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Adil Khan
Contracts Midterm OUTLINE- Waldron
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How to tackle a contract problem?
o Identify issues:
 Step 1: Is there a contract?
 Offer
 Acceptance
 Consideration
 Step 2: If there is, what’s the remedy?
o Relevant facts
o Analysis:
 Is there a contract?
 Is there a remedy?
 Damages?
 Mitigation?
 Is there a remoteness problem here?
 Is there a case for specific performance?
a) A brief history of contracts law
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13th C.: to enforce a promise, a person had to use a writ of covenant (court document forcing
someone into a claim)– a signed and sealed written document of the promise – still in use today
o action could also be taken on a claim of debt
o wager of law: getting 11 people to swear upon your version of the story
15th C.: introduction of notion of trespass
o Defendant had to commit a wrong recognized by the law to warrant damages.
o Trespass on the case (trespass assumpsit): an undertaken duty that was done badly
o Duties of certain professions
 Deceit emerged as an action for fraudulent action
16th C.: pressure to allow actions for simple noncompliance with a promise
o ex: action for failure to convey land
17th C.:
o 1602: Slades Case: Slade brought action against someone for breach of promise to pay
 didn’t force the action as debt. But allowed the action under assumpsit (now
just called action for brief of contract)
o 1677: Parliament passes Statute of Frauds – which required certain kind of contracts to
be evidenced in writing
b) Towards a working definition of a “contract”
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A Contract is a promise that the law will enforce
Enforcement is a key issue (remedy)
o Sanction
 Financial or otherwise
 Compel performance
 Compensation as damages
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Limitations imposed on contract breaker
Formal recognition that a party has been wronged
Restitution
Incarceration
what constitutes a promise worthy of legal sanction
o expectations
o practical problems: too many trivial matters for courts to decide
o context
o promises made under duress
o intentions and/or previous actions
o establishment of substantial harm
o reasonable person standard
1. Remedies for breach of promise
Damages - The Basics
INTEREST
PURPOSE
MEASURE
JUSTICE
ways to
measure
damages
moral underpinnings and
social purpose
Restitution
Prevent unjust enrichment
(cannot “steal” from another
by breaching)
Benefit to defendant. Backward
looking
Corrective
Reliance
Undoing the harm. Like
insurance, encourages people
to rely on promise, since
resulting losses compensated
Restorative
Expectation
Secure benefit. Treat as
“money in the bank”.
Encourages keeping of
contracts, compensates lost
opportunities. Hence
promotes free-market
capitalist credit economy
and long complex chains of
transactions.
Punish / Deter. Almost
unknown, hence encourages
economically efficient
breaches
Loss to plaintiff. Backward looking.
Puts plaintiff into position as
though promise never made i.e.
restore status quo. Includes
restitution. $$ = what P started
with – what P ended up with.
Expected benefit. Forward
looking. Puts plaintiff into position
would have been if promise had
been kept, as far as money can do.
Also sometimes court-ordered
specific performance. $$ = what P
would have ended up with – what
P actually ended up with
Loss plus.
Retributive
[DEFAULT
MEASURE]
Punitive
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Distributive i.e.
re-distributes
assets from point
of time the
contract was
made i.e. rearranges statusquo
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1. 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.
2. Reliance Damages - compensating for the expectation
o Goal is to put the innocent party in the position they would have been in, had they
never entered the contract - trying to unwind the promise so as it was never made
 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.
3. Restitution Damages - preventing ‘unjust enrichment’
4. Specific Performance – available in some transactions
o Unusual, as not often will a court order someone to fulfill a promise
o Would be termed as an equitable remedy
a) The interests protected
Wetheim v. Chicoutimi Pulp Company [1991] English Privy Council
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Atkinson: principle behind monetary compensation must place aggrieved party in the same
position if the contract had been carried out
Two measures of damages:
o Restoring pre-contract position
o Compensating for if the contract had been executed
EXPECTATION measure OF DAMAGES enunciated by Atkins: parties should be placed in the
position that would have been present should the contract have been performed
o Considers not only costs wasted, but also lost opportunity cost
o Ensures censure for contractual breaches
Contract is largely a transfer of risk
o If you don’t enforce expectation damages, risk absorbed by the innocent party
Different from reliance measure of damages: damages designed to restore the injured party to
the economic position they occupied at the time the contract was entered
o Often less than expectation damages, but includes costs that the plaintiff has expended
due to the contract and can no longer be recovered now that the contract is broken
Restitutionary interest would restore parties to the position if the contract never took place
Very few grounds within which you can claim ‘frustration of contract’
o Most scenarios place the contracting parties as responsible to carrying through the
contract regardless of good reasons not to.
How to measure expectancy damages?
o This measure seeks to put you back in the position you would have been in if the
contract was not made. Normally speaking when dealing with sale of an item and the
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vendor refuses to sell it your measure of damages will usually be the difference for what
you were going to pay and the market price of the item.
Bollenback v. Continental Casualty Company (Oregon S.C. 1965)
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Facts: Plaintiff was ignored by his insurance company upon request for a claim. Emerged that
the company had mistakenly terminated the contract years prior for non-payment.
Arguments:
o Plaintiff: action taken against the defendant due to the repudiated contract, asking for
return of all premiums paid under the policy
o Defendant: plaintiff has a claim for damages but not on the basis of rescission as an
internal error caused the contract to be voided
Decision: Lower court found in favor of plaintiff. Appeal unsuccessful.
Reasoning:
o Restitutionary measure would restore to him the premiums for which he paid but
received no reciprocal service.
o Decides that plaintiff should only be compensated the premiums paid since the
defendant disregarded the contract - partial rescission.
o So for the years after which the company thought he was not contracted but was still
paying dues, he will be repaid as the protection for which these payments were being
made was not in force. Prevents unjust enrichment of defendant.
Notable mentions:
o Establishes the ground of the rescission of a contract to be a valid remedy
o Rescission means to unwind the contract from the beginning and pretend it’s as if we
never had the contract
 Total rescission would be all premiums paid
o Only a ‘total failure of consideration’ would merit rescission
o Insurance contracts are thought of as special contracts entailing special duties
 A contract of utmost good faith, inclines court toward a restitutionary measure
Anglia Television Ltd v. Reed [1972] Q.B.
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Facts: Reed, an American, backed out of a film to which he had contractually committed in
England. Anglia cannot find an adequate replacement and thus are forced to scrap the entire
project. Take action against Mr. Reed for their reliance interest.
Arguments:
o Plaintiff: Mr. Reed owes damages not for loss of profits, as the film was never made, but
for wasted expenditure. The entirety of the costs of the project must fall upon him.
o Defendant: Accepts liability but only for expenses undertaken after the signing of his
contract, which comes to 850 pounds
Decision: Lower court held in favor of Anglia. Subsequent appeal dismissed. Reliance awarded
on pre-contract and post-contract expenses.
Reasoning by Lord Denning:
o Major premise: if the plaintiff claims the wasted expenditure he is not limited to the
expenditure incurred after the contract was concluded.
o Minor premise: Mr. Reed knew commitments had been made prior to his contract and
knew the duties that came with his promise to work.
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Notable mentions:
o Court will consider reliance damages as an alternative when it can’t be established what
the expectancy damages are
 Also could not claim expected profits because of obvious evidentiary problem
 Instead, chose to claim the sunk costs of the abandoned project.
 One can claim either expenses or profits, but not both
o A.I. Ogus in “Damages for Pre-Contract Expenditure” (1972) criticizes Anglia judgment
 Questions the basis behind awarding damages for pre-contract expenses.
 Danger of leaving the plaintiff in a better position even if the contract had been
carried out
 Must be careful not to be punitive and be only compensatory
 Precedent allows parties to protect themselves against the consequences of
making a bad bargain
 Decision in Bolle Logging and Boltar an example of a fortuitous breach of
contract as it saved one party from completing a unprofitable venture
 Contract breaker in this case not required to pay damages because the
opposing party would have lost on the deal had it been completed
Hawkins v. McGee (1929)
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Facts: Hawkins contracts McGee for a surgical procedure. Results are unsatisfactory. Plaintiff
takes action on breach of promise to make hand ‘perfect’.
Arguments:
o Plaintiff: Defendant guaranteed results that did not materialize and appropriate
damages need to be awarded.
o Defendant: No contractual relationship was entered into. Damages awarded by lower
court are excessive. Appeal here.
Decision: Lower court allows expectancy damages; difference between the hand delivered and a
perfectly good hand. Appeal successful and a new trial ordered.
Reasoning by Branch:
o Weren’t able to justify awarding damages due to harm, but solely in terms of the
contract that was unusually entered into.
b) Special problems in measurement
Carson v. Willitts (1930)
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Facts: Only one of three exploratory oil wells that were promised were dug by the defendant.
The difficulty of assessing the damages does not equate to a reason to refuse damages
Expectancy:
o Could look at cost of drilling
o Another possibility would be to measure the chance of finding oil
o Lower court decided it would be the cost of drilling that should be recovered
o Higher court reassess and says it must be assessed on the chance of finding oil
o What is the chance worth? The answer: is the market value, which is what a
reasonable person is willing to pay for it
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Apply this principle to the case, and the chance is worth the cost he was willing
to pay for the drilling
SCC verdict reflect this: Sunshine v. Dolly (1969)
Standard measure of damages for failure to perform work: difference between
contract price and market price
Groves v. John Wunder Co (Minn. SC 1939)
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Facts: Defendant failed to carry out a construction project that involved altering the land of the
plaintiff. Plaintiff is appealing the meagre $15,000 awarded in damages by the lower court.
Reasoning:
o Majority by Stone J.: Orders a new trial to reassess the damages which should have
covered the cost of the performance of the contract. The fact that there is little value in
the land at present is of no relevance. The plaintiff is entitled to what his contract with
the defendant laid out.
o Dissent by Julius and Olson: if the value of the property is only 12K, any judgement that
give the plaintiff more ignores the market value and gives the plaintiff more than the
contract had in mind.
Notable mentions:
o The standard measure of damages for failure to perform work is tricky because in this
case the contract was not profitable, thus the plaintiff could be placed in a better
position that at the beginning of the contract
o Higher court decides against lower court, says that the principles are clear in this matter,
it is of no concern whether the contract was economically insensible
o ‘Ugly fountain example’: should be able to claim damages for non-performance even
though it reduced the value of my land
Volume problems
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usually apply to sale issues
sale of goods statutes are provincial. All common law provinces have such legislation. Based on
English sale of goods act, attempt to codify law relating to the sale of items
damages typically speaking are contract price versus the market price, but on sale questions;
issues of supply and demand emerge, expectancy damages used to look at whether the seller
can resell the item
Lost Volume problem: If you agree to sell someone and they refuse to take it. And then you sell
it to another for the same price. You’ve lost nothing. Applies to Charter and Thompson cases
Thompson (W.L.) Ltd. v. Robinson (Gunmakers) Ltd. [1955]
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Facts: Defendants had contracted to buy a car from the plaintiff. Pulled out of the contract.
Decision: in favour of the plaintiff the profit margin of the sale
Reasoning:
o Defendant claimed there was an available market to sell at the fixed price. What
therefore had the plaintiff lost?
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However, plaintiff returned the car to the supplier because apparently there was no
market for the car. Lost the profit margin on the sale of the car.
Charter v. Sullivan (QB, 1957)
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Facts: Similar to Thompson. Defendants withdrew from contract with plaintiff to buy a car.
Difference was this time demand exceeded the supply
Decision: Appeal by defendants allowed. Damages reduced to nominal sum.
Note on Loss of Chance
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Plaintiff can recover damages for lost chance if four criteria are met:
o Establish on balance of probabilities that but for the defendant’s action, the chance to
obtain a benefit or avoid loss would have occurred
o Must show chance to be real and not speculative.
o Must demonstrate that outcome depended on someone or something other than
plaintiff
o Show that lost chance had practical value
c) Remoteness
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The Hadley Principle: Damages must
o 1) arise naturally from the breach
 ‘Arise Naturally’: the kind of predictable consequences that would normally
arise from such a contract.
o 2) be in the reasonable contemplation of the parties at the time of 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.
Hadley v. Baxendale (1854)
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Facts: Baxendale transports a broken mill-shaft for Hadley. The delivery was delayed and thus
the plaintiff brought action for the profits lost due to the mill standing idle.
Decision: Trial jury awarded plaintiff money for lost profits. On appeal, court decides in favour of
defendant- no lost profits compensated: ‘too remote’.
Rationale by Baron Alderson:
o Finds the damages awarded unreasonable because it did not take into account the
terms understanding of the contract by the parties. He thought the deliverer did not
know that such consequences would result from a breach (or delay) of the contract.
Notable mentions:
o Ratio of case (test for what is too remote)
 1. You can recover damages naturally arising (what ought to know)
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2. If they are special circumstances, they have to be clearly communicated to
the defendant (that was known)
Hadley v. Baxendale had two lasting effects:
 It is wise not to go too far in enforcing promises worthy of legal sanction.
Emphasizing business context.
 Deeming a breach compensatable should pivot on the test of foreseeability by
the parties at the time of contract
 Forseeability is vague and subject to discretion
o Mindful of risk environment in which the contract is made
o How the parties understand the risks to which are being shared
and transferred is important
Horne v. The Midland Railway Company (1873)
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Facts: Plaintiff missed the delivery of a product due to a rail delay.
Decision: Trial judge didn’t consider the losses of the plaintiff as a responsibility of the
defendant regardless of a notice given of the importance of the delivery. Appeal dismissed.
Reasoning: Refers to Hadley and also holds that the notice did not constitute a contract in which
both parties understood the consequences to a breach.
o Court stated that special circumstances have to be explicitly be put into the contract
and the notice in this case did not constitute a contract
Victoria Laundy Ltd. v. Newman Industries Ltd. [1949]
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Facts: The defendants were an engineering company supplying a boiler to a laundry. Boiler
delivered months late. Plaintiff takes action for loss of profits. Gets awarded nominal damages.
Decision: Appeal upheld. Damages indeterminate, but they will include profits lost by the delay.
Reasoning by Asquith L.J.:
o Defendant knew why the plaintiff wanted the boiler and that they wanted it
immediately. Defendant could have forseen the results of a breach and are thus liable
to some of the profits lost by the plaintiff due to the delay (expectancy damages).
Key difference with Hadley v. Baxendale = specific knowledge and nature of contract: expert
engineers v. general transportation company, whole boiler v. transport of one part (shaft).
o Defendants with specialized knowledge liable under “in contemplation” rule.
Munroe Equipment v. Canadian Forest Products Ltd. (1961 Man CA)
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Facts: Plaintiff rents second-hand tractor to defendant. Tractor fails to perform in tough,
demanding conditions. Plaintiff attempts to recover his rent payment, and does get $2k
awarded to him. Defendant launches a counterclaim for loss due to breakdown of machine.
Decision: Counterclaim dismissed. Plaintiff’s award reduced to 1,800
Reasoning:
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Defendant cannot succeed in the counterclaim because the plaintiff was unaware of the
work that the tractor would be required to do as the contract was informal.
Court does see it as reasonable for anybody to forsee that the tractor could have been
responsible for the entirety of the forest work that the defendant planned for it.
Scyrup v. Economy Tractor Parts (Man. CA 1963)
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Facts: Scyrup loses a construction contract cause the defendant’s tractor was faulty. Awarded
costs + loss of profits. Defendant appeals to this court.
Decision: Appeal denied.
Reasoning by Freedman JA: Draws parallels to Victoria Laundry. States that reasonable
foreseeability test passed because defendant knew the equipment was needed in good
condition. Plaintiff made clear that the equipment was vital to his goals.
Dissent by Miller CJM: Draws parallels to Munroe case. Defendant simply did not have enough
information to establish liability for the damages that resulted as a consequence of his faulty
product. Would not allow the damages to include loss of profits.
The Heron II: Koufus v. C. Czarnikow, Ltd. (H.L., 1969)
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Facts: Heron II owner takes to court charterers of the vessel for damages incurred by breach of
contract (by means of a delayed shipment of sugar to Basrah). The sugar was thus sold at a
lower price than expected, yielding the owner a smaller profit margin.
Decision: Trial judge says ship-owner would not have known that such a loss could have
occurred from a delay/breach. CA cites Victoria Laundry in saying its foreseeable thus
recoverable. Appeal to the HL. Appeal dismissed. Ship-owner gets his damages.
Argument by charters: we owe damage and interest for delay, but not the difference that the
price fluctuation cause on the whole cargo.
Reasoning by Reid:
o Price fluctuations known to commodity dealers. So both the ship-owner and charterers
should have known of the possibility given a breach.
o Two-step qualification from Victoria Laundry case:
 1. Reasonably foreseeable? Yes
 2. Liable to result? Yes
o The charterers changed the route and thus changed the risk evaluation and is thus a
major breach of contract in maritime law
 Judgement depended on the fact that there was a deviation from the contract
 The loss upon such a breach was foreseeable
Transfield Shipping Inc. V. Mercator (The Achilleas) [HL, 2009]
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Facts: Charterer returns ship to owner late. Fluctuating shipping rates in this delay force him to
reduce the rates for a redrawn contract for the next charterer. He takes the original charterer to
court to try recover the difference of the price, contrary to standard shipping practice which
only provides payment for the delayed days.
Decision: Arbitrators and lower courts rule with owner. HL rules in favour of the charterers.
Reasoning: The judges rule thus because they do not see a settlement contrary to standard
shipping practice as something that the contracting parties would have agreed upon.
o Liability can only extend to the voluntary assumption of risk and within the industry
[context important] this has clearly already been laid out
o Measure foreseeability at the date of the contract, after which the market fluctuations
were fairly unusual. How could that have been predicted?
d) Intangible injuries and punitive damages
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questions about awarding damages for mental distress over and above restitutionary interest or
other standard procedure
o comes up frequently in wrongful dismissal cases
 emotional attachment to job
 considerable amount of self-worth
o three different employment contract categories:
 fixed term
 contracts under collective agreements
 employment w/o term
Types of damages:
o Aggravated damages: for losses you have suffered, but not economic losses.
 Cover things like hurt feelings and loss of enjoyment
o Punitive damages: unconnected to plaintiff’s loss. Awarded by court to punish the
defendant.
 Rationale of punitive awards: retribution, deterrence, and denunciation
Addis v. Gramophone Company Limited (HL, 1909)
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Facts: Addis wrongfully dismissed. Brings action for breach of contract.
Decision: Lower court awards plaintiff exemplary damages. Appeal to HL reduces it back to
compensatory damages.
Reasoning: An action for breach of contract is different from an action in tort. In contract
damages can only be awarded in a specified manner and not as punitive.
o Ruled out compensation for mental distress or punitive damages
Jarvis v. Swans Tours Ltd. (QB CA, 1973)
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Facts: Jarvis has a disappointing Swiss holiday. Brings action against tour company for damages.
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Decision: Lower court awards Jarvis half his costs. His appeal for more is upheld.
Reasoning: Decide that damages can be awarded in contract cases on the basis of mental
distress (aggravated damages). Award double the plaintiff’s costs.
Notable mentions:
o Court speaks of a significant social evolution since Addis, and now contracts not only
about economic loss.
o Difficulty of measuring aggravated damages can sometimes leads into punitive sphere
o Rule: damages for mental distress are recoverable if contract’s purpose is to provide a
specifically non-financial benefit
Vorvis v. Insurance Corp of BC (SCC, 1989)
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Significance: reinforces the precedent that punitive or aggravated damages will rarely be
awarded for wrongful dismissal
Trial judge decided that given his wrongful dismissal Vorvis is entitled to the severance pay in
leui of a reasonable period of notice (compensatory damages)
o But Vorvis appeals and claims for aggravated damages for his own stress and goes on to
ask to punitive damages against ICBC for their treatment of him
o SCC said you can get aggravated and punitive damages in some cases, but not here
Vorvis rule: an ‘actionable wrong’ [i.e. tort] warrants punitive damages
Wallace v. United Grain Growers (SCC, 1997)
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Breach of employment contract case
SCC still said you don’t get aggravated or punitive damages unless you have an actionable wrong
Did something a little different, implied a term into all employment contracts; duty of good
faith in terminating an employment contract
o Employer in ending the contract must be candid, honest, reasonable, and forthright in
the manner of dismissal
The precedent from the case resulted in what was called Wallace damages
Fidler v. Sun Life (SCC, 2006)
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Significance: McLachlin lays out the circumstances in which damages for mental distress can and
should be awarded in a case of a breach of contract.
Two things need to be shown
o 1) an object of the contract was to secure a psychological benefit (Peace of mind
contract deserve damages for mental distress)
o 2) degree of breach was sufficient to warrant damages for mental suffering
 DON’T NEED AN INDEPENDANTLY ACTIONABLE WRONG FOR aggravated
and/or punitive damages
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Court cites Hadley and Baxendale, when discussing damages for mental distress; were these
damages reasonable foreseeable when the contract was entered into
Whiten v. Pilot Insurance (SCC, 2002)
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Facts: Whiten family home burned down. Claim of fire insurance denied and deliberately
extended to force the family to accept a poor settlement. At trial, jury awarded plaintiff
damages + 1million in punitive damages. Defendant appeals for more reasonable verdict.
Decision: CA reduced the punitive sum to 100k. SCC allows the appeal and restores the sum to
the original 1 million of the trial jury.
Reasoning by Binnie J:
o Punitive damages awarded only when indecent behaviour merits it [it’s the exception,
not the rule]: the allegation of arson was malicious in this manner.
o Focus on determining the number not the plaintiff’s loss but the defendants misconduct
– breach of duty to act in good faith
o Rational purpose test to punitive damages: deterrence from similar conduct
Dissent by LeBel: The judgment moves this case firmly out of compensation and into the realm
of punishment.
Notable mentions:
o Problems with punitive damages: place a party in a better position should the contract
have been carried out, not the stated objective of contract law
 Windfall to the plaintiff
 No mechanical or formulaic approach, only need some sense of proportionality
Keys v. Honda (SCC, 2008)
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Facts: Plaintiff worked for Honda for 14years. Fell seriously ill. Insurer terminated his payments
on learning that plaintiff could return to work with accommodation. Keys returned to work,
but often absent. Honda had specific accommodation for disability, but Honda concerned about
doctor’s notice. Honda asked Keys to meet with new doctor. Keys refused and was fired. Sued
Honda for breach of employment contract.
Decision: Lower court deems dismissal unfair and awards plaintiff 15 months of severance pay
with 500k in punitive damages (Wallace damages). CA increases it to 24month severance but
reduced the punitive damages. SCC refused to uphold aggravating or punitive damages without
evidence of bad faith or improper conduct by employer, but agrees with severance settlement.
Reasoning:
o Fiddler is the law, Wallace has been overridden. No indication that they breached their
implied duties. Aggravated damages not evident.
e) Mitigation
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Plaintiff is required to act in a reasonable manner to mitigate losses (i.e. search for work
following wrongful dismissal) to not overburden the contract breacher
Pivots upon the ability of the innocent party to enter the market and seek a similar end as the
original contract
Duty to mitigate lessened in circumstances where the innocent party has the right to insist that
the contract be performed
Payzu Limited v. Saunders (CA, 1919)
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Facts: Defendants adds conditions to an existing contract under the false belief that the plaintiff
is in financial trouble. The plaintiff unreasonably chooses to resist new conditions to pay by cash
only, and brings an action against the defendant for breach of contract.
Decision: Lower court reluctantly rules with the plaintiff. CA dismisses the appeal and upholds
the same judgement.
Reasoning:
o Breach of contract: defendant wasn’t providing the silk on the terms given in the original
contract (not allowing credit and discount)
o Court didn’t award plaintiff what they wanted because they didn’t mitigate their losses
 They were in a position to pay cash but they refused to do so
o The court says that while the breach is evident a reasonable person would have
mitigated their own losses
White & Carter (Councils), Ltd. v. McGregor (HL, 1962)
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Facts: Defendant repudiated K made by his sales manager to advertise on the plaintiff’s trash
bins before any aspect of the deal had been done. Plaintiff doesn’t sue for damages, but for the
first payment according to K.
Decision: Previous judgements dismissed the case. HL upholds for plaintiff.
Dissent: Dangers arise from giving an unrestricted right to the innocent party to carry out a
repudiated contract. Awarding contract price rather than damages is absurd.
Notable mentions:
o The majority decision has been severely criticized as being an inaccurate statement of
the law because plaintiff did nothing to mitigate losses by looking for other customers
o Controversial precedent: If you break K, the innocent party has a choice:
 accept the repudiation and sue for damages OR
 refuse the repudiation and carry out the contract
Finelli v. Dee (Ont CA, 1968)
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Facts: Plaintiff sues defendant for contract price of a repaving job that the defendant clearly
repudiated. Construction work done without approval of defendant and whilst on holiday.
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Decision: Regardless of whether it was a repudiation or a rescission, carrying out the contract
was by no means warranted and thus the suit is dismissed.
Judgement by Laskin:
o No consent to come onto property and do the work. Distinguishes the case from the
White case, which is criticized.
 Just as two can agree to make a contract, two can agree to unmake a contract
o Anticipatory breach of contract: a breach of K that occurs before the contract is fully
carried out (sometimes called a breach of a executory contract). Executory meaning
that it hasn’t yet been carried out, it comes before the agreed upon action in the K.
f) Specific performance
Two equitable remedies: specific performance, injunction, but strong preference for damages
1) Specific performance = order by court to perform contract
2) Injunction = “negative” order by court not to do something
- When will the court award not just the payment of damages, but order the contract breaker to
perform his side of the agreement?
- Traditionally, common law courts rarely order performance. Had jurisdiction only over property.
o Chancery courts (courts of equity) had jurisdiction over the person and thus had the
ability to force someone to actually do something
 Could lock you up for contempt of court if you disobey the order to perform
o These courts of conscience developed their own rules and principles to when a remedy
was and wasn’t available. Many of them still relevant today.
 Generally not awarded where it infringes on the rights of a third party
- Principles that govern when specific performance (exceptional remedy) will be awarded:
o 1. When damages will be inadequate. Must be something unique as substitute
performance is not available
 Too difficult to predict what those damages will be
o 2. He who seeks equity must do equity (the person who comes to equity must come
with clean hands)
 The plaintiff must be innocent of any wrongdoing
o 3. Must be pursued promptly. Refusal likely when request excessively delayed.
o 4. Will not grant performance when they will be require extensive supervision
 Thus will rarely grant performance for personal services or construction
o 5. If it will be awarded to one side, it will be mandated upon the other
 Principle of mutuality
o 6. If you are seeking specific performance, you cannot mitigate your losses
- General rule: specific performance is always available for sale of land. Derived from English law.
o Because real property is always unique
o Canadian courts have deviated from that view
 Unless the real-estate has some unique value it is not going to get an action of
specific performance --- Semelhago v. Paramedvai (SCC, 1996)
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Tanenbaum v. WJ Bell Paper Co (Ont HC, 1956)
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Facts: Defendant neglected the contract to built a road and subsequent piping between two
parcels of the plaintiff’s property. Not suing for damages, but for performance.
Decision: Action upheld. Defendant ordered to perform contract.
Reasoning:
o Part of the selling price of the land was the agreement to do this work, makes the court
sympathetic to ordering it to be carried out.
o Too difficult to calculate cost of losses of breach.
o Unusual because it was a building contract
Co-operative Insurance Society v. Argyll (HL, 1998)
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Facts: Defendant pre-emptively closes the supermarket chain in a shopping complex. Plaintiff,
owner of said complex, sues for performance of lease contract.
Decision: Deems damages a better way to settle this than specific performance which would
merely prolong this legal battle, while damages can end litigation.
Notable mentions:
o Contrast to Tanenbaum because it would require too much supervision
Warner Bros v. Nelson (KB, 1937)
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Facts: Defendant, actress, withdrew from her contract with plaintiff. It had positive covenants
requiring her to renew the contract at the behest of the studio, and a negative covenant
preventing her from working with others while contracted. Suing for injunction of her new work
in the UK, and damages.
Decision: grants the injunction, no damages.
Reasoning:
o Court can enforce the negative covenants through an injunction (equitable measure)
 In equity because it stops a defendant from doing a specific act
 Damages too difficult to calculate to be relevant
o Place time limits on the injunction because they are concerned about enforcing specific
performance as courts don’t order performance on contracts of personal services
g) Time
Wroth v. Tyler (UK, 1974)
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Facts: defendant fails to sell the house he contracted to sell to the plaintiff’s cause estranged
wife gets odd legal right to hold the house under the Matrimonial Homes Act. Plaintiff sues for
performance and damages (which are substantial since the price of the property has risen
dramatically)
Decision: Court awards only damages to the plaintiff
Reasoning:
o Damages should be awarded on the difference between the contract price and the
price at the time of this decree and not at the time of the delivery of contract.
 Only this method can place the plaintiff in a position similar to that which would
have occurred should the contract have been carried out.
o Lord Cairn’s Act: if an equity court can’t award specific performance it can award
damages in lieu
Asamera Oil Corp v. Sea Oil and General Corp (SCC, 1979)
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Court said that they knew they couldn’t get specific performance and at that point should have
entered the market to mitigate losses.
Thus the date upon which damages should be determined is not the date of judgment, but the
date that it became obvious that specific performance would not be attained
h) Restitution
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A realm of private law unto its own: addresses the mischief where a defendant has been
enriched by a benefit that would be unreasonably or unlawfully kept
Applicable in circumstances where it would be unreasonable that the benefit would be gained
by a transgressing party
o Implicit within contracts of banking (Ex: Bank can take back funds mistakenly deposited
in one’s bank account)
Pertinence of fiduciary relationships:
o Ex: Contract of agency requires fiduciary duties, and thus restitutionary interest can be
claimed on a breach
Contractual remedies: damages, specific performance, and the injunction
o Law of restitution is the contrast of the law of compensation. In restitution the
defendant must give up his gains to the plaintiff.
Supreme Court of Canada has enthusiastically embraced, and vigorously reaffirmed, the
existence of restitution as an independent source of civil obligation, resting on the principle of
avoidance of unjust enrichment.
Attorney General v. Blake (UK HL, 2000)
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Facts: Spy case. British double-agent escapes to Russia from where he writes a book published in
England. Can the crown take his profits?
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Decision: Restitutionary interest can be taken by AG from publisher
Reasoning by Birkenhead:
o Tries to say that he is awarding restitutionary damages. Calls it an account of profits.
 Restitution only justified in the case law in extraordinary circumstances
o The confidentiality agreement undertaken by intelligence officers is described as a
contract creating fiduciary obligation that has been violated
Dissent: worries of consequences of applying this precedent to the commercial sphere
2. The kinds of promises legally enforced
Bargain theory: offer, acceptance, consideration
1) Must balance between enforcing promises (important for private ordering, economy, etc) and
imposing unfair surprise that something said now imposes liability
2) Bargain theory = people assume a legal contractual obligation when enter into bargain i.e. offer,
acceptance and consideration (i.e. commercial paradigm at core of contract law)
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Bargain: classic structure required for the courts to view the promise as enforceable
o Offer constituted by a set of necessary terms and conditions
o Acceptance completes the K
 Method usually involves some sort of payment
When offer and acceptance is made, we have a binding contract (time of K)
i) Offer and acceptance
Denton v. Great Northern Railway Company (QB, 1856)
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Facts: Plaintiff follows issued schedule. Goes to station to get ticket only to find out the train
was cancelled. Was a contract breached?
Decision: In favour of plaintiff
Reasoning:
o Judges take the view that a contract was breached. Meaning the schedule was the offer,
and showing up constituted acceptance.
 There was a completed K. No train was a breach of the conditions of said K.
o Fraud also a consideration in establishing liability
Notable mentions:
o Alternative formulation of K: offer at counter, acceptance is issuing the ticket
o Problem with plaintiff’s formulation: Sold out train constitutes a breach.
Johnston Bros v. Rogers (1899)
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Decision: Telegraph deemed a quotation of prices and not an offer to sell flour at that price.
Reasoning by Falconbridge J.:
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Said the letter implied that the defendants were not firm on their prices
What plaintiff thinks is his acceptance, is actually an offer to make a K and the
defendant replies with a counteroffer (which implicitly rejects the previous offer)
Lefkowitz v. Great Minneapolis Surplus Store (Minn SC, 1957)
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Facts: Plaintiff told that the offers he saw in the paper were only open to women. Sues for
breach of contract
Decision: The judge found that a contract had in fact been made by the advertisements and the
‘house rules’ imposed were arbitrary modifications that constituted a breach.
o Argues that this was a unilateral contract (offers to the public at large)
Note: An ‘invitation for an offer’ is different from an offer – relevant to advertisements
Pharmaceutical Society v. Boots (QB, 1953)
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Facts: Prosecution for violation of statute that required that sales of certain items can only be
done under the observation of a pharmacist. Case needed to determine where the contract
between the customer and the drug store was established. Pharmacy would be in violation of
the law if the offer is putting the drugs on the shelf, and the contract is made when the
customer’s accepts by taking it off the shelf.
Decision:
o Court takes alternative formulation of contract: The drug on the shelf is merely an
invitation. The contract is formed at the counter under pharmacist supervision.
 Offer is putting the meds in front of the cash register, and acceptance is
undertaken with the pharmacist at the cashier.
o Problem with plaintiff’s formulation of K is that if customer takes a drug of the shelf, he
can’t put it back because he’s already accepted.
Manchester Diocessan Council for Education v. Comercial and General Investments LTD (1969)
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Principle to be drawn: offers are conditioned by reasonable time limits on acceptance, if
overshot it can permit a withdrawal of the offer or construe a rejection of the offer
If the offer doesn’t stipulate a time for acceptance, the courts will infer a reasonable time
Larkin v. Gardiner (1895)
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Facts: An action calling for specific performance of a sale of land.
Decision: Judge affirms that an offer can be rescinded before the acceptance has clearly been
articulated because no binding contract was entered into.
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Dickinson v. Dodds (1876)
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Facts: Defendant made a limited offer in writing to sell property. Dickinson, on hearing, that
Dodds was about to sell to another, tried to bind him with an acceptance that the defendant did
not receive notice of until after the sale had been made to another third-party.
Decision: No contract made, thus no breach.
Reasoning:
o While the plaintiff purported to accept within the time granted by the offerer, the court
says that a separate options contract is needed to make a time frame binding
o Affirms that the offerer has right to withdraw up to point of contract, which needs to be
reasonably enforced upon the knowledge of both parties. No contract was made cause
Dodd did not know of acceptance till he made another K.
Notable mentions:
o This case suggests an exception to the rule that for revocation to be effected it must
be communicated to you.
Eliason v. Henshaw (US SC, 1819)
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Principle: Acceptance has to be on the terms of the offer. If different the acceptance is not
binding, it is comparable to a counteroffer.
o The party making the offer can usually control the method and terms of acceptance
Once you have a completed contract parties have no right unilaterally to insert terms.
Butler Machin Tool Co v. Ex-Cell-O Corporation (England, 1979)
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Facts: Defendant, seller, makes offer for machine as per certain conditions, including a price
variation clause. Buyer on delivery refuses to pay substantial price increase, as he claims the
contract was made on terms of previous offer. Seller sues and wins award. Buyer appeals.
Decision: Appeal upheld for buyer.
Reasoning:
o Contract is clear. But on whose terms? ‘Battle of forms’
o Due to the fact, that the buyer proposed new terms, it constitutes a counter-offer that
kills that original offer that had the price-variation clause
Notable mentions:
o Common law solves the battle of the forms problems by an analysis of offer and
acceptance analogy.
o Uniform Commercial Code (American Law Institute, 1978): Additional terms in an
acceptance are to be considered as additional to the contract not a counter-offer.
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M.J.B Enterprises v. Defence Construction [1951] (SCC, 1999)
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Facts: Defendant was accepting tenders to bid on a contract. Plaintiff put forward a proposal
that fit within the guidelines, while a chosen plan did not. Plaintiff sues.
Ruling by Iacobucci:
o An invitation to tender gives rise to K obligations to select among the compliant bids
 The Request for proposal (RFP) constitutes an offer to bid, and by submitting a
tender within the guidelines indicated the bidder accepts the offer
 Defendant needed to respect that contract while determining which offer to
accept for the subsequent contract
o Expectancy damages awarded to plaintiff. Performance not granted.
Notable mentions:
o Privilege clause does not allow the govt agency discretion to chose noncompliant bid
 Also allows them not to be obliged to the lowest bid
o In most jurisdictions statutes regulate the tendering process to ensure efficiency and
fairness in allocating government contracts, but NOT IN CANADA.
ii)
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Formalization and certainty
In dealing with problems of certainty
o The courts try not imply terms into a contract
 Will sometimes look at external evidence to deal with ambiguities
Courts are reluctant to say there was no contract if parties conduct indicates a K was in force.
o Generally the closer a contract can be matched to a commercial idea of offer and
acceptance, the more likely the courts are to enforce it.
May and Butcher, Limited v. The King (1929)
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Facts: Defendant backs out of K as terms become unacceptable. Plaintiff sues for breach.
Decision: Courts do not recognize it as a contract, as it lacks too many essential components
Reasoning:
o Agreement did not mention necessary terms of a contract of sale (no price or dates)
o Court said contract made on such terms cannot be enforceable
W.N. Hilas and Co. v. Arcos (HL, 1932)
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Lower courts couldn’t see how to enforce a contract with vague terms
HL says that making it through a full year, meant that some method of dealing with
uncertainties had been settled upon. Thus the contract is enforceable
Recognizes that commercial K’s can lack the definite aspects necessary for the full application
of contract law, but nonetheless need recognition and protection under the law.
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Foley v. Classique Coaches, Limited (1934)
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Facts: Defendant declares a contract of no force after the plaintiff increases petrol prices, which
were not clearly stipulated in the agreement. Plaintiff sues for the validity of the contract.
Decision: Judgement in favour of plaintiff, K ruled to be binding regardless of omissions.
Reasoning:
o Obligation to buy petrol was pivotal to K, withdrawing on such grounds is a breach
 For three years a contract had been operable on the basis of reasonable market
prices for gasoline
o Court decides in fact the uncertainties still mean that there is a contract here
o Arbitration clause in contract should have been consulted if there was a disagreement
Empress Towers v. Bank of Nova Scotia (BC CA, 1990)
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Facts: Just prior to the expiration of tenancy agreement, landlord responds to repeated offers
from Bank. But new terms are unreasonable and do not allow room for negotiation.
Decision:
o Renewal clause and other tenets of previous tenancy agreement not respected by
landlord, Empress Towers.
o Court finds the unreasonable counter-offer shows bad faith on the part of Empress
 Unusual to imply good faith in the negotiation of the contract
iii)
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Correspondence
Offer that is made, is in effect until revoked, or reasonable time to accept has passed
o Acceptance, like a revocation, needs to be communicated
o Problems occur when you start using time-lag methods of communication like mail
o Party making the offer controls a lot, including the method of acceptance
 Post-box rule: in contracts negotiated by mail, putting the acceptance into the
mailbox formalizes the contract
o Risks are quite different with instantaneous modes of communication
 Thus court have not applied the post-box rule to modern communication
 Today, acceptance only effective when received
Henthom v. Fraser (1892)
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Facts: An offer is rescinded by mail, but only after the acceptance is placed in the mail. Plaintiff
wants performance, defendant denies contract
Principle: Offer is continuous until the person to whom it was made knows it is withdrawn.
o The acceptance being placed in the mail established a contract. (Post-box rule)
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Byrne & Co. v. Leon Van Tienhoven & Co (1880)
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Facts: Defendant makes offer to American company via telegram. Offer accepted by post.
Defendant withdraws after, but before receiving acceptance; sued in turn.
Decision and principle:
o Telegrams and correspondence can constitute the makings of a contract that will be
enforced by the court of law.
o Contract formed by acceptance being mailed according to the post-box rule
 Purpose of the rule is to impose risk on the offerer because they control the
conditions of the contract
o Thus the revocation has to be received by the offeree before they mail acceptance
o English common law does not require a meeting of the minds to establish a contract
Holwell Securities ltd. v. Hughes (1974)
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Facts: To accept an offer to a contract, the plaintiff sends in a mail that never got delivered.
Court called in to adjudicate whether a contract was formed.
Decision and Principle:
o Rule that the contract was in fact not formed. Reversing the rule from Henthorn which
said that an acceptance forms a contract once posted, the court says that the
acceptance’s delivery is needed for a contract to form.
o Terms of the contract implied that the vendor needed to receive the acceptance to
constitute a contract
 Court notes some absurdities can arise from following the post-box rule
Eastern Power v. Azienda (Ont CA, 1999)
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Facts: Defendant an Italian company, back out of a contract agreed upon through fax
communication. Court needs to rule whether they have jurisdiction over the case.
Decision and principle: general rule of contract law is that contract formed where the offeror
received notification of acceptance. This was in Italy, thus court has no jurisdiction.
o Conflict of laws issue
o Ruling indicative of how the courts have looked at modern means of communication.
Notable mentions:
o Electronic Commerce Act: A contract made by electronic means is binding
iv)
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Consideration
Referred to: as the price paid for a promise
To have an enforceable contract both parties need to have given consideration for the promise
that they wish to have in force
o Promisor (party making the promise) and promisee (person agreeing to the promise)
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Requirement of consideration has a number of roles to play:
o Provides evidence that there was some kind of arrangement made
o Shows that the parties intend the promise to be legally enforced
Idea of nominal consideration: turns a gift into a contract
Benefit to one party, and detriment to another
What constitutes good and sufficient consideration for a contract?
White v Bluett (1853)
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Facts: Plaintiff the brother of defendant. Defendant agreed with father if stopped complaining
the promissory note here being enforced would be discharged. Court has to determine whether
the promise was enforceable.
Decision: No consideration here apparent. Verdict for the plaintiff forcing the defendant to pay.
Reasoning:
o Court does not recognize the son’s promise to stop complaining as consideration
(abstaining from what you have no right to do is not consideration)
 Tendency not to find consideration within family matters
o Example of where there was no evidentiary basis for absolving the promissory note
Hamer v. Sidway (1891)
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Facts: Determining the validity of a promise made by an uncle to a nephew that he would pay 5k
if he didn’t smoke and drink till the age of 21.
Decision: Court determines it is enforceable because there is consideration from both parties
Reasoning:
o There is evidence that the promise was made- money was set aside
o Seems like it was intended to be a binding agreement
o Serves as a contrast to White v. Bluett
o Consideration doesn’t always have to be a benefit to the other party, but can be a
detriment incurred
Thomas v. Thomas (1842)
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Facts: Widow (plaintiff) given ability to live in husband’s property by executors (defendant).
Plaintiff evicted after more generous executor dies.
Decision and principle:
o Court rules she can stay in the house because there was sufficient consideration
(agreement to maintain house and pay rent)
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Tobias v. Dick and T. Eaton Co. (1937)
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Facts: Tobias contracted with Dick to sell his machines. Takes him to court for a breach. And T
Eaton for the tort of interference with contract.
Decision: This is a one-sided agreement that is not a contract. Tobias has promise of exclusive
agency of Dick’s goods, but doesn’t provide any obligation upon him to do anything. No
consideration by Tobias to create an enforceable contract.
Wood v. Lucy, Lady Duff-Gordon (1917)
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Facts: Defendant a clothing designer, plaintiff is distributor. Plaintiff suing on breach of contract
as defendant sold without his knowledge and didn’t divide profits.
Decision: Rules that the obligations of the plaintiff were implied in the contract and thus it has
consideration and can be enforced in favour of the plaintiff.
Notes:
o Argument that contract does not include any consideration from Wood rejected by
court b/c the evidence suggests consideration is being undertaken.
o Judgement moves away from formalism. He was implicitly obligated to serve the
duties within the contract.
o Distinguished from Tobias: In Wood there was a business structure that connected the
plaintiff duties and the defendant profits.
Harris v. Watson (1791)
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Facts: Plaintiff a sailor on the defendant’s boat. Whilst in danger, defendant promises a raise for
hard work. Plaintiff taking action to get that raise.
Decision: Draws on principle; when the boats sinks, wages are lost with it. So on policy
considerations dismisses the case.
Notes:
o In the seafaring scenario, it would constitute a contract under duress.
o Question of consideration on contract increase compensation upon a pre-existing duty?
 Must weigh the changing circumstances that cannot be foreseen
 Must be consideration for contractual variation
Stilk v. Myrick (1809)
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Fact: Another case of a seaman’s wage. Promise of raise after other sailors desert.
Decision: For defendant.
Reasoning: No consideration given for new agreement. Job entailed duties that had to be
fulfilled regardless of whether other had deserted or not.
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Principle: Traditional formulation that if they is a revision to the contract there needs to be
consideration on both parties.
Gilbert Steel v. University Construction (Ont CA, 1976)
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Facts: Plaintiff alleges that a verbal agreement to change the price of steel to a construction
contract was binding and must be enforced upon the defendant
Decision: Contract lacks consideration
Notes:
o Arguments:
 Contract was rescinded and replaced: mutual revocation has long been
accepted as an enforceable contract. Court says there was no evidence of
rescission, rather simply a variation in price.
 There was consideration given: Gilbert Steel extends the defendants credit line
(court says this is a natural consequence of commercial arrangements when one
party agrees to pay more) and gives a good price on the next project (no
indication of a commitment to such a deal). Court finds these promises are too
vague to constitute consideration.
 Doctrine of consideration usually requires that consideration moves
from the promisee (or a detriment to themselves) through some form
of agreement. Practical benefits of renegotiation not consideration.
 Consideration must stem from the promisee to the promisor
 Issue of estoppel, means the ability to stop someone from doing something.
Applies to commercial situations where one party leads another to believe that
something will take place, and that second party relies on that belief they are
entitled to hold the first party to what they had implied. They are estopped.
 In this case, defendant promised they would pay more making the
plaintiff stay on the project. They argue that defendant should be
estopped from now denying their obligation to pay. Problem was that
Gilbert was using the argument not to stop defendant from doing
something, but to force them to do something
 Law recognizes if you make an assertion to a party, you cannot later go
back and deny that agreement. Argument: university made a promise,
and now they should be stopped from going back on that. Court: using
estoppel as a sword, rather than a shield as it is meant to be used.
 Bargain fails for want of consideration, contract not enforceable.
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Williams v. Roffey (1991)
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Facts: Plaintiff a contractor working on a construction project for defendant. Realizes the price
he charged is too low and work is unproductive. Defendant agrees to pay 10k more to get work
done. But later says the agreement is not enforceable as their was no consideration.
Decision: Consideration found, contract enforceable in favour of plaintiff.
Reasoning:
o Each party gained a benefit from the agreement.
o Doctrine of Promissory estoppel
o Modifications of contracts in progress can be enforceable if they meet qualifications:
 Expands consideration to include practical benefits.
 Principle can only apply when you have an existing enforceable contract and
performance is still in progress (but reasons why one party will not be able to
perform)
 No economic duress
This is an English precedent that has yet to find application from the SCC
o Gilbert Steel from highly persuasive Ontario CA
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