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Remedies for Breach of Contract .....................................8 Damages..........................................................................................................................8 The Three Categories of Damages ..............................................................................8 The Compensation Principle........................................................................................9 Peevyhouse v. Garland (diminution in value, essential vs. incidental, deterrence against “windfalls”) .................................................................................................9 Radford v. De Froberville (essential vs. incidental, damages vs. equitable remedies, unjust enrichment) ...................................................................................9 Ruxley Electronics and Construction Ltd. v. Forsyth (economic waste, introduction of non-pecuniary damages, consumer surplus) .................................10 Victory Motors Ltd. v. Bayda (supply and demand and entitlement to expectation damages, precursor to mitigation) .........................................................................10 Contract Law and Social Ordering.............................................................................11 LAW AND ECONOMICS.........................................................................................11 Other Aspects of the Compensation Principle ...........................................................12 Anglia Television Ltd. v. Reed (pre-contract expenditures, uncertain expectation damages) ................................................................................................................12 Bowlay Logging v. Domtar Ltd. (reliance damages exceeding expectation damages) ................................................................................................................12 Chaplin v. Hicks and Kinkel v. Hyman (chance of a profit is compensable) ........13 Limits on the Award of Damages: Remoteness ........................................................13 Hadley v. Baxendale (reasonable foreseeability of loss) .......................................13 Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd. (application of reasonable foreseeability concept).........................................................................14 Implied Acceptance of Special Circumstances ......................................................14 General factors to consider in deciding whether damages are too remote ............14 General purpose of limiting damages through remoteness ...................................15 Special Problems and Circumstances ........................................................................15 Jarvis v. Swan’s Tours Ltd (Contracts for pleasure, non-pecuniary damages) ......16 Wilson v. Sooter Studios Ltd. (non-pecuniary damages for a peace of mind K) ..16 Wharton v. Tom Harris Chevrolet Oldsmobile Ltd. (non-pecuniary damages, requirement of “sensory experience” discomfort) .................................................17 Warrington v. Great-West Life Assurance Co. (contracts promising peace of mind, aggravated damages) .............................................................................................17 The Test to Employ to Find Non-Pecuniary Damages ..........................................18 Aggravated Damages (don’t use this term) and Employment Contracts ..............18 Punitive Damages ..................................................................................................19 Limits of the Award of Damages: Mitigation ...........................................................20 General Notes on Mitigation .................................................................................20 Doctrine of Election:..............................................................................................21 Date of Assessment of Damages ...........................................................................22 Equitable Remedies .....................................................................................................22
Page 2 of 100 General Comment on Equitable Remedies ................................................................23 Requirements for an order of specific performance ..................................................23 Injunctions and undue restraint on trade....................................................................23
Formation of Contract .....................................................24 Offer and Acceptance ..................................................................................................24 Test Applied ...............................................................................................................24 Termination of Offers ................................................................................................24 Acceptance of offer....................................................................................................24 Communication of acceptance...................................................................................25 Contracts made by mail (Postal Acceptance Rule) ....................................................25 Where is a contract made? (Jurisdictional issues) .....................................................25 Email contracts ..........................................................................................................26 Uncertainty in Formation of Contract (unenforceability of agreements to agree, incomplete agreements, or contracts with ambiguous or missing essential terms) 26 Foley v. Classique Coaches (vagueness in price, arbitration clause, ongoing relationship) ...............................................................................................................26 Courtney and Fairbairn Ltd. v. Tolaini Brothers (Hotels) Ltd. (unenforceability of “agreement to agree”, one time (not ongoing) relationship) .....................................26 Empress Towers Ltd. v. Bank of Nova Scotia (good faith) .......................................27 Other notes on good faith: .........................................................................................27 Policy Rationale for Legal formalities (e.g., consideration) .....................................28 Legal formalities ........................................................................................................28 Statute of Frauds ........................................................................................................28 Consideration ...............................................................................................................28 General Comments on Consideration ........................................................................29 Consideration and gifts ..............................................................................................29 Past Consideration .....................................................................................................29 Mutual Promises (i.e., Consideration continued)......................................................30 Great Northern Railway Company v. Witham (Mutual promises, framework agreements) ................................................................................................................30 Wood v. Lucy, Lady Duff-Gordon (implied obligations) ..........................................31 Firm Offers and Unilateral Contracts .......................................................................31 Introductory Comments (Read!) ................................................................................31 Dawson v. Helicopter Exploration Co Ltd (unilateral vs bilateral contract) .........32 Can offer be revoked when performance on a unilateral contract has commenced? 32
Going Transaction Adjustments (GTAs)........................34 Policy considerations justifying GTA’s: .....................................................................34 Harris v. Watson (old case. either an unreasonable application of the doctrine of consideration or a holding that legal GTA not found if modification made under duress) ...........................................................................................................................34 Stilk v. Myrick (old case. strict application of the doctrine of consideration, concerns about duress found in a GTA) ....................................................................34
Page 3 of 100 Raggow v. Scougall (Rescission and creation of new contract to validate a GTA. finding of a GTA by holding that old contract was voided by the mutual acceptance of the GTA. New contract is in place with new terms. This gets around the problem of fresh consideration, one way of doing it)............................35 Stott v. Merit Investment Corporation (Finding of a valid GTA when there is forbearance on the right to sue) .................................................................................35 DCB v. Zellers (cases without any legal merit cannot rely on forbearance) ..........36 Gilbert Steel Ltd. v. University Construction Ltd. (estoppel cannot be used as a sword, only as shield)...................................................................................................36 Williams v. Roffey Bros and Nicholls (Contractors) Ltd. (UK Case: GTA may be found when a practical advantage is found to be the consideration)......................37 Pao On v. Lau Yiu Long (Economic duress or fraud, if found, GTA will be unenforceable) ..............................................................................................................37 Foakes v Beer (Debt settlement. Payment of a lesser sum for a greater sum is not good consideration [but there is an exception]) ........................................................37 NAV Canada v. Greater Fredericton Airport Authority (NBCA finds that K modification unsupported by consideration is binding provided there is no economic duress. IMPORTANT case because it will be found in counter arguments)....................................................................................................................38 Step by step – how to approach a GTA issue: ...........................................................38
Reliance as a basis for the enforcement of promises (Promissory Estoppel)......................................................39 Difference between estoppel and promissory estoppel .............................................39 Elements of promissory estoppel ................................................................................39 Central London Property Trust Ltd v. High Trees House Ltd (application of promissory estoppel as a shield) .................................................................................39 Combe v Combe (gratuitous promise means no consideration and no contract even if relied upon) ......................................................................................................40 Criticisms of the sword/shield distinction in estoppel ..............................................40 United States ..............................................................................................................40 Arbitrariness of the sword/shield distinction .............................................................40 What is reasonable reliance? ......................................................................................41
Third Party Beneficiaries and Privity of Contract .......41 Background...................................................................................................................41 Avoidance of contractual “box”..................................................................................41 The Problem with Privity of K as applied to insurance contracts and the resultant case law .........................................................................................................................42 London Drugs v. Kuehne & Nagel (employees may benefit from exclusion clause in lease btwn Landlord and Tenant business) ...........................................................43 Laing Property Corp v. All Seasons Display (application and development of London Drugs) .............................................................................................................43 Remaining problems: Fate of employees ..................................................................43
Page 4 of 100 Fraser River Pile & Dredge v. Can-Dive Services (3P insurance benefits aren’t just for K’s of service)..................................................................................................44 But note: this concept doesn’t just apply to insurance contracts. It could apply to any case where there is indemnity, exclusion of liability, etc. ..................................44 Horizontal and Vertical Privity ..................................................................................44
Representations and Warranties ....................................45 Representations and Warranties table and definitions ............................................45 Policy considerations: ..................................................................................................47 So if you found a misrepresentation? Head over to the parol evidence rule and discuss that ...................................................................................................................48
Concurrent Liability in Contract and Tort: Negligent Misrepresentation ............................................................48 Esso Petroleum Co v. Mardon (concurrent liability in K and tort) ........................48 Other essential comments about concurrent liability in K and Tort ......................48 Concurrency (pros/cons of suing in tort/contract)....................................................49
Mistake ..............................................................................49 Categories of Mistake ..................................................................................................50
Mistake in Formation ......................................................50 Intro with test and policy factor comments ...............................................................50 Raffles v. Wichelhaus (mistake. Outdated concept of consensus ad idem) ...........51 Hobbs v. Esquimalt and Nanaimo Railway co (objective reasonable person test for finding of mistake in formation)...........................................................................52
Rectification (the test) ......................................................52 Mistaken Payments ..........................................................53 Budai v. Ontario Lottery Corp (reliance on mistaken payment) ............................53
Mistaken Assumptions .....................................................53 Introduction..................................................................................................................53 Sherwood v. Walker (mistaken assumption regarding nature of subject matter) .54 Bell v. Lever Brothers Ltd (Mistaken assumption regarding essential quality) ....54 Solle v. Butcher (Equitable jurisdiction/relief of mistaken assumption. Read this as it might be applicable whenever mistaken assumption is found) .......................55 Examples where equitable jurisdiction might be used:............................................56
Frustration ........................................................................56 Krell v. Henry (frustration of commercial purpose of contract, test for frustration) ...................................................................................................................57 ALCOA (Magnitude of risk unforeseen, reformation).............................................57 Re Westinghouse Electric Corp (Mere fact that K becomes expensive is not sufficient) ......................................................................................................................58
Page 5 of 100 Amalgamated Investment v. John Walker (difficulty of finding frustration in land contract) ........................................................................................................................58 KBK No. 138 Ventures Ltd. v. Canada Safeway Ltd (Canadian case, finding frustration in land contract when unforeseen fundamental change in land occurs. Use this case as the test for frustration) .....................................................................58 Remedies for frustration and the Frustrated Contract Act .....................................59
Control of Contract Power ..............................................60 Mensch ..........................................................................................................................60 The chain of gifts..........................................................................................................60
Contract Interpretation ...................................................61 Renner, The Institutions of Private Law....................................................................62 Federal Commerce & Navigation Co. v. Tradax Export SA (the importance of consistency in standard form contracts)....................................................................62 Scott v. Wawanesa (the problem with strict enforcement of standard form contracts) ......................................................................................................................63 Techniques of Control – SEE THIS IF NEGLIGENCE ISSUE ..............................64
The Parol Evidence Rule .................................................65 The way courts get around Bauer: .............................................................................67 Factors Influencing Application of PER (read this for the test): ............................67
Standard Form Contracts ...............................................68 Advantages ...................................................................................................................68 Disadvantages...............................................................................................................69
The Ticket Cases ..............................................................69 Parker v. South Eastern Railway (party is bound to unsigned agreement with reasonable notice, test to employ)...............................................................................70 J Spurling v. Bradshaw (Lord Denning, the more unreasonable the clause, the greater the notice required. The “red hand” rule)....................................................71 Thornton v. Shoe Lane Parking (application of Lord Denning’s “red hand” rule, unreasonable condition in a ticket) ............................................................................71 Interfoto (Thornton/reasonable notice doctrine applies to clauses generally, not just exemption clauses)................................................................................................72
Signed Contracts and Fundamental Breach..................72 Canadian Approach to Fundamental Breach ...........................................................74 Hunter Engineering Co. Inv v. Syncrude Canada Ltd. (doctrine of fundamental breach is a rule of construction only, better to use unconscionability, sophisticated commercial parties aren’t subject to it, perhaps consumers though) .....................74
A Possible Exception – Exclusion Clauses Continued ..75 Tilden v. Clendenning (application of Llewellyn’s Solution? Signature rule no longer in effect? The importance of taking reasonable steps to bring unusual terms to consumer’s attention) ...................................................................................75
Page 6 of 100 With signed waivers for risky activities: in the absence of unconscionability, fraud, misrepresentation, the traditional rule I that signature is a manifestation of assent: Delaney v. Cascade River Holidays (BCCA, 1981) .....................................77 Ochoa v. Canadian Mountain Holidays.....................................................................77 Karroll v. Silver Star (circumstance when a waiver of liability is accepted [use this case for the relevant law], agency exception to privity rule)....................................78 Note: Where signature rule has been overruled tends to usually be, common thread of inequality of bargaining power, particular in consumer context and particularly with standard form contracts .....................................................................................79
Ecommerce and control of contractual power ..............79 Econtract enforceability ..............................................................................................80 General rules of contract law apply to ecommerce....................................................80 Shrink wrap contracts ................................................................................................80 Click-wrap contracts ..................................................................................................80 Browse-wrap .............................................................................................................81 Kantiz v. Rogers Cable Inc (enforceability of arbitration clause where notice of contract changes given on a website) .........................................................................81 Comments on arbitration clauses: .............................................................................81
Introduction to three contractual doctrines that regard fairness of bargain............................................................82 If you talk about any one of these in exam, you must discuss all three ..................82
Duress ................................................................................83 Economic duress ..........................................................................................................83 Pao On (the test for economic duress, accepted by Canadian courts) ....................83 Gotaverken Energy Systems (Canadian example of the Pao On case) ...................84 Stott v. Merit Investments (a contract made under duress can be ratified and made enforceable) ........................................................................................................84
Undue Influence ...............................................................85 Categories of undue influence: ...................................................................................85 Bank of Montreal v. Duguid (ONCA. Constructive notice of undue influence. The duty of a bank to find and avoid undue influence) ...........................................86
Unconscionability .............................................................87 The basic test per Morrison v. Coast Finance (BCCA, 1965) with factors applied from other cases: ..........................................................................................................87 Unconscionability – Private versus Public grounds .................................................88 Henningsen v. Bloomfield Motors (American case. Contextual analysis to finding inequality of bargaining power) .................................................................................88
Consumer Protection Legislation (IMPORTANT if a question regards a consumer transaction) .....................89 Business Practices and Consumer Protection Act ....................................................90
Page 7 of 100 Rushak v. Henneken (BCCA: Duty for suppliers to disclose when they have specific negative information that may or may not be accurate about the product) .......................................................................................................................................90
Illegality ............................................................................91 Quick note on penalties and forfeitures .....................................................................91 Illegality ........................................................................................................................92 Common law illegality:................................................................................................92 Statutory Illegality:......................................................................................................92
Framework/strategies for certain question types (START HERE):...............................................................93 Employment law, wrongful dismissal, constructive or direct ..................................93 Injunctions in employment contracts ........................................................................94 Breach of contract resulting in a potential damage claim (including nonpecuniary damages) .....................................................................................................95 Is there a binding contract (focus on relational contracts)? ....................................97 Is there a binding contract (focus on gifts)? ..............................................................98 Is there a binding contract? ........................................................................................99
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Remedies for Breach of Contract Damages The Three Categories of Damages Courts primarily award damages, but may award equitable remedies such as specific performance or an injunction Restitution: “corrective justice”, prevents unjust enrichment to def., i.e., prevention of gain to def., (if I agree to buy something for $80 and def. gives me nothing, def. was unjustly enriched by $80 and I could receive that in restitution) Reliance: “restorative justice”, prevent harm to victim, recovery of costs plaintiff might have incurred as a result of relying on the contract (cost of title search for instance, etc). judge would award restitution damages + reliance damages = good a position as before the contract was entered Expectation: “distributive justice”, secure benefit of contract to victim, either award specific performance, or the monetary value of the specific performance (e.g., amount of profit that would have been earned after buying a house that increased in value). In this case, expectation (expected profit) + reliance damages = making the plaintiff whole Reasons for Expectation Damages: a) Psychological expectation: sense of moral injury if someone breaks a promise b) Will theory: consent to contract creates some sort of private law btw the parties – K creates a law btw the 2 parties, it is for the courts to enforce that law c) Economic explanation: K is property; once K is made, there is a proprietary/econ int in the promise w/respect to future entitlements; K w/respect to future entitlements has some sort of present value d) Juristic explanation: Expectation damages are the norm b/c of judicial policy that expectation measure promote a particular ordering of the world C + D = value exists b/c law protects it and expectancy exists b/c of recognition of future value Nominal Damages: damages awarded where there is not material loss experienced
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The Compensation Principle
Peevyhouse v. Garland (diminution in value, essential vs. incidental, deterrence against “windfalls”) Facts: Plaintiff – Peevyhouse (farmers, owner of land, lessor) Defendant – Garland (Coal mining company, lessee of land) Def. leases land from Plaintiff for coal mining. Agrees to restore excavated land to its original state after use. Fails to carry out this part of the contract. At the same time, market value of land falls considerably. Cost of remediation far exceeds what Plaintiff would receive for remediated land on the open market. Holding: Plaintiff only entitled to receive full market value of the land as if it were remediated. Thus, plaintiff receives damage award that is a fraction of the true cost of remediation. Reasons: Diminution in value, cost of performance (remediation) out of proportion to value gained. Belief that this would result in a windfall for plaintiff who would take the money and not remediate the land. Also the remediation clause was only incidental to the contract – in courts view, was not essential that the remediation be performed. What this case stands for: Courts do not want to grant “windfall” damages in commercial contracts. Victim of contract breach should only receive what he needs to be “whole” as if the contract were performed. Unfair on its surface, but the fact is that if Garland remediated the land, market value of land would not have changed that much. IMPORTANT DISSENT: What about Garland being unjustly enriched? Wasn’t reclamation essential to the contract? If it was, then Garland should have paid the cost regardless.
Radford v. De Froberville (essential vs. incidental, damages vs. equitable remedies, unjust enrichment) Facts: Plaintiff: Radford, seller of a portion of his land Defendant: De Froberville, purchaser of land Def. agreed to build an expensive stone wall between the land he purchased and the plaintiff’s as part of the contract. Defendant failed to do so. Def. argued that Plaintiff entitled to nominal damages only as wall would not have increased market value of land that much. Or, Def. should only have to build a cheaper wooden fence.
Page 10 of 100 Holding: Defendant liable for the cost of building the wall. Reasons: Court found that agreeing to build the expensive stone wall was an essential element of the contract. For instance, Plaintiff agreed to take a discount on sale price on the basis that Def. would build this stone wall. Allowing the def. to build a cheaper wall would constitute unjust enrichment. What this case stands for: “Essential” vs. “Incidental” distinction. If essential to the contract, one can demand full compensation for non performance even if won’t result in market value increase. Damages awarded instead of specific performance – court doesn’t want to supervise the building of a fence. Purpose of contract – psychic satisfaction?
Ruxley Electronics and Construction Ltd. v. Forsyth (economic waste, introduction of non-pecuniary damages, consumer surplus) Facts: Forsyth: Defendant, owner of property Ruxley: Contractor, hired by Def. Pltf. contracted to build pool for Def. Pltf. fails to build it to exact specifications (wasn’t deep enough) but the difference is inmaterial. Def. refuses to pay anything and demands pool be completely redone. Holding: Pltf. entitled to value of his work less a nominal deduction for “loss of a pleasurable amenity”. Reasons: Contract was substantially performed. Court recognizes that not building it to exact specification was a intangible “loss of amenity” and granted a small monetary award. Court did not believe def. would rebuild an entire pool – chance of unjust enrichment was great. What this case stands for: Courts do not advocate economic waste. E.g., courts didn’t think the pool should be ripped up for this minor issue – high chance def. wouldn’t have done it and would have been unjustly enriched. Still entitled to something – compensation for consumer surplus (personal subjective value). Value to customer less market value equals consumer surplus.
Victory Motors Ltd. v. Bayda (supply and demand and entitlement to expectation damages, precursor to mitigation) Facts: Victory Motors Ltd.: Plaintiff, tried to sell a car to Bayda Bayda: Defendant, purchaser of car
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Def, backs out of vehicle purchase. Pltf. demands expectation damages. Holding: Pltf. entitled to expectation damages Reasons: Supply and demand issue. Supply exceeded demand, so Pltf. was left with a car he could not sell. What this case stands for: Supply and demand. If supply exceeds demand, pltf may seek compensation because pltf will be left with something he couldn’t sell. If demand exceeds supply, pltf should receive nothing since he can avoid the loss by selling to someone else (mitigation). Perhaps some award for reliance damages, but nothing else.
Contract Law and Social Ordering CONTRACT: a promise the law will enforce; private ordering; plan for future exchanges - dec as to whether there is a contract or not will often be remedy-driven Executory: K for future performance Executed: performance of K obligations are complete Partially Executed: partial performance under a K
LAW AND ECONOMICS Market principle: rational voluntary exchange based on perfect information produces the best outcome (maximizes social welfare)
Contract law minimizes transaction costs by introducing certainty and facilitating exchange. Enter Contracts to: i. Contain opportunism in non-simultaneous exchanges ii. minimize transaction costs (fill in gaps, consistent application of legal rules) iii. allocate risks iv. minimize opportunity costs (cost or value of the best foregone alternative use of a resource) Wieger critique: a) focus on efficiency obscures and validates inequality present in the system b) w/in the economic model there is no criteria for valuing different choices or types of exchange (all are treated the same) i. assume all indivs have autonomous, stable preferences, are motivated by self-int and act rationally ii. choices appear as distinctions btw “preferences” – need to look at the context in which people make choices (i.e. real or perceived constraints, role or respons to others, psychological motivations, etc.) c) notion of consent is a fiction – consent and freedom of choice are ideological concepts i. paying attention to the context of inequality invariably complicates the general claim that voluntary exchange enhances individual welfare
Page 12 of 100 d) clear patterns of inequality in relationships justify legislative constraints that attempt to equalize the power relationship (e.g. health and safety legislation, labour codes, marriage, separation agreements, surrogacy arrangements)
Other Aspects of the Compensation Principle
Anglia Television Ltd. v. Reed (pre-contract expenditures, uncertain expectation damages) Facts: Anglia Television: Plaintiff, movie producer Reed: Defendant, prospective main character Pltf. incurs significant cost in preparing to produce a film. Pltf. then contracts with Def. to be the main character. At the last minute, Def. backs out. Pltf unable to find new main character in time, has to cancel film and lose a lot of money. Holding: Def. liable for pre-contract expenditures. Reasons: Pltf can claim pre-contract expenditures provided they were reasonably in the contemplation of the parties as likely to be wasted if the contract were broken. Pltf can claim either this, or expected profit, but not both. What this case stands for: If expectation damages are too speculative, pltf can claim wasted expenditure (i.e., reliance damages). This includes pre-contract expenditures that were reasonably foreseeable to defendant. PROVIDED that a contract is actually entered into. Incurring expense in hopes a contract will be entered into = no dice.
Bowlay Logging v. Domtar Ltd. (reliance damages exceeding expectation damages) Facts: Bowlay Logging: Plaintiff, contracted to log Domtar’s land Domtar: Defendant, allowed logging of his land by pltf Dispute in contract arose, pltf sues and claims reliance damages since profits were uncertain Holding: Pltf only entitled to reliance damages that don’t exceed expectation Reason: If pltf received all reliance damages, he would have received more money than what he expected even if contract were successfully performed.
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What this case stands for: Reliance damages cannot exceed expectation damages. E.g., if pltf expects $1,000 profit but spent $1,200 performing the contract, can only sue for $1,000 (not defendants fault that contract was unprofitable).
Chaplin v. Hicks and Kinkel v. Hyman (chance of a profit is compensable) In Chaplin the plaintiff missed out on a chance she was entitled to receive to win a beauty pageant which would had resulted in monetary benefits. The court found that the loss of a chance is compensable. In Kinkel, the court found that the plaintiff had a ten percent chance of profiting if the contract had been carried through. Thus, as long as there is reasonable probability of the plaintiff realizing the profit, he is entitled to it. However, it is to be reduced by the expected percentage chance of profiting (in this case, it was reduced by 90%). Comment: There must be a measurable, reasonable chance of pltf realizing revenue
Limits on the Award of Damages: Remoteness
Hadley v. Baxendale (reasonable foreseeability of loss) Facts: Hadley: Plaintiff, owner of a mill Baxendale: Courier service Pltf’s crank shaft breaks, causing all production to stop. Pltf orders new one, arranges for Def. to deliver it. Def. delivers later than expected. Pltf sues for loss of profit during that period. Holding: Def not liable for lost profits Reasons: Contract breaker is only liable for those losses that are reasonably foreseeable as arising from the contract break. This is the principle assumed, in the absence of the communication and acceptance of special circumstances not normally reasonably foreseeable. Wasn’t reasonably foreseeable that the mill would stop production. What this case stands for: Very important case, creates the principle of reasonable foreseeability in contracts. Contract breaker only responsible for breaches that are “arising naturally” i.e., in the usual course of things, or in the reasonable contemplation of the parties – in other words, losses that are reasonable foreseeable. A contract can stipulate special circumstances and force certain things to be in “the reasonable
Page 14 of 100 contemplation” of the parties. Usually the defendant would want to be paid extra to take on this liability. Mere communication of special circumstances is inadequate – both parties must agree to them – there are exceptions to this rule though (see below).
Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd. (application of reasonable foreseeability concept) Facts: Victoria Laundry: Plaintiff, launderer business owner buys boiler from defendant Newman Industries: Defendant, sells boiler to plaintiff Pltf buys boiler from Def. Pltf tells Def. that the boiler was needed ASAP. Def. is very late in delivering boiler. Pltf claims lost profit, including lost profit from lucrative contracts Holding: Def. must pay lost profit from ordinary business contracts. Lucrative contract profits were not reasonably foreseeable. Reasons: Def. knew pltf needed boiler ASAP, that boiler was essential to the business. Lost profits were therefore in reasonable contemplation of def. The lucrative contracts were not reasonably foreseeable however – knowledge of them wasn’t communicated for instance. What this case stands for: Application of the principles of Hadley v. Baxendale. In this case, a shipping delay did lead to an award for lost profits because the defendant was reasonably aware that these lost profits would result. Lucrative contracts were special circumstances that were not communicated or agreed to. “Ordinary course of thing” losses is what was compensable.
Implied Acceptance of Special Circumstances -
acceptance of special circumstances might be found implied in a contract if communication of them is made beforehand and defendant still opts to enter contract. This depends on circumstances. E.g., in Cornwall Gravel the court considered how Purolator creates consumer expectations through its advertising. Also, court in Cornwall thinks the test for reasonable foreseeability is an objective (reasonable person) and not a subjective (what parties actually thought) test.
General factors to consider in deciding whether damages are too remote
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Express Contractual Provisions – this could limit liability (e.g., dry cleaners and their “exclusion clauses”) to a certain amount
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Degree of probability (what would ordinarily be expected in the circumstances?)
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Communication of special circumstances (then was it necessary to enter a special contract or can acceptance be assumed? Depends on fact situation)
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Defendant’s knowledge (compare a common carrier like Baxendale to the manufacturer in Victoria Laundry who knew the use and importance of the boiler)
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Nature of defendant’s business (does it have special expertise? What’s being offered to plaintiff?)
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Sophistication of parties (the more sophisticated the parties, the more likely foreseeability will be found. Again, compare Baxendale to Victoria Laundry)
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Ordinary allocation of risk (what are the ordinary marketplace expectations as to who assumes what level of risk? This should be reasonable – def. not necessarily liable for exceptional losses – pltf should have gotten insurance in that case)
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Proportionality (courts don’t want to impose extensive liability for a breach of contract to provide an ordinary service at a low price (dry cleaning for instance))
General purpose of limiting damages through remoteness *unlike restitution and reliance damages, expectation damages have no built-in limits Damages are not limited to K price, you can claim for consequential damages. Rules of remoteness are a means of constraining expectation damages, where there are no express K provisions (e.g. standard form consumer K’s specify “exclusion clauses” limiting liability) RULE: Damages that are too remote are not recoverable. (Hadley v. Baxendale) General Policy: achieve fair balance btw the reasonable expectations of the promisee and the risk of unfair surprise to the D, if held responsible for an unexpected liability (constrain expectation damages) Factors to Consider In Deciding Whether Damages are Too Remote: (when applying objective test for remoteness – crt will look at these in balancing reas expecs v. unfair surprise)
Special Problems and Circumstances
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Jarvis v. Swan’s Tours Ltd (Contracts for pleasure, non-pecuniary damages) Facts: Jarvis: Plaintiff, lawyer who paid for a vacation offered by Def. Swan’s: Def. Organizer of Tour Def advertises a vacation tour that sounds very pleasurable. Pltf finds the vacation to be anything but pleasurable. Sues Holding: Def. must pay for cost of tour and for loss of enjoyment Reasons: This was a contract for pleasure. No financial damages, but the “point” of the contract was an enjoyable trip. It wasn’t, so the defendant must pay What this case stands for: Courts generally do not like to award non-pecuniary damages in contracts because of the need to distinguish btwn contract and tort, and the fact that ppl shouldn’t expect non-pecuniary damages in commercial trade. But in this case, this “pigeon hole”, since the contract was entirely about pleasure, the court saw that non-pecuniary damages make sense in this context. Arguably, these are “special circumstances” made foreseeable as found in Hadley v. Baxendale. Other note: This is not entirely new. See Ruxley. This is an example of being compensated for consumer surplus. Consumer’s value less market value = consumer surplus.
Wilson v. Sooter Studios Ltd. (non-pecuniary damages for a peace of mind K) Facts: Wilson: Client plaintiff, ordered photographer services from Def Sooter: Def, provider of photography services Def provided extremely inadequate photography services for the plaintiffs wedding. Pltf demands cost to re-assemble wedding party. Holding: Pltf entitled to non-pecuniary damages but not to the cost of re-assembling the wedding. Reasons: Contract for pleasure/enjoyment, so non-pecuniary damages are foreseeable. Having to re-assemble wedding was not reasonably foreseeable. Also, chance of unjust enrichment is high.
Page 17 of 100 What this case stands for: Canadian case confirming what’s stated in Jarvis. Judge notes: non-pecuniary damage awards are small in most cases unless there is aggravation or punitive damages required.
Wharton v. Tom Harris Chevrolet Oldsmobile Ltd. (non-pecuniary damages, requirement of “sensory experience” discomfort) Facts: Wharton: Pltf purchaser of Cadillac Tom Harris: Def seller of Cadillac Pltf buys Cadillac with defective sound system (produces a very annoying buzzing sound making it unusable). Takes almost 3 years for Def to repair. Non-pecuniary damages are claimed Holding: Pltf is entitled to non-pecuniary damages Reasons: Implied warranty that sound system would work. Buzzing sound constituted compensable inconvenience and frustration What this case stands for: Wharton’s contracted wasn’t directly for pleasure like a vacation or for enjoyment like wedding photos. But the court says if contract breach causes mental suffering due to a sensory experience (and not just general disappointment) then non-pecuniary damages are in order Three principles are established (This is the most recent case law and should be cited) a) a contract breaker is not in general liable for distress, etc, which the breach of contract may cause b) the rule is not absolute. Where a major or important part of the contract is to give pleasure, relaxation, peace of mind, damages will be awarded if the fruit of the contract is not provided. c) In cases not falling within “peace of mind” damages are recoverable for inconvenience and discomfort caused by the breach and the mental suffering directly related to the inconvenience and discomfort. BUT THE CAUSE must be A SENSORY EXPERIENCE as OPPOSED TO MERE DISAPPOINTMENT. The effects must be foreseeably suffered during a period when defects are discovered.
Warrington v. Great-West Life Assurance Co. (contracts promising peace of mind, aggravated damages) Facts: Warrington: Plaintiff, the insured
Page 18 of 100 Great-West: Defendant, the insurer Pltf contracts chronic fatigue syndrome. Overwhelming evidence that this disease was legit. Despite this, insurer refuses to pay and waits until days before trial to change its mind. Holding: Pltf entitled both to mental distress damages and aggravated damages Reasons: Insurance contracts are supposed to provide insured with peace of mind. Insurer used “hard nosed burdensome tactics” that made pltf even more ill to try to get out of its obligations. What this case stands for: Contracts offering peace of mind, e.g., insurance contracts, can arise to non-pecuniary mental distress damages when def doesn’t deliver on their promise. This case also introduces aggravated damages – unreasonably disputing a claim and playing with the court system in that way may cause a judge to award damages for aggravation. See Fidler v. Sun life Assurance Co. of Canada for a case with comparable facts and a comparable outcome. This comes down to Hadley v. Baxendale – were nonpecuniary damages reasonably foreseeable? They sure are when the contract is entirely based on securing “peace of mind”. Not necessarily so when the mental distress is incidental.
The Test to Employ to Find Non-Pecuniary Damages 1) Object of contract was to secure a psychological benefit – this brings mental distress upon breach within the reasonable contemplation of the parties 2) Degree of mental suffering was enough to warrant compensation 3) The “thin skull rule” requires communication of special circumstances
Aggravated Damages (don’t use this term) and Employment Contracts -
at common law, employees terminated without cause are entitled to either reasonable notice or severance pay equivalent to what would have been received under reasonable notice
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as long as this is provided, at common law, non-pecuniary damages are not allowed. Cannot claim for the inconvenience and upsetting nature of being terminated
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if the employer’s conduct in terminating an employee is “independently actionable” then non-pecuniary damages may be awarded.
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What does “independently actionable” mean?
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In Honda Canada Inc. v. Keays the SCC developed this concept which is as follows: Aggravated damages are awarded when the employer breaches its duty of good faith in the manner of termination causing mental distress to the employee. For instance, fraud or defamation. Also, independently actionable requirement doesn’t necessarily exist
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However, an independently actionable wrong is required to earn beyond the Wallace extension
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Also note: employees have to give reasonable notice (RBC Dominion v. Merrill Lynch)
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“Wallace bump up” is gone unless you were terminated in a particularly heavy handed way that made it take longer for you to find a job
Punitive Damages -
similar to aggravated damages, but rarely awarded. Awarded when the conduct is highly reprehensible – “high-handed, malicious, arbitrary”
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Action must be independently actionable wrong (IAW) separate from the main cause of action
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In Whiten v. Pilot Insurance, the insurer intentionally and purposely took steps to avoid paying compensation for the Whitens home that burnt down. Accused them of arson, knowing that the claim was baseless
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Pilot’s IAW was breach of its implied contractual obligation of good faith, this was separate from the main cause of action (failing to pay out under the insurance contract)
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Pilot had to pay $1,000,000 in punitive damages – courts are wary however of awarding great sums. Usually restricted to less than $100,000
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standard of appellate review: a reasonable jury, properly instructed could have concluded that an award in that amount, and no less, was rationally required to punish the def’s conduct; insurance K is K for peace of mind, D breached its duty to act in good faith, thus punitive damages are warranted in this case
Policy Framework for Punitive Damages (PD) - Exceptionality: PD is an exception to the general rule of contracts. Must preserve the distinction between tort and contract after all. Thus, it is to be awarded only in rare circumstances where the defendant acts in a highly reprehensible manner - Rationality: PD must be tied to one or more of the following: punishment, deterrence or denunciation - Proportionality: PD must be proportionate to the circumstances of the case. Was the misconduct deliberate? What was defendant’s motive? Did defendant know it was wrong? Did defendant abuse its position or exploit a vulnerability of the plaintiff? What was the level of harm directed at plaintiff and what happened or could have happened because of it? This could increase the award of PD. - If compensatory or criminal penalties would meet the policy objectives, then PD won’t be awarded. Only award the smallest amount of PD necessary to accomplish the objective – notwithstanding that courts must not give companies a “license” to engage in such bad conduct
Limits of the Award of Damages: Mitigation
General Notes on Mitigation -
basic premise is that plaintiff cannot recovery for costs that could have been reasonably avoided
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various rationales for it: for instance, thought to be unfair to make defendant liable for losses that plaintiff could have avoided because often, the defendant can’t do anything about the plaintiff’s inaction
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see Payzu Limited v. Saunders for instance. Defendant refused to deliver silk on time and at agreed discount price, so plaintiff sued for difference between contract price and market price. Court rejected this claim because plaintiff should have bought silk elsewhere and sold it (albeit at a reduced profit). For example, Retail price is $2.00 normal contract price is $1.50. But pltf could buy elsewhere at $1.75. Thus, pltf can only claim for $0.25 per unit, not $0.50.
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however, plaintiff can claim for additional reasonable costs incurred in trying to avoid a loss (cost of reselling) resultant from the contract breach
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if plaintiff completely avoids his loss (for instance, ends up selling a product for an even better price than under the breached contract), the plaintiff can only receive nominal damages
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also remember how supply/demand applies – if too much supply, pltf might be unable to mitigate. Apeco of Canada v. Windmill – tenant failed to take up commercial space, landlord rented to someone else. On its face, landlord mitigated, but other substitute space (which the new tenant might have used) was available so court found the loss unavoidable
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if pltf is entitled to specific performance, there is no obligation to mitigate damages. In substitution, sometimes the court will grant monetary damages that it deems are the equivalent of specific performance (see more about this in next unit). Occurs in the context of purchasing “unique” items
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Defense to failure to mitigate: Impecuniosity. If plaintiff can’t afford to mitigate, the defendant might be on the hook for a greater amount. This is rare however and defendants are usually not expected to take on this risk – one reason is that impecuniosity is seen as being too remote. Courts might grant leniency to noncommercial actors however. Remoteness is the key consideration
POLICY CONSIDERATIONS:
Sophistication of the parties: courts generally require parties (especially commercial actors) to maximize profit by making the best alternative K possible, even if that means continued dealing w/K-breaker (Payzu) unfair surprise: a D may be unfairly surprised if liability is imposed b/c the P has insufficient funds to mitigate its loss unjust enrichment: if one party can choose the date at which to assess damages, it can give that party an unfair advantage (Asamera) economic waste: choosing to perform a K instead of avoiding losses may result in economic waste (McGregor)
Doctrine of Election: •
See White and Carter (Councils) Ltd. v. McGregor. Here McGregor states he doesn’t want the city (plaintiff) to advertise on garbage bins after he enters a contract. City places ads on garbage bins anyway and sues for lost profits.
Page 22 of 100 Court allows the City’s claim. That’s because they were under an executory contract, a contract for future performance, vs an executed contract where performance of contractual obligations is complete (i.e., purchase of a good) • When there is an executory contract and a breach is anticipated or a repudiation (you tell me you aren’t going to perform) the plaintiff has two options o Accept the repudiation and immediately sue for damages. Contract is terminated in this case o Disregard he repudiation and treat the contract as still in effect (which is what the City did in McGregor) Limitation on these two options: If plaintiff has no legitimate interest, financial or otherwise, in performing contract, plaintiff may not perform it Also, Canadian courts are reluctant to accept this principle. Seems to run contrary to principles of mitigation. A few cases are cited where a contractor enters the property even after being told the contract was repudiated – one defense is that contractor didn’t have permission to enter the property •
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Date of Assessment of Damages -
at what time are damages to be measured? Generally, at the time of the breach (not literally – courts will devise a reasonable time). E.g., when a contract for sale of goods fails, purchaser must go into market and mitigate at that time. Any additional losses at that point result from failure to mitigate, not because of the breach
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courts can grant pre-judgment interest and take into account inflation when granting a damage award to reflect the fact that the time of breach and the time of judgment can be great
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Asamera Oil Corp v. Sea Oil. Contract to loan shares to def. which def. failed to return on time. At time of breach, share price was $0.29. over the ensuing years, share price varied immensely and ended up at $21 at time of judgment. SCC found pltf had duty to mitigate by purchasing replacement shares, but did not award damages based on original share price – based it on price of $6.50. rationale: given the unique situation with the shares, was unreasonable to expect plaintiff to purchase replacement shares at time of breach. The point – courts have discretion to take into account special circumstances that make immediate mitigation unreasonable.
Equitable Remedies
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General Comment on Equitable Remedies -
specific performance is rarely granted – that’s because of historical reasons (equity only supplements common law), ideological reasons (the idea of compelling people to do things is not favoured), practical reasons (damages are more convenient for plaintiffs who don’t want to deal with hostile defendants), administrative reasons (difficult for courts to supervise), its adverse impact on mitigation (in that it allows pltf to avoid having to mitigate), and because of the hardship it can impose on defendants (shifts burden of mitigation on defendants)
Requirements for an order of specific performance -
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Unique goods: E.g., heirlooms and rare works of art. Many goods can fit under this category, basically, something “one of a kind” that’s difficult to get a similar version of Land: However, with “cookie cutter” subdivisions, one is no longer guaranteed specific performance (see obiter remarks in Semelhago v. Paramadevan in the SCC)
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Special circumstances for relational contracts (agreements for an ongoing rel’ship like a lease): Specific performance may be a preferred resolution in such circumstances particularly when monetary damages are too difficult to calculate. For instance, Sky Petroleum Ltd. v. VIP Petroleum Ltd. where the court granted an interim injunction ordering the defendant to sell gas at contract price until the issue was resolved at trial.
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Important exception – Personal Services Contracts: Courts never order specific performance of personal services contracts, both independent contractor and employment contracts. Beware of positive covenants
Injunctions and undue restraint on trade -
used to enforce negative covenants (clauses obligating a party not to do something) common example is a non-compete clause when a business is sold overly broad negative covenant clauses will be struck down as a restraint of trade or as unconscionable. For example, see Warner Bros v. Nelson where the clause said that the defendant could not work in any other kind of employment during the contract – court found that too broad and restricted it to similar employment in the entertainment business
Page 24 of 100 o special considerations in entertainment business: in Lumley v. Wagner court held that it would issue injunction to encourage or put pressure on one party to continue to work for the employer; found when employee promises not to work for another similar employer for the duration of the contract o courts try to recognize and avoid enforcing negative covenants that are in reality positive obligations (which would amount to specific performance which courts never impose). Trend now is for courts to simply grant damages in these cases involving entertainment/sports rather than injunctions
Formation of Contract Offer and Acceptance Test Applied -
courts use objective, not subjective test when determining if an offer has been presented, or if it was something else (invitation to treat) advertisements can be invitations to treat if clear, specific, and if the reasonable expectation coming out of the ad is an offer, and if the offeror would be unfairly surprised if it wasn’t
Termination of Offers -
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express term (e.g., contract stipulates a fixed term when offer is open) lapse – offer expires after reasonable period of time (what is reasonable depends on facts of the case). To avoid lapse, parties can create an “option” (like the option to purchase you are aware of). Options require consideration/deposits rejection/counter offer. If offeree rejects offer or counter offers, the original offer is dead Revocation – general rule is that form of revocation must match that of the offer. But offers made with consideration or under seal cannot be revoked
Acceptance of offer -
bilateral contract is the most common form – e.g., one person promises to buy something, other person promises to sell something
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unilateral contracts are where acceptance is made through performance. E.g., reward for return of a lost item problem with unilateral contracts: what if offer is revoked once offeree has commenced, but not completed performance? Potential unjust enrichment if offeree came close to performance but had “rug pulled from under him” at last moment
Communication of acceptance -
acceptance must be communicated offeror may stipulate method of acceptance silence may not indicate acceptance in most circumstances. Some unusual exceptions – if parties’ prior dealings made silence a reasonable way to accept when method of acceptance is not stipulated, general rule is that it should match the mode of the offer
Contracts made by mail (Postal Acceptance Rule) -
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postal acceptance rule: contract is formed when offeree puts notice in mail box doctrinal rationale: post office is like the “agent” of the offeree and offers are immediately accepted when in the hands of an agent postal acceptance rule is not set in stone. Might not be used if rule would lead to unfair surprise or be contrary to reasonable expectations – court might require offeror to inquire if no notice was received see Schiller v. Fisher – parties stipulated that communication would occur “as soon as possible”. Therefore, when contract was initialed on the 1st, it was considered accepted on the 1st even though contract wasn’t mailed until the 3rd and received on the 7th. Basically, saying to return the contract “as soon as possible” meant that the postal acceptance rule was no longer necessary – initialing was sufficient to be the method of acceptance, and the defendant only had to mail it “as soon as possible”
Where is a contract made? (Jurisdictional issues) -
postal acceptance rule – contract is created where the acceptance is mailed faxes – see Eastern Power – contract was created in Italy where letter setting out terms of negotiation originated and where accepted reached the offeror general rule is the contract is created where acceptance is communicated, but courts do not strictly interpret this rule and will apply common sense
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Email contracts -
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communication of acceptance can occur by clicking an icon (e.g., the “I agree” button) can also occur by email. Offeree is considered to have received it when they are in a position where they are capable of retrieving the email (normally this means after you click “send”), acceptance is complete when email is received by the server the computer program is considered the “electronic agent”
Uncertainty in Formation of Contract (unenforceability of agreements to agree, incomplete agreements, or contracts with ambiguous or missing essential terms) Foley v. Classique Coaches (vagueness in price, arbitration clause, ongoing relationship) Facts: Foley: Plaintiff, seller of land, supplier of petrol to def Classique: Def. purchaser of land and petrol from Foley Def bought land from pltf at reduced price on condition that def buys petrol “at a price to be agreed by the parties in writing and from time to time”. Deal works fine for 3 years when def tries to back out claiming the contract was vague Holding: There is an enforceable contract and the def must pay Reasons: Ongoing relationship – contract worked fine for 3 years. Petrol price wasn’t completely indefinite as contract has allowance for arbitrator to determine price if parties can’t agree. Petrol purchase agreement seemed attached to sale of land which was sold at discount on basis of def buying petrol from pltf. Implied term that petrol shall be supplied at reasonable price and reasonable quantity. What this case stands for: Willingness of courts to imply terms into contracts. Note that arbitration clause makes vagueness on price more certain. Courts will consider the degree to which the parties are/have committed to each other.
Courtney and Fairbairn Ltd. v. Tolaini Brothers (Hotels) Ltd. (unenforceability of “agreement to agree”, one time (not ongoing) relationship)
Page 27 of 100 Facts: Courtney: Plaintiff, builder, supposed to build hotel for def Tolaini: Def, land owner, supposed to contract pltf to build hotel Def agrees to Pltf to have pltf build hotel on basis that they “negotiate fair and reasonable contract sums”. Pltf agrees to find financier for def. Pltf finds financier, but parties could not agree on price to build hotel. Holding: There was no valid contract and def. may back out. Reasons: no arbitration clause (implied), unenforceable “agreement to agree”, fundamental matter left vague so there was no contract, what if parties can’t agree on price? What this case stands for: The basic principle that courts do not enforce vague/ ambiguous “agreements to agree”. There must be some stronger degree of certainty – past history of successful dealings in an ongoing contract, arbitration clause, etc. INTERESTING NOTE: Could pltf have sued for reliance damages in time/cost spent finding a financier for pltf? Unjust enrichment (missing out on finders fee)?
Empress Towers Ltd. v. Bank of Nova Scotia (good faith) Facts: Empress: Landlord plaintiff Bank: Tenant defendant Lease states that it’s renewable “at the market rental prevailing… as mutually agreed” and that if parties cannot agree, lease ends. Both parties agree on market rent per month but pltf wants additional $15,000. Def refuses Holding: Valid contract between parties at market rent without the additional payment Reasons: Bad faith – pltf and def had already agreed on a market rent. Demanding more money after (on the last day as well) was bad faith – landlord should not have unreasonably withheld agreement. What this case stands for: When a contract exists already, there is an implied duty to act in good faith. DISSENT felt that this ruling came too close to interfering in normally valid negotiations. This case is not cited widely. What if pltf rolled his demand into market rent? Probably would have gotten away with it.
Other notes on good faith:
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no tort duty of care (good faith) in pre contract negotiations (Martel Building v. Canada (2000, SCC) for obvious reasons (not being able to posture would be absurd) when there is an existing contract, the matter of whether or not good faith is required is unclear and depends heavily on the facts (see Empress Towers) McKinlay Motors – defendant purposely took steps to drag his feet in delivering supplies to pltf so that pltf would go out of business. Didn’t breach contract, but court found def acted in bad faith and ordered damages paid no SCC case as of yet but more and more jurisdictions are recognizing an implied duty to act in good faith when a contract is made
Policy Rationale for Legal formalities (e.g., consideration) Legal formalities 1. Evidentiary function – evidence of existence of contract 2. Cautionary function – ensure that parties deliberate before they contract 3. Channeling function – provide a simple and external test of enforceability of a promise (rules that everyone can learn easily and abide by) Policy benefits: prevent unjust enrichment and needless reliance cost, facilitate business, evidence/deliberation Examples of legal formalities – Statute of Frauds and Consideration
Statute of Frauds -
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certain contracts (regarding land, cosigners) must be evidenced in writing limited exception – in cosigning, when cosigner does an act that makes it appear an agreement exists. In land, when someone does something other party may reasonably rely upon which changed that parties position and would be inequitable in those cases, restitution or reliance damages may be awarded
Consideration
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General Comments on Consideration -
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the requirement that both parties must be offering a “promise” that has “value” of some kind to have a valid contract promise can be monetary (pay $100, transfer title to a house) or an action (painting a house) or another promise, or giving up of something meaningful (forbearance) if a contract is executed under seal (aka a deed) it is binding even if one side doesn’t offer consideration. If I promised to give you $100 as a gift and made the promise under seal, the promise is binding if parties do not understand what seal means however, court may not enforce agreement. Courts want to see an intent to be bound broadly speaking, consideration need not be an exchange of commercially equal promises, but it must be set up in the form of an exchange
Consideration and gifts -
Thomas v. Thomas: Agreement giving widow life interest in return for $1 per year and her promise to maintain the property. Found to be a binding contract. Rent was paid to executors, not landlord so a contract existed btwn widow and estate. Adequacy of consideration is irrelevant to courts. Other comment: It’s a gift dressed up as a contract, still enforced.
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White v. Bluett: Son agrees to “stop complaining” provided Father forgive his debt. Father dies, estate sues Son. Son’s contract with Father not binding. No evidence that contract exists. Judge says agreement to “stop complaining” is no consideration.
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Hamer v. Sidway: Nephew agrees to stop smoking, drinking, etc until he’s 21 in return for $5,000 from his uncle. Binding contract found. Evidence of contract existed (letters, etc). Reliance was found (nephew gave up those activities). Promise of value for a promise of value. A promisor does not have to benefit from the contract.
Past Consideration -
past consideration is no consideration. E.g., I paint your room for free then two months later come back and demand payment for services. No contract in this case. Consideration must be contemporaneous
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exception: if the past act was done at the request of the promisor (then it’s like a normal contract with a deferred payment). Then if promise says “I will pay $20” it’s quantifying the legal obligation. Enforceable. other exception: when plaintiff performs act without parties agreeing on amount of payment at the time, court might imply obligation to pay (restitutionary relief) other exception: provision of medical services to unconscious or incompetent patients – it is assumed they want the service even though they cannot communicate acceptance at the time. Restitutional remedy here Eastwood v. Kenyon – executor plaintiff borrows money from estate to take care of infant daughter def. when def reaches full age, promises to repay money. Later backs out. Court says there is no contract and that the money borrowed from the estate was a gift
Mutual Promises (i.e., Consideration continued) -
Mutual promises “I promise to buy your house a month from now, you promise to sell your house a month from now” are binding Promise can’t be illusory “I promise to pay you $1000 if you promise to take it” – no value in this promise. The promise must be to do something of value
Great Northern Railway Company v. Witham (Mutual promises, framework agreements) Facts: GNRC – Pltf, purchaser of supplies Witham – Def., a supplier Pltf and def enter a framework agreement where def agrees to “stand ready” to accept orders for a defined period. Some orders are requested and filled. Pltf makes an order, def refuses to comply saying that there was no contract and no consideration. Holding: Framework agreement is not binding, but the pending orders were. Def had to fill those orders. Reasons: A form of a unilateral contract. And when one side has performed, the other is obliged to perform as well. “York” example – If I say “I will pay you $100 to go to York” and you go and do so, I must pay you. Analogy is then – if I will give you an order, you will supply it at contract price. Pltf gave order, thus, def had to fill it. What this case stands for: Framework agreements (agreements to “stand ready” to supply) are not binding without consideration or seal (transform into an enforceable option contract). But orders made within the framework agreement are binding and must
Page 31 of 100 be filled. (other comment: had pltf agreed that def would be exclusive supplier, that would have been consideration and made framework agreement binding in and of itself.)
Wood v. Lucy, Lady Duff-Gordon (implied obligations) Facts: Wood – pltf, agreed to market def’s fashion label on clothing and split profits Lucy – def fashion designer, agreed to have Wood be exclusive distributor of her name Pltf gains exclusive right to place def’s endorsement on clothing – to place her designs on sale, to license to others, and to market them in exchange for 50% of all revenues received. Def sells on her own, claims no contract because the pltf was no obliged to do anything. Holding: Def broke contract and is liable to pltf. Reasons: The contract did not obliged pltf to do anything. But court found that it was proper to imply an obligation on the pltf to use reasonable efforts to market the Def’s goods. “The law has outgrown its primitive stage of formalism when the precise word was the sovereign talisman” What this case stands for: Courts can imply obligations into contracts.
Firm Offers and Unilateral Contracts Introductory Comments (Read!) -
open contracts can be made irrevocable when made under consideration or seal (then it’s like an option contract) firm offers (promise not to revoke) require seal or consideration. E.g., subject free real estate contract. Technically revocable, but made under seal so it is not problems arise when the time between offer is made and time of acceptance is long
Example diff btwn unilateral and bilateral contract -
I will pay you $500 if you find my dog (unilateral, acceptance on performance. No binding obligation to find dog)
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I will find your dog. In exchange, you will pay me $500 (bilateral exchange of promises, contract is made upon acceptance of promises. Binding obligation to find the dog.
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technically, offeror can revoke right up to the minute before performance. But courts try to minimize chance for unfairness by considering the factor of reasonable reliance. For instance, in Carlill v. Carbolic Smoke Ball co. the advertisement was as such that the court found ppl could reasonably rely on the def carrying through its obligation. It was an “offer” to the world, and those who met its requirements essentially contracted with the def. Errington v Errington father gifted downpayment to home to son, agreed to pay property taxes. Said his son had to make mortgage payments and when mortgage was paid off, house would be his. Courts find this enforceable – two contracts – first, pay mortgage and house will be yours. Second implied contract, as long as you pay the mortgage you may remain in possession (an implied promise not to revoke contract #1)
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Dawson v. Helicopter Exploration Co Ltd (unilateral vs bilateral contract) “Real life application” of the dog example. Court found that contract was not unilateral as claimed by def (def claimed “if you find the claims, we will pay you”) but that it was bilateral btwn the parties (“I will help you find claims. You will pay me for doing so”). Enforceable contract.
Can offer be revoked when performance on a unilateral contract has commenced? Depends on fact situation – potentially revocable with proper notice. Ayerswood Development Corp v. Hydro One Networks (Ontario) – def offered substantial subsidy to those who create energy efficient buildings by June 31. Pltf undertakes to build such a building – to do so required significant time and development cost, but still files for subsidy as of June 30. However, just before that, def suddenly revoked its offer. Ontario court found that def could not revoke its offer once performance commenced (too much reasonable reliance by the time def revoked). Baughman v. Rampart Resources – BC authority for the same above situation. “once offeree has embarked on performance it is too late for the offeror to revoke his offer.” Note: Once performance has begun, doesn’t mean there is a contract just yet. It means the offeror can’t revoke until the “option period” expires. Consideration and contract is still found only on performance.
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Going Transaction Adjustments (GTAs) Policy considerations justifying GTA’s: Why to enforce modifications? Party autonomy, reliance, reasonable expectations and unjust enrichment. Recognition of commercial advantage of entering the GTA even if consideration doesn’t exist prima facie. Why not to enforce modifications? Exploitation, ransom, fraud and economic duress (Harris)
Harris v. Watson (old case. either an unreasonable application of the doctrine of consideration or a holding that legal GTA not found if modification made under duress) Facts: Plaintiff was a seaman aboard the defendant’s ship. When the ship was in danger, pltf sought increased salary in return for “overtime” pay. After ship came to dock, def refused to pay. Holding: Pltf’s case was dismissed. Reasoning: Old “rule of the sea” – when freight is lost, wages are lost too. Concern that seamen would always insist on extra wages when ship was in danger and potentially purposely put the ship in danger to gain these wages (no GTA when duress is found). What this case stands for: One could see this either as an unreasonably strict application of the doctrine of consideration, or an application of a policy concern – no enforcement of contract modifications when made under duress. Note that future maritime cases change the law.
Stilk v. Myrick (old case. strict application of the doctrine of consideration, concerns about duress found in a GTA) Facts: Virtually identical to Harris, except that the ship was not in danger. Ship crew was understaffed, captain (defendant) could not find more crew members so he offered to pay the existing crew (plaintiff) more for “overtime.” Holding: Plaintiff’s claim dismissed.
Page 35 of 100 Reasoning: No consideration given by the pltf’s for their increased wages. Ship was in a “constructive” emergency as it still had to make its way back to London. A promise to do what you are already contractually obliged to do is not good consideration. What this case stands for: Strict application of the doctrine of consideration. Court tries to construe this case as being one where there was an “emergency” and the def. was made to pay more under duress. Note that future maritime cases change the law.
Raggow v. Scougall (Rescission and creation of new contract to validate a GTA. finding of a GTA by holding that old contract was voided by the mutual acceptance of the GTA. New contract is in place with new terms. This gets around the problem of fresh consideration, one way of doing it) Facts: Pltf agrees to take a pay cut from def. employer during war time so that business could continue. After war ends, pltf turns around and sues def. claiming the pay cut was made without consideration. Pltf claims no consideration for the promise to accept a pay cut so the new agreement was void. Holding: Plaintiff’s claim dismissed. Reasoning: The parties entered into a new agreement in writing. While the new agreement did not expressly state as such, this had the effect of rescission again the old contract. What this case stands for: Find a GTA by claiming that there are two contracts, the new one annuls the old one. Other comment: Perhaps the def’s agreement to stay in business was valid consideration? No need to make a finding of “two contracts” if that’s the case. Comment: In an exam, look for words like “Revised agreement”, etc. This could point to a rescission and creation of new contract.
Stott v. Merit Investment Corporation (Finding of a valid GTA when there is forbearance on the right to sue) Facts: Pltf was a broker working for def. Pltf becomes liable for $60k debt because of action by his supervisor. Pltf agrees to enter a settlement to pay the 60k debt over a certain time period in return for keeping his job. Pltf leaves company and now demands refund in full on the basis that the loss was the supervisor’s fault and not his own. Def. counterclaims for the balance of the debt.
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Holding: Pltf’s claim fails. Def’s counterclaim is successful. Reasoning: The def. had forbearance on the right to sue. Forbearance is good consideration if 1) reasonable claim 2) bona fide belief in claim and 3) no concealment of material facts. Pltf acknowledged in written settlement and in subsequent conduct (making payments) that the debt was valid. What this case stands for: Forbearance on the right to sue is good consideration. Forbearance on the right to sue means agreeing not to sue. If you sign a settlement agreement, you must pay in full even if you think their claim was lacking strong merit. This principle is in part premised on a desire to promote settlements and finality. Other comments: Could one say that the def’s agreement to let pltf continue working was valid consideration? Could one say pltf was under economic duress when he agreed to the settlement (e.g., pay or get fired?).
DCB v. Zellers (cases without any legal merit cannot rely on forbearance) (Note on forbearance. See DCB v. Zellers. Pltfs daughter stole from Zellers, merchandise returned unharmed. Zellers demanded $1,000, pltf paid $225 towards it then later sued to get it back. Court found forbearance was invalid argument as Zellers had no right whatsoever to demand $1,000 from pltf. Case was without any legal merit – court strongly emphasized that the Zellers solicitor should have known this. I think this circumstance would be rare in that regard.
Gilbert Steel Ltd. v. University Construction Ltd. (estoppel cannot be used as a sword, only as shield) Facts: Pltf agrees to sell steel to Def. Price settled. Steel mill notifies Pltf of pending price increase and that there may be future price increases. New written K with increased prices – new price doesn’t reflect entire increase. K for one year. Oral agreement to pay more. Pltf provides written K but not executed. Pltf provides steel but uncertain due to accounting errors if def. is paying increased price. When pltf finds out that def. isn’t, demand for payment of balance is made and def. declines to pay increase. Holding: Pltf’s claim fails.
Page 37 of 100 Reasoning: No valid consideration for oral contract. Cannot ask for more when you are already contractually obliged to provide it. Cannot rely on estoppel as basis for claim (that def’s conduct clearly suggested that it had given its right up to cheaper prices and that pltf was supplying steel on basis that it was relying on its belief that there was a valid contract) as estoppel is valid only as a shield and not a sword. “mere” change in price not necessarily sufficient to find “2 contract” rule per Raggow. What this case stands for: Estoppel cannot be used as a sword only a shield in Canada – cannot be used as a cause of action. “mere” change in price not necessarily sufficient to find “2 contract” rule per Raggow but price could be such a fundamental term that rescission must be found.
Williams v. Roffey Bros and Nicholls (Contractors) Ltd. (UK Case: GTA may be found when a practical advantage is found to be the consideration) Facts: Def is contractor, pltf is subcontractor. Pltf agrees to provide services at a certain price. Work begins, pltf finds that contract price is too low and he will lose a lot of money. Def agrees to pay pltf more to complete job. Def later fails to pay increased sum. Holding: Pltf’s claim is successful Reasoning: No economic duress found. Commercial advantage – when a party undertakes to make a payment because doing so will give it an advantage arising out of the continuing rel’ship with promise, new bargain will not fail for want of consideration. What this case stands for: A commercial advantage is sufficient consideration, provided no economic duress is found. Consider in real estate addendums that say “for good and valuable consideration.” Both parties are agreeing that there is value in the addendum. However, this is a UK case. Consider this case together with NAV Canada.
Pao On v. Lau Yiu Long (Economic duress or fraud, if found, GTA will be unenforceable) Foakes v Beer (Debt settlement. Payment of a lesser sum for a greater sum is not good consideration [but there is an exception])
Page 38 of 100 Common law rule: If you owe $200, you cannot make the other party agree that your payment of $100 will extinguish the debt. Exception: Enforceable if made under seal. Enforceable if expressly accepted by creditor in satisfaction of Law and Equity Act (a BC statute). Good idea as in “real life” sometimes collecting the entire debt is not possible. Better to settle, better for courts to permit settlements such as these. Exception of course is if made under economic duress or by fraud, but that’s a separate issue.
NAV Canada v. Greater Fredericton Airport Authority (NBCA finds that K modification unsupported by consideration is binding provided there is no economic duress. IMPORTANT case because it will be found in counter arguments) What this case stands for: Elimination of sword/shield distinction in New Brunswick, provided no economic duress. Comment: The practical effects of NAV Canada are similar to Roffey bros. Roffey is stated in positive terms in that it finds a commercial advantage in a GTA lacking traditional consideration. This case merely asserts that consideration is unnecessary when an existing contract is in place.
Step by step – how to approach a GTA issue: First say there was no consideration and so there was no valid GTA (Gilbert Steel) Then say we ripped up the contract and made a new one Then say we should adopt a flexible view of what consideration is roffey (roffey was about “practical advantage” not “commercial advantage”) Then try the nav canada case, no consideration unless duress (so bring up duress if needed, especially if def knew of a troubling financial situation) Then maybe argue reputation would be damaged so bad we don’t need a legal response here Also ask if promissory estoppel may be involved here if there’s reliance
Page 39 of 100 Then as last resort, if it fits in, could you say the contract was frustrated in the circumstances? Go through frustration test.
Reliance as a basis for the enforcement of promises (Promissory Estoppel) Difference between estoppel and promissory estoppel What is promissory estoppel? Reliance is not consideration (doctrinally) Common law estoppel: A party is barred from denying or alleging a certain fact or state of facts because of the party’s previous conduct and when someone has detrimentally relied on that represented. E.g., “I was at the corner store last night”. Cannot be used as a cause of action (sword and shield distinction) Promissory estoppel: Question of estoppel as to future conduct (ie, when a promise is made about future conduct). Also cannot be used to found a claim of action. If that were allowed, since reliance is not consideration, then consideration would no longer be needed to form a contract. E.g., “I will sell you ten applies for $10”
Elements of promissory estoppel -
existing legal relship (existing contract) a clear promise or representation intended to be relied upon (subjective). It could be oral and outside the contract, or it can be within a clause in the contract made with intention that it be relied upon reliance (see below for definition of reasonable reliance); and no compelling reasons to excuse person from representation (eg, duress)
Central London Property Trust Ltd v. High Trees House Ltd (application of promissory estoppel as a shield) Facts: Pltf landlord agrees to accept reduced rent during WWII from def. After war, pltf demands full rent (reneges from his promise). Holding: Pltf’s claim for full rent during the war period is dismissed.
Page 40 of 100 Reasons: A promise that is intended to be binding, intended to be acted upon and is in fact acted upon, is binding so far as its terms properly apply. What this case stands for: Sword and shield distinction remains. Courts have not gone so far as to give a cause of action in damages for the breach of such a promise, but they have refused to allow the party making the promise from acting inconsistently with it. In that sense only, a promise gives rise to estoppel.
Combe v Combe (gratuitous promise means no consideration and no contract even if relied upon) Facts: Divorce. Husband agrees to pay spousal maintenance of $1,100 annually. No payment. 7 years later, wife sues for arrears. Holding: Pltf wife’s claim is dismissed. Reasons: Promise not enforceable. Promissory estoppel cannot be used to create new causes of action where none existed before. It only prevents a party from insisting on strict legal rights when it would be unjust, having regard to the dealings btwn the parties. What this case stands for: Doctrine of consideration still firmly in existence. It’s a necessity to the formation of a contract, although not of its modification or discharge.
Criticisms of the sword/shield distinction in estoppel United States Reliance may be used as a sword and shield. If used as a sword, no expectation damages, just reliance.
Arbitrariness of the sword/shield distinction If defendant agrees to pay more, e.g., I will buy 10 apples for $20 instead of 10 apples for $10, consideration from pltf is required. Pltf cannot sue def for paying the full amount as that would be using estoppel as a sword and not a shield. If def agrees to accept less, e.g., I will buy 5 apples for $10 instead of 10 apples for $10, no consideration is required. If def. claims for 10 apples, pltf can use promissory estoppel as a defence.
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The point: To get around the sword/shield distinction, if supplier wants to get a higher price for his product, have the buyer agree to accept less for the same price and not the same quantity for a higher price. Arbitrary.
What is reasonable reliance? Consider the following: - nature of rel’ship: past dealings, custom, understanding btwn parties - type of transaction: commercial agreement where business ppl are likely to know that others will rely on their words, have the parties taken the time to put the promise in writing or to use other formalities? - Was reliance foreseeable? Was it invited or requested by the promisor – to what extent was or should the promisor have been aware of the reliance and its consequences? Unfair surprise - Values/consequences: What are the consequences of liability or not liability: social utility of enforcing this type of promise
Third Party Beneficiaries and Privity of Contract Background 3rd party (3P) has no rights under a K. 3P cannot enforce K. Even where purpose of K is to benefit 3P. Rationales Doctrinal rationale – not a party. No consideration. 3P could prevent modification since 3P rights could be seen as crystallized. Economic – encouragement of market based concepts, support nascent capitalism. Self reliance. Minimize liability.
Avoidance of contractual “box” Trust, assignment and agency: categorize the 3P as beneficiary (trust) or assignee (assignment). More commonly, view B as agent for 3P so that 3P is in direct Ktual rel’ship with A.
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Trust: B is trustee, C is beneficiary. C can now enforce terms of trust directly against B and 3P’s (eg “A”) whom B has contracted. Eg. 4P gives money to B on basis that they are trustee for 3P. B deposits money in bank. Even though K is with A (bank) and B, Susan can enforce K against A in her capacity as beneficiary. Assignment: B assigns rights of contract to 3P. 3P can now enforce K against A. Found often when creditors sell their debts to collection agencies. Agency: Principal grants authority to agent to act on his behalf. If agent enters into a contract with “C,” that person (C) can now enforce the contract directly against the principal. In this case, if agent is sued, agent can then look to principal for indemnification. OR, find a contract where one appears not to exist (Sperry Rand where the representation by the manufacturer created a warranty). Four criteria for agency to be found which would get the agent off the hook for personal liability (Scruttons Ltd. v. Midland Silicones Ltd) 1. 2. 3. 4.
Negotiating parties must have intended that the 3P benefit from the K. Contracting party must also be contracting as agent of the 3P. Party that acted as agent for the 3P must have had the authority to do so. Must be consideration moving from the 3P to the non-agent party.
The Problem with Privity of K as applied to insurance contracts and the resultant case law The problem: ABC insurance company grants policy to Landlord, Landlord leases property to tenant business. Insurance contract states that Landlord will not sue tenant if there is a fire (landlord already has insurance, no need for both landlord/tenant to get insurance), i.e., landlord’s subrogation rights are waived. However, tenant’s employees are not protected by this contract. Employee burns down building. Landlord cannot sue tenant. ABC subrogates landlord (takes its position) and sues the employees. Employees not protected by terms of lease and are personally liable for the loss of the building. (This is what happened in Greenwood, a case now distinguished into oblivion) Solutions: Employees should take out first party insurance before they work (not realistic).
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London Drugs v. Kuehne & Nagel (employees may benefit from exclusion clause in lease btwn Landlord and Tenant business) Facts: Employees negligently damage transformer being stored for pltf. Exclusion clause prevents pltf from suing business, so they sue employees directly. Holding: Claim dismissed. Reasons: Limitation of liability expressly or impliedly extends benefit to employee. If the employee is acting in the course of their employment and providing the very services provided in the contract when the loss occurs, the exclusive clause will apply to them. What this case stands for: Elimination of “Greenwood” situation, relaxation of doctrine of privity as applied to exclusion clauses.
Laing Property Corp v. All Seasons Display (application and development of London Drugs) BCCA applies London Drugs: 1. Limitation of liability clause must expressly or impliedly extend benefits to employees seeking to rely upon it a. BCCA expands on relevant factors to determine intention: i. Identify of interest btwn employer and employee as to performance of employer’s contractual obligation – do employees have primary responsibility for performing services under K? ii. K’ing party would know that services under K would be performed by employee (objective test, reasonably foreseeable?) iii. Services in question clearly performed by employees and tenant would have known this. Clear that parties intended for certain party to bear the risk. Allowing recovery against employees would allow the clear meaning of lease to be overturned b) Was the service that caused the loss one of the services that the lease contemplates will be performed by the employees?
Remaining problems: Fate of employees 1. Employer may have no insurance/limitation clause. No 3P benefits for employees if no insurance exists.
Page 44 of 100 2. Even if insurance/limitation clause, employer might not ensure that it extends to employees. 3. Employer may decide not to have insurance extend to employees to save money. Employee options: - ensure insurance coverage extends to employees - ensure employee benefits from waiver of subrogation - employee self-insures (not realistic) - employee obtains indemnity from insurer
Fraser River Pile & Dredge v. Can-Dive Services (3P insurance benefits aren’t just for K’s of service) Facts: Insurance K btwn insurer and boat owner. Boat sinks due to charterer’s negligence. Insurer sues charterer (the 3P). Claims London Drugs doesn’t apply (it was in the context of services). Holding: Insurance company’s claim dismissed. Reasons and what this case stands for: 1. Proof of intention that 3rd party charterer was to benefit from K. Insurance K referred to charterers. 2. Activities performed by 3rd party are the very activities contemplated as falling within scope of K – chartering of boat. Charterer is off the hook.
But note: this concept doesn’t just apply to insurance contracts. It could apply to any case where there is indemnity, exclusion of liability, etc. Horizontal and Vertical Privity Vertical privity – buyer within the distributive chain who did not buy directly from the defendant Manufacturer | Distributor | Retailer |
Page 45 of 100 Consumer Chain may be broken by bankruptcy, exemption clauses, limitation periods, absent seller. Found when buyer might want to sue manufacturer for defects in the product and bypass retailer/distributor. In many cases there will be a chain of liability instead of a direct action by plaintiff against manufacturer. Horizontal privity: Seller | Buyer – User Relates to a person who is not a buyer within the distributive chain but who uses consumes or is affected by the product. The remedy is tort?
Representations and Warranties Representations and Warranties table and definitions Classification Mere puff Innocent misrepresentation
Remedy Interest Protected None Caveat Emptor Rescission** if K has yet to Restitution (prevent unjust be completed. If K is already enrichment) complete, no remedy (Redican) test below Negligent misrepresentation Reliance damages Reliance (Tort, won’t be found much at all on exam) Fraudulent Misrepresentation Rescission and reliance Reliance (Tort, won’t be found much damages on exam) Warranty* Expectation damages Reasonable expectation Condition* Repudiation and expectation Reasonable expectation damages (have to go to heart of K) Innominate term (Hong Kong Damages or repudiation Reasonable expectation Fir) depending on whether found to be warranty or condition)
Page 46 of 100 * Parties could agree to make all terms a condition or otherwise identify what’s a warranty and what’s a condition in a good contract. ** Terminate/rescission/repudiate often used interchangeably. But rescission is equitable remedy – a court order. A party does not rescind. Repudiation is the party’s right to terminate when there’s a breach of K. Mere Puff: Legally meaningless statement used to encourage a purchase “This car’s a beauty.” Doctrinally too vague. When might it be found? Is it part of an advertisement too? That might point to puffery. Representation: A statement of fact that may give rise to liability if found untrue (ie, misrepresentation). 1. Innocent misrepresentation 1. representation of fact that turns out to be false 2. material 3. induces the making of K, relied upon 4. maker did not know correct facts a) policy concerns: caveat emptor v. unjust enrichment a. Examples: Redgrave v Hurd (rescission of K to buy house and law practice. Deposit returned since K was not complete, but no reliance damage for moving costs. b. Redican v. Nesbitt (contract executed. No rescission) c. Ennis v. Klassen (Contract for BMW. Misrep as to type discovered after 3 days. Court rescinds on basis that there is an implied term of reasonable expectation) 2. Fraudulent/negligent misrepresentation i. See table
Warranty: Representation that’s elevated to term of K. If untrue, K is breached and expectation damages are awarded. 1. Concept of collateral contract/warranty. a. K1 – contract for sale of horse. K2 – if you enter K1, I promise it is a racing horse. Unilateral K, performance of which is entering into K1. remedy is expectation damages. i) cases a. Heilbut Symons (purchase of shares in rubber company. Seller of stocks never says it’s a rubber company, investors trusted based on reputation of seller. Allocation of risk, investors should beware and do more due diligence. No warranty found)
Page 47 of 100 b. Dick Bentley (misleading statement about miles on engine. Court says statements are prima facie warranty if: i. Representation ii. Made in course of dealings iii. For the purpose of inducing other party to act (important issue) iv. Induces entry into K (reliance) v. Reliance is reasonable (rebut this inference if can prove innocent misrepresentation) 1. other comment: This gets rid of 2 contract approach) c) Murray v. Sperry Rand (statements that forage harvester would meet farmer’s needs. Manufacturer liable. One can be liable for breach of warranty even if there is no contractual rel’ship’ to whom warranty is given. Collateral warranty found – manufacturer promises that anyone who buyers our product from a retailer will get a product that has the qualities laid out in the advertisement. The buyer choosing to buy constitutes valid consideration for this unilateral contract.) d) Fraser-Reid (sale of new house. No drain tile. When a home hasn’t been completed yet, implied warranty that it will be habitable. But when house is already complete, caveat emptor. House was already complete at time of sale. This argument fails. Homebuyer still gets compensated because of representation that seller has disclosed all outstanding building code infractions. Court said that builder knowingly breached the building code and so not putting in drain tile [an essential component of a home] is a breach of warranty) Condition: A term that goes to the root of the contract, the breach gives right to repudiate and expectation damages. Innominate term (Hong Kong Fir): Determination after the fact if a term was a warranty or a condition. In this case, term of K says ship should be shipworthy. What is shipworthy? Technically a missing light (easily replaced) breaches shipping regulations and isn’t shipworthy until it’s fixed. Wide range of possible breaches, minor to major. Summary and policy consideration: Courts don’t want to help ppl get out of bad deals.
Policy considerations: Policy approach: protect reliance and reasonable expectations of one party while avoiding unfair surprise. Economic approach: Who should bear the risk that the representation is wrong? Who could have avoided the risk at the least cost?
Page 48 of 100 Remedial approach: Categorization is remedy driven. Justice is done btwn the parties by selecting the appropriate remedy. For example: Royalty rocker problem. Condition and entitled to profit? Or mere warranty and entitled to reliance? Or innocent misrep. And no remedy since K was performed?
So if you found a misrepresentation? Head over to the parol evidence rule and discuss that
Concurrent Liability in Contract and Tort: Negligent Misrepresentation Esso Petroleum Co v. Mardon (concurrent liability in K and tort) Facts: Esso misrepresents the potential sales ability of a gas station to the defendant. Mardon loses a lot of money. Holding: Mardon may claim in tort -- negligent misrepresentation. Mardon may not claim expectation damages, but he can claim lost opportunity cost in his reliance claim which essentially amounts to expectation damages in this case. Reasons: No guarantee that the site would be profitable – no warranty found in that regard. But Esso had special knowledge and skill in assessing the gas station site. Much better position to forecast its future earning potential. Reliance. Duty to use reasonable care arises in tort. What this case stands for: Concurrent liability in K and tort.
Other essential comments about concurrent liability in K and Tort Finding negligent misrepresentation (tort) – Hedley Byrne - duty: special rel’ship between speaker and receiver – speaker provides “information, opinion, or advice” - representation false - provided negligently – did not meet standard of care - reasonable reliance
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damage (detrimental reliance)
Why a traditional reluctant to recognize tort? - commercial is arena of contract - risks should be allocated by contract - floodgate concerns regarding economic loss (Hercules Management) - words are different from acts: potential plaintiffs unlimited - words exist forever - economic not physical loss
Concurrency (pros/cons of suing in tort/contract) -
SCC affirmed in BG Checo that one may sue in contract and in tort However, the contract can limit tort liability with an exclusion clause. Must be done in clear terms
Pros of suing in Contract: -
may stipulate a more stringent obligation than tort law would impose don’t have to establish standard of care damages may be higher in contract if, for instance, special circumstances were communicated can claim expectation damage in contract, tort can only claim reliance
Cons of suing in contract: -
often shorter limitation period than tort because contract limitation period starts at time of breach, not time of discovery like tort contract may stipulate a less stringent obligation than tort law will impose (not really a con) but reliance damage in tort and expectation damages are often equivalent anyways since one can claim opportunity cost and money thrown away on venture in tort
See pages 713-715 for the low chance that an exam question discusses professional liability in tort/contract
Mistake (Mistake is the “excuse of last resort” in contract law. Courts don’t like to help ppl get out of bad deals on this basis.)
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Categories of Mistake (these terms are often used interchangeably, not necessarily expected on exam. Emphasize policy framework instead – that of risk allocation) Common mistake Both parties make same mistake. Both parties mistaken regarding some underlying fundamental fact. E.g., agreement to buy a Da Vinci. I think it’s real, you think it’s real, it’s actually a copy. If it being a Da Vinci is found to be a fundamental term, void contract on basis of mistake. Mutual Mistake Parties at cross purposes. One party has one perception about the contract while the other has a separate one. For example, I think the contract is to buy a car, you thought it was to sell a motorcycle. Whether the K is enforced will depend on whether, objectively, one interpretation of the facts is preferred. Unilateral mistake One party is mistaken about an important fact and the other person knows or ought to have known about the mistake. Unconscionable, possibly fraudulent. E.g., I think I’m buying a real Da Vinci and you know I’m mistaken and that it’s actually a fake. Generally, restitution damages are paid.
Mistake in Formation Intro with test and policy factor comments 1. Residual category for relief 2. General Rule (objective test – Hobbs) 1. if there is a true ambiguity 2. regarding an important/fundamental term 3. no reason to prefer one party’s understanding over the other 4. the agreement may be void for mistake
Page 51 of 100 3. Result – No contract. Despite an apparently valid contract, no K because there has been a serious misunderstanding about the nature of the K. 4. Policy Issue: Assignment of risk – who ought to bear the risk? Who ought to bear the consequences of the mistake in question? Reasonable expectations/unfair surprise. Reliance/caveat emptor 5. Factors to consider 1. Price: May be relevant in determining reasonable expectations 2. Knowledge and skill of parties: Less likely to find mistake made by a person who possesses or who should possess substantial knowledge/ skill. 3. Ease of avoidance: Who is in best position to avoid mistake? Who can avoid it the cheapest? 4. Common usage of the trade: May indicate expected allocation of risk, and a sense of what the parties probably expected. 5. Knowledge of ambiguity – snapping up: If one party aware of ambiguity, they should presumably be bound to clear it up. Courts don’t like to help ppl “snap up” advantages that lead to inequitable results. Problems with finding mistake 1. caveat emptor – law should not provide a remedy for regret 2. Function of contract can be seriously impaired if it were easy for a person to avoid it by claiming mistake 3. Protection of third parties – if A sells to B and B sells to C, C is vulnerable if A claims mistake 4. Risk allocation – it’s the function of a contract, not the courts, to allocate risk. Mistake is a broad tool for courts to use in that regard.
Raffles v. Wichelhaus (mistake. Outdated concept of consensus ad idem) Facts: Def agrees to buy cotton from pltfs ship “peerless”. A different ship with same name comes first, def buys from that person. Def refuses to deal with pltf afterwards. Holding: Pltf’s claim dismissed. Reasons: None given. Presumably accepts defendants submission that there was a latent ambiguity and that pltf meant one ship while the def assumed it was another. No consensus ad idem (meeting of the minds) therefore no contract. What this case stands for: Early 19th century decision. Essentially used a “subjective” test.
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Hobbs v. Esquimalt and Nanaimo Railway co (objective reasonable person test for finding of mistake in formation) Facts: Pltf buys “land” from def. Def claims “land” does not include mineral rights, only surface rights. Pltf disagrees, sues for specific performance. Holding: Pltf obtains specific performance. Reasons: Def should have known better. Company, large part of it a land company, should have known that land would include mineral rights. Unreasonable and careless mistake. Dissent claims essential that there is a mutual mistake and would have dismissed the appeal. What this case stands for: Objective reasonable person test is used to find mistake. Also consider Staiman Steel v. Commercial and Home Builders Ltd. Similar findings to the above, application of an objective test. Court states that “only when circs are so ambiguous that a reasonable bystander could not infer a common intention will a court find mistake”. Court must decide what reasonable third parties would infer to be the contract from the words and conduct of the parties who enter it, not the actual intention of the parties.
Rectification (the test) Performance Industries v. Sylvan Lake is the leading case on rectification. Rectification is where a court essentially rewrites the contract, though not to the same level as reformation (a remedy found in the USA). It’s more for instances where a contract might say the land is 10 by 10 feet when yards was intended. Four legal requirements for rectification: 1. Plaintiff must prove existence and content of the inconsistent prior oral agreement. 2. Plaintiff must provide the precise wording in which the prior intention can be expressed in the written instrument (“precise form”). 3. There must be “convincing proof” of the prior agreement (beyond a balance of probabilities but less than beyond a reasonable doubt) 4. The plaintiff must show that the defendant knew or ought to have known of the mistake in the written document and that to refuse rectification would result in equitable fraud which is an unconscionable result that gives the defendant an unfair advantage.
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Other factors considered are disparity in bargaining power and sophistication of parties. Otherwise, courts will not rectify. Great reluctance to overturn written documents on the basis of inconsistent oral agreements. Parol evidence rule – evidence cannot be admitted to vary the terms of a written agreement. Reasonable person is not the test – if the above four requirements aren’t met, courts won’t imply a term.
Mistaken Payments General rule is repayment on basis of unjust enrichment/restitution. Exception: Change of Position (reliance). No repayment if defendant/payee has reasonable relied, such that it would be unfair to require the repayment. Example Gift or discharge of indebtedness (change of position vis-à-vis a third party). E.g, I discharge debt, you spend money elsewhere as a result, I cannot then claim against you.
Budai v. Ontario Lottery Corp (reliance on mistaken payment) Facts: Lottery ticket win of $5.00. Computer error informs pltf that he won $835.40. Spends $480.00 on a party with friends in the result. Holding: Lottery must lose $480 on the basis of negligent misrepresentation. Reasons: He held the expensive party in direct reliance of the mistaken payment. Comment: If he used the money to pay rent, since he had to pay his rent any way, there would be no detrimental reliance and he would have to refund the lottery corp in full.
Mistaken Assumptions Introduction Mistaken assumption: Mistake that goes to the motive or reason for entering into the contract.
Page 54 of 100 Cases highlight the tension between the values of certainty and predictability (caveat emptor) and unfair surprise, regret and unjust enrichment on the other. Essential issue is risk allocation – did parties allocate the risk of mistake? Second issue is fairness: Will one party be unjustly enriched if contract is enforced? Courts rarely grant relief on the basis of mistake. General principle remains caveat emptor.
Sherwood v. Walker (mistaken assumption regarding nature of subject matter) Facts; Farmer sold cow, banker bought it, paid $80 on the basis that it was barren. Later found that the cow was with calf and actually worth $800 since it could breed. Holding: Contract void. Reason: Thing contracted for did not exist. Parties contracted for a barren cow, but this is a breeding cow. Went to the very nature of the thing (a fundamental mistake). Dissent: Parties contracted for cow. Cow exists. Cow is the only fundamental term. Neither knew whether or not she could breed. Differing assumptions as to the value of the bargain and each party took its chances. Factors: Pltf banker did not disclose that he thought she could breed. Unjust enrichment in that regard? Contra: Def. was a breeder while Pltf was a banker. Def. had special knowledge and should have known better.
Bell v. Lever Brothers Ltd (Mistaken assumption regarding essential quality) Facts: Lucrative severance agreement for two senior employees. Employer subsequently discovers that employees had been engaged in insider trading and that it would have had cause to fire without notice. Holding: Employer’s claim dismissed Reasons: No mistake re substance. Mistake does not render the severance agreement entirely different. No mistake regarding performance (the bonuses, etc, presumably
Page 55 of 100 reflected past superior performance). Policy of certainty and predictability regarding compromises/settlements. Power relations – employer takes risks when it settles. What this case stands for: In finding the above, the court articulated the following three types of operative mistaken assumptions: 1. identity of contracting parties: intention is to contract with specified individual only: “negatives consent”. K void 2. existence of substance matter: Where subject matter of K is assumed to be in existence by both parties but is not. Or if contract for sale of item you already own. Consent nullified. K void. 3. Quality of subject matter. K void where mistake of both parties as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be. A mistake regarding the substance must be a fundamental underlying assumption.
Solle v. Butcher (Equitable jurisdiction/relief of mistaken assumption. Read this as it might be applicable whenever mistaken assumption is found) Facts: Def renovates a house and rents it to pltf at a rate above that permitted by rent control. Both parties though rent control didn’t apply. Def relied on pltfs statement to that effect. Pltf claims rent control applies and that he’s entitled to recovery of difference in rent. Def counters that lease was entered into on basis of mistake and asks that lease be voided. Holding: Lease set aside on terms that allowed landlord to apply to have rent increased to previously agreed amount. Reasons: Subject matter of K wasn’t entirely different from what it was thought to be (lease isn’t essentially different from rent controlled lease). Applied equity. Equity will relieve a party from the consequences of mistaken where K entered into: 1. Under a common and fundamental misapprehension 2. It can do so without injustice to third parties 3. Unconscientious/unreasonable for the other party to avail herself of the advantage Essentially, equity will accept the existence of the contract, but it will then relieve the parties of future obligations under the contract. K is voidable on terms (directed by the court).
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Equitable jurisdiction was overturned in UK by “The Great Peace” decision but remains the law in Canada. Other comment: Negligent misrepresentation wasn’t available at this time.
Examples where equitable jurisdiction might be used: -
fraud material misrepresentation mistake by one party (re: terms or identity) and other knows but remains silent common assumption regarding a fundamental fact or rights and party not at fault
Equitable remedies in mistake – remember that. Losses don’t necessarily lie where they fall in that case, judge may require them to be shared. The ability to do equitable remedies and setg aside contracts on terms essentially is the power of reformation
Frustration Mistake – assumption regarding existing facts Frustration – assumptions regarding future events. Frustration is essentially like mistaken, but occurs when a contract is already in place and not yet complete. Examples: Impossible to perform (easy cases) Promise to marry: Promisor dies Contract for portrait: Painter loses sight Music hall lease: Music hall burns down (Taylor v. Caldwell) Undue hardship: Event imposes an inordinate and unexpected expense. Policy Context: Assignment of Risk Who should bear the risk of the unforeseen event?
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The mere fact that a K becomes more difficult to carry out is not sufficient in and of itself. Unexpected event must constitute a fundamental change in the bargain: “A radical change in circumstances” Historical development has moved beyond “impossible to perform” frustration:
Krell v. Henry (frustration of commercial purpose of contract, test for frustration) Facts: Def. leased room for purpose of watching King Henry coronation event which was cancelled. Def paid a $25 deposit. Pltf sues for remaining $50. Holding: Pltf’s claim dismissed but def loses deposit. Parties discharged from future performance. Purpose of lease was not lease of room, but lease of room to view procession. Reasons: Test for frustration (similar to test for mistake): a) b) c)
what is the foundation of the K, having regard to all circumstances? Was performance of K prevented? Was the frustrating event reasonably in the contemplation of the parties at the date of the contract? If they thought about the risk, no frustration.
ALCOA (Magnitude of risk unforeseen, reformation) Long term K for supply of aluminum. Parties agree to objective pricing formula. Formula is flawed, doesn’t respond to massive increase in cost of electricity. Court finds mistaken assumption and frustration. Remedy is reformation (USA case, not available in Canada but Solle and Butcher [rectification] comes close) Other comments: ALCOA was very long term K. Parties agreed that ALCOA should get a profit and that ALCOA would not accept risk of price increase in commodity. The ability to do equitable remedies and setg aside contracts on terms essentially is the power of reformation.
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Re Westinghouse Electric Corp (Mere fact that K becomes expensive is not sufficient) To encourage sale of nuclear reactors, Westinghouse offers uranium at fixed price. World price more than triples. Westinghouse is on the hook despite this unexpected increase. Comment: Distinguishable from ALCOA in that parties did not agree Westinghouse would profit? Westinghouse accepted risk of price increase.
Amalgamated Investment v. John Walker (difficulty of finding frustration in land contract) Def. advertises warehouse for sale for occupation or development. Pltf offers. Vendor asked if there was any proposal regarding designating the building as heritage – vendor says no. K signed, next day the property is listed as a historical site causing value to drop immensely. Held: No frustration. Purchaser is liable. Risk was entirely foreseeable. Subject matter is not different – land is land and land was conveyed. Allocation of risk: Pltf is developer, should have purchased an option. Did pltf assume risk by asking for disclosure? Comment: This is a UK case. KBK (follows) is more persuasive.
KBK No. 138 Ventures Ltd. v. Canada Safeway Ltd (Canadian case, finding frustration in land contract when unforeseen fundamental change in land occurs. Use this case as the test for frustration) Facts: Safeway owns a land parcel, advertises it as prime development opportunity zoned C-2 at the time. KBK offers, enters contract. KBK pays deposit. City on its own motion (highly unusual occurrence) rezones land to CD-1 (much lower density). Land falls in value immensely. KBK claims K is frustrated. Holding: K is frustrated, KBK is entitled to return of deposit.
Page 59 of 100 Reasons: BCCA reviews case law and applies the following test: Event: Must occur after formation. Must not be self-induced. Must not have been foreseeable at the time the contract was signed. Impact: Must be more than mere inconvenience – must make contract fruitless. Must be radical change in K (completely affects nature, meaning, purpose, effect and consequences of K. Change must be permanent. Affect basic underlying assumption of K. Unanticipated risk occurring after formation and not foreseen. No allocation of risk in K. K said BCCA distinguishes this case from Victoria Woods where the seller in that case only had “mere knowledge” of buyer’s intent to redevelop. BCCA says Safeway had more than that for these reasons: 1. Ad specifically referred to zoning designation and set out permitted uses 2. K contained a clause which specifically stated buyer’s intention to redevelop 3. Purchase price was specifically calculated on basis of PSR (development potential) – agreement was kind of like a joint venture 4. K silent as to allocation of risk ARGUMENTS FOR/AGAINST FRUSTRATION. ONE PARTY WILL SAY FORESEEABLE. BUT THE OTHER WILL SAY “RADICAL CHANGE”. ALSO CONSIDER POLICY CONTEXT – ASSIGNMENT OF RISK.
Remedies for frustration and the Frustrated Contract Act Historically, when frustration is found, court relieves parties of future obligations. Any losses were “left where they lay”. See Taylor v. Caldwell for this – would be tenant lost deposit because it was already paid. He didn’t have to pay any more rent however. However, almost all common law provinces have enacted legislation to take into account reliance costs other parties might have incurred. See BC’s Frustrated Contract Act for instance. That act requires reliance costs to be apportioned equally in the absence of an agreement to the contrary within the K. Example: You contract me to bake a cake for your party. I start baking cake. Party is cancelled because of unforeseen disastrous event. You haven’t paid me yet – you don’t have to pay me anything as K was frustrated. Normally I would suffer cost of baking materials on my own (my reliance) but Frustrated K Act states that we will share the loss equally.
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Control of Contract Power Introduction -
a market based system isn’t the only way goods and promises are exchanged in the present and future, some critical theories:
Mensch -
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leftie Marxist wrote “Freedom of Contract as Ideology” concept that in the capitalist system of contracting, the assumption that the state is not implicated in the outcomes of free market bargaining is false, contracts are enforced by the state after all developed the concepts that duress excludes economic pressure from the legal definition example: coercion is inherent in each party’s legally protected threat to withhold what is owned ownership is a function of legal entitlement, every bargain is a function of the legal order legal decisions revolve around what extent bargained for advantages should be protected as rights in that regard, contract law is an example of how the state can use its power through the law to keep the wealthy in their current class standing capitalist system of private property is inherently coercive – coercion lies at the heart of every bargain – this is in contrast to classical liberalism which states that economic pressure does not vitiate consent question: What is free and voluntary consent? At what point does voluntary consent end and coercion arising from social context begin?
The chain of gifts -
in the economy of the Anishabeg, economic exchange cannot be understood apart from kinship, where all social interaction is conditioned by kinship concepts of markets, communism, etc, do not apply in an Anishabeg community as all economics are strictly “personal” Anishabeg “economics” involves a sharing of gifts where exchange produces both economic benefit and a feeling of good will that cements the social bond
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the closer the kin relationship between people, the greater the reliance, and therefore the implication of trust exchange would balance out in the long run known as “general reciprocity” and is found within households and among members of a nuclear family found in non-native families as well, e.g., Christmas, no insistence on exchange of equally valuable gifts “it’s the thought that counts” however, exchange between very distant kin or strangers, expectation that there be an immediate exchange of equally valuable gifts this is not a market exchange since it’s still in the form of a gift and still carries social implications explains “Indian giving” – Indian would give a gift to a white man, white man would simply say “thanks” and not reciprocate. This was against custom so to speak and so the Indian would ask for the gift back “blessed” to give and receive” – as a resource becomes scarce, anishabeg members become more anxious to give it away – e.g., deer meat given to family, then extended family, etc, deer is shared by a greater number of people – direct opposite of market system which would encourage hoarding on the other hand, once deer meat is given away, expectation that one would receive something in return – thus sharing is like a “life insurance policy” ultimately, cooperative giving started in the family, husbands gave meat and skins, wives gave cooked food and clothing, children received food and clothing and gave blueberries and firewood, all members of the family given the same respect for their efforts; this produced a sense of interdependency, security and satisfaction
Contract Interpretation MacNeil, The New Social Contract Five elements of promise in exchange, always to be viewed in their particular society: 1. The will of the promisor 2. the will of the promise 3. present action to limit future choice 4. communication 5. measured reciprocity
Page 62 of 100 Nonpromissory exchange projectors lack one or more of the elements of a promise and they come in many forms. Examples: custom, status, habit and other internalizations, command in hierarchal structures, and expectations created by the dynamics of any status quo. The “limited role of the promise” -
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every promise is always “two” promises – the sender’s and the receiver’s. the resulting nonmutuality ranges from subtle to gross differences in understanding. Every promise is essentially incomplete. These differences are reconciled by bringing into the picture something other than the promises themselves – this something is a nonpromissory projection of exchange into the future as a result in part, individuals and societies view promises as less than absolute; promise breaking occurs frequently and is expected
Renner, The Institutions of Private Law -
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Marxist, held extreme view of the lawyer’s function Lawyers are responsible for upholding positive law E.g,. a loan between two persons, it is the lawyer’s responsibility to ascertain all the relevant legal norms and apply them to the case at hand It is not the lawyer’s responsibility to consider anything else – for instance, the role of the loan in the economic system or its effect on classes or in society as a whole – social repercussions are the realm of the economist and sociologist It is not the object of positive legal analysis to investigate the origin of the common will, its essence, its growth or decay
Federal Commerce & Navigation Co. v. Tradax Export SA (the importance of consistency in standard form contracts) Facts: A ship was delayed from docking because of congestion. The question came to be who should bear the cost of the delay – the ship owner or the charterer? The standard form contract said one of the parties (which party is unclear and irrelevant) should bear the risk, even though there was a sense that this was not just. Holding: The standard form contract should be enforced as its written Reasons: Need for efficiency and certainty in the interpretation of contractual obligations. Efficient allocation of risk demands that both parties are able to order their affairs against the backdrop of knowledge of liability. “… parties who have bargained on equal terms in a free market should stick to their agreements.”
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What this case stands for: Importance of consistent interpretation of contracts generally, especially in widely used commercial contracts. Other comments: Benefits of predictability and strict enforcement: efficiency in bargaining – faster. Facilitates shopping – comparison of various charter rates. Facilitates administration of contract – both parties will understand duties. Concerns with predictability and strict enforcement: Presumes knowledge – equal access to law. Conservative – great reluctance to change. Equity – unfairness. Context: See MacNeil – since every contract is necessarily incomplete, note that contracts, even standard form ones are influenced by a host of additional considerations such as circumstances, objectives, expectations, habit and custom. Strict enforcement gives these additional considerations less credit than deserved.
Scott v. Wawanesa (the problem with strict enforcement of standard form contracts) Facts: Insured’s son intentionally burns down the family home. The insurance contract clearly states that “insured” extends to the named insured’s children and that if anyone intentionally damages the insured property, the insurance will not cover the damage. Holding: The defendant is off the hook Reasons: Clear and unambiguous language. In that case, the court must enforce clear meaning unless the contract is unreasonable or has an effect contrary to intention of parties. Must enforce standard contracts strictly. Important dissent: The contract isn’t free of ambiguity. What’s unclear is whether or not exclusion from insurance should apply only to the wrongdoer insured or to the innocent insureds as well. Conflicting Canadian authority – BC courts say the exclusion does extend to all parties, Ontario says it doesn’t. Reference to the United States: Historical view was considering whether the interests at stake were joint and several. If joint, then no recovery. Why?
Page 64 of 100 1. Person cannot benefit from wrongdoing – directly or indirectly 2. Deter crime 3. Prevent fraud Modern approach in the United States: Depends upon contract and whether the co insureds have promised the same performance – or a separate performance by each. Has each insured promised that all insured parties will preserve property or have they just promised that he or she will preserve his or her property? What does intuition tell you? If you bought an insurance contract, wouldn’t you assume that you were covered if someone else, an ex-spouse for instance, burned down the house with your possessions? You did nothing wrong after all. Counter from insurance company: Son is protected from being sued through subrogation by having his name included. What this case stands for: -
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the problem with strict enforcement of standard contracts underlying theme of the dissent’s argument: contra proferentum (preference against the drafter of the contract) because as an institutional insurance company, it can always redraft its contract. Meanwhile, the Scott’s have lost out in a big way reasonable expectations of the parties: person unversed in niceties of insurance law would assume coverage
Interesting comments from the text: -
majority acted like it had no choice in its decision. The fact was, as shown by the dissent, it had a choice and made one. Insurers now know a sneaky position they can take in similar circumstances. Insured individuals remain unlikely to consider in detail the risks they run
Techniques of Control – SEE THIS IF NEGLIGENCE ISSUE -
courts can read down/up contract provisions to expand obligations or narrow the scope of exemptions see Fraser-Reid – court was unwilling to create an implied warranty for new homes because of the concern of how that would affect the housing market however, the SCC “found” a warranty in a clause that stated there were no outstanding building code infractions – buyer’s expectations were protected at expense of builder’s
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judges have sometimes held that exclusion of any warranty or condition does not work if there was a negligent misstatement – tort law is used to compensate for the potential unreasonable strictness of contract law
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judges are unlikely to find that exemption clauses exclude liability for negligence. After all, finding negligence means finding fault – not proper that anyone should avoid liability when he or she has been guilty of fault judges also use contra proferentum (see Wawanesa case for definition) contra proferentum is justified on the basis that the party who drafted the contract could have avoided the ambiguity and, not having done so, should bear the risk of an unfavourable interpretation
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The Parol Evidence Rule (no assigned cases to read) -
no extrinsic evidence is considered part of a contractual arrangement between two parties when there is a clear and unambiguous written contract
Rationale Protects the sanctity of a contract that has been reduced to writing: 1. Administrative/adjudicative ease. More convenient and efficient for judges to rely on written contracts 2. Prevent Fraud/Perjury. Written contract protects the expectations of a party who relies upon the agreement and avoids rewriting the parties’ agreement based on contested evidence 3. Enhance certainty: Written document provides objective evidence of the agreement. 4. Efficacy of commercial documents: The rule bolsters the efficacy of commercial documents and standard forms. It facilitates business, reduces transaction costs, and protects reliance. 5. Prevent unfair surprise: Encourages parties to plan carefully and include all relevant terms in the written contract. Prevent unfair surprise from someone making a casual statement and having the other rely upon it 6. Control Agents/Employees: Who might carelessly modify their employer’s contract The Concern
Page 66 of 100 “exclusion” or “entire agreement” clauses that state there are no other warranties/ representations outside of the contract, yet one party relied on such a warranty to be induced into the agreement. Exceptions to the parol evidence rule (procedural side of the rule) 1. Interpretation: Extrinsic evidence can clear up an ambiguity in the contract. 2. Invalidity: Extrinsic evidence can show the contract is invalid because of lack of intention, consideration or capacity 3. Misrepresentation: Extrinsic evidence can show there was an innocent, negligent, or fraudulent misrepresentation 4. Mistake: Extrinsic evidence can show there was a mistake as to the nature or effect of the agreement 5. Rectification: Extrinsic evidence can correct an error/mistake in putting the agreement in writing. 6. Condition precedent: Extrinsic evidence can show there was a separate agreement along with the written agreement 7. Collateral contract/warranty/agreement: Extrinsic evidence can show there was a separate agreement along with the written agreement 8. Unconscionability: Extrinsic evidence can show that the contract was brought about through unconscionable means. 9. Statutory override/consumer contracts: The BC Business Practice and Consumer Protection Act states that the parol evidence rule cannot exclude or limit the admissibility of evidence relating to the understanding of the parties as to a particular provision or the consumer transaction itself. 10. Modification and discharge: Extrinsic evidence can show the contract has been modified or terminated 11. Equitable remedy: Extrinsic evidence can support a claim for an equitable remedy However: Extrinsic evidence that contradicts the written contract is usually almost always inadmissible.
Bauer v. Bank of Montreal (SCC) -- collateral agreement that contradicts the written agreement is inadmissible due to the parol evidence rule. This is the case, even though the evidence can be admitted. Note that in this case, court wasn’t entirely convinced that the oral evidence was sound either.
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The way courts get around Bauer: Gallen v. Allstate Grain Co. – This will occur when the contradictory oral evidence is unequivocal. The court may state that reliance on the oral representation was reasonable, and that the oral representation did not contradict the contract, but merely added or varied the written terms. Classic case of “reading down” the exclusion clause and contra proferentem Also comment: The judge in this case stated that the parol evidence rule is not a “rule” per se but merely a strong presumption in favour of the written contract. “if evidence is clear that the oral warranty was intended to prevail, it will prevail”
Zippy Print Enterprises v. Pawliuk (an example of somewhat sophisticated commercial parties not having to rely on the strict wording of the contract, parol evidence rule not applying to a specific representation) – “a general exclusion clause will not override a specific representation on a point of substance which was intended to induce the making of the agreement unless the intended effect of the exclusion clause can be shown to have been specifically drawn to or acknowledged by the other party” Note: This was a franchisee/franchisor case where the franchisee might not have been as experienced and there might be an inequality of bargaining power issue in the background. A swing-back to Bauer:
Bank of Nova Scotia v. Zackheim (Ontario case, unlike the others) – PER excluded evidence of oral innocent misrepresentations that contradicted the written terms of a guarantee. Court distinguished Bauer on the basis that there was no evidence of misrepresentation. In this case, the defendant (!) was trying to admit evidence of a misrepresentation.
Factors Influencing Application of PER (read this for the test): Varies ------------------Presumption in favour of written K strengthening--------- Adds a term Varies a term Contradicts 1. Determine if oral rep. is a warranty
Page 68 of 100 2. If yes, then harmonize if possible. Read the oral warranty and contract together. If no contradiction, no problem 3. Contradiction? If yes, then per Bauer strong presumption that written contract governs. Other influencing factors. 1. General: intent, reliance, reasonable expectations, unfair surprise 2. Nature of Change/conflict: is it a serious conflict/contradiction? 3. Nature of document: Clarity of wording? Read by parties (knowledge)? Intended to be whole agreement? 4. Bargaining relationship: Power relationship? Standard form contract? Evidence of devious practice? 5. Nature of representation: Clarity/significance. Credibility of evidence Finally, refer to statutory overrides, if any (they exist in BC).
Standard Form Contracts -
also known as “contracts of adhesion”. Terms are generally set by one party and contract is offered on a “take it or leave it” basis come in a variety of forms, etc. sometimes the entire contract is standard, sometimes a clause is standard under what circumstances are these contracts enforceable? Remember, written contracts themselves are merely pieces of paper and are not the contract itself. They are evidence of a contract
Advantages 1. Reduce transaction costs: Eliminate the need for bargaining in every transaction. Standard forms permit economies of scale, reducing transaction costs too. 2. Terms are based on past experience: They are worked out over time to most efficiently allocate risk and allow parties to plan with certainty and predictability. 3. Fixed meaning: Standardized terms come to acquire this and this cuts down on judicial risk that a clause will be interpreted in an unexpected way. 4. Control agents: Who might not have the authority to strike individual negotiations. Consistency.
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Disadvantages 1. Notice and Knowledge: Often in small print. Typically not read by unsophisticated parties. Protect the expectations of one side only – the party that drew up the agreement 2. No bargaining: Offered on a take it or leave it basis. Weaker party might not be able to shop around because of a monopoly. 3. Knowledge differential: Party that drafts the contract generally has better knowledge about usual risks and problems associated with the deal. Customer usually lacks this info 4. Expectations defeated: Standard contracts can be used to defeat the expectations of the customer, especially when an agent makes inconsistent representations (parol evidence rule might kick in) Commentary: Kessler – criticizes courts for protecting weaker parties by reading down standard contracts and creating ambiguities. This creates confusing and contradictory decisions that make standard contracts less efficient and is bad for everyone in the long run. Havighurst – The terms of a contract often set out a standard of performance far higher for the weaker party while minimizing the stronger party’s responsibility. He expresses concern for situations where there is unequal bargaining power, or where there is risk of “fly by night” operations – in these situations where non-legal pressures won’t suffice to ensure performance, he argues that the law should step in and limit the freedom of contract of the stronger party. General rule for signed documents: Party signing a written document is bound by its terms whether he read them or was even aware of them (L’Estrange, Eng. CA, 1934). Ignorance is no defence.
The Ticket Cases -
i.e., cases where one party does not actually sign the written agreement to effect a contract common law courts developed the doctrine of reasonable notice: if there is no knowledge of conditions, a person is bound if there was reasonable notice that the ticket contained conditions
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Parker v. South Eastern Railway (party is bound to unsigned agreement with reasonable notice, test to employ) BUT ALSO LOOK BELOW – KARROL, ETC – FOR THE CANADIAN VIEWPOINT Facts: Ticket received for storage of bag at railway. Bag lost. Value of bag was $25 but ticket limited damages to $10. Holding: Liability limited to $10 Reasons: (three concurring judgments) Judge Mellish: When one party does not sign the contract, evidence must be shown to show assent. Evidence may be: 1. actual knowledge that the document contained conditions; or 2. reasonable steps taken to provide notice that the document contains conditions Law essentially treats signature and notice as substitutes. “The railway company… must… do (what is) sufficient to inform people in general that the ticket contains conditions… a particular plaintiff (ought not be excused) on account of his exceptional ignorance or stupidity or carelessness.” When applied to case at bar: Actual knowledge? - pltf knew ticket contained writing - did not read: no knowledge - thought it referred to receipt for $ Reasonable steps? - handed ticket - ticket said “see back” (back contained conditions) - notice posted on wall to same effect Judge Baggallay:
Page 71 of 100 While he agreed with Mellish, this judge noted that the practice of issuing tickets was unusual. Nowadays it is common; arguably there is a presumption that people know tickets contain conditions. Judge Bramwell: Common understanding: standard form conditions are binding b/c people know and thus accept that there will be terms in a contract set out in writing. HOWEVER: Imposes an implied understanding that terms will not be unreasonable (this reasoning hasn’t been picked up by subsequent courts. No general rule exists). What this case stands for: Doctrine of reasonable notice.
J Spurling v. Bradshaw (Lord Denning, the more unreasonable the clause, the greater the notice required. The “red hand” rule) Summary: The more unreasonable a clause, Lord Denning argues, the greater the notice which must be given. Some clauses arguably need to be in red ink with a red hand pointing to the clause (and sometimes you actually see this in modern contracts).
Thornton v. Shoe Lane Parking (application of Lord Denning’s “red hand” rule, unreasonable condition in a ticket) Facts: Pltf suffers personal injuries in def’s parkade. Sign at entrance says : All cars parked at owner’s risk. Pltf read ticket but only for the time of entry. Saw writing but did not read. Ticket said “subject to posted conditions”. Posted conditions inside provided exclusion for liability for personal injury. Held: Def can’t rely on exclusion notice. Reasons: 1. Technical reason: Denning invoked law of offer and acceptance and concludes that contract was formed when pltf moved forward and obtained his ticket. Words on ticket could not alter contract since contract already formed at that point in time because the ticket was received. Personal injury exclusion was a GTA w/o consideration. 2. Insufficient notice per Parker: Def acknowledges that notice was inadequate. Denning states that such a draconian and unreasonable term requires explicit notice (red ink/hand)
Page 72 of 100 3. Actual knowledge: Pltf looked at ticket and knew it contained writing. Def argues he must have known it contained conditions. Denning replies that no evidence to the effect that he knew. No evidence that he knew of this condition – the exclusion of liability (likely not a good argument nowadays). Here, Denning expands the doctrine of reasonable notice to require knowledge of actual exempting condition rather than simply notice that there is a condition. 4. Sign: “All cars parked at owner’s risk”. Pltf did see this. Why not binding? Refers to property only – not personal injuries. Comment: Why do I think this term was unreasonable? Parking garages exist to store property. Seems like a stretch to have a parking garage consider matters of personal injury. What this case stands for: Resolution reflects -
interpretation as a technique to avoid an unfair result contra proferentem
Note different avoidance techniques: 1. Use of rules WRT offer/acceptance 2. Interpretation: exemption applies only to property damage 3. Reasonable notice – expansion on Parker to actual notice of specific exempting condition 4. Denning alludes to the fact that an exempting condition could be void for “unreasonableness” (not accepted widely by the courts)
Interfoto (Thornton/reasonable notice doctrine applies to clauses generally, not just exemption clauses) Summary: The invoice had unreasonable repayment conditions in fine print that were not industry standard. Court finds that unreasonable terms in unsigned agreements OK with specific notice and proof that other party accepted them.
Signed Contracts and Fundamental Breach
Page 73 of 100 -
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not to be confused with repudiatory breach where the innocent party may treat the contract as at an end when the other side fails to deliver on a substantial term (condition) fundamental breach – is the guilty party permitted to rely on the exclusion clause where there has been a fundamental breach of contract?
Is it a rule of law or a rule of construction? UK Approach to Fundamental Breach Interplay between Lord Denning and the House of Lords -
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according to lord denning, it is a rule of law and applies regardless of the parties’ intentions. See Karsales Ltd. v. Wallis and Harbutt’s Plasticine Ltd v. Wayne Tank & Pump co. In these cases, the guilty party breached the contract in a fundamental way (provided very shoddy goods) and tried to rely on exclusion of liability clause but could not according to HoL (higher level courts) it is a rule of construction (interpretation) only and they confirmed this view in Photo Production
Facts: Security guard starts a fire in the building he was supposed to protect. Contract btwn Photo Production and the Security company states that there is no liability for the security company. HoL rules in favour of security company. Reasons: 1. Fundamental breach of contract brings contractual obligations of performance to an end 2. the exclusion clause survives and the issue is whether the clause applies to the loss in question 3. the HL considers the reasonableness of the clause a. clearly worded b. only a modest charge for services c. def had no knowledge of value of property or of fire precautions d. pltf is the cheapest avoider and insurer (property insurance cheaper than liability insurance) e. no inequality of bargaining power Note: The need for a Lord Denning style rule of law approach has been substantially reduced by legislation – UK’s Unfair Contract Terms Act. Renders some exclusion clauses void and subjects others to a test of reasonableness.
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Canadian Approach to Fundamental Breach Hunter Engineering Co. Inv v. Syncrude Canada Ltd. (doctrine of fundamental breach is a rule of construction only, better to use unconscionability, sophisticated commercial parties aren’t subject to it, perhaps consumers though) Facts: Syncrude contracts for 14 conveyor systems, including gearboxes. Def’s contract provides one year warranty with exclusion for all other warranties/conditions. System failed after 15 months. Value of contract was $4,000,000. Value of gears was $115,000 and cost of repairs was $100,000 each. Holding: The def is saved by the warranty and exclusion clauses Reasons: Majority: -
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doctrine of fundamental breach is a rule of construction only many courts still treat the doctrine as a rule of law o problems: o uncertainty – a game of categorization illustrated by lower court decisions o exclusion clauses can be fair and reasonable o unfair surprise and unjust enrichment: in commercial context, exclusions are reflected in price o unevenness of doctrine – why restrict doctrine to exclusion clauses? Other clauses may be as harsh o doctrine cloaks the real enquiry – unfairness solution: unconscionability – if it exists, def shouldn’t be able to rely on the exclusion clause
Exclusion clause is upheld. Clear and unambiguous. No evidence of unconscionability. Minority (concurring): -
agrees with majority with the problem of having the doctrine be a rule of law, but disagrees with relying on unconscionability problem with unconscionability: this is assessed at time of contract formation only. A clause may be fair at time of signing, but may become unfair later on further, unconscionability requires inequality of bargaining power
Page 75 of 100 What this case stands for: -
law unsettled in Canada judges agree that in typical commercial transaction, proper approach is to give effect to the clear wording of the exclusion clause little distinction between “unconscionability” and “unfair and unreasonable” doctrine makes sense as a rule of law in consumer context, but in commercial context, exclusion clauses are rational, efficient and should be upheld
A Possible Exception – Exclusion Clauses Continued The Problem -
it is usually artificial to find consent in a typical “boilerplate” contract in the consumer context (this is not necessarily the case with contracts negotiated between sophisticated commercial actors)
Llewellyn’s Solution In standard form contracts, the law should recognize that the parties have agreed to a broadly formed contract, with reciprocal terms: -
consumer agrees to be bound by the terms of the standard form contract (ie agrees to be bound by unknown terms); and seller undertakes not to impose any manifestly unreasonable or unfair terms
Tilden v. Clendenning (application of Llewellyn’s Solution? Signature rule no longer in effect? The importance of taking reasonable steps to bring unusual terms to consumer’s attention) Facts: Def signed a car lease contract stating that his liability was limited to nil provided he did not drink alcohol whatsoever while driving. Accident. Charged and pled guilty to impaired driving but claims not actually impaired. Trial judge accepts that he was not impaired. Holding: Pltf cannot rely on the exclusion clause Reasons:
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Dissent: The dissent would have affirmed the signature rule and held in the pltf’s favour. Clear concern for certainty, business efficacy and market ordering. Limitation is reflected in price. Dissent did not want to inquire into reasonableness of terms. Why? 1. Too complicated: price, availability of insurance, competitive nature of market – floodgates; and 2. threatens the entire foundation of contract law: parties make bargains, not the courts Also, the def did not breach the contract in a mere technical way (in the dissenting judge’s opinion). Majority: Majority found the clause was unreasonable (drinking a single glass of wine shouldn’t eliminate liability) Customer had no actual knowledge of the term and no reasonable steps were taken to bring it to his attention. Had he known, court concludes he would not have signed the contract (is this a valid assumption?) Court applies purposive interpretation to signature rule. Rationale for signature rule is that signature is a good manifestation of assent to the terms upon which the other party can rely. Reliance here is not reasonable: -
speed of transaction length of document fine print
(clearly, the contract is meant not to be read) Tilden (pltf) ought to have known there was no actual assent. Reliance of signature was unreasonable. Clerk saw that contract was signed without reading. What this case stands for: Where party seeking to rely on contract knows that the signature of the other party does not reflect the true intention of the signer and the other party is unaware of the stringent and onerous provisions which the standard form contains, then:
Page 77 of 100 “ the party seeking to rely on such terms should not be able to do so in the absence of first having taken reasonable measures to draw such terms to the attention of the other party.” Comment: Post-Tilden, courts have not applied Tilden broadly. Courts continue to uphold standard form contracts and signed waivers of liability even when those waivers have not been read. Courts may, instead, read down the contract or rely on something else like unconscionability. Other comment: The court is taking a subjective approach to finding expectations. This makes contract law very complicated and very difficult for solicitors to draft standard forms that protect his clients interests. See Karroll v. Silver Star: Tilden is only applicable in limited circumstances: where person knew or had reason to know of other’s mistake as to its terms. What kind of circumstances is Tilden valid? -
hasty informal clause inconsistent with rest of contract absence of opportunity to read length and amount of small print
Signed Waivers: Risky activities
With signed waivers for risky activities: in the absence of unconscionability, fraud, misrepresentation, the traditional rule I that signature is a manifestation of assent: Delaney v. Cascade River Holidays (BCCA, 1981) Ochoa v. Canadian Mountain Holidays Summary: Japanese business man injured while heli-skiing. Court upheld the waiver even though pltf did not speakd or read English. Why? Limited Tilden to its facts. In Tilden:
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signing of doc was hurried no opportunity to read it clause was part of lengthy document substantially inconsistent with overall purpose of contract
Court held that pltf in this case was intelligent and resourceful, that he knew the doc affected his legal rights and that he had access to a translator. Trial judge noted however: “Any waiver seeking to cover negligent conduct must surely contain something more than the word negligence…” largely because the lay meaning of negligence and the legal meaning differ considerably.
Karroll v. Silver Star (circumstance when a waiver of liability is accepted [use this case for the relevant law], agency exception to privity rule) Facts: Pltf signs waiver form, participates in ski race and is injured when someone walks onto the course. Def argues signature rule. Pltf argues lack of reasonable notice of terms in standard form. Holding: Def is not liable because the waiver is valid Reasons: Tilden is only applicable in limited circumstances: where person knew or had reason to know of other’s mistake as to its terms. What kind of circumstances is Tilden valid? -
hasty informal clause inconsistent with rest of contract absence of opportunity to read length and amount of small print
In Karroll, reasonable person would not have known that Karroll was not assenting. Why? - pltf signed knowing it was a legal document - release consistent with purpose of contract - hazardous activity - short, easy to read
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she had signed such a release before
Silver Star (def) took reasonable steps: - capitalized heading - short, sufficient time to read Comment: -
in a usual commercial situation, there is no need for this rule. It’s safe to assume that the parties know what they are doing this assumption, however, isn’t necessarily valid in consumer context, especially when inequality of bargaining power exists
Other Comment: Remember to consider distinguishing between what was fair at signing and what has now since become unfair. Refer to Syncrude minority dissent in that regard. Consider distinguishing between negligence and gross negligence? Recognize that there is no legal difference however. Cases like these seem to come down to the reasonableness of the impugned clause. If unreasonable, courts are likely to read it down one way or another. Unreasonableness seems to come from clauses that are inconsistent with the rest of the contract because this raises an issue of notice. Note: Vernon Ski Club successfully relied on agency exception to privity rule: 1. 2. 3. 4.
release made it clear that club was intended to be protected by the waiver release made it clear that silver star was contracting on behalf of its agents as well silver star had authority from club to contract on a release of liability on its behalf Vernon ski club gave consideration for the release (in the form of assisting in the management of the race)
Note: Where signature rule has been overruled tends to usually be, common thread of inequality of bargaining power, particular in consumer context and particularly with standard form contracts
Ecommerce and control of contractual power
Page 80 of 100 Radin, “Humans, Computers and Binding Commitment” – the contract as consent/ contract as product distinction Contrasts two views of contract: - contract as consent: the doctrinal view of contract law – the terms of contract are binding because they are based on agreement - contract as product: the terms of the contract are features of the product (warranties, etc). When I buy Microsoft Word I get functionality and a clause saying I can only sue Microsoft in Washington State. The clause is part of the product and part of the value of the commercial exchange Radin says that policy makers must decide which kind of terms must be brought to the attention of the buyer and which kind of terms must be simply excluded on autonomy grounds.
Econtract enforceability General rules of contract law apply to ecommerce -
BC Electronic Transactions Act: electronic transactions have legal effect; offer and acceptance can be communicated electronically
Categories of electronic agreement by method of indicating agreement
Shrink wrap contracts -
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notice of terms/conditions of the contract inside the sealed plastic or on a user’s computer screen after installing software terms and conditions state that using product or keeping product beyond a certain period bind the user to the terms and conditions (see Radin, “it’s part of the product”) courts (American ones at least) have enforced shrink-wrap agreements; reasoning that opening a package and retaining the product are sufficient acts to demonstrate acceptance of terms
Click-wrap contracts -
users are required to click an icon “I agree” usually. Being required to scroll through the document is akin to turning the page of a contract. Binding: Rudder
Page 81 of 100 v. Microsoft (1999, Ont SCJ). Application of l’estrange signature rule applies when consumer clicks “I agree”
Browse-wrap -
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user interacts with website, e.g., by downloading a program. Website will display terms and conditions somewhere on it with a statement that the user of the software is bound by it American courts (Specht v. Netscape) have not found this binding. Also in Specht, the statement “please review” is a mere invitation to read, not a condition Uncertain in Canada, arguably insufficient notice is provided here. OTOH, if sufficient notice were offered and if the action required shows acceptance of the terms, there is no reason not to enforce the contract Also, arguably, the distinction btwn browse-wrap and the other contract types is illogical and arbitrary. A sticker on a box may be less conspicuous than large print lettering on a website Also, courts ought not to unduly restrict the development of new technologies and new industries by using old fashioned rules that are insensitive to the realities of ecommerce
Kantiz v. Rogers Cable Inc (enforceability of arbitration clause where notice of contract changes given on a website) Facts: Customers sign a user agreement stating that Rogers may change terms/ conditions of agreement at any time (this clause eliminates the need for consideration). Finding the user agreement on the website is arguably difficult. Holding: The contract is binding on the consumer Reasons: Dealing with the def meant the consumer pltf had an obligation to check the website from time to time. Notice of amendment had been posted by Rogers on the Customer Support section of the website. Pltf’s could have discontinued their service. Arbitration clause was not “hidden” or “buried”
Comments on arbitration clauses: -
new phenomenon in Canada, relatively since arbitration is very expensive, it often allows corporations to escape responsibility can’t always be used e.g., custody disputes. Court has inherent jurisdiction
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consumer protection in some provinces o none exists in BC o in Alberta, arbitration clause must be approved by the ministry o in Ontario, the clause cannot apply to things falling under the consumer goods/services act o in Quebec, cannot apply to disputes regarding less than $5000
On the other hand, if the business does a material change to the good/service being provided on a continuous basis to a consumer, the Consumer Protection Act states that such a change causes the goods to be regarded as unsolicited (consumer doesn’t have to pay for them). Material change, however, doesn’t refer to circumstances where the price changes.
Introduction to three contractual doctrines that regard fairness of bargain If you talk about any one of these in exam, you must discuss all three Substantial degree of overlap between the 3, so consider all of them where possible Duress (common law) - a coercion of will that vitiates consent. The focus of the analysis is on the pressure exerted by one party on another: the proverbial “gun to the head”. Commonly occurs in a GTA situation Undue influence (equity) - the focus is on the improper exercise of influence by someone in a special relationship of trust and confidence. Commonly found in a formation of contract situation Unconscionability (equity) - technically, found only in a formation of contract situation. The focus is on the overall commercial morality of the bargain by looking to the inequality of bargaining power and the resulting bargain. All considerations made at the time the contract was entered into
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Duress Focus is on voluntariness of consent – a coercion of will that vitiates consent (Pao On) Physical threats and intimidation (obviously) result in a finding of duress
Economic duress Port Caledonia: 1903. Ship was about to crash into another boat. Tug offers assistance, but demands an unreasonable sum of $1000. Court rejects this “unreasonable” contract and reduces the amount owed to $200. D&C Builders: 1966. Pltf does construction work for $480, then sends the bill to def. Def knows that pltf is about to go bankrupt. Def says to pltf that unless he accepts $300 and abandons the rest, he will pay nothing. Court finds no valid consent – held to ransom. Does this case reflect an appropriate line between legitimate business pressure and coercion? What about a bankruptcy sale? Perhaps the difference is that D&C was in the context of a going transaction.
Pao On (the test for economic duress, accepted by Canadian courts) Four factors: -
was consent made under protest? Was there an alternative course open to the pltf? Did the pltf seek legal advice? Did the pltf take prompt steps to avoid the contract?
If the answer is yes to parts 1, 3-4, and no to part 2, economic duress likely exists. True cases of economic duress are rare, however, as there are usually other options available such as legal remedies. Comments: The original “coercion of will” theory has been criticized for involving a difficult inquiry into the psychological state of the party. It means that it likely won’t apply in the
Page 84 of 100 commercial context. It’s been replaced with two criteria: 1) the lack of practical alternatives and 2) the illegitimacy of the pressure Regarding the illegitimacy of the pressure. Look at the nature of the pressure and the nature of the demand. A threat to sue is legitimate and so it normally won’t count. Is the threat a bona fide belief with respect to the enforcement of rights or is it more akin to blackmail? Does the threat breach a tort or a statutory duty? See D&C Builders – did one party use knowledge of financial stress in an exploitative way? Whether or not the pltf had independent legal advice is an important factor to Canadian courts.
Gotaverken Energy Systems (Canadian example of the Pao On case) The pltf company was induced into changing the construction contract from “fixed price” to “time plus materials” because, while construction was underway, they were losing substantial amounts of money. The court found that: 1. 2. 3. 4.
the pltf agreed to the contract under protest the pltf did not seek legal advice the pltf had no effective remedy or option but to agree the pltf took steps to avoid the contract as soon as it was completed
Stott v. Merit Investments (a contract made under duress can be ratified and made enforceable) The pltf, stott, arguably entered the settlement agreement with his company under duress (sign it or be fired, no option for legal advice, etc). However, the pltf’s subsequent conduct (continuing to make payments after two years, lack of complaints, etc) ratified the contract and made it legal. Two years later, he could not be said to be acting under duress. Summary: A contract entered into under duress is voidable but not void ab initio. It can subsequently be made enforceable. Final comment on duress – fairness of bargain:
Page 85 of 100 Fairness of the bargain is doctrinally irrelevant. The issue is one of consent. However, almost all cases of duress involve bargains that the coerced party claims are unfair.
Undue Influence Introduction: Equity’s version of the common law doctrine of duress. Occurs when one party is induced by another in a relationship or trust, confidence, or dependence to enter a contract. Unclear in Canada whether or not the underlying bargain must be unfair. In the UK, the focus is on the undue influence itself. It doesn’t matter if the agreement is unfair or not. Usually occurs when someone is persuaded to do something that is not in their best interests.
Categories of undue influence: Actual undue influence – pltf must prove the wrongdoer exerted undue influence Presumed undue influence – a rel’ship of trust/confidence exists and it is presumed that the wrongdoer abused this relationship. If so, the def must prove that the transaction was entered into freely. One way to rebut this presumption is to show the pltf obtained independent legal advice (ILA): Two categories of “presumed” influence situations 1. de jure: rel’ships that raise the presumption of undue influence. Solicitor/client, doctor/patient, parent/child, trustee/beneficiary, priest/worshipper, army and police 2. De facto: a rel’ship of trust and confidence Note. Married persons do not fall under category 1. They can fall under 2 if: 1. trust and confidence was placed in partner in relation to family affairs; or 2. sexual/emotional ties btwn parties provide a “ready weapon” for undue influence – interests are overborne by fears of damaging the rel’ship
Page 86 of 100 Presumption of UI can also be rebutted if it’s shown that the pltf had a “free and independent mind”. Relevant factors include commercial knowledge, experience, sophistication, and independence.
Bank of Montreal v. Duguid (ONCA. Constructive notice of undue influence. The duty of a bank to find and avoid undue influence) Facts: The pltf wife signed a promissory note for her husband. The husband subsequently defaults and they separate as well. Bank seeks payment from pltf wife. Holding: The pltf must pay the loan Reasons and what this case stands for: A contract may be set aside if the other party has actual or constructive notice of the risk of undue influence. Constructive notice occurs when: 1. the transaction on its face is not to the financial benefit of the spouse; AND 2. there is a substantial risk that the spouse has committed a legal or equitable wrong. In other words, the husband/wife are in a rel’ship which raises the suspicion of undue influence To avoid trouble, banks should: 1. 2. 3. 4.
meet with spouse privately explain extent of liability warn of the risk; and urge the person to obtain ILA
Where UI is probable, bank must insist on ILA. If a bank has actual knowledge of UI, it likely cannot rebut the presumption despite advising ILA, etc, and it should not deal with that client. Note: Failing to do the above doesn’t make the agreement invalid. It means the bank doesn’t have a defence when it turns out there is actual or presumed UI. Applying the above principles to the case at bar, the court upheld the guarantee. It found that:
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1. Bank did not have a duty to disclose an opinion as to the quality of the investment 2. Bank had a duty to inquire as to whether or not there was UI. It failed to do so and therefore had constructive notice of the potential. 3. However, there was no evidence that the pltf wife reposed trust and confidence in the husband. She did not leave decisions on financial affairs to him. 4. The pltf wife was a realtor and would have understood the significance of signing the loan (free and independent mind). Comment: The dissent would have overturned the agreement on the basis that the wife had strong emotional ties to the husband – she feared damage to the marriage if she did not sign. Refer to Weigers, “Economic Analysis of Law and “Private Ordering” – the emotional element of a marital relationship is not emphasized enough in our law. Also, according to the dissent, her being a realtor is not determinative. It offers no evidence as to her level of knowledge. Quick note on the feminist view: Requiring ILA doesn’t resolve the power imbalance. The wife will likely sign away any way, even if it isn’t in her best interest to do so.
Unconscionability The basic test per Morrison v. Coast Finance (BCCA, 1965) with factors applied from other cases: Note: These considerations are made at the time the bargain is entered into. Unconscionability is considered only at time of contract formation. 1. Inequality of bargaining power a. Factors: i. Relationship of trust/confidence (Bundy) ii. Weaker party relies on the other and the other knows it (Bundy) iii. Relation with family members iv. No legal advice (Bundy) v. Language barrier (Lidder) vi. Lack of sophistication (Lidder. For instance, Lidder is uneducated man, ICBC is sophisticated monopoly) vii. Initiating a meeting on short notice (Lidder)
Page 88 of 100 viii.Dissuading the other from seeking ILA, including misleading the other about the benefit of ILA (Lidder. The court hated this one) ix. Degree of need and the availability of options x. Opportunity to read the terms – access/speed of transaction xi. Whether terms are intelligible or in plain language, whether misleading and/or usual/unusual 2. The person with a superior bargaining position takes advantage of that position and gets the other to sign a substantially unfair agreement a. Factors: i. Inadequate consideration (Bundy) – giving substantial life savings to a financial venture not worth saving ii. Misrepresentations about material facts (Lidder) iii. Assignment of risk: Did the contract assign risk to the party least able to safeguard against the loss without compensation for this fact (e.g., reduced price) Mere inequality of bargaining power is not sufficient. The claimant must also prove that the bargain was substantially unfair. Inequality of bargaining power may be overcome by obtaining ILA.
Unconscionability – Private versus Public grounds Private grounds: Duress, undue influence, and unconscionability are all said to reflect private grounds for refusing to enforce a contract: the specific bargain of these parties is unfair. Public grounds: Contrary to public policy. However, there are other grounds for refusing to enforce a contract that are said to be public in nature. One of the most important of these is a contract that is void as being against public policy.
Henningsen v. Bloomfield Motors (American case. Contextual analysis to finding inequality of bargaining power) Not picked up heavily in Canada. But it’s noteworthy for its contextual analysis of bargaining power: Nature of product - essential like a household utensil? Market domination
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only a handful of sellers (monopolistic)? No options? Cartelization (standard forms used by all manufacturers)? No real competition?
Superior knowledge - repeat player; both in terms of K drafting and litigation Resources - money; access to legal services - advertising – did it create a certain expectation of the product that’s subsequently denied through contract? Did the advertising distort expectations by giving a certain impression of some characteristic (e.g., safety)? Law -
ability to contract out of common law or statute (this points to power imbalance) silence of the law: absence of consumer protection legislation inability for the consumer to access legal services
Consumer Protection Legislation (IMPORTANT if a question regards a consumer transaction) Policy Reasons for Consumer Legislation To ensure fairness and to protect consumers in cases of -
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monopoly (competition laws) externalities: (regulation of safety hazards and pollution) Informational failures: (where there are asymmetries in information, particularly with complicated products, Competition Act, Food and Drug Act, etc, protect against fraud and deceptive practice, and impose disclosure requirements and mandatory government education) Transaction costs: cooling off periods, cancellation rights, etc, far cheaper than dealing with complaints/litigation Paternalistic concerns: transaction may not be in consumer’s best interest in the long term (e.g., cigarettes) and so government may need to step in with mandatory requirements (e.g., labeling on cigarettes about the dangers) Redistributive concerns: rent controls, statutory warranties, etc, reflect distributive concerns
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Business Practices and Consumer Protection Act (relevant sections are in supplementary materials. BRING THEM for exam) As applied to the exam, these Acts are used for issues of deceptive acts and practices and unconscionable transactions in a consumer transaction Two big points about these acts 1. Section 3: Any waiver or release of the protections of rights, etc, under these acts is void except to the extent that the waiver is expressly permitted by this Act 2. Reversal of burden of proof: Supplier has burden of proof to show that it did not commit or engage in a deceptive or unconscionable act or practice (Sections 5(2) and 9(2)) NOTE: If the sale regards a used good, these Acts may not apply in the same way. Usually cannot contract out of these Acts when it involves new goods sales or leases.
Rushak v. Henneken (BCCA: Duty for suppliers to disclose when they have specific negative information that may or may not be accurate about the product) Facts: The dealership knew the used car came from an area in West Germany where many cars had rust problems. It also knew that an undercoat was applied that could be covering up rust damage. The dealership said that the car was “one of the best” and that the undercoat seemed to look good. However, it advised the buyer to get it inspected, but only offered a general warning and did not disclose the vehicle’s specific history. The buyer did not undertake an adequate inspection and found severe rust damage later on. Holding: The dealership is liable for the cost of repairing the rust damage Reasons: No undue pressure was put on the buyer to buy. There wasn’t necessarily a deliberate intention to deceive. But the dealership committed a “deceptive act” under the Trade Practice Act. “Puffery cannot… excuse the giving of an unqualified position as to quality when the supplier has factual knowledge indicating that the opinion may in an important respect very well be wrong…”
Page 91 of 100 The dealership should not have described the car as a “good vehicle” “one of the best of its kind” and “very nice” without noting that there might be extensive rust under the new undercoat. The dealership knew that an intrusive inspection (removing the undercoat) would be needed to find the true extent of the rust damage, yet it failed to advise the buyer. Had the dealership advised this sort of inspection, it likely would have been off the hook. What this case stands for: In a consumer transaction, where the supplier has factual knowledge of a likely latent defect of great importance, it must disclose this fact to the buyer. Note that this case doesn’t apply to circumstances where the supplier has an honestly held opinion about the car and lacks specific knowledge that such an opinion might be wrong.
Illegality Quick note on penalties and forfeitures Law and Equity Act Relief against penalties and forfeitures 24 The court may relieve against all penalties and forfeitures, and in granting the relief may impose any terms as to costs, expenses, damages, compensations and all other matters that the court thinks fit. Distinguish between liquidated damages and penalties Liquidated damages are a fair/genuine pre-estimate of damages. Penalties are extravagant/unconscionable in comparison to the loss that would have normally occurred Example: House being built. Liquidated damages clause for delay: $150 per day = cost of hotel and storage of furniture. Reasonable? $2000 per day = likely a penalty Forfeiture: Agreement to lose $200 if you fail to pay $100 by March 31. Illegal penalty
Page 92 of 100 Note: Courts reluctant to find penalty with contracts between sophisticated commercial entities.
Illegality Courts may decline to enforce a transaction because it violates public policy as expressed by the common law or by statute. The question is when public policy overrides the contracting parties’ interests. Easy cases: Criminal law: Contracts for drugs, blackmail, murder, etc, are unenforceable. Specifically worded statutes: The statute may specifically state that no remuneration may be earned if the individual is not licensed or permitted by the Act (Real Estate Services Act). Hard cases will regard trivial illegality or where the statute does not address how contracts are affected. For instance, unlicensed plumbers doing minor plumbing jobs.
Common law illegality: Courts can refuse to enforce a contract contrary to public morals: - contract to commit a tort - contract injurious to public life – the sale of public offices Older cases: Courts have refused to uphold co-habitation agreements or insurance policies on brothels.
Statutory Illegality: The classical approach was unreasonably rigid. See Rogers v. Leonard (1973 Ont. HCJ) where the court refused to enforce a real estate contract because it fell on a Sunday contrary to the Lord’s Day Act despite full knowledge and consent of the parties. The modern approach under Sidmay Ltd. v. Wehttam Investments states the statute must first be properly interpreted. Not being in administrative compliance with the Act doesn’t necessarily make the contract void.
Page 93 of 100 Do the offences created by administrative non-compliance regard contracts? For whose benefit was the legislation passed? The modern approach under Still v. Minister of National Revenue (1998 FCA): A court will not enforce the contract when, in all circumstances of the case, it would be contrary to public policy, reflected in the relief claimed, to do so. Courts will factor in the consequences of voiding the contract, including the social utility of the consequences and the determination of the class of persons for whom the prohibition was enacted. Back to the plumber example: The court probably would not enforce a contract where the person acted like he was licensed yet he was not, and carried out a substantial job (requiring a permit for instance). The court probably would enforce a contract where a “handyman” repairs a toilet, fixes a sink, etc, with the customer fully knowing that the handyman is unlicensed.
Framework/strategies for certain question types (START HERE): Employment law, wrongful dismissal, constructive or direct READ THE QUESTION CLOSELY. PICK OUT ALL THE FACTS STATE THE ISSUE, THE PRINCIPLE, AND APPLY TO THE FACTS 1. assuming the employee was wrongfully terminated, either directly or constructively 2. mitigation – did the employee have an opportunity to mitigate damages? If so, he/she will have to take reasonable, but not extraordinary steps to do so. The employer will have to prove that the employee did not mitigate as the employee should have 3. Payzu: a plaintiff may be required to have continued dealings with the defendant, but often not in the case of employment contracts (i.e., employer accuses employee of theft) 4. in this case however, there was no animosity or tension, no criticism of the employee, court would likely find she had to keep working with the employer
Page 94 of 100 5. was the method of termination so heavy handed and disreputable that it made it more difficult for the employee to find a new job? This is a defense against mitigation and may require a longer notice period (Wallace bump up)
Injunctions in employment contracts READ THE QUESTION CLOSELY. PICK OUT ALL THE FACTS STATE THE ISSUE, THE PRINCIPLE, AND APPLY TO THE FACTS 1. three requirements for an injunction a. contract must have a negative covenant i. does the contract contain a negative covenant? ii. If It doesn’t could one be implied? (Lucy) e.g., argue that employees shouldn’t compete for customers with their employer iii. Counter argument against implying one: Is it a full time job or part time? Is it a “contract” job? What’s the nature of the employment (an experienced free lancer will obviously want to work elsewhere if he works part time) b. damages must be inadequate or too speculative i. Could the employer simply claim the amount of profit if a specific account was lost? Then damages would be adequate ii. Counter argument: employer argues they are losing incidental benefits, e.g., reputation, referrals, etc? Difficult to calculate these damages iii. Could the employee release confidential business information of the employer? This too points to speculative damages c. result of injunction must not be tantamount to specific performance (Warner Bros) i. could employer argue that the injunction only tempts the employee to work for him and not compels him (Lumley)? ii. Counter argument: courts in recent years have relaxed the compulsion requirement, even prohibiting someone from pursuing their chosen occupation is compulsion (Warren, Page One) iii. Factors that further argue for compulsion: complexity of the job, whether the employee is employed only part time iv. Note however, that in cases where the def was to do something (e.g., paint a pic) and did so and fails to deliver, specific performance may occur.
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Breach of contract resulting in a potential damage claim (including non-pecuniary damages) READ THE QUESTION CLOSELY. PICK OUT ALL THE FACTS STATE THE ISSUE, THE PRINCIPLE, AND APPLY TO THE FACTS 1. But first, why not equitable remedies like specific performance? Did question say not to consider them? Is it not a unique good, etc? 2. General policy framework a. Protecting the reasonable expectations of the plaintiff b. Not placing an unfair burden on the defendant 3. Mitigation: should pltf have mitigated? How? Doctrine of Election? Anticipatory Breach? Supply/demand issue making mitigation a requirement or unnecessary? 4. Two forms of damages that could be sought a. Monetary “normal” damages i. Can restitution damages be claimed? Articulate what they would be. Disgorgement of profits? Or, payment for services rendered when the wrong service is rendered for the purpose of earning more fees. Are these damages too remote? Go through remoteness section. ii. First, can expectation damages be claimed? Articulate what they would be. This puts the pltf in a position as if the contract had not been breached. This could be the cost of performance. Remember, a chance at a profit is compensable, although to a lesser degree. However, there must be a measurable chance of profit. One could also argue that the chance of a profit wasn’t reasonably foreseeable. Are these damages too remote? Go through remoteness section. iii. If expectation damages are too uncertain, one can only claim reliance damages (Anglia). Articulate what those would be. They could be pre-contract expenditures for instance (Anglia). Precontract expenditures must be reasonably foreseeable. Remember, reliance damages can’t exceed expectation damages and so the def may want to argue that pltf is only entitled to these. Are these damages too remote? Go through remoteness section. iv. Counter argument: Cost of performance exceeds the value gained, diminution in value (Peevyhouse). Was the breach incidental or primary to the contract? 1. Supplementary arguments: expectation damages would sanction economic waste (Ruxley, Jacobs) 2. No bad faith, an innocent breach
Page 96 of 100 3. Def. was not unjustly enriched (or was he? Provide counter, counter argument in that case) 4. Would expectation damage award unjustly enrich plaintiff? v. could pltf argue that the breach wasn’t incidental to the contract? That it was primary? Courts must enforce sanctity of the contract. 1. further arguments. Bad faith is irrelevant, contract law is about compensation to plaintiffs not penalizing defendants vi. was intentional of contract non-pecuniary? Peevyhouse wouldn’t apply in that case vii. argument that something is not incidental to contract: “insistence” on the clause, or paying more than market value viii.In that case, entitled to consumer surplus at least ix. Could pltf say the lost items had special and unique value (Sooter and Ruxley) and thus warranted additional compensation? x. Could defendant argue unfair surprise if clause was unusual? Would a reasonable party to the contract, given his/her expertise, recognize if it was an unusual clause? xi. Were damages reasonably foreseeable (Hadley)? Also discuss communication of special circumstances, and payment for them, and special knowledge of defendant (if he had any) xii. Policy arguments? Would it be fair for the def to have to pay damages here? b. Non-monetary damages (non-pecuniary, mental distress) *CITE WHARTON’S THREE PRINCIPLES IF ARGUING THIS. REFER TO OUTLINE * i. Policy: Courts reluctant to grant damages for mental distress (Addis), tort law is the normal avenue ii. Remember, some costs that are related to non-pecuniary (counseling, medication) are properly categorized as pecuniary iii. Exceptions (see outline). iv. Was object of contract to secure psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties? v. Could pltf claim this was a “peace of mind” contract? Consider age of pltf. Consider statements like “rest assured” or “you’re in good hands”. Distinguish such statements from fluff. vi. Could pltf claim this was an enjoyment contract? Counter argument: there are very few examples of enjoyment contracts and courts do not wish to expand this definition. vii. Could pltf claim this contract was to enhance reputation? viii.Did the breach result in sensory unpleasantries? See outline ix. Do the mental damages suffice to warrant compensation? Merely being annoyed is not enough.
Page 97 of 100 x. Was def’s conduct tortious or independently actionable? Aggravated damages perhaps xi. (ALWAYS consider this) Was the distress based on special circumstances that were made reasonably foreseeable (by paying more for instance, cite Hadley)? Could def. counter by saying that he was not aware of those circumstances (not communicated)? Could pltf argue that communication was implied by paying more? Could def counter that the additional payment was for something else? Discuss reasonable foreseeability and refer to (Victoria) Could pltf argue that def knew him and should have known better? Could def argue that cases involving reasonable foreseeability for non-pecuniary damages are unusual (Newell and Weinberg) or narrow (Insurance contracts) and ought to be distinguished on their facts? xii. Punitive damages???? Careful to not identify it when it was actually a tort.
Is there a binding contract (focus on relational contracts)? READ THE QUESTION CLOSELY. PICK OUT ALL THE FACTS STATE THE ISSUE, THE PRINCIPLE, AND APPLY TO THE FACTS 1. Policy Considerations a. Was there reasonable expectation that the service will be provided? Or would that constitute unfair surprise? b. Is there evidence the promise was made? c. Was there deliberation? Or was it just an informal promise. Arguments for deliberation are that they took into account special circumstances d. Would not finding a contract unjustly enrich the def? e. Was there substantial and reasonable reliance? f. Private ordering or utility of enforcing the contract: if it was a clear commercial context and if notions of consumer protection apply, a contract ought to be found 2. should plaintiff have mitigated? How? Doctrine of Election? Anticipatory Breach? 3. was there a clear offer and acceptance? Or was it merely an invitation to treat? If invitation to treat, when would it/should it become a contract? How might defendant counter argue this point? 4. Could it be argued to be just a casual, point of information made by the def. and with no intention of being bound by it? 5. Was it a bilateral exchange? If so, what were the promises? 6. could it be argued that it was a unilateral contract? If so, how would that be articulated? What appears more likely to a court – unilateral or bilateral contract?
Page 98 of 100 7. what was the consideration? Consideration must be a benefit or detriment (to plaintiff or def, depending on circumstances) or a mutual exchange of promises that have value 8. Could it be argued that the promises were made after the first contract was already made? In that case, those promises wouldn’t be binding on the first contract. a. However, it could create a “two contract” situation, e.g., a contract to buy the computer (first contract), and a contract to service it (second contract) 9. could it be argued that it was a framework agreement (GNR)? Was there consideration for the framework? If so, could the defendant revoke it due to lack of consideration? What if a request for service/supplies is made under the framework agreement? Will that be binding? 10. could it be argued that an essential term was uncertain or vague and therefore making the contract unenforceable? a. Counter arguments: good faith negotitations would solve the problem (weak, see Courtney). b. Or, a “formula” offers certainty. Counter argument: courts don’t like to “make bargains for the parties” . Courts more likely to find this if there hasn’t been a long term rel’ship and no evidence of severe reliance and unjust enrichment c. Or, there is an arbitration clause that will ultimately solve the problem. d. Or could the court imply something into the contract?
Is there a binding contract (focus on gifts)? READ THE QUESTION CLOSELY. PICK OUT ALL THE FACTS STATE THE ISSUE, THE PRINCIPLE, AND APPLY TO THE FACTS 1. general policy framework a. reasonable expectations of the plaintiff b. avoiding unfair surprise to the defendant 2. the test for determining whether a communication was intended to be legally binding is objective (Smith v Hughes) a. did the parties contemplate an exchange. If so what was being exchanged for what? b. Could def argue he did not intend to be bound and that it was an invitation to treat or a non-binding gift promise? 3. Should plaintiff have mitigated? How? Doctrine of Election? Anticipatory breach? 4. could def argue that the terms of the offer were uncertain and vague? If so, how? Consider things like time of delivery, the status of the promised gift if circumstances change. Could the courts imply something into the contract? 5. could def argue that it was a unilateral contract? State how it would appear that way
Page 99 of 100 a. counter: courts find bilateral contracts where it can (Dawson) and that a bilateral contract appears more likely b. counter: potential for unfairness. There was a mutual exchange of promises, so what if one doesn’t appear to be of equal commercial value. Return promises are good if they are value. c. Counter: mutual cooperation is required. Therefore, it is a bilateral contract d. Counter: implied promise not to revoke (Errington) e. Counter: reasonable reliance (explain how) 6. underlying policy factors a. is there good evidence of a contract? Must the contract be in writing? b. Did def revoke offer? Could point to a contract then c. Was there deliberation? Or was the offer made in a casual, informal situation, “coffee talk.” If this was the case, there might be an “intention to be bound” issue and the judge could scrap the agreement d. Would there be unjust enrichment if the contract wasn’t enforced? How? e. Were there reliance damages? How might principles of pre-contract expenditures apply if so? f. Is this a type of contract courts should enforce or should be left to private ordering? Is there social utility for it? Or should courts be reluctant to enforce gift promises.
Is there a binding contract? READ THE QUESTION CLOSELY. PICK OUT ALL THE FACTS STATE THE ISSUE, THE PRINCIPLE, AND APPLY TO THE FACTS 7. general policy framework a. reasonable expectations of the plaintiff b. avoiding unfair surprise to the defendant 8. Policy Considerations a. Was there reasonable expectation that the service will be provided? Or would that constitute unfair surprise? b. Is there evidence the promise was made? c. Was there deliberation? Or was it just an informal promise. Arguments for deliberation are that they took into account special circumstances d. Would not finding a contract unjustly enrich the def? e. Was there substantial and reasonable reliance? f. Private ordering or utility of enforcing the contract: if it was a clear commercial context and if notions of consumer protection apply, a contract ought to be found 9. should plaintiff have mitigated? How? Doctrine of Election? Anticipatory breach?
Page 100 of 100 10. was there a clear offer and acceptance? Or was it merely an invitation to treat? If invitation to treat, when would it/should it become a contract? How might defendant counter argue this point? 11. was it a bilateral exchange – a mutual exchange of promises? If so, what were the promises? 12. could it be argued that it was a unilateral contract? If so, how would that be articulated? What appears more likely to a court – unilateral or bilateral contract? 13. what was the consideration? Consideration must be a benefit or detriment (to plaintiff or def, depending on circumstances) or a mutual exchange of promises that have value 14. could the defendant have revoked the contract? Was it a standing offer that could have been revoked (GNR)? 15. Could it be argued that the promises were made after the first contract was already made? In that case, those promises wouldn’t be binding on the first contract. 16. could it be argued that an essential term was uncertain or vague and therefore making the contract unenforceable? a. Counter arguments: good faith negotitations would solve the problem (weak, see Courtney). b. Or, a “formula” offers certainty. Counter argument: courts don’t like to “make bargains for the parties” . Courts more likely to find this if there hasn’t been a long term rel’ship and no evidence of severe reliance and unjust enrichment c. Or, there is an arbitration clause that will ultimately solve the problem.
