed and P
should have called
I Can D rely on clause? NO, disclaimer too broad and did not make clear that online cancellations had to be
confirmed by phone.
Disclaimers cannot be so broad to allow companies to be grossly negligent or misleading without liability
Dell Computer Corp v. Union des consommateurs (2007 SCC) – e-K must be accessible
F P erroneously advertised price on web, blocked access the next day. D used deep link to circumvent block. P
posted price correction notice, announced it would not fill orders, refused to honor D's order. D filed motion for
class action, P applied for arbitration under terms and conditions of sale and dismissal of motion.
I Can P rely on arbitration clause? YES b/c accessible from every online page.
E-contracts must be made easily accessible
6.4 Fundamental Breach
Karsales v. Wallis (1956 Eng CA) – Denning's formulation of fundamental breach
F D refused to accept car b/c physical and engine damage upon arrival
I Can P recover payment instalments? NO, fundamental breach
 Obligation to deliver car in substantially same condition
 Implied term that car would be kept in suitable condition during bailment
 P cannot rely on exclusion clause b/c cover for misconduct/indifference
Doctrine of fundamental breach – breach which goes to the root of the K disentitles the party from relying on the
exemption clause
 Deliver something "different in kind" from that contracted for
 Broken "fundamental term"
 Broken "contractual obligation"
Photo Production v. Securicor Transport Ltd. (1980 Eng HL) – overturns Denning
F Security company's employee set factory on fire
I Can security company rely in LLC? YES, used clear and express language, should've insured
Whether and to what extent an exclusion clause is to be applied to a fundamental breach, fundamental term, or
any breach of K is a matter of construction of the whole K
Freedom of K allows parties to agree to exclusions and modifications of obligations as they please, as long as
agreement maintains legal characteristics of a K
 Commercial K never states all primary obligations in full; many left to be incorporated by implication
If exclusion clause is clear and ambiguous, it will protect the party relying on it from liability
Breaches of primary obligation (thing bargained for) give rise to secondary obligations (damages)
 Exception: fundamental breach

Exception: where parties have agreed by express words or implication of law that any failure by one
party to perform a particular primary obligation shall entitle other party to elect to put an end to all
primary obligations of both parties remaining unperformed
Hunter Engineering v. Syncrude Canada Ltd. (1989 SCC) – complicates Photo Production; freedom of K
generally upheld w/ exceptions
F P purchased machinery which failed after warranty expired. D relied on exclusion clause to exclude liability
even for fundamental breach
I Is D liable under doctrine of fundamental breach? NO b/c P not deprived of entire benefit
Dickson J: If true construction of K excludes liability for kind of breach that occurred, party in breach will be
saved from liability, unless K or clause is unconscionable (e.g. arises from unequal bargaining power between
parties  clause upheld unless "unconscionable"
Wilson J: test for enforceability of exclusion clause or K is one of unreasonable as between the parties and in
light of the nature of the breach  clause upheld unless "unfair or unreasonable"
Fraser Jewellers Ltd. v. Dominion Electric Protection Co. (1982 ONCA) – reconciles Hunter
F P sued security company b/c its slow response allowed successful robbery. D's agreement limited liability
I Can D limit its liability? YES, it is reasonable and makes commercial sense
 Companies can limit liability where it is reasonable. No obligation to negotiate, ensure it is read, draw
attention. Cannot repudiate b/c mere inequality of bargaining positions; must be abuse.
Exclusion clause should be enforced according to its true meaning provided that it is not "unconscionable" or
"unfair or unreasonable" (reconciles Dickson and Wilson JJ – "difference in practice between these alternatives
is unlikely to be large")
If exclusion clause is not obscure, if it is visible, clear and ambiguous, and not the result of abuse of bargaining
power, there is no basis for the ct to disturb the agreement between parties
Sale of Goods Act, s. 20
Solway v. Davis Moving & Storage Inc. (2002 ONCA) – applies Hunter
F P's goods stolen when D stored them overnight in a public street. TJ found false assurances led P to enter to
LLC; P unaware that goods would be left unattended, had taken special care
I Can P recover? YES, using either Dickson/Wilson from Hunter
V. EXCUSES FOR NON-PERFORMANCE OF CONTRACT
MacDougall 213-234
1. Duress
Pao On v. Lau Yiu Long (1980 Eng JCPC) – establishes economic duress
F Two companies swapped shares; one claimed that their guarantee procured by econ duress
I Can P claim (economic) duress? NO, did not meet four point evidentiary test
Duress, whatever form it takes, is a coercion of the will so as to vitiate consent
In contractual situation, commercial pressure is not enough
Four point evidentiary test:
1. Did the person protest?
2. Did he have a practical and reasonable alternative course open to him?
3. Was he independently advised?
4. Did he try to avoid the K thereafter?
Gordon v. Roebuck (1992 CA) – claimant must prove econ duress unjustifiable
F Parties were trustees in joint venture. D would not execute required documents without pay and promissory
notes, which P refused to honour. P sought to have agreement declared voidable for economic duress
I Can P succeed in claiming economic duress? NO, met 4-part test but did not prove unjustified
Economic duress must be unjustifiable to succeed in a claim and set aside K. Onus on claimant.
2. Undue Influence
Comparing duress and undue influence
 Duress – compulsion under which a person acts through fear of personal suffering at time of making K
o Suffering may be that of someone close to party, but not stranger
o Makes K voidable but not void
 Undue influence – unconscientious use by one person of power in order to induce other to enter K
o Duress falling short of CL requirements may constitute undue influence in equity
o Can be established in two ways: i) actual undue influence ii) special relationship b/t parties.
Proof of relationship raises claim of undue influence unless other party can rebut the
presumption
o Aim is not to save people from consequences of their own folly, but to save them from being
victimized by others
Geffen v. Goodman Estate (1991 SCC) – establishing presumption of UI; rebuttal
F Family members contested validity of two different wills
I Was there UI? NO, presumption rebutted b/c independent legal advice
P must establish presence of (potentially) dominant relationship to give rise to presumption of UI
Onus then moves to D to rebut it (i.e. P acted full, free, and informed and that he had independent advice)
Magnitude of disadvantage of benefit is cogent evidence of whether UI exercised
Royal Bank of Scotland Plc. v. Etridge (2001) – duty of stronger in non-commercial rel
F Wife gave guarantee to bank (interest in home as security) for husband's debts. When bank attempted to
enforce charge and take possession of home, wife claimed UI from husband
I Can wife claim UI? YES
Creditor must always take reasonable steps to emphasize guarantor of risks
 Non-commercial relationships: ct will interfere to protect weaker
 Commercial relationships: ct assume parties "capable of looking after themselves"
Transaction that is not reasonably expected to occur between parties is necessary to give rise to a rebuttable
evidential presumption of UI
Three ways to establish UI
1. Actual (e.g. duress) – weaker proves actual UI and causal connection between influence and transaction
2. Presumed (irrebutable) – inequality of bargaining power; obligation on stronger to look after interests of
weaker. Weaker need only prove special relationship
3. Presumed (rebuttable) – weaker proves nature and existence of relationship + disadvantage (except:
gift, bequest); evidentiary burden shifts
3. Unconscionability
Morrison v. Coast Finance Ltd. (1965 BCCA) – establishing presumption of UC; rebuttal
F D persuaded P to mortgage her home and lend money to strangers for their debts
I Unconscionable transaction? YES, mortgage set aside. (Claim of UI failed because there was consent and no
special relationship)
Presumption of unconscionability requires
1. Proof of inequality in the position of the parties arising out of the ignorance, need or distress of the
weaker, which left them in the power of the stronger
2. Proof of substantial unfairness of the bargain in favour of the stronger
Stronger party must rebut the presumption by proving the bargain was fair, just and reasonable
Marshall v. Can. Permanent Trust Co. (1968 ABSC) – UC doesn't require knowledge
F P offered to purchase land from D, elderly man living in care facility b/c brain damage, agreed to sell land to P.
D's solicitors refused to complete
I Unconscionable transaction? YES, D entitled to rescission. Immaterial that P was unaware of D's incapacity;
low price was sufficient proof of substantial unfairness (step #2).
Unconscionability can be applied even if there is evidence that stronger was unaware of weaker party's
incapacity
Harry v. Kreutziger (1978 Eng CA) – Lambert introduces community std test
F P (weaker) sold boat/fishing license to D on D's false/reckless assurances that he could obtain another
license. Boat undervalued, P unable to obtain new license
I Unconscionable? YES, D took advantage of P's background (inarticulate, semi-deaf, poor, uneducated, illadvised, undereducated) taken advantage of. P entitled to rescission
McIntyre applied Morrison; Lambert introduced a new test: whether the transaction, seen as a whole, is
sufficiently divergent from community standards of commercial morality that it should be rescinded
Business Practices and Consumer Protection Act, ss. 4-10
4. Illegality
J.G. Collins Insurance v. Elsley (1978 SCC) – restraint of trade weighed with other concerns
F Sale of an insurance company had a restrictive clause on employment, where each breach was $1000. Exemployee commenced own business, clients moved with him
I Is this enforceable? YES, a mere non-solicitation clause would not suffice
A covenant in restraint of trade is enforceable only if it is reasonable between the parties and with reference to
the public interest
Still v. Minister of National Revenue (1998 Eng CA)
F P misinterpreted permanent status letter, believed in good faith she was lawfully entitled to work; later denied
unemployment benefits
I Can P claim benefits? YES
Modern approach to illegality: Ct may grant relief for illegal K depending on legislative purpose, remedy being
sought, public consequences of finding K unenforceable
 Ct may say: K is illegal but relief is exception
 Ct may say: K is not illegal and therefore enforceable
 Ct may say: if two provisions; one severed and other enforced
VI. REMEDIES
1. Damages
MacDougall pp. 293-302





Right to damages arises on any breach of the primary obligations of K
Right to and calculation of damages based on CL rules which may be codified in statutes
Parties can agree expressly on damages provisions  Liquidated damages
Logic behind damages: allow parties to move on efficiently, mitigate loss, find a market substitute
Efficient breach – allows one party to withdraw to seek advantage elsewhere and just compensate
innocent party. Everyone is happy! (Does this send the message that $ can fix everything and people
don't need to be held to their promises?)
Interests protected (i.e. reasons for awarding damages):
i) Expectation interests
 Forward-looking, put injured person in position that person wanted to be in e.g. loss of profits
 To assess compensation: if goods not delivered  difference b/t contract price & market price; if goods
wrong/defective  difference b/t market value of what was delivered and market value of what should
have been delivered
 Damages compensate; no more, no less
 Difficult to quantify non-$ expectations e.g. loss of pleasure, relaxation, peace of mind
ii) Reliance interests
 Backward looking, compensation for wasted expenditure or money to undo loss P would have avoided if
he had not entered K in first place
 Useful where expectation interest is difficult to calculate
 Money must have been truly wasted. Cannot claim money that would have incrued anyway, or money
spent on something that the P used for another purpose
 Generally, P cannot claim for lost profit and one's own expenses, only one or other, but P can choose
 Cannot claim if D's breach saved P from a greater loss that would have occurred if K carried out
iii) Restitution interests
 Shifts focus from P to D, calculation of what the D has gained or kept as a result of his own breach
 Upheld to prevent D from exploiting P for own benefit
Types of damages
 Compensatory – loss of expectation, usually loss of profit, but there are exceptions (Swan Tours)
 Aggravated – usually to compensate person for their distress/suffering
 Nominal – very small damages awarded to show that the loss or harm suffered was technical rather than
actual
Calculating damages
 Must be able to quantify monetary amount, but there is often an element of certainty
Review: Equitable remedies
 Specific performance – enforcing K
 Rescission  Injunction – can be positive or negative, but mainly negative ("do not do" something). Temporary
measure
 Restitution – ensure wrongdoer doesn't benefit
1.1 The Interests Protected
1.2 The Expectation, Reliance and Restitution Measures
McRae v. Commonwealth Disposals Commission (1951 Aust. H.C.) – reliance damages
F P fitted a salvage expedition for non-existent tanker that D had offered for sale.
I How should P be compensated? Reliance interests: salvage expenditures and purchase price
Where innocent party cannot quantify expectation interests, he may recover for reliance interests
Sunshine Vacation Villas Ltd. v. Hudson Bay Co. (1984 BCCA) – either expectation OR reliance damages
F P granted license to operate in D's storefront after D terminated agreements with existing licensees. D
renewed existing licenses, negotiations with P broke down, P sued for loss of capital (investment, line of credit)
and profit
I How should P be compensated? Reliance interests only. Loss of capital; not loss of profits
A party cannot recover for both expectation and reliance interests; treated as alternatives
A party cannot recover for losses it would have incurred even if breach had not taken place (onus on D to show)
Attorney General v. Blake (2001 Eng HL) – restitution rare but possible
F P sued to prevent the advance of funds to D, who breached the Official Secrets Act by defecting to USSR and
releasing autobiography
I Can P recover for D's breach of K? YES
In exceptional circumstances, when normal damages, specific performance, and injunction are inadequate,
ct may allow restitution damages
 "Skimped performance" (D must pay back amount he has saved by breach)
 Obtained profit by doing very thing he was contracted not to do
 Ct will also consider whether the breach was cynical and deliberate
2. Quantification
Chaplin v. Hinks (1911 Eng CA) – damages for lost opportunity
F P selected as candidate in D's beauty pageant, but was out of town when appointment made
I Is P entitled to damages although it isn't certain she would've won? YES, deprived of opportunity to receive
benefit
The fact that damages cannot be assessed with certainty does not relieve the wrongdoer of the necessity of
paying damages for his breach of contract
Groves v. John Wunder (1939 Minn. C.A.) – economic feasibility of K does not reduce damage amount
F D breached K by removing best gravel and destroying grade on P's property. P sued to complete K ($60,000)
but if D had followed through, property would have been worth only $12,600
I Is P entitled to the reasonable cost of D completing the work? YES, P entitled to compensation for what he has
lost i.e. work promised and deprived of at breach
A party may get damages to put them in the position they would've been in had the K been performed, without
factoring in whether it was economically feasible to enter the K at all
Jarvis v. Swans Tours (1973 Eng CA) – mental distress, loss of enjoyment recoverable in K
F P sued for failure of holiday to meet expectations generated in brochure and mental distress and aggravation
I Can P recover? YES, full cost of trip
Damages for mental distress, disappointment, and discomfort are recoverable. Measured to compensate P for
loss of entertainment and enjoyment which he was promised and did not get
Ruxley Electronics and Construction Ltd. v Forsyth (1996 Eng HL) – imperfect result is not total failure
F P's pool too shallow, but safe and no decreased value. P refused to pay balance of K sum
I Can P recover full sum? NO, only nominal damages
A failure to achieve the precise contractual objective does not necessarily result in loss which is occasioned by a
total failure. Ct will consider reasonableness and proportionality
Damages are designed to compensate for an established loss and not to provide a gratuitous benefit to P or
punishment for D
3. Certainty, Causation and Remoteness
Hadley v. Baxendale (1854 Eng) – test for remoteness: arising naturally? special circumstances?
F D promised next day delivery of P's broken milling machine part. Delay caused P's loss of profits
I Are the damages too remote? YES, special circumstances not communicated
General rule: if the loss flowing from the breach is too remote, it cannot be recovered
Test for whether damages are too remote
1. Can damages fairly and reasonably be considered as arising naturally from the breach?
2. Are there special circumstances that should be made known the the party breaching the K for damages
beyond what would ordinarily stem from a breach of ordinary use?
1 = Recoverable losses are those arising naturally arising from the breach which should've been within the
reasonable (objective test) contemplation of the parties
2 = If the K was made under special circumstances which were communicated to the D and thus known to both
parties, the damages will be the amount of injury which would ordinarily result from such a breach of the K under
the given special circumstances
Victoria Laundry v. Newman (1949 Eng) – foreseeability is enough; redefines Hadley test
F D damaged P's boiler; delay caused P to lose regular business and opportunities for other K
I Is D liable for loss of profits? YES, but only for regular business
Only damages that are reasonably foreseeable as arising from the breach are recoverable (objective test)
What is reasonable depends on the knowledge of the parties
Everyone has imputed knowledge of ordinary circumstances, but there may have to be actual knowledge of
special circumstances for recovery to be granted on these special grounds
It is not necessary to prove that the wrongdoer contemplated the loss. It is enough if they could foresee the
loss was likely to result
Redefines test from Hadley:
1. Imputed knowledge is OK
2. Actual knowledge (not objective standard) for special circumstances. Absolute foreseeable is not
necessary for recovery if loss is a "serious possibility" or a "real danger"
Koufos v. Czarnikow (The Heron II) (1969 Eng) – adds probability to Victoria Laundry test
F P chartered ship to carry and sell sugar. D changed route, delayed by 9 days, market value of sugar dropped
and P's profits lower
I Can P recover? YES, loss was sufficiently likely
Damages must be more than simply foreseeable, must be sufficiently likely to result from a breach to recover
compensation
Vorvis v. ICBC (1989 SCC) – awarding aggravated and punitive damages
F P fired without cause or reasonable notice. Before dismissal, pressure caused by manager caused tension
and stress needing medical attention
I Is P entitled to aggravated or punitive damages? NO. No aggravated because mental distress not owed to
dismissal; No punitive because conduct wasn't reprehensible enough
McIntyre: both aggravated and punitive damages must be independently actionable wrong
 Aggravated: possible in wrongful dismissal; purely compensatory
 Punitive: only for conduct that is "harsh, vindictive, reprehensible, malicious" and deserves punishment
Wilson: remoteness test in Hadley: "Whether the D should reasonably have anticipated"; no separate actionable
wrong required for either aggravated or punitive damages
Wallace v. United Grain Growers (1997 SCC) – accounted for mental distress by lengthening notice
period in wrongful dismissal ("Wallace damages")
F P fired without cause; unable to secure similar employment, required psychiatric assistance for mental distress
I Is P entitled to aggravated or punitive damages? SORT OF, ct extended period of reasonable notice
General rule: damages for mental distress are not recoverable for wrongful dismissal unless there was a
separately actionable course of conduct
Iacobucci (majority): accounted for mental distress by lengthening the notice period ("Wallace damages")
McLachlin (dissent): action for wrongful dismissal is an action for the breach of implied term in K of employment
to give reasonable notice of termination
Whiten v. Pilot Assurance (2002 SCC) – applies test from Vorvis for punitive damages
F Insurance company pursued hostile and confrontational policy to force displaced family to settle claim at lower
than its value (e.g. alleged arson despite police chief's report)
I Can P claim punitive damages? YES, "actionable wrong" is breach of contractual duty of good faith/pay loss
Test from Vorvis requires "actionable wrong", but this need not be an independent tort
Punitive damages are awarded in exceptional cases for malicious, oppressive, and high-handed misconduct that
offends the ct's sense of decency (Purposes: retribution, deterrence, denunciation)
Fidler v. Sun Life Assurance (2006 SCC)
F P denied disability benefits to which she was entitled. P sued for mental distress and punitive damages
I Can she recover damages for mental distress? YES, mental distress reasonably within contemplation of
parties. Can she recover punitive damages? NO, good faith found
Where a purpose of the commercial K is to provide a peace of mind, it is within reasonable contemplation of the
parties that its breach would cause mental distress. Right to compensatory damages arises out of contractual
breach
True aggravated damages arise out of aggravated circumstances and are not awarded under the principles of
Hadley v. Baxendale
Punitive damages are awarded to punish for a misconduct that departs from the ordinary standards of decency.
Claim must be independently actionable (as a claim in tort or independent contractual obligation to act in good
faith)
5. Mitigation
White and Carter (Councils) v. MacGregor (1962 Eng HL)
F D didn't renew advertising contract, P produced garbage can ads anyways, sued for full K price
I Should D have to pay damages? YES. Does P have to mitigate? NO, P has right to refuse to mitigate by
accepting anticipatory breach. No obligation for P to minimize D's losses
General rule: When a party to a K repudiates, the innocent party has an option: to accept that repudiation and
sue for damages or to disregard/refuse to accept it and then K remains in full effect
??? No obligation to accept anticipatory breach (statement that breach will occur before time of performance;
choice to accept/not) if it will mitigate damages if P can show some reason or legitimate interest why they should
continue
Contracts – aggravated damages  language shifts to "damages for mental distress"
Remoteness is still test
Separate actionable wrong is still required for punitive damages (Whiten)
punitive damages: para 61-63; para 39-45 damages for mental distress FIDLER
aggravated damages: para 52-55 McLachlin
Honda Canada Inc v. Keayes 2008 SCC 39
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WHAT: reasonable steps to reduce losses

WHY: innocent party has duty to do so to reduce economic inefficiency; point of damages is to bring
people back to where they would have been, if they don't mitigate then that pushes them farther away

WHEN: from time of breach

should be reasonable steps, not additional burdens on innocent party

how to determine whether reasonable steps have been taken? Factual Q
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Who has burden of proof? wrongdoer!

say breach of contract during construction. damages = cost of completion OR difference in cost b/t what
was promised and what was given

linked to causality and remoteness
6. Time of Measurement of Damages
Semelhago v. Paramadevan (1996 SCC) – damages in lieu of specific performance; calc date of trial
F D reneged, sold house to another. P sued for specific performance or damages in lieu. Awarded $120,000 of
damages at trial, which is difference between purchase price he agreed to pay and value of property at trial date.
D appealed because houses had gone up in value; P would be receiving windfall
I Were P's damages calculated appropriately? YES
Specific performance should not be granted as a matter of course, absent evidence that the property is
unique to the extent that its substitute would not be readily available
Damages should be calculated based on date of trial; will be true/closer substitute for specific performance
7. Liquidated Damages, Deposits and Forfeitures
Shatilla v. Feinstein (1923 SK) (1923 Sask. Prov. Ct.) – penalties and liquidated damages
F D breached non-competitive clause that required payment of $10,000 as liquidated damages on each breach
I Is the sum fixed in the covenant a penalty or liquidated damages? PENALTY that ct will not enforce b/c punitive
When the damages which may arise out of a breach of a K are in their nature uncertain, the law permits parties
to agree beforehand as to the amount to be paid in case of breach
Whether the sum agreed upon is a penalty depends on the circumstances of each case
An agreement for payment on any one of a number of breaches, some trivial and some serious, is presumed to
be void as a penalty since "the strength of a chain is its weakest link"
H.F. Clarke Ltd. v. Thermadaire Corporation Ltd. (1976 SCC) – judicial appraisal of reasoonableness
F A broke K to sell R's products exclusively, had signed K to pay liquidated damages equal to its gross trading
profit ($200,000), even though actual loss of net profit over K period was only $92,000
I Can R recover gross trading profit as liquidated damages? NO, excessive and punitive. Formula of calculating
amount was not defined, departs markedly from a reasonable approach to recoverable or actual loss
Always open to parties to make the predetermination of damages, but it must yield to judicial appraisal of its
reasonableness in the circumstances
The sum will be held to be a penalty if it is extravagant and unconscionable in amount in comparison with the
greatest loss that could conceivably be proved to have followed from the breach
J.G. Collins Insurance Agencies Ltd. v. Elsley (1978 SCC) – penalty clause and freedom of K
F Restrictive covenants for insurance seller
I Is covenant binding? YES, injunction upheld for freedom of K
Striking down penalty clause interferes with freedom of contract, but is done so only to provide relief against
oppression
If actual loss exceeds penalty, normal rules of enforcement of K should apply. Recovery of only the agreed sum
Stockloser v. Johnson (1954 Eng CA)
F K stipulated that if purchaser defaulted in payment, all payments would be forfeited to vendor
I Can purchaser recover his payments? NO
NO forfeiture clause: if money is part payment and buyer defaults, once seller rescinds the K or treats it as at an
end, the buyer is entitled to recover their money (but seller can claim damages)
YES forfeiture clause or money paid as deposit: party may have remedy in equity, but
1. Forfeiture clause must be of a penal nature
2. It must be unconscionable for the seller to retain the money
8. Equitable Remedies (Specific Performance and Injunctions)
John E. Dodge Holdings Ltd. v. 805062 Ontario Ltd. (2003 Eng CA) – what is "unique" property?
F Purchase of land for hotel to be erected near amusement park
I Should specific performance be granted? YES, unique property
"Unique property" – quality especially suitable for its proposed use, cannot be reasonably duplicated elsewhere
Get an injunction so that the land would not be sold in the meantime
SALE OF GOODS
Statute says may order specific performance if goods are unique, or if contract for ongoing sale. needs to be
inadequacy of damages
Onus on claimant to prove. Remember, specific performance is an extraordinary remedy
If uniqueness not communicated, ct will only give market value without sentimental value (proximity – how could
the person have known? Why didn't you insure it?) But if uniqueness communicated, ct may give additional
damages, possibly through mental distress (not too remote for them to see that you would suffer)
SALE OF SHARES
Also treated as unique b/c sometimes value of shares is not the same as that represented in the market
e.g. amount of shares would change partnership of company
PERSONAL SERVICE:
(Think back to illegality – ct reluctant to enforce these K based on public policy)
Doctrine of mutuality – SP should be available to both parties or neither (e.g. K with minor – can't enforce K
against minor, so co could argue mutuality)
Supervision for Long-term performance e.g. construction – ct might have to go into supervision, but is more likely
to just grant damages
Extreme hardship to either parties (or even third party)
Prohibitory injunctions – require D to not do something
mandatory injunction – requires D to do something
Effect is the same: to stop D from breaching a K
Also: permanent or perpetual – binding & final
Interim or interlocutory – pending trial. Usually obtained ex parti (as soon as indication of possible breach, based
on how well case can be argued to maintain status quo until D can come to ct and present their case). Applicant
must show emergency and irreparable loss
RJR Macdonald
1) Serious issue to be tried … 2) Irreparable harm …3) balance of convenience
Warner Bros. v. Nelson (1937 Engl KB)
F D breached K to perform solely and exclusively for P. P sought injunction to restrain further breach
I Will ct grant injunction? YES. Generally, ct will not enforce a covenant for personal service, and if granting an
injunction will have the same result, ct will not grant it. However, ct justified injunction
Reasonable – limited obligations to 3 years
Difficult to estimate damages P will suffer by D's breach; damages will not compensate adequately
Interest of justice
Ct may grant injunction if damages is not an appropriate remedy (cannot adequately compensate "special,
unique, extraordinary and intellectual services") and no adequate damages were available
Zipper Transportation v. Korstrom (1997 Eng QB)
F Termination agreement: for 12 months after, D cannot work for another courier company. If he breaches, just
pay $30,000 in 5 days, or will be bound to carry out obligations
I Is this enforceable? YES, P granted injunction
Agreement was reasonable and it would not be contrary to public interest to enforce the injunction (Test from
J.G. Collins v. Elsley)
Zipper Transportation v. Korstrom (1998 Eng CA)
I Did trial judge err in not considering irreparable harm or balance of convenience? YES, no benefit to Zipper and
major economic harm to Korstrom. Injunction set aside
Requirements to support injunctive relief:
 Would applicant suffer irreparable harm? (i.e. nature, not magnitude)
 Balance of convenience – which party would suffer greater harm?
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