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Contracts – Fall 2013 (Prof. Gélinas) Rui Gao

1.GENERAL INTRODUCTION................................................................................................................................ 1

CONTRACT AND LAW IN PERSPECTIVES.............................................................................................................................1Why contract courses are mandatory.................................................................................................................1What does law bring?.........................................................................................................................................1Contracts and transnational governance............................................................................................................2

Contracts, law and economy............................................................................................................................................2Choose your own law system by contracts......................................................................................................................2

CONTRACTS AS VOLUNTARY UNDERTAKINGS......................................................................................................................3Legitimation of contracts....................................................................................................................................3Self-imposed legal obligations............................................................................................................................3Limitations in reality...........................................................................................................................................4To keep in mind..................................................................................................................................................4Derogation of law by contracts...........................................................................................................................4

CONTRACT = THE LAW OF OBLIGATIONS...........................................................................................................................4Liabilities in Common Law and Civil Law traditions (3).......................................................................................4Assessment of damages: K.O VS ECO..................................................................................................................4Case: Hawkins v McGee......................................................................................................................................5In general, what are the contract terms?...........................................................................................................6Confusion! 3 common usages of the word “contract”:......................................................................................6

COML AND CIVL AS TRADITIONS (DISTINCTIONS)..............................................................................................................6History: Development of law in North America colonies.....................................................................................6

2. THE COMMON LAW AND CIVIL LAW TRADITIONS............................................................................................9

COML tradition...................................................................................................................................................9Merging of com law and equity courts.............................................................................................................................9Precedent over time.........................................................................................................................................................9Common law theory.......................................................................................................................................................10

CIVL tradition....................................................................................................................................................10Civil code........................................................................................................................................................................10Level of abstraction........................................................................................................................................................11

3. WILLINGNESS TO BE BOUND AND OFFER AND ACCEPTANCE / EXCHANGE OF CONSENTS................................12

CONSENT.................................................................................................................................................................12OFFER VS MERE PUFF.................................................................................................................................................13

COML................................................................................................................................................................13Leonard V Pepsico Inc....................................................................................................................................................13Carlill v Carbolic Smoke Ball Co......................................................................................................................................14

CIVL...................................................................................................................................................................15PRELIMINARY NEGOTIATIONS (INVITATION TO TREAT)........................................................................................................15

COML................................................................................................................................................................15Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern)...................................................................16

CIVL...................................................................................................................................................................16Lavoie c. Bernier.............................................................................................................................................................16

WILLINGNESS TO BE BOUND.........................................................................................................................................17COML................................................................................................................................................................17

Kleinwork Benson Ltd v Malaysia Mining Corp BHD.......................................................................................................17Jones v Padavatton.........................................................................................................................................................18

CIVL...................................................................................................................................................................18PROHIBITED PRACTICES IN FORMATION...........................................................................................................................18

CIVL...................................................................................................................................................................18Richard v Time inc..........................................................................................................................................................18

TERM, REVOCATION...................................................................................................................................................19COML................................................................................................................................................................19


Shatford v B.C. Wine Growers........................................................................................................................................19Bristol, Cardiff, and Swansea Aerated Bread Company v Maggs....................................................................................20Dawson v Helicopter Exploration Co..............................................................................................................................20

CIVL...................................................................................................................................................................21CONSENSUS..............................................................................................................................................................21

COML................................................................................................................................................................21Butler Machine Tool Co Ltd v Ex-Cell-O Corp Ltd............................................................................................................21

CIVL...................................................................................................................................................................22Communauté urbaine du Québec c. Construction Simard-Beaudry...............................................................................22

ACCEPTANCE & COMMUNICATION RULES.......................................................................................................................22IN BOTH CVL AND IN CML..........................................................................................................................................22

Entores v Miles Far East.................................................................................................................................................23(Specific to) CIVL...............................................................................................................................................23

UNILATERAL CONTRACT...............................................................................................................................................23COML................................................................................................................................................................23CIVL...................................................................................................................................................................23

PROMISE TO CONTRACT VS OFFER & ACCEPTANCE (CIVL)................................................................................................24Acceptance (taking up option)..........................................................................................................................24Summary: promise vs offer vs acceptance........................................................................................................24Conditions.........................................................................................................................................................25Effects of the “option”......................................................................................................................................25

Cere c Neely...................................................................................................................................................................25

4. ESSENTIAL ELEMENTS OF CONTRACTS AND TYPES OF AGREEMENTS..............................................................27

GENTLEMAN'S AGREEMENTS........................................................................................................................................27PRE-CONTRACTUAL AGREEMENTS (AGREEMENTS TO AGREE)...............................................................................................28

COML................................................................................................................................................................28Empress Tower v Bank of Nova Scotia............................................................................................................................28

CIVL:................................................................................................................................................................. 29BACK TO CONSENSUS: ESSENTIAL ELEMENTS....................................................................................................................29

COML................................................................................................................................................................29Raffles v Wichelhaus.......................................................................................................................................................29

CIVL...................................................................................................................................................................30Les Terrasses Holding v Saunders...................................................................................................................................30

MODIFIED ACCEPTANCE AND LAST SHOT COUNTER-OFFER..................................................................................................31CIVL...................................................................................................................................................................31Traditional COML..............................................................................................................................................32International sales............................................................................................................................................32US reform.........................................................................................................................................................32

5. CONSIDERATION, CAUSE AND FORMALITIES..................................................................................................34

INTRO......................................................................................................................................................................34CONSENT AND REASON...............................................................................................................................................34

A. What is in the contract?...............................................................................................................................34B.Why the contract?.........................................................................................................................................351. “Contract” as “written agreement”: Formalities.....................................................................................35General principle..............................................................................................................................................36CIVL:................................................................................................................................................................. 362- “Contract” as “agreement”: Justification for contract.............................................................................36CIVL: cause........................................................................................................................................................36

Cause of contract (CCQ) (cause subjective)....................................................................................................................37Cause of obligation (cause objective) -> same to all similar contracts............................................................................37Gift contracts: valid cause (CIVL) vs requiring consideration (COML).............................................................................37Ross & Hutchinson v The Royal Institution for the Advancement of Learning................................................................37


COML: consideration........................................................................................................................................38Definition.......................................................................................................................................................................38What is the doctrine of consideration for......................................................................................................................39Peppercorn theory and nominal consideration..............................................................................................................39Miami Coca-Cola Bottling v Orange Crush..............................................................................................................39Forbearance, detriment.................................................................................................................................................40Hamer v Sidway..............................................................................................................................................................40Dahl v Hem Pharmaceuticals Corp.................................................................................................................................41Kirksey v Kirksey.............................................................................................................................................................42Implied obligations as consideration..............................................................................................................................42Wood v Lucy, Lady Duff-Gordon.....................................................................................................................................42

6. CONSIDERATION CONTINUED (ONLY IN COML)..............................................................................................44

Past consideration..........................................................................................................................................................44Roscorla v Thomas.........................................................................................................................................................44Pre-existing duty/changed circumstances......................................................................................................................45Stilk v Myrick..................................................................................................................................................................45Gilbert Steel Ltd v University Construction Ltd...............................................................................................................46Williams v Roffey............................................................................................................................................................47Nav Canada v Greater Fredericton Airport Authority Inc...............................................................................................48

Estoppel, reliance.............................................................................................................................................48Waiver of right (Equitable doctrine of)...........................................................................................................................49Central London Property Trust v High Trees House........................................................................................................49Is detrimental reliance a condition to promissory estoppel?.........................................................................................50Exception (or incremental expansion?)..........................................................................................................................50US: pressure to expand (cause of action/sword)............................................................................................................50Australia: pressure to expand (cause of action/sword)..................................................................................................51Walton Stores v Maher..................................................................................................................................................51Estoppel in Canada.........................................................................................................................................................52

7. INTERPRETATION AND INCORPORATION....................................................................................................... 53

INTRODUCTION..........................................................................................................................................................53Rogers Cable Communications Inc.................................................................................................................................53

INTERPRETATION: TENSIONS.........................................................................................................................................541-WHAT COUNTS AS PART OF THE CONTRACT?................................................................................................................55

Entire agreement or not...................................................................................................................................55COML Parol Evidence Rule.............................................................................................................................................55CIVL “parole evidence rule”............................................................................................................................................56

Signed and Unsigned Contracts........................................................................................................................57Thornton v Shoe Lane Parking Ltd..................................................................................................................................57McCutcheon v David......................................................................................................................................................58

Incorporation....................................................................................................................................................58CIVL: external clauses.....................................................................................................................................................58

2-WHAT DO THE TERMS MEAN?...................................................................................................................................59Similarities in interpretation COML&CIVL:........................................................................................................59Differences........................................................................................................................................................59

COML.............................................................................................................................................................................59CIVL................................................................................................................................................................................59

Extrinsic aids to interpretation..........................................................................................................................60COML.............................................................................................................................................................................60CIVL................................................................................................................................................................................61

IMPLIED TERMS..........................................................................................................................................................62WHY IMPLY TERMS TO CONTRACT?...............................................................................................................................62IMMEDIATE AND BROADER CONTEXT (LINK WITH TOPIC 7 INTERPRETATION)..........................................................................63IMPLICATION OF TERMS/OBLIGATIONS............................................................................................................................63

CIVL...................................................................................................................................................................63


Canadian COML................................................................................................................................................63


INTRODUCTION TO CONTRACTS

1.General introduction

Themes: - The law of obligations- Contract as voluntary undertakings- Common law and civil law as traditions

Required reading: - CCQ, Table of contents for Book Five, Obligations- CCQ, Arts 1372, 1378, 1385- CCQ, Arts 1410-1414, 1590, 1607- Hawkins v McGee, 84 N.H. 114 (1929)- J.E.C. Brierley & R.A. Macdonald, eds, Quebec Civil Law: An Introduction to

Quebec Private Law (Toronto: Emond Montgomery, 1993) at 35-45- C.G. Addison, A Treatise on the Law of Contracts, 2nd ed (London: W. Benning,

1849) at v-vii; 1

Contract and law in perspectives

Why contract courses are mandatory1- Legal perspective:

a. Practicing lawyerb. International organizationsc. Other laws based on contract lawd. Treaty law = politic, transnational

2- Political / economic perspectivea. Market economy is structured by contracts = freedom of contractb. Prioritizing choice = contractc. Consent, legitimization

3- Moral perspectivea. Promiseb. Agreementc. Exploiting others

What does law bring? predictability and certainty

o legal reasoning is a different kind of reasoning, it is not a free flow of moral arguments

o constrained reasoning there is a specific framework which makes the results more predictable and more certain

o Why are predictability and certainty important? Dignity: they allow human beings to make a plan for their life by

giving them more space to plan their lives, to make the decisions in the knowledge that certain things will remain stable.

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Eg1: businessman can rely on effective tools and rules to establish contracts with suppliers, etc.)Eg2: human economic development

o Rule of law is the opposite of the rule of men/women removes discretional rules which hinder human dignity

o HOWEVER, it may be frustrating: predictability and certainly mean that we have excluded some kind of moral reasoning we have to accept a certain measure of injustice in order to gain predictability and certainly.

This is the fundamental tension of the law.

Contracts and transnational governanceBroad definition: regulation and management of human affairs and relationships.

Note: this definition is close to definition of lawContracts, law and economy

Economical development is related to businessmen who participate to economic activities by using enforced contracts.

Crossing borders: one law, many laws; one court, many courts.o We think of the law depending on the territory where we live.

Globalization: we can no longer think of other jurisdictions as exceptions.o Difficulties: determine which law applies to a particular situation

Choose your own law system by contracts Whence resort to contract: making your own law, and your own court (leaving

coercion). Decision by force: seize by bailiff. 4 examples:

1- Choice of law clauses2- Choice of court agreements and Arbitration clauses3- Industry-wide standard form contracts4- Value chains and audits

1- Choice of law clauses Eg: “This Agreement, including any non-contractual obligations arising out of or

in connection with this Agreement, is governed by, and this Agreement shall be construed in accordance with, English law.”

Difficulties: some legal systems don’t give complete freedom to the parties to decide which law applies.

Channel Tunnel clause“[the contract shall] in all respects be governed by and interpreted in accordance with the principles common to both English law and French law, and in the absence of such common principles (see uniDroit) by such general principles of international trade law as have been applied by national and international tribunals.”

Limitationso Mandatory Law

Ex: currency controls, and the contract doesn’t respect the rules of public policies. The State can declare that the contract is void to a certain point where it breaks the public policy.

o Including limits on choice

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2- Choice of court agreements and Arbitration clausesa. Choice of court agreement Eg: “All disputes arising out of or in connection with this agreement shall be

resolved by the courts of the province of Ontario, to the exclusion of other courts.” creating predictability and certainty

b. Arbitration Clause Eg: “All disputes arising out of or in connection with this agreement shall be

resolved by arbitration under the Rules of the London Court of International Arbitration.”

3- Industry-wide standard form contracts- Standard-Form Contracts (adhesion): Software - Industry-wide contracts:

o Insuranceo Construction

Imposed by financial institutions4- Compliance Audits

Eg: H&M’s purchase order (PO) supplier contract:“…we also reserve the right to appoint an independent third-party auditor of our choice to conduct audits in order to evaluate compliance with our Code of Conduct…”

The Code of Conduct becomes “law” because it is imposed in contract. Verified by 3rd party arbitrators.

Eg2: Coca-Cola’s PO with a bottling plant supplier:“In addition, the Company in its sole discretion may, through written notice to the Bottler, appoint a third party as its representative to ensure that the Bottler carries out its obligations under this Agreement…”

Contracts as voluntary undertakings

Contract = broadest appeal: pacta sunt servanda = contracts bindAlso a general principle of public law: treaty law

Legitimation of contracts Consent = powerful mode of legitimation

o Relies on agency and dignityAgency = human being should be able to conduct his own life, rely on other people to commitDignity = core idea of human rights

Law of the partieso If 2 people make contract, these people are legislating for themselves:

they lay down rules that they promise to obey. o No impact on 3rd party.o Therefore, the law recognizes the compelling nature of “contract law” and

enforces it by setting the right conditions which are legally binding, even though a contract should be obligatory even without any law.

o Important: what makes a contract legally binding?

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Self-imposed legal obligations Both CVL and CML: contracts are self-imposed obligations to which the law will

give effect Recall that it is all based on consent, on free choice, on autonomy: auto-nomos =

choice of law 1134 Code Napoleon: "Les conventions légalement formées tiennent de loi à

ceux qui les ont faites" Hand in hand with English liberalism of the industrial revolution

Limitations in reality Freedom to contract or not to contract: collective agreements in labour law Freedom to chose who to contract with: Quebec Charter rules concerning

discrimination Freedom to determine the content of the contract: vast amounts of compulsory

provisions inserted in insurance contracts To keep in mind

Fouillée: "qui dit contractuel dit juste" (individual and society) Lacordaire: "entre le fort et le faible, c'est la liberté qui asservit et la loi qui libère"

Derogation of law by contracts There are defaults rules can be set aside, departed from by contract. Mandatory rules = rules of public order/public policy Sometimes, the legal system lays down rules that you won’t be about to derogate

from by means of contract. o Ex: rent an apartment. Lease is imposed by the law; the conditions of the

lease cannot be changed by contract. Contract cannot displace mandatory laws.

C.C.Q. Book 5: obligations Reflection questions:

When a contract can be set to be binding? Whether claim? Whether obligations?

Contract = The law of obligations

Liabilities in Common Law and Civil Law traditions (3)

Notes: These are general categories in legal traditions, but not in specific legal systems Civil contractual liability

o Contractual liability: there is a contract that was breached. Unjust enrichment

Some balance needs to be restored, even though no one is wrong.o E.g.: pay back money if by mistake bank transfers money to your

account Civil extra-contractual liability

o Someone was negligent, damage/injury done, etc.o No contract on which to base liability

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Assessment of damages: K.O VS ECO

Extra-contractual is defined based on contractual obligations. o Little book reference for torts o Bound by law: obligation to not put others' property at risk.

E.g. you have a leaking gas can on your property and you smoke. You are liable if something happens and neighbors get injured.

o No contract btw neighbors but legal relationship. Liability/damages assessment: difference btw EC and C:

o Contractual: by comparing the actual result and the hypothetical result, had the contract been carried out.

o EC: by comparing the situation before wrong was committed and the actual situation.

more realistic, more easy to assess

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Case: Hawkins v McGeeJurisdiction New Hampshire (SC)

Facts

Hawkins (P) underwent surgery to repair scar tissue on his hand resulting from burns he sustained from contact with an electrical wire. Dr. McGee (D) gave Hawkins a 100% guarantee that he would be able to repair the scar tissue by grafting skin from his chest to his hand. The surgery was unsuccessful and Hawkins was left with a hairy hand. At trial, Hawkins sought damages for breach of contract due to McGee’s failure to perform including pain and suffering. The jury entered judgment for Hawkins but the judge ordered remittitur. Hawkins refused and brought this appeal.

Issues How are damages determined for breach of contract?

Holding The plaintiff was entitled to expectancy damages plus incidental losses resulting from the breach.

Reasoning

Expectancy damages are damages sufficient to put the plaintiff in the position he would have been if the contract had been performed.

In this case, Hawkins was not entitled to damages for pain and suffering because he would still have endured them had the procedure been successful. Hawkins was entitled to the difference between what he sought – a perfect hand, and what he received – a hairy hand. The plaintiff was also entitled to incidental losses resulting from the breach.

Hawkins could not bring tort claims against McGee because there was no provable negligence.

Normally a doctor’s claims regarding treatment do not form a contract such that lack of success amounts to breach of contract. In this case however McGee guaranteed that the operation would give him a 100% perfect hand.

Ratio Damages for breach of contract are expectancy damages: loss of value between expected results and actual results.

Comments Inducement to contract: obligations imposed on doctor are higher


In Hawkins v McGee, what were the contract terms? Perfect hand? What is perfect though?

o How to interpret “100%”?o As if the accident never happened?o A normal and functional hand?o Are the aesthetics included? (the relevance of the hand being hairy or not

for the “100% perfect” promise)

In general, what are the contract terms? Common Law jurisdiction: difficult to find the answers

o Shortcut: definition of contract: “codification” of the common law rules of contract in the US.

Note: Codification is never a perfect mirror of the law as the judge would apply, codification only presents the law coherently.

o Contract = promises, for the breach of which the law gives remedies: article 1 of the statement on contract

CCQ: civilian definition, but similar on many ways to the COML one: they don't focus on promise, but on agreement

o s.1378 CCQ: agreement of wills by which one or several obligate themselves to one or several persons to perform a special prestation

“prestation” s. 1773: object of contract is the "prestation" that a debtor is bound to render to his creditor

Confusion! 3 common usages of the word “contract”: 1. Agreement 2. Legal relationship that arises from the contract in the first sense

a. "Contract may be terminated in a certain way" -> legal relationship may be terminated

3. Paper on which contract is written. *attention though: not all contracts are written*

COML and CIVL as traditions (distinctions)

COML TRAD: Law of England: Common Law (COML) vs Statute Law (SL)o Common Law

Made by judges through decisions Seen as default law, the law according to which everything else is

understood and interpreted. o Statute Law = written law, interpreted according to rules of Common,

decisions made according to it are very narrow. CIVL TRAD: Legislation = representation of rules known and practiced by people;

court decisions are NOT the default law Customs VS coutumiers VS Code

o Roman Law shaped the customary laws (regional) e.g. New France time: no rules in France, but regional customs (of

Paris, of Normandy, etc.)

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o Coutumiers = codified customs (informal codification of customary laws)o Greater codification = Code Napoleon

History: Development of law in North America coloniesReception of French customary laws in New France

No code when civil law was received in Quebec (new France) 1600s: Reception of French customary laws in New France 1627, 1664: Coutume de Paris was officially in force in New France;

development of local customary law around the Customs of Paris (basis), the law continued to evolve and eventually became the law in Canada ("Ancien Droit")

COML seen as universal: commonwealth to be 1660s: Reception of English Law (SL and CL in the Atlantic Provinces) Development of local SL from 1758 (local legislature created) E.g. of the steps above:

1. You find a empty territory (not occupied by a "official" country)2. It becomes a colony3. British settlers brought the English Law4. Nova Scotia (for example): Local colonial government applied the English

Law as in London at first5. Then the local legislature changed local customary law over time.

How to know whether a SL applicable in England is also applicable in Nova Scotia?

If the SL is adopted later than the date of creation of local legislature (1758), it will not be received. However, the COML (Common Law) is still received even after the establishment of local legislature.

Continuity and Change 1763: Royal Proclamation - English Law

o French Canadians refused to adopt the English Law and continues to apply the Ancien Droit

Uprisings in the Thirteen Colonies. In order to keep the F-C on their side, British authorities passed the 1774 Quebec Act --- Canadian Law re Property and Civil Rights (All public law remains English including criminal law)

1791: Constitution Act: Lower and Upper Canada o 2 distinct colonies with their own legislatures o 1792: Property and Civil Rights Act (UC) o The law prevailing in UC was Civil Law (based on 1774 Quebec Act), but

then the Loyalists enact their own Property and Civil Rights Act to part from the Civil Law tradition, as they wish to stay strictly loyal to England.

1804: Code Napoleon 1841: Union Act: Canada East / Canada West (Separate legal systems, but one

legislature now) o Canada East: all English Law o Canada West: Civil Law for property and civil rights matters, and the rest

= English Law

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1865: Civil Code of Lower Canada o How? o Note: The name of the 2 parts of Canada was object of confusion at this

time in real life. o Need for codification in the context of union act: confusion and opposition

btw the Canada East and Canada West o The civil law tradition was kept because the law in force continues to be

enforced until the competent authorities change them. 1867 BNA act: property and civil rights are provincial matters

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2. The common law and civil law traditions

Themes: - Introduction to the Civil Code of Quebec- Comparing the common law and civil law traditions - Introduction to methodology: “sources of law” in both traditions and doctrine of

precedent

Required reading: - John D. McCamus, The Law of Contracts, (Toronto: Irwin Law, 2012) at 7-13- Geoffrey Samuel, “Classification of Contracts: A view from a common lawyer”, in

Andres, Baldus & Dedek eds, Types of Special Contracts in Europe (Munich, Sellier European Law Publishers, 2011), at 117-122

- A.W.B. Simpson, “The Common Law and Legal Theory” in A.W.B. Simpson, ed, Legal Theory and Legal History: Essays on the Common Law (London: Hambledon Press, 1987) at 359-382.

- Claire L’Heureux-Dubé, “By Reason of Authority or By Authority of Reason” (1993) 27 UBCL Rev 1-18.

Recommended optional reading: - K. P. Berger, ed, The Pratice of Transnational Law (Cornwall: Kluwer Law

International, 2001)

COML traditionMerging of com law and equity courtsSupreme Court of Judicature Acts 1873-75 (England and Wales)

Merging of common law and equity into one Court (on a procedural level) Notes: Beware of technical meaning (aequitas, ex aequo et bono = judge not

bound by legal rule, équité = civil law system term ) Relevance Primacy of equity doctrines over common law doctrines Making strict stare decisis, as opposed to persuasive (not binding) precedent,

possible by creating a very clear hierarchy, with 2 characteristics1. Single system of courts (equity + common law) 2. Hierarchy of courts

Precedent over time

Decideratum :like cases should be treated alikeo concern for equality, coherence, predictabilityo “court is a system”

Binding obligation to apply ratio of decisions made by courts above: stare decisis Obiter dicta:

o A statement made by judge that is not necessary to the decision ratio

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o Unlike the rationes decidendi (ratio of a case), obiter dicta are not the subject of the judicial decision, even if they happen to be correct statements of law.

o Under the doctrine of stare decisis, obiter dicta statements are therefore not binding, although in some jurisdictions, such as England and Wales, they can be strongly persuasive.

Common law theory A system of binding rules VS a living source of reason(s) Influence of continental thinking about legislation as the ideal-type of law Development of positivist legal methodology that focuses on binary reasoning as

opposed to open-ended reasoning (COML) Binary thinking: valid VS invalid; in force VS not in force, etc. (constrains

reasoning for both appearance and reality of enhanced predictability) This is made possible by authority (legislator) This at the cost of reasoning based on weighing reasons (sometimes said that

law provides exclusionary reasons for action) Strict system of precedent favours the reason of authority (ratione imperii) =

binding precedents, rather than the authority of reason (imperio rationis) = persuasive precedents

This is done at a relatively low level of abstraction: rules = ratios of decisions = come out of actual cases, low level of abstraction, +practical (common law) VS principles (civil law)

CIVL traditionCivil code

On a plain level: it includes no more than ordinary and general statutes that have no special paramountcy (not preeminent provisions)

Deeper level: it is a social constitution A Constitution

Disposition préliminaire of the Civil code *very important*o “Harmony with the Charter” o The code has to be interpreted based on underlying general principles

Importance of coherence Broad scope

Accessibility: all law in one place for all to see, legible Jus commune as foundational: starting point for exceptions Default rules for statutes and contracts Statutes = exceptions to the code:

o Sometimes a shifting in legal thinking --> code amendment Internal coherence

Économie générale (internal organization and logic) *not economics

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Interpreted in the light of what it itself provides = if you don't find the answer in the provision, take a step back, go to the next level (articles -> paragraphs)

Highly structured: books, chapters, divisions, sections, paragraphs, articles (circles)

Both mandatory and supplementary Level of abstraction

Higher than statutes, and often common law (droit commun) rules Inscrit dans la duree (like a constitution) Note on language: bilingual? The two languages should lead to the same

interpretation? Controversial cases… Detailed by doctrine in civil law tradition Judiciary (and Precedent) more important in Quebec than in other civil law

traditions (e.g. France) Law and factual situations

o Is VS ought to be o Descriptive VS normative (prescriptive, evaluative, etc.) o Judges find the law, then applies it to the facts (binary) -> Judge doesn't

make the law? No exercise of authority? Fear of judicial power

o Judge is putting law in dialogue with the facts: gives the best interpretation she can to the legal sources in light of the facts (i.e.: in light of the justice of the result produced by the application of the law)

Closer to reality

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II. CONTRACT FORMATION

3. Willingness to be bound and offer and acceptance / exchange of consents

Themes: - Intention to create legal relations in the Common law and in the Civil law- Offer and acceptance / exchange of consents - Revocation and lapse

Required reading: - CCQ 1390-1395 - Carlill v Carbolic Smoke Ball Co, [1893] 1 QB 256 (CA)- John D.R. Leonard v Pepsico, Inc,United States District Court, Southern District

of New York 88 FSupp2d 116 (SDNY 1999), aff’d 210 F3d 88 (2d Cir 2000)- Richard v Time Inc. 2007 QCCS 3390- Kleinwort Benson Ltd v Malaysia Mining Corp BHD, [1989] 1 All ER 785 (CA)- Jones v Padavatton, [1969] 2 All ER 616- Lavoie c Bernier (Succession de) 2010 QCCA 342- Pharmaceutical Soc of Great Britain v Boots Cash Chemists, Ltd, [1953] 1 QB

401 (CA)- Entores v Miles Far East Corporation, [1955] 2 QB 327 (CA)- Shatford v BC Wine Growers Ltd, [1927] 2 DLR 759 (BCSC)- Dawson v Helicopter Exploration Co, [1955] SCR 868- Bristol, Cardiff, and Swansea Aerated Bread Company v Maggs (1890),

44 Ch D 616- CUQ v Construction Simard Beaudry, 1987 RJQ 2020 (CA)- Butler Machine Tool Co Ltd v Ex-Cell-O Corp Ltd, [1977] 1 All ER 965- Stephen M. Waddams, The Law of Contracts, 5th ed (Toronto: Canada Law

Book Inc, 2005) at 64-82- I. Maurice Wormser, “The True Conception of Unilateral Contracts” (1916-1917)

26 Yale LJ 136- Draft Common Frame of Reference, s. II.-4:102: “How intention is determined”

Reflection questions: How is a contract formed? What conditions need to be fulfilled? What kind of agreement is recognized by law? How to change a contract terms? How to terminate a contract?

Consent A reason A legal mechanism Formalized: external VS internal

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o Psychological attitude which must be externalized through exchange, communication

Operationalized: objective VS subjective 1386 CCQ:

The exchange of consents is accomplished by the express or tacit manifestation of the will of a person to accept an offer to contract made to him by another person.

Offer VS mere puff

COML Its validity is judged by the standard of the reasonable, objective person: how an

average person would understand it (Leonard) The intention can be demonstrated by actions (Carbolic Smoke Ball) Must use definite promissory language (Kleinwort Benson)

o Present tense statements of policy do not demonstrate intention, just indicate a moral obligation (Kleinwort Benson)

o Repeated guarantees or inducements demonstrate intention (Hawkins)o Cannot be a statement made evidently in jest (Leonard)

Advertisements are generally not intentions to be legally bound (Carbolic Smoke Ball in contrast with Leonard; below in “Preliminary negotiation (invitation to treat)”)o Ad is invitation to treat (Leonard) o Exception explicit language in advertisement (Carbolic Smoke Ball)

The Pepsi case US Leonard V Pepsico Inc.Facts Pepsico (D) ran a promotional campaign in which consumers were invited to

acquire “Pepsi Points” by purchasing Pepsi products, and exchange them for “Pepsi Stuff”. Leonard (P) received a catalog for use in redeeming “Pepsi Points”. Television advertisements featured merchandise available through the promotion including a Harrier Jet. Leonard saw the commercials and contended that the commercial constituted a valid offer to acquire the jet for 7,000,000 Pepsi Points.

Leonard obtained a catalog and noticed that the order form did not include the Harrier Jet. The catalog stated that merchandise could only be ordered via original order form. The form also indicated that additional points could be purchased for ten cents each. Leonard raised $700,000 in order to purchase the 7,000,000 points needed to acquire the jet.

Leonard submitted a completed order form together with a check and wrote in “1 Harrier Jet” at the bottom of the form. Leonard indicated that the check was for the express purpose of purchasing the points needed to obtain a new Harrier jet as advertised in the commercial.

Pepsico rejected the submission and returned the check, noting in its rejection that the jet was not in the catalog and thus could not acquired through the promotion. Pepsico apologized for any misunderstanding and informed Leonard that the commercial was intended to be humorous and entertaining. Leonard sued

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when Pepsico refused a formal demand to honor its offer. Pepsico moved for summary judgment.

Issues What standard is applied in determining whether some communication constitutes an offer?Is an advertisement an offer?

Holding The advertisement was not an offer. The plaintiff is not entitled to receive the Harrier Jet

Reasoning Advertisements are generally not offers. The presumption is that there is no definitive and operative offer to buy or sell goods by advertisement.

Such ads are understood to be mere requests to consider and examine and negotiate, unless the language used is plain and clear and that the circumstances are exceptional.

The expression of willingness of the offeree doesn’t transform an advertisement into an offer.

There is no contract unless the company cashed the check. The plaintiff made an offer to Pepsi, which was not accepted.

“The exception to the rule that advertisements do not create any power of acceptance in potential offerees is where the advertisement is “clear, definite, and explicit, and leaves nothing open for negotiation,” in that circumstance, “it constitutes an offer, acceptance of which will complete the contract.”

The alleged offer is indefinite, and is a mere advertisement. An objective and reasonable person would not have considered the commercial an offer. The offer was clearly not serious, because the way the ad is presented is full of fantasy and unrealistic scenarios.

Ratio Whether something constitutes an offer is determined under the objective reasonable person standard. The general rule is that an advertisement does not constitute an offer.

The key question was: Did the defendant intend to bind itself to offer the Harrier jet in exchange for pts?

There was no intention to create legal relations: the context was not serious. It was not an offer, but merely an ad which is not binding. The ad was an invitation to treat (to make offers)

Concerning the fact that the plaintiff perceived the ad as an offer, the court had to evaluate based on the "normally reasonable person standard" in the context. In this case, a reasonable person would have perceived the ad as a mere puff.

Carlill case England Carlill v Carbolic Smoke Ball CoFacts The smoke ball Co. promised in an ad to pay £100 to anyone who used

the ball following the instructions and still got the flu. Mrs. Carlill used the smoke ball for three months, three times a day, and still contracted influenza. $1000 (pounds) has been deposited to show the company’s sincerity. Carlill claims the $100. The trial court decided in favor of Carlill.

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The defendants appealed.Issue Is the advertisement a binding contract? If so, is it enforceable in point of

law?Holding The plaintiff shall receive $100 reward. Appeal rejected.Reasoning Lindley L.J.

The language used in the advertisement shows the nature of a promise. The $1000 deposited shows that the company was willing to prove its sincerity, which confirms the serious character of a promise. The promise is made to anyone who performs the conditions; and anyone who performs the conditions accepts the offer. It is a continuing offer. In this case, the notification doesn’t need to precede the acceptance (exception to general rule). If ever a notification is needed, in this case, notice of acceptance = notice of performance. There was valid consideration because the person who accepts the offer puts himself to some inconvenience at the request of the defendants and the defendants has an advantage of selling more of the remedy.Bowen L.J (adds to Lindley L.J.’s reasoning)We have to read and interpret the advertisement in its plain meaning (how would the public understand it?). His interpretation: $100 will be paid to any person who shall contract the increasing epidemic after having used the carbolic smoke ball three times daily for two weeks.

Ratio One who makes a unilateral offer for the sale of goods by means of an advertisement impliedly waives notification of acceptance if his purpose is to sell as much product as possible.Actions can show sincerity of intention to be bound (depositing money in the bank).

To make a contract, there must be a serious promise. Difference with the general rule in case of offer with reward: the performance of the

conditions constitutes acceptance. There is no need of notification of acceptance. Consideration (a COML feature, necessary to contract formation)

o "Any act of the plaintiff from which the defendant derives an advantage or benefit. Or any detriment sustained by the plaintiff that derives from the performance of the act to which the defendant expressly or implicitly consents.

CIVL 1388 "offer"

An offer to contract is a proposal which contains all the essential elements of the proposed contract and in which the offeror signifies his willingness to be bound if it is accepted.

1387 "Contract formed" A contract is formed when and where acceptance is received by the offeror, regardless of the method of communication used, and even though the parties have agreed to reserve agreement as to secondary terms.

o Some of the terms of the offer may be absent, but a contract is formed when the essential elements are present.

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Circumstances are important too.

Preliminary negotiations (invitation to treat)

COML The presumption in the retail industry is that advertisements are invitations to

treat. An invitation to treat is not an offer. (Pharmaceutical Society)

England Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern)Facts Boots puts its drugs on the shelf, rather than behind the counter.

Pharmaceutical Society requires a pharmacist to be present at the sale to regulate what people buy

Issue Does displaying the drugs on the shelf constitute an offer?Holding Appeal dismissed/For BootsReasoning Pharmaceutical Society contends that placing the materials on the shelf

constitutes an offer, and that the consumer accepts the offer when he takes the package from the shelf and places it in his basketo If this is the case, the pharmacist’s intervention is too late, and if he

thinks it is the wrong medicine, by the time the consumer makes it to the pharmacist at the cash, it is too late for the pharmacist to say no because the contract is already formed

Pharm. Soc.’s argument would imply that the consumer is not able to put something in the basket and then put it back once he finds a more desirable item, because it would be breach

Court finds that putting it on the shelf is an invitation to treat, that the consumer makes the offer at the cash, and the pharmacist then accepts it.

Ratio Display of goods on a shelf is not an offer, just an invitation to treat.

CIVL 1389 "initiator of contract or person who determined the content"

An offer to contract derives from the person who initiates the contract or the person who determines its content or even, in certain cases, the person who presents the last essential element of the proposed contract.

Quebec Lavoie c. BernierFacts Lavoie (A) wanted to buy the house at the asked price. Another person

also wanted to buy the same immovable for a higher price. Both communicated with the real estate agent of the seller and signed a formal document of promise to buy the immovable. The appellant claimed that by signing the promise to buy as the asked price, he accepted the offer of the seller and is entitled to buy the house at this price.

Issue Does the document signed by the appellant constitute an acceptance of an

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offer to sale from the seller, which would form a binding “avant-contrat”?Holding No, appeal dismissedReasoning Judges: The offer to sell a house is not an offer to contract at the asked

price. Real estate agents cannot make potential buyers sign an acceptance of the seller’s offer. The document is a promise to buy at the price proposed by the potential buyer, it does not form a contract to contract nor a unilateral promise to contract. The buyer makes an offer to the seller.

Ratio Real estate: the seller’s listing of sale is not an offer to contract at the asked price; it is an invitation to treat (appel d’offres).When a buyer proposes a price and signs a promise to buy, he makes an offer to contract.

Willingness to be bound

COMLThe court's role is to "ascertain what the common intentions should be ascribed to the parties from the terms of the document and the surroundings of the circumstances.

Canada COML

Kleinwork Benson Ltd v Malaysia Mining Corp BHD

Facts Malaysia Mining Corporation Metals Ltd (MMC Metals) was a wholly owned subsidiary of the defendant, MMC BHD. MMC Metals approached the claimant KB Bank for a loan. MMC Metals was a relatively newly formed company lacking in the size and resources of MMC BHD. The bank approached MMC BHD asking if they would act as guarantor for the loan. MMC refused to act as guarantor but stated they it was their company policy to ensure that their subsidiaries are always in a position to meet their debts. In reliance of this letter of comfort the bank advanced money to MMC Metals. MMC Metals subsequently went into administration having not paid the loan. KB brought an action against MMC BHD to recover their loss based on the assurance given in the comfort letter.

Judicial History

Kleinwort Benson Ltd obtained damages for breach of contract against the defendants

Issue Is the comfort letter a form of guarantee or contractual promise that is binding?

Holding No; appeal allowedReasoning The words used didn’t express a contractual promise, but simply a

representation of facts in the circumstance of a comfort letter. However, the absence of express words of promise does not by

itself prevent a statement from being treated as a contractual promise.

In this case, it cannot be treated as a contractual promise because the context in which the comfort letter was made shows clearly that

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the parent company doesn’t want to make a contractual promise. The comfort letter referred to company policy at that time. There

was nothing to stop the company changing its policy. International custom that comfort letters do not constitute a promise.

Ratio Comfort letters are not binding contractual promise. Context in which agreement is formed can be considered when determining intention to create legal relations.

Some parts of the letter form a promise, some not. Part [2] of the letter could form contractual obligations.

Wording of the document leads to this conclusionNote: as opposed to CIVL, COML is reluctant to look outside of the contract in order to determine the content of the contract.

The intention to be bound is essential in the formation of contract. o Commercial background: it is presumed that the parties want any

agreements/promises to have legal effects. (as opposed to Jones which concerns family matters)

o Since the MMC BHD did not intend to be bound by refusing to be guarantor, the comfort letter alone can't lead to the formation of a binding contract.

The comfort letter that expresses merely the present intentions and the facts as a statement is not promissory.

o However, if statements made in the letter are false when they were made, there may be a tortuous liability.

Company policy: is it a technical term or a legal term?o It may be a binding promise, depending on the setting. E.g.

return/exchange in retail stores Difference with CIVL in analysis: good faith (in negotiating, forming, and fulfilling

the contract), not only the document itself

England Jones v PadavattonFacts A mother promised to pay her daughter $200 per month if she gave up her

job in the US and went to London to study for the bar. The daughter was reluctant to do so at first as she had a well paid job with the Indian embassy in Washington and was quite happy and settled, however, the mother persuaded her that it would be in her interest to do so. The mother's idea was that the daughter could then join her in Trinidad as a lawyer. This initial agreement wasn't working out as the daughter believed the $200 was US dollars whereas the mother meant Trinidad dollars which was about less than half what she was expecting. This meant the daughter could only afford to rent one room for her and her son to live in. The Mother then agreed to purchase a house for the daughter to live in. She purchased a large house so that the daughter could rent out other rooms and use the income as her maintenance. The daughter then married and did not complete her studies. The mother sought possession of the house.

Issue Was there a legally binding agreement between the mother and the daughter?

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Holding No; only family agreement not intended to be bindingReasoning The agreement was purely a domestic agreement which raises a

presumption that the parties do not intend to be legally bound by the agreement. There was no evidence to rebut this presumption.

Ratio Family arrangements are generally not intended to be binding. When there is no intention to enter legal relations, there cannot be a contract.

Some kinds of relationship tell the judge that the parties did not intend the breach of their "contract" to have legal consequences. --> family matters

However, there might be moral obligations in this case

CIVL 1388: An offer to contract is a proposal which contains all the essential elements

of the proposed contract and in which the offeror signifies his willingness to be bound if it is accepted.

Prohibited practices in formation

CIVLQuebec Richard v Time inc.Facts In 1999, Mr. Richard received an envelope sent by the Respondents that

contained documents in English, one of which was entitled “Official Sweepstake Notification”. After reading the documents, Mr. Richard concluded that he had won US$833,337. He filled out the reply coupon and subscribed to Time magazine. Since he did not receive his prize, he contacted Time and found out that he would not be receiving a cheque because he did not have the winning number. He also learned that the person who had signed the documents as the sweepstake manager did not exist. Time explained to him that the documents were merely an invitation to participate in the sweepstake and that he could win only if he had received the “Grand Prize Winning Entry” (which was not the case) and had returned it in time. Mr. Richard therefore brought an action in damages against the Respondents alleging breach of contractual obligations and violations of the Consumer Protection Act.

Issue Was the advertisement misrepresented?Was a valid contract of subscription formed by receiving and sending the sweepstakes?

Holding Yes; noReasoning The court asks how an average consumer would have understood the

advertisement in a 2 steps analysis:1) What’s the general impression that the representation is likely to

convey to a credulous and inexperienced consumer2) Is that general impression true to reality?

In this case, an average consumer would have thought that R had the winning entry and had only to fill the form and return it to claim the prize. There is misrepresentation according to Consumer Protection Act. Also, the defendant omitted to mention important facts in the advertisement.

Ratio Misrepresentation in formation of consumer contract voids it (Consumer

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Protection Act)

Special protection regime with special remedieso presumption of prejudice; punitive damages beyond compensation of the

damages, as authorized by the Quebec's Charter of human rightso These special protections are organized around the formation of

consumer contract (subscription) under the protection of Consumer Protection Act

The regime doesn't respond to the usual "consent" reasoning: even if statement is corrected before "formation of contract" (attract the consumer first, give all the info just before finalizing the contract), the court would hold that the contract is still tainted by false or misleading representation.

Term, revocation

COML Duration of an offer: reasonable amount of time

Shatford v B.C. Wine GrowersFacts Shatford(P) mails his acceptance to an offer for a certain amount of loganberries

6 days after the offer was made. There was no term attached to the offer. BCWG (D) refuses to perform contract. Plaintiff deposits a motion because he believes that the contract was formed.

Issue Is BCWG right in assuming that the offer lapsed?Holding Yes (invalid acceptance)Reasoning

Considering the perishable nature of the product, and the limited temporal nature of the market at this time of year (April-May), 6 days is an unreasonable time to expect to wait for acceptance. The reasonable time should be the same day or the morning after.

Ratio Offers only remain open for a reasonable amount of time, determined by the nature of the agreement and the product.

Revocation: anytime before acceptanceBristol, Cardiff, and Swansea Aerated Bread Company v Maggs

Facts Maggs (D) made an offer to sell property to Bristol (P). Bristol’ representative sent a letter as to its willingness to accept the offer. Several negotiations went on. Finally, the parties couldn’t reach consent over modified clauses. Maggs revokes the offer.

Issue Were the 2 letters exchanged enough to form a contract?Holding NoReasoning Later requests show that negotiations were still taking place: there was no

concluded contract since counter-offers are still ongoing. Maggs was at liberty to put an end to the negotiations by withdrawing his offer. He is also not obliged to respect the 10 days term since it was not binding in an offer.

Ratio An offeror is the master of the offer. Revocation can take place anytime before the offer is accepted, regardless of the promised term.

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Counter-offer kills the offer.

Revocation of bilateral agreement is invalidBC Dawson v Helicopter Exploration Co.Facts Dawson staked a mineral deposit in a remote area in British Columbia in

1931. In 1951, Helicopter Exploration Co. submitted a proposal to finance a stake in Dawson’s claims, to which the latter responded favourably. The parties agreed that the Dawson would show the H.E.Co. the deposits once the H.E.Co. could locate a helicopter to access the site. Several months later, H.E.Co. informed Dawson that although they had located a helicopter pilot, but that they no longer considered the deposits to be of interest; Dawson did not reply. Shortly thereafter, the H.E.Co sent an exploration party to the region in question and arranged to develop the claims.

Issue Does the agreement between the parties constitute a contract? Was revocation valid?

Holding Appeal allowed; Bilateral agreement (invalid revocation by HECo)Reasoning The H.E.Co.implied that it would fulfill the promise made in its proposal.

The only condition made this promise was the location of a helicopter pilot. In return, Dawson promised to show.The terms of the agreement were bilateral as they involved complementary action by both parties. Unlike in the case of a unilateral contract, the offer by H.E.Co. could therefore not be revoked before the completion of performance.

Ratio Promise implied by both parties in an agreement constitutes a bilateral contract, and such a contract binds both parties to the performance of agreed terms.After acceptance and formation of a bilateral contract, revocation is invalid.

CIVL 1390 CCQ

An offer to contract may be made to a determinate or an indeterminate person, and a term for acceptance may or may not be attached to it.Where a term is attached, the offer may not be revoked before the term expires; if none is attached, the offer may be revoked at any time before acceptance is received by the offeror.

1391 CCQWhere the offeree receives a revocation before the offer, the offer lapses, even though a term is attached to it.

1392 CCQ: an offer lapses if [1] no acceptation, [2] counter offer [3] death or bankrupt An offer lapses if no acceptance is received by the offeror before the expiry of the specified term or, where no term is specified, before the expiry of a reasonable time; it also lapses in respect of the offeree if he has rejected it.The death or bankruptcy of the offeror or the offeree, whether or not a term is attached to the offer, or the institution of protective supervision in respect of

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either of them also causes the offer to lapse, if that event occurs before acceptance is received by the offeror.

Consensus Consensus ad idem (agree on the same terms, common understanding)/battle of

forms (commercial: parties want to use their own forms of contracts)

COML

Counter-offer kills the offer and clears the previous terms. Further answer = acceptance of the counter-offer

The one who fires the last shot is the winner of the battle of forms!

Butler Machine Tool Co Ltd v Ex-Cell-O Corp LtdFacts Butler(R) made a quotation offering to sell a machine to the buyers Ex-

Cell (A) for 75, 535 sterling’s. The offer was stated to be subject to certain terms and conditions which “shall prevail over any terms and conditions in the buyers’ order”. The conditions included a price variation clause providing for the goods to be charged at the price ruling on the date of delivery. Ex-Cell replied by planning an order for the machine. The order was stated to be subject to certain terms and conditions BUT no provision for a variation in price. At the foot of Ex-Cell’s order there was a tear-off acknowledgement of receipt of the order stating that “We accept your order on the Terms and Conditions stated thereon”. Butler completed and signed the acknowledgement and returned it to the buyers with a letter stating that the buyers order was being entered in accordance with the seller’s first quotation. When Butler delivered the machine it claimed that the price had increased. Ex-Cell refused to pay contenting that the contract had been concluded on the buyer’s rather than on the sellers’ terms and was therefore a fixed-price contract.

Judicial History

For Butler (contract concluded on seller’s terms in the opening offer)

Issue On what terms was the contract concluded?Holding On the buyers’ term; Appeal allowed.Reasoning 1) The sellers (Butler) by completing and returning the

acknowledgement of the order on June 5th, which was stated to be on the buyers’ terms and conditions, had accepted the counter-offer on the buyers’ terms and could not therefore claim to increase the price under the price variation clause contained in their own offer.

2) The acknowledgement of the order of June 5th was the decisive document since it made it clear that the contract was to be on the buyer’s and not the seller’s terms.

Ratio The counter-offer kills the offer.

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CIVL Counter-offer kills the offer.

Quebec Communauté urbaine du Québec c. Construction Simard-BeaudryFacts City (P) puts out a request for tenders for some sewer work (offer)

CSB (D) puts a tender on a construction contract with the City (counter-offer)

CSB forgot $200,000 in the estimate, so tried to increase the price CSB refuses to perform the contract at a loss Stipulation in original tender that stipulated companies were liable for

$200,000 in error, with no time limit Liability was later changed on the form that CSB gave as its bid, that

said construction company was only liable for errors up to $35,000, with a 6 month time limit

City wants the difference between CSB’s bid and the next lowest (which the City actually has to pay)o Expectancy damages – wants the value of the promise (like

Hawkins)o City claims the tender was binding

CSB claims that by accepting their offer, the City accepted the stipulations on the tender (counter-offer)

Issue On whose terms was the contract concluded?Holding On CSB’s terms.Reasoning By accepting S’s offer, the City accepted all the terms in it.Ratio Last shot rule: the last accepted offer defines the contract’s termsComments Battle of forms: the city requested all bidders to use its form, but CSB

used its own form. The city accepted the terms without thoroughly looking at the form.

Acceptance & Communication rules

In both CVL and in CML General rule = rule of reception: acceptance must have reached the offeror in

order to form the contract Exception = Post box rule: If the offer is made by post, the acceptance is

considered to be received at the moment when the letter is sent. (explained in Entores by contrast: the post box rule didn’t apply because Telex is not the same as a letter)

o The Post box rule applies ONLY to acceptance based on the current law.

England Entores v Miles Far EastFacts Negotiation occurred by Telex between London and Amsterdam

Plaintiff in London, defendant in Amsterdam (subsidiary of an American company)

Amsterdam sends offer, London modifies offer (thereby making a new offer), Amsterdam sends acceptance

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Issue In which jurisdiction was the contract formed? When did the acceptance take effect?

Holding London; when the offeror received acceptanceReasons Amsterdam is the jurisdiction if dispatching the acceptance is enough to make

the contract (as in the ‘mailbox rule’). London is the jurisdiction if the acceptance must be acknowledged by the offeror (as is the case in person-to-person contracts). The judge finds on the Telex the acceptance must be received because it is more instantaneous than a letter.

Ratio Acceptance by Telex must be received by the offeror to form the contract.

(Specific to) CIVL Quebec: An Act to Establish a Legal Framework for Information Technology:

Communication is received when it reaches the server of the recipient and is accessible to him.

Silence as acceptance? No, but exceptions.o 1394 CCQ

Silence does not imply acceptance of an offer, subject only to the will of the parties, the law or special circumstances, such as usage or a prior business relationship

Unilateral contractIn unilateral contracts, on one side we find merely an act, on the other side a promise.

COML Concept = acceptance by performance

Revocation issue (common law) = offeror is the master of the offer. Power to revoke the offer anytime before it is accepted. However, he has to show that the person has been informed of the revocation

o Danger: "the flag pole" -> revoke the offer just before the person climbs to the top and rips the flag off

If the parties agreed on complementary performance, it is no longer an unilateral contract (Dawson)

CIVL 1395.

The offer of a reward made to anyone who performs a particular act is deemed to be accepted and is binding on the offeror when the act is performed, even if the person who performs the act does not know of the offer, unless, in cases which admit of it, the offer was previously revoked expressly and adequately by the offeror

Some industries: acceptance by performance

Promise to Contract vs Offer & Acceptance (CIVL) S.1396

An offer to contract made to a determinate person constitutes a promise to enter into the proposed contract from the moment that the offeree clearly indicates to

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the offeror that he intends to consider the offer and reply to it within a reasonable time or within the time stated therein.A mere promise is not equivalent to the proposed contract; however, where the beneficiary of the promise accepts the promise or takes up his option, both he and the promisor are bound to enter into the contract, unless the beneficiary decides to enter into the contract immediately.

PROMISE OFFERTo determinate person Determinate or not (s.1390 (1))Promisee must clearly indicate that he will consider and rely within the delay

No action required from the offeree

Offeree has all of the essential elements to form a contract (essential terms) and has power to form a contract by acceptanceA contract to contract, not the contract itself

Synallagmatic (bilateral consent); s.1396 (2) Unilateral contract (only one party has an

obligation); s.1396 (1)

Not a contract

Promise survives promisor's death, bankruptcy (because it's a contract)

Offer dies with offeror or patrimony (in case of bankruptcy)

Acceptance (taking up option) Promise can be made reciprocal (levee de l'option) -> synallagmatic Still not the contract itself, unless the offeree makes this clear E.g. Real estate transactions

Summary: promise vs offer vs acceptance1-Offer with term

2-From the moment the promisee indicates that he will consider it till he replies within the term = offeror is bound by a unilateral promise to enter proposed contract

3-Acceptancea. bilateral promise to enter the contract, which is a contract in

itself but different from the proposed contract ORb. by the proposed contract itself, if the offeree makes it clear

that he accepts the offer (not only the offeror’s promise to enter the contract).

Conditions Capacity to contract s.1385

o Promisor: at the time of promiseo Promisee: at the time of taking up the options ... despite the fact that

promise is itself a contract (if incapable to contract, then a simple offer). Legality of the object at the time of formation (taking up the option) S.1415

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A promise to enter into a contract is not subject to the form required for the contract.

Effects of the “option” Irrevocable until end of time limit

o If want to make offer revocable, need to make another contract where the parties agree to make the offer open.

Provision: "the offer is revocable at any time." Create a personal right: if the offer is revoked before the end of the term, the

offeree can claim damages (in case of loan, donation), or specific performance (only in case of sale, excluding real property sale). S.1590

In general, damages rather than specific performance even when possible To third parties: promise = “inopposable”, unless that person knew that there was

a promise btw the seller and another person. In that case, there's bad faith. The promisee can set up against the third party.

In COML, it would be under offer/acceptance framework. The promise to sell is an offer that may be revoked at any time before a promise to buy is indicated.

E.g. Cere

Quebec Cere c NeelyFacts N gives C an option on land (promise to sell), C gave N 200$ as

deposit.o Price guaranteed at $4000o Term 2 years

Before the term expires, N sells the land to Reid Before he exercised his option, C agreed to sell the land to a third

party for $9000Issue Was the option binding? Does N owe C for the lost profit on his sale of the

option?Holding Yes; yesReasoning Option constitutes “une promesse unilatérale de vente”, though

not a real contract. C relied on the promise. C has a personal claim on the option, though no real right was

created. Damages for amount of lost profit, but not brokerage or notary

fees because C’s resale was rash and not N’s problem. C cannot claim against Reid (who is a third party to the option).

Ratio Options are binding unilateral promises once the promisee indicates that he will consider the offer.

Comments If the case was in COML, there is consideration (200$ cheque) and would make the promise binding. In CIVL, it is binding anyway.

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4. Essential elements of contracts and types of agreements

Themes: - Incomplete and ambiguous agreements - The mirror image rule - Agreements to agree: pre-contractual agreements- Extra-legal arrangementsRequired reading:

- CCQ, Art 1396- Terrasse Holdings v Saunders, [1989] RL 265 (CA)- Raffles v Wichelhaus (1864), 2 H & C 906 (Exch)- Cere v Neely, [1980] CS 1160- Empress Towers v Bank of Nova Scotia, [1991] 73 DLR (4th) 400 (BCCA)- Bernard Rudden, “The Gentleman’s Agreement in Legal Theory and in Modern

Pratice” (1999) ERPL 199- A.W.B. Simpson, “Contracts for Cotton to Arrive: The Case of the Two Ships

Peerless” (1989) 11 Cardozo L Rev 287- UN Convention for the International Sale of Goods, Art 19- Uniform Commercial Code, Arts 2-207- UNIDROIT Principles of International Commercial Contracts, Art 2.1.11- Principles of European Contract Law, Art 2.209

Gentleman's Agreements No law ever (no intent to create legal relations)

o To form a contract, there must be an intention to form the contract that imposes legal obligations (eg. Family matters, priest and church -> employment?)

o Document for joint venture, but it is clear that you don't want this to have legal effects, only social pressure and other means to enforce moral obligations

o Difficult to determine in law. Title of the document is sometimes determinative, but not absolutely (e.g. comfort letter can give rise to legal obligations even if you give it a name that doesn't imply legal obligations)

No law yet ("subject to contract" etc.) o Standard clause when you are negotiating over a fairly long period, want

to make sure that the documents that the parties are exchanging during negotiation don't have legal effect until a final agreement is reached.

o Useful, because in some circumstances, documents that are exchanged in time of negotiation may be used against yourself in a claim that they have legal effects.

o It is not universal though. You can't exclude torts obligations. When it comes to contract terms, it is generally accepted that people can exclude law to some contractual relationship.

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o E.g. You can exclude the court by choosing arbitration. The law now generally recognizes the power of parties to oust the law by

choosing arbitration, or the jurisdiction that applies as long as there is an international element in the contract.

Pre-contractual agreements (agreements to agree) 2 conceptions

1. The contract was validly formed at the pre-contractual stage. 2. No, the parties did not intend this document to have legal effect, they want

the contract to be formed when an official contract is signed.

In both traditions, if any essential elements of the contract is missing and has been replaced by an agreement to agree, the contract is not completed.

The question of legal effect of pre-contractual documents is raised when a party brings changes to important provisions of the contract and the other party doesn’t agree. The other party will claim that the contract has already been formed.

COML Agreement to agree gives no rise to legal obligations. It is not a guarantee in

itself. However, if there is a mechanism or a precise formula included in the contract, the agreement is enforceable. The court will apply the formula

BC (COML) Empress Tower v Bank of Nova ScotiaFacts Empress is the landlord and the Bank, the lessee. There is a renewal clause in

the actual lease: the rent in a renewed lease will be the market price, as agreed by the landlord and the tenant. If either party doesn’t agree, it can terminate the contract.Bank offered 5400$ and expresses its willingness to negotiate. It also justified the price as recommended by analysts. Empress waits until the last possible day and asks for 5400$ per month plus 15000$ up front.Empress is seeking a writ of possession in court.

Issue Was the renewal clause void for uncertainty or as an agreement to agree?Holding No + Empress negotiated in bad faith.Reasoning Three categories of options

o Rent to be ‘agreed’ – usually unenforceable as it is an agreement to agreeo Rent to be established by a stated formula but no machinery is given –

court supplies machinery – may be enforceableo Formula provided is defective, but machinery is provided – machinery

used to cure the formula “Court will try … to give the proper legal effect to any clause that the parties

understood and intended was to have legal effect” Effect of the renewal agreement in the instant case

o 3 elements: the parties will try to agree (1) on the market price (2), and if they don’t reach agreement, either party can ask for termination (3)

o Therefore, the court’s interpretation is that the “landlord cannot be compelled to enter into a renewal tenancy at a rent which it has not

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accepted as the market rental”o However, there are two implied terms arising out of the renewal clause:

1- the “landlord will negotiate in good faith … with the objective of reaching an agreement on the market rental rate

2- “agreement on a market rental will not be unreasonably withheld”

o These two terms are “implied under the officious bystander and business efficacy principles in order to permit the renewal clause, which was clearly intended to have legal effect, from being struck down as uncertain”

Towers cannot rent to anyone for less than Bank was willing to pay. If there was no framework to establish certainty as to terms, it would be an

“agreement to agree” (unenforceable); here the judge finds a framework to validate the Bank’s reliance.

Ratio Mere agreement to agree is unenforceable, but an obligation to negotiate in good faith is implied in cases of reasonable expectation to negotiate (while it is not in mere agreements to agree)

Comments Note that there is a period of negotiation built in the contract (hint for the court to find that the parties intended the renewal clause to be more than just agreement to agree).

Interestingly, there are two categories of options that are in play: agreement to agree & stated formula (market price). Which one prevails?

Court combined the two options to find that the parties imposed on themselves an obligation to negotiate the rental in good faith. Mere agreement to agree on the rental wouldn’t have the same effect since it is not clear enough to be binding contract.

COML: reminder that there is no general implied obligation to negotiate in good faith, unless set by a contract (see 8-implied obligations)

"Official standard": What the 3rd party would say as reasonable "Contract efficiency": What terms should be implied in the contract to

make it effective (see 7-interpretation and incorporation)

CIVL: Agreement to agree = parties are bound to try to agree

Back to consensus: essential elements Essential terms must be agreed upon for the contract to be formed.

COML Essential features:

Completeness Non ambiguity Preciseness (not too vague)

Raffles v Wichelhaus (Peerless ships)Facts R offers to sell W a load of cotton that was arriving by the Peerless from

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Bombay W refuses to pay for the cotton when R delivers it, because the cotton came

on a different ship than W thought R says he meant the Peerless that left Bombay in December W says he meant the Peerless that left Bombay in October W claims this confusion means there was no meeting of the minds

(consensus ad idem) Plaintiff’s lawyer claims it is immaterial which ship it comes on – inessential

elemento Same quality of cotton, same origin, it just came on a different shipo But plaintiff’s counsel submits the only reason to introduce the ship was to

determine liability if it sank – if the ship sinks the seller need not provide the cotton

At the time, arrival contracts like this were based on a specific arrival time – prices fluctuated hugely and the buyer would base his estimate for the price on when the ship was expected to arrive (could be thousands of pounds difference in price)

Issue Was the contract validly formed? Is the specification about the ship and the time of delivery an essential element for the contract formation?

Holding No contract (no meeting of the minds); Yes, it is an essential elementReasons The ship on which the cotton arrives is an essential element since the arrival time

is different and price will vary considerably.Ratio Meeting of the mind theory: the parties must agree on essential elements for a

contract to be validly formed. Any ambiguity on those elements voids the contract.Comments Classical contract law doctrine – “required acceptance to be precisely the

same as the offer at the peril of being treated as no more than a new offer” (MacNeil, at CB 209; Raffles)o There can be no ambiguity in the terms of the contract to have

consensus ad idem (meeting of the minds) Rationalization of contract law in COML from CIVL inspiration, started in US

through this case.o Roman law: contract = meeting of the mind. COML was inspired by this

idea.

CIVL 1388 CCQ. An offer to contract is a proposal which contains all the essential

elements of the proposed contract and in which the offeror signifies his willingness to be bound if it is accepted.

Qc Les Terrasses Holding v SaundersFacts Terrasses is a development company. Saunders is their employee. Most of the

locals are rent out, only the least appalling ones are left. Terrasses proposes to give Saunders a bonus of “up to 60000$ to 70000$” if he rents everything out. Saunders works hard and fulfilled the goal. Terrasses doesn’t want to give him the bonus because the company’s finances are not doing well. Saunders institutes an action to get specific performance the contract.

Issue Was there a valid contract? Is Saunders entitled to recover the bonus, and on which grounds?

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Holding No; Yes, for unjust enrichmentReasoning There was no valid contract formed, as the determination of the price is an

essential element of the contract and that uncertainty regarding it makes the proposal by Terrasses not a valid offer to contract.As there was no consensus between the parties as to the amount to be paid, the court cannot read an essential element into the contract for the parties.However, on fairness ground, the court feels that Saunders should be entitled to the promised bonus since he worked so hard because of the incentive. The only way for the court to do so is through unjust enrichment (instead of through contract law)

Ratio Meeting of the mindsEssential elements are needed for a contract to be validContract must be based on parties’ intentionAbstention of the judiciary to formulate a term not intended by the partiesUnjust enrichment

Comments Mechanism/formula for determining the price = absent --> no contract The person invoking the contract has to prove its existence by providing

evidence of all the essential elements. Unjust enrichment --> judges determine the impoverishment suffered by

the respondent and decided the amount of damages due to him. Even if the parties both intended for the bonus to be between 60 000 and

70 000$, because there is not a precise amount, the essential terms of the contract are too vague. There must be absolutely no ambiguity, otherwise, it is an agreement to agree (on an essential element of a contract, therefore no contract was formed).

Modified acceptance and last shot counter-offer

CIVL 1393 CCQ. Acceptance which does not correspond substantially to the offer or

which is received by the offeror after the offer has lapsed does not constitute acceptance.It may, however, constitute a new offer.

What does “substantially” mean? o One hypothesis is with regard to “essential elements of the contract

contained in the offer”o If acceptance differs on secondary elements, it is considered as a

legitimate one. Contract is formed. What if a secondary element is added to the contract by the offeree,

but unaccepted by the offeror? There are two options.

1) The added secondary element is considered as a condition to acceptancea) Result: The offeree becomes the offeror of a counter-offer,

which kills the offer.2) The second element forms a a separate offer in addition to

formation of a contract on the terms of the previous offer.

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a) Result: The initial offer has been accepted, since the essential elements are agreed upon.

There are no absolute rules on what are essential elements of a contract. It depends on presumptions and on different industries.

Traditional COML Acceptance must be the mirror image of the offer (it has to be on exactly same

terms). Otherwise, counter-offer (offer is rejected and completely off the table). "Last Shot Takes All" -> the last counter-offer that sets all the terms is the one

from which formation of contract derives. Silence upon a counter-offer is equivalent to acceptance of the additional terms

International sales CISG (Convention for the International Sale of Goods)

It is an international treaty that gives a code for international sales transactions (only sales!), applicable in most countries, including Canada. It is the default law that applies to contracts between a Canadian and an international party. Article 19

1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer.

2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.

3) Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party’s liability to the other or the settlement of disputes are considered to alter the terms of the offer materially.

UNIDROITIt is used in commercial international contracts in all industries (not only sales), it can be used in arbitration. It reconciles COML and CIVL.Article 2.1.11 

1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer.

2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects to the discrepancy. If the offeror does not object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.

o Writing confirmation with additional terms after formation of contract:

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If a writing confirmation is sent after contract is formed, but it includes additional or different terms, those terms become part of the contract, UNLESS there is an objection, or a material alteration of the terms.

US reformUCC 2-2091) A definite and seasonable expression of acceptance or a written confirmation which

is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:a) the offer expressly limits acceptance to the terms of the offer;b) they materially alter it; orc) notification of objection to them has already been given or is given within a

reasonable time after notice of them is received.3) Conduct by both parties which recognizes the existence of a contract is sufficient to

establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

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5. Consideration, cause and formalities

Themes: - The bargain theory of consideration and mutuality of obligation- Civilian concepts of object and cause - The role and relevance of formalities

Required reading: - Hutchison v The Royal Institution for the Advancement of Learning, [1932] SCR

57- Hamer v Sidway (1891), 124 NY 538 (CA)- L.L. Fuller, “Consideration and Form” (1941) 41 Colum L Rev 799 at 800-801- Alan Brudner, “Reconstructing Contracts” (1993) 43 UTLJ 1 at 34-35- Stephen M. Waddams, The Law of Contracts, 5th ed (Toronto: Canada Law

Book Inc, 2005) at 64-82.- Draft Common Frame of Reference, s. II.-1:106: “Form”

IntroWhat is needed for the minds to meet? COML: consideration CIVL: cause Some forms (formalities)

Why law enforces contract? Moral obligation to keep your words But not all contracts are enforceable Preservation of individual agency -> therefore human dignity Enhancement of values and wealth

Consent and reason2 questions:

A. What's in the contract? (content) a. Object of obligation (prestation)b. Object of contract (legal operation; eg. Sale)

B. Why the contract? (justification) a. Cause of contract (subjective reason to each party)b. Cause of obligation (same for all similar contracts; objective, logical)

A. What is in the contract? 1- Object of obligation: What must each party do on the contract? (specific question)

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CIVL: object of obligation = prestation 1371 CCQ.

It is of the essence of an obligation that there be persons between whom it exists, a prestation which forms its object, and, in the case of an obligation arising out of a juridical act, a cause which justifies its existence.

1373 CCQThe object of an obligation is the prestation that the debtor is bound to render to the creditor and which consists in doing or not doing something.The debtor is bound to render a prestation that is possible and determinate or determinable and that is neither forbidden by law nor contrary to public order.

o It has to be 1) possible, 2) determinate/determinable and 3) not forbidden by law nor contrary to public order

Uncertainty of some of these concepts Determinate/determinable: specification on the object at sale (not

just a general description) or mechanism of determination (eg. Of price)

Public order: what is generally acceptable by society; not pre-defined, decided and assessed by judges depending on the cases they hear.

2- Object of contract: What do both parties want to legally achieve with the contract? (general, abstract question)

Legal operations (“tag” on certain contracts which are supposed to follow certain provisions; eg. sale) CIVL: object of the contract

1412 CCQ. The object of a contract is the juridical operation envisaged by the parties at the time of its formation, as it emerges from all the rights and obligations created by the contract.

o General context, objective that the contract aims at achieving 1413 CCQ.

A contract whose object is prohibited by law or contrary to public order is null.

3- Distinguishing object of obligations vs object of contract? There are cases where the obligation of obligation is legal, but the object of

contract is illegal.Eg. Someone tells you that he gives 100$ to you if you give peanuts to another person. You agree, but the person is allergic to peanuts. The object of the contract is to kill that person (illegal), but the object of obligation itself is to perform a service (legal)

Comment: CIVL is more conceptual than COML

B.Why the contract?

1. “Contract” as “written agreement” : Formalities

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General principleAgreement between the parties is sufficient for a contract to be formed -> meeting of the mindsNo writing or any formalities needed.

CIVL: 1385 CCQ.

A contract is formed by the sole exchange of consents between persons having capacity to contract, unless, in addition, the law requires a particular form to be respected as a necessary condition of its formation, or unless the parties require the contract to take the form of a solemn agreement .It is also of the essence of a contract that it have a cause and an object.

Problems: Evidence (prove that an agreement exists) Justification of enforcement (why the law would enforce this particular contract)

o The court wants to find something intelligible and objective as reason Why do we need legal formalities? (Fuller article)

Evidentiary function: prove that contract exists Cautionary function: check against inconsiderate action

o Comments: Really? Sign a contract without reading… o Heavier the ritual, more effective the cautionary function o Channelling function: facilitate external test of enforceability and judicial

diagnosis Draft Common Frame of Reference (European Private Law document) s.II.-1:106

1. A contract or other juridical act need not be concluded, made or evidenced in writing nor is it subject to any other requirement as to form.

2. Where a contract or other juridical act is invalid only by reason of non-compliance with a particular requirement as to form, one party (the first party) is liable for any loss suffered by the other (the second party) by acting in the mistaken, but reasonable belief that it was valid if the first party:

a. knew it was invalid;

b. knew or could reasonably be expected to know that the second party was acting to that party’s potential prejudice in the mistaken belief that it was valid; and (link to the theme of reliance/detriment/unconscionability)

c. contrary to good faith and fair dealing, allowed the second party to continue so acting. (link to 8-Implied obligations)

2- “Contract” as “ agreement”: Justification for contract COML: more concrete, the contract comes out from market place through

bargain (mutuality of benefit; consideration) CIVL: consent oriented: the contract comes out from the will (cause)

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CIVL: cause Adopted from the canon law: enabling judges to look into the morality of people's

behaviors Movement of objectification of the cause over time. Judges don't have to look at

the psychological state of the parties. Comment: The state controls the use of contract obligations to illegal objectives CCLC: despite of the controversies, "cause" has been introduced, but the word

"consideration" was added. Result: confusion

Cause of contract (CCQ) (cause subjective) o Psychological, personal and subjective (contrary to cause of obligation) o 1410 CCQ.

The cause of a contract is the reason that determines each of the parties to enter into the contract.The cause need not be expressed.

Cause of obligation (cause objective) -> same to all similar contracts 1371 CCQ.

It is of the essence of an obligation that there be persons between whom it exists, a prestation which forms its object, and, in the case of an obligation arising out of a juridical act, a cause which justifies its existence.

Gift contracts: valid cause (CIVL) vs requiring consideration (COML)

A gift contract has a valid cause under CIVL and is enforceable; in opposite to COML law rules which require valid consideration for a gift promise, otherwise it is not a contract, but only a naked pact.

1824 CCQ.The gift of movable or immovable property is made, on pain of absolute nullity, by notarial act en minute and shall be published.These rules do not apply where, in the case of the gift of movable property, the consent of the parties is accompanied by delivery and immediate possession of the property.

1812 CCQ.The promise of a gift does not constitute a gift but only confers on the beneficiary of the promise the right to claim damages from the promisor, on his failure to fulfil his promise, equivalent to the benefits which the beneficiary has granted and the expenses he has incurred in consideration of the promise.

An interesting case that distinguishes well COML and CIVLQC Ross & Hutchinson v The Royal Institution for the Advancement of

LearningFacts The father Ross promises to give 150000$ to McGill in exchange of the

promise of McGill to use that money to build the gymnasium. The son Ross promises to give 200000$ to a funding event if 150000$ is included in the 200000$. Ross (son) paid up to 100000$ but asks for extension of time because of financial difficulties. McGill accepts his promissory note

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with time extended to 3 years later. Then Ross went bankrupt, Hutchinson is the trustee. H refused to pay100000$ to McGill when it tried to use the promissory note. McGill is suing for getting the 100000$.

Issue Was the gift contract legally enforceable?Holding YesReasoning There was an arrangement whereby Ross father and the university

intended to be bound: there was an accepted offer. Ross son bound himself to contribute the sum of 200 000$ towards

the McGill Centennial Endowment Fund on the condition that the amount of 150 000$ which R had agreed to pay towards the gymnasium should be included in the amount of 200 000$. This contract is valid because it has a valid cause: liberality can be a cause in Quebec law.

No consideration necessary in Quebec law, the Code only requires a cause, which can be liberality.

If the case was in a COML jurisdiction, consideration would also be found.

First gift contract: the father Ross promises to give 150 000$. There is valid consideration given by McGill through the promise to allocate the money to the construction of the gymnasium.

Second gift contract: the son Ross promises to give 200 000$. Valid consideration was that McGill promises that 150 000$ would be included in this amount. (Mutual release about the first gift is seen as consideration for the second gift)

o Note that it is tricky, since the second gift doesn’t have an independent consideration

Promissory note: was there consideration?o Yes: McGill agreed to the promissory note against interest.

Ross son also receives some benefit because McGill is (indirectly) waiving its rights to sue him for a period of three years (period of extension) for not respecting the second gift contract.

RatioComments “Natural obligations” is a CIVL legal notion. It is enforceable, and is

in the middle of legal obligations which are enforceable and moral obligations which are unenforceable. Eg. Obligation to feed your children.

Intention libérale = liberality = gift = promesse de libéralité

COML: consideration

Definition“A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.”

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“Court will not ask whether the thing which forms the consideration does in fact benefit the promisee or a third party, or is of any substantial value to anyone. It is enough that something is promised, done, forborne or suffered by the party to whom the promise is made as consideration for the promise made to him.”Promise can only be recognised if it is supported by consideration.Consideration is proof of will.Consideration for a promise = factors which the promisor considered and which motivated his promising (what he will get in exchange of his promise; given by the other party).

Bargain theory of consideration; mutuality: contracts come from the market. Predictability issue: sometimes, courts may find that there is valid consideration,

but in other similar cases, courts may find that there is none. Link with formation of contract: the reason why an offer is in the offeror’s hands

and revocable at any time before it is accepted is that the offer is a blank promise and has no consideration until it is accepted.

o However, you can make an offer firm (open and non-revocable during a lapse of time) if you receive a counter-promise, which would create consideration to a “contract to keep the offer open”.

Peppercorn theory: you can literally give a peppercorn to make the offer non-revocable.

Reminder: the contract is formed as an exchange and involves at least two parties. However, we usually only examines consideration from one party’s perspective since only one party is claiming in court.

What is the doctrine of consideration for 3 superficial explanations:

o Ensure that bargains are substantially fair a. But this explanation doesn't hold when we look at how consideration

is applied in practice: value equilibrium is not inquired by judge (Issue: is consideration truly valuable?)

o Only promises relied upon by the other party is enforced by law a. But consideration is only a promise to keep the promise made in the

actual contract.o Consideration acts as a formality, even in cases where formality is not

required by lawa. But forms/cautionary function not needed, such as in commercial

contracts Deeper explanations

Economically: consideration treats legal subjects as rational beings who only do what is advantageous to them economically speaking.o Micro: distrust: no one impoverishes himself o Macro: gratuitous promises are not productive: they are not ensuring the

most effective distribution of resources Critics: unrealistic to treat people as economic agents only

People are not always rational

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Imperfect market: meritorious goods. Eg. Educational services

Peppercorn theory and nominal consideration Minimal consideration: the Law will require real consideration, not illusory

considerationo Miami Coca-Cola Bottling v Orange Crush

USMiami Coca-Cola Bottling v Orange Crush

Facts Orange gave Coca-Cola the exclusive right to bottle and to distribute Orange Crush.

O agreed to supply its concentrate, and to advertise.

C agreed to purchase concentrate, bottle it, “undertake to promote the sale of orange crush”.

The license was perpetual, but contained a proviso that said C could cancel the contract whenever.

One year after the contract began O wrote to C saying that it would no longer be bound.

C is trying to enforce the contract and claims that O cannot cancel it.Issue Was the contract between O and C enforceable?Holding No, lack of mutuality and of considerationReasoning Consideration is a promise for a promise.

However, C didn’t give any promise, since it could cancel the contract at any time. A contract formed under such terms is unenforceable.

Ratio A contract is only enforceable and valid if there is real consideration. Consideration must not be illusory. The right to terminate the contract at anytime is not a real consideration.

But the court will not inquire as to the adequacy of the economic value of consideration.

Severe inadequacy may be relevant to an inquiry into fraud, unconscionability or undue influence but does not preclude a finding of good consideration.

Peppercorn theory: consideration can literally be only a peppercorno Not value-standardized; incommensurable

Nominal consideration: a dollar is good consideration (Thomas v Thomas; not in reading list)

o Values are measurable, commensurable;o 1000$ vs 1$

If consideration is only about formality, it's okay, but if consideration has other functions, it may be not accepted.

Either a peppercorn or a nominal consideration (1$ or even 1 cent) can make a gift contract valid, because the parties have undergone the inconvenient of casting the transaction in the form of an exchange.

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Forbearance, detriment Hamer v Sidway (uncle and nephew case)

Hamer v Sidway William E. Story had promised his nephew, William E. Story II,

$5,000 if his nephew would abstain from drinking alcohol, using tobacco, swearing, and playing cards or billiards for money until the nephew reached 21 years of age.

Story II accepted the promise of his uncle and did refrain from the prohibited acts until he turned the agreed-upon age of 21. After celebrating his 21st birthday on January 31, 1875, Story II wrote to his uncle and requested the promised $5,000. The uncle responded to his nephew in a letter dated February 6, 1875 in which he told his nephew that he would fulfill his promise. Story I also stated that he would prefer to wait until his nephew was older before actually handing over the (then) extremely large sum of money. The elder Story also declared in his letter that the money owed to his nephew would accrue interest while he held it on his nephew's behalf. The younger Story consented to his uncle's wishes and agreed that the money would remain with his uncle until Story II became older.

William E. Story I died on January 29, 1887 without having transferred any of the money owed to his nephew.

Story II had meanwhile transferred the $5,000 financial interest to his wife; Story II's wife had later transferred this financial interest to Louisa Hamer on assignment.

The elder Story's estate (Sidway) refused to grant Hamer the money, believing there was no binding contract due to a lack of consideration.

As a result, Hamer sued Sidway for 5000$ + interest.Issue Was the agreement between the uncle and the nephew legally

enforceable?Holding YesReasoning Defendant’s argument:

The contract lacked consideration. The nephew will sustain a benefit from the agreement, not a

detriment; therefore there could not have been consideration.The court found that:

The nephew abandoned his legal right to use tobacco, etc., upon the promise of his uncle.

Ratio Waiver of a legal right is sufficient consideration.Comments Unilateral or bilateral contract?

o If it is a unilateral contract, the contract is only formed upon complete performance (after 5 years of abstention from tobacco, alcohol.)

o If it is a bilateral contract, the contract was formed when the

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nephew accepted the uncle’s offer by promising that he will abstain from any tobacco consumption. THIS IS THE APPROACH ADOPTED BY THE COURT, even though it could read the contract as an unilateral one. (see below, note on policy reasons)

Consideration in unilateral vs bilateral contracto Applying consideration in unilateral contract imposes

difficulties. See Kirksey v Kirksey

o Consideration in bilateral contracts can be either benefit of one party or detriment of the other party.

Dahl v Hem

Dahl v Hem Pharmaceuticals CorpFacts HPC promised to continue to provide a drug to patients who are willing to

test its efficacy if it is proved to be effective. The patients are suing because HPC didn’t keep its promise.

Issue Was a valid contract formed?Holding Yes, a unilateral one.Reasoning Defendant’s argument:

The plaintiffs participated voluntarily and had the option to withdraw at anytime, therefore there is no consideration given.

Court’s opinion: The plaintiffs underwent detriment to test the drug. There is a reward to provide the drug at no charge for a year upon

performance of double-blind test. The plaintiffs performed the condition. There was consideration from the detriment suffered by the plaintiffs

in performing the condition.Ratio Detriment incurred by volunteers in the study is enough consideration.Comments Abstaining from something one has no right to do is not good consideration

(White v Bluett; not in the reading list) You can’t pay someone to not commit a murder

Examples of valid consideration Promise to forbear, or actual forbearance (loan endorsements

between bank and loan endorsers) Promise to not undertaking lawsuit

Note on this case: It is a unilateral contract (reward) just like Carlill; consideration must

be from both sides (benefit for the offeror).

Kirksey v Kirksey

Kirksey v KirkseyFacts The defendant (brother-in-law) promised the plaintiff (widow) comfortable

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living on his property if she moved. The widow did, at great expense (abandoning her assets and travelling 70 miles. After 2 years, the defendant kicked her out of the comfortable land and put her into an uncomfortable house in the woods, from which he kicked her out again after some time.

Issue Was there a valid contract between the parties?Holding No; no considerationReasoning The facts point to a unilateral gift promise, but there was no valid unilateral

contract for lack of consideration.The plaintiff needs to give consideration in the form of benefit to the defendant (offeror). Inconvenience incurred by her is insufficient consideration on its own.

Ratio Detriment incurred as a subsequent reliance is not valid consideration in a unilateral contract.

Comments By contrast, in Dahl and Carlil (both cases of unilateral contract), the offeror retrieves a benefit from the reward promise.This case could have been better decided under “no intention to give rise to legal obligations to family matters”.The case is difficult to reconcile with the rest of the case law.

Note on policy reasons in courts’ tendency to read a contract as bilateral when possible

o Contract leads to unfair results, because the offeror can revoke the reward anytime before performance; the parties are not of equal stands.

Implied obligations as consideration Wood v Lucy, Lady Duff-Gordon

Wood v Lucy, Lady Duff-GordonFacts Lucy (defendant), a fashion designer, gives Wood (plaintiff) “exclusive

right, subject always to her approval, to place her indorsements [sic] on the designs of others” as well as the exclusive right to sell her designs, and license others to market them.Lucy and Wood were to split the profits half-and-half.Lucy marketed some stuff on her own, and kept all the profits.Wood is suing for breach of contract by Lucy.

Issue Was the contract valid? Did Wood give consideration for half of the profits?Holding Yes; YesReasoning Lucy’s argument:

The plaintiff did not give any consideration, because he did not promise to do his best to market her designs.

Court’s opinion: Pursuant to the business efficacy principle, it was implied that Wood

gave a promise to put in reasonable effort to market Lucy’s designs, even though the contract is silent on that matter.

His implied promise constitutes enough considerations.

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Ratio Business agents have implied obligations to put in reasonable efforts in any business contracts.Implied promises to put in reasonable effort constitute consideration.

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6. Consideration continued (only in COML)

Themes: - Past consideration - Changing circumstances - Pre-existing Duty Rule- Promissory Estoppel- Protecting Reliance

Required reading: - Roscorla v Thomas (1842), 3 QB 234- Miami Coca-Cola Bottling Co v Orange Crush Co, 296 F 693 (5th Cir 1924)- Dahl v Hem Pharmaceuticals Corp, 7 F3d 1399 (9th Cir 1999)- Wood v Lucy, Lady Duff-Gordon, 118 NE 214 (CA 1917)- Harris v Watson (1791), 170 ER 94 (HL)- Stilk v Myrick (1809), 170 ER 1168- Gilbert Steel Ltd v University Construction Ltd (1976) 12 OR (2d) 19 (CA)- Central London Property Trust v High Trees House, [1947] KB 130- Williams v Roffey Bros and Nicholas Ltd, [1991] 1 QB 1 (CA)- Nav Canada v Greater Fredericton Airport Authority Inc [2008] NBJ No 108- Walton Stores (Interstate) Ltd v Maher [1988] CLR 387 (HCA)- Kirksey v Kirksey, 8 Ala 131 (Ala Sup Ct 1845)- Restatement (Second) of Contracts § 90

Past consideration Past consideration is no consideration.

o Roscorla v Thomas

Roscorla v ThomasFacts Roscorla bought a horse from Thomas. SUBSEQUENTLY, Thomas promised that

the horse was “sound and free from vice”. The horse was not sound.Issue Is the guarantee given by Thomas valid?Holding No; no considerationReasoning The price paid was only the consideration for the promise “to deliver

the horse upon request”. The guarantee constitutes a second promise There is no fresh consideration for the second promise “a consideration past and executed will support no other promise

than such as would be implied by law”Ratio Subsequent promise made after formation of contract needs fresh consideration.

Past consideration is no consideration.

Lampleigh exception where a service had been rendered in the expectation of compensation, giving rise to a claim for unjust enrichment (eg. Terrasses Holdings v Saunders)

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Ontario Law Reform Commission: "A promise made in recognition of a benefit received by the promisor or any third party from the promisee, should be enforceable to the extent necessary to prevent unjust enrichment"

Moral obligation is no consideration o Different approach CIVL:

Legal obligations: enforceable Natural obligations: may be enforceable or not

Contract made to perform natural obligations are enforceable.

Moral obligations: not enforceable

Pre-existing duty/changed circumstances Traditional rule: promise to do something one is obligated to do is not good

consideration; fresh consideration is needed.o Even if the parties agreed to change terms, it there is pre-existing duty, no

consideration. o Harris v Watson (sailors claiming extra pay when ship at danger; decided

on the basis of public policy); Harris v Watson

Facts H was a seaman, W the captain When the ship was in danger, W offers H a pay raise if he will do

extra navigational duty H is claiming the wages

Issue Is the captain’s promise enforceable?Holding NoReasoning Policy concern

“If sailors were in all events to have their wages and in times of danger entitled to insist on an extra charge on such a promise as this, they would in many cases suffer a ship to sink, unless the captain would pay any extravagant demand they might think proper to make.”

Ratio Rule decided on policy considerations. Basis for Stilk.

o Stilk v Myrick (sailors promised equal share of the wage of the missing sailors; lack of consideration);

Stilk v MyrickFacts M was captain of a ship, two hands desert before arriving at

Cronstadt M cannot find replacements in Cronstadt, and promises crew if he

cannot find two sailors at Gottenburgh, the crew will split the deserted sailors’ wages between them for picking up the extra work.

Issue Is the captain’s promise enforceable?Holding No; pre-existing duty & policy concernReasoning Defendant claims agreement is contrary to public policy per Harris

Attorney-General, contra, distinguished it from Harris arguing the agreement was not made during danger or pressing emergency

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o Compensation was voluntarily offered Held there was no consideration “for the ulterior pay”

o Crewmembers had sold “all their services” for the duration of the voyage, not a certain amount”

o Consideration for initial hire (services) cannot service the second promise.

Desertion is to be considered an emergency.Ratio Fulfillment of pre-existing duty cannot constitute consideration.

o Gilbert Steel (change $steel provided to building contractors)Canada

Gilbert Steel Ltd v University Construction LtdFacts G promised to deliver steel to U for three separate buildings.

U built the first two, and before U notified G of its intention of beginning the third building, the steel mill raised the price, and warned of a further increase to come

They entered into a new contract for the new price Price went up again before full delivery, and discussed a new price G claims this was a new, binding, oral agreement G submitted a written contract, but it was note executed. U accepted delivery of the steel against invoices that reflected the

highest price, but only paid the lower one. G is suing to recover the unpaid invoices

Issue Is the further agreement an enforceable contract?Holding NoReasoning It is clearly an oral agreement, but is it supported by

consideration?ConsiderationPlaintiff:

Consideration was promise to rescind old contract, and guarantee a ‘good price’ on the new one (benefit to both parties)

Plaintiff also argued that the greater credit extended by the offeree to the offeror created an obligation on the offeror’s part, with the obligation being consideration flowing from the offeree

o Held it is notCourt:

No changes other than the change in price were discussedo Did not replace the old agreement in toto, therefore not a

new agreemento Therefore no consideration in mutual agreement to abandon

former contracto No consideration possible to be found in vague reference to

‘good price’EstoppelPlaintiff:

By accepting the invoices, U created G’s reliance (claim under

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estoppel)Court:

Estoppel can only be a shield, not a sword Need to prove reliance at a detriment, which cannot be proven.

Ratio ConsiderationA contract with changed terms must be supported by fresh valuable consideration. Alteration of a term is not an abandon of the former contract.EstoppelEstoppel can only be used as a shield.Estoppel can only be applied if the promisor waives an existing contractual right, and the promisee relied on the waiver at a material detriment.

Comments Gilbert Steel is a Canadian case where all the arguments were mentioned to justify the price increase without consideration under traditional COML rules.

o Abandon of former contract for a new contracto Benefit to the other party for paying more (securing a better

price for future projects) But the Ontario Court of Appeal still said no; traditional COML

rules apply “In order to find estoppel, the plaintiff must show that the

defendants have given away their contractual right to insist on the original price, and also that the plaintiff relied on the waiver and suffered material detriment.”

o The court may therefore find the detriment insufficient to apply estoppel in other subsequent cases.

o Problem in business: There is a need to renegotiate terms in many industries (eg: construction). The doctrine of consideration doesn't allow a flexible renegotiation.

o Foakes v Beer (not in casebook): promised partial payment of the debt against release of debt

Shift re contractual obligations: o Pre-existing contract no bar: Williams v Roffey (carpenter case)

EnglandWilliams v Roffey

Facts R is general contractor, hires W (carpenter) to fix 27 flats for a set price

It becomes clear the original price will not be enough for W to finish the job (esp. because W is in financial difficulty)

R agrees to pay W a further £10300 (£575/flat) to finish itR only makes one payment of £1500W stops workingR gets someone else, and because of it, goes over the time limit and

engages the penalty clause in R’s contract with his employerIssue Is the new agreement to pay more to W enforceable?Holding YesReasoning It is agreed that the original price was too low, and in order to get the job

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done in time and avoid engaging the penalty clause (benefit from 3rd party), R had to pay W the extrao Therefore agreement was in the interests of both parties

No estoppel available, because it cannot be used as a sword to enforce a higher price, only to remedy detrimental effects (Walton Stores)

Ratio Benefit to the offeror from a third party arising from offeror’s relationship with the offeree is valid consideration.

Comments Moved the doctrine of consideration to another territory: consideration will be found in variation to existing contract needs if the variation benefits to both partieso an argument invoked by the plaintiff in Gilbert Steel

NOT APPLIED IN CANADA

Economic duress and modifying contract without fresh considerationo Nav Canada case;

New Brunswick Nav Canada v Greater Fredericton Airport Authority IncFacts NAV has a contract to supply navigational equipment to GFAA

GFAA wants to lengthen its runway, which requires NAV to move some of its navigational equipment

NAV feels it necessary to upgrade the navigational equipment, says GFAA has to pay for it

GFAA needs to put the runway in, so it says it will pay (economic duress)

NAV moves the equipment, buys new equipment, and GFAA puts the runway in

GFAA says it won’t payIssue Is the agreement between NAV and GFAA valid?Holding No; economic duressReasoning NAV had a duty to move the navigational equipment, and was in breach of

that duty Consideration for GFAA’s promise to pay was therefore N’s promise not to

breach its duty – not valid consideration Judge says there is no defensible reason to apply the pre-existing duty rule

o Over-inclusive because it admits renegotiations under economic duress if there is minimal consideration

o Under-inclusive because it often prevents legitimate renegotiation Economic duress captures all the policy reasons behind Harris and Stilk

without the negative implications of the pre-existing duty rule Court is prepared to accept renegotiation without consideration as long as

there is no economic duress, but there is economic duress here, so no contract

Ratio Forbearance from violating existing duties is not consideration.Modifications to contract need not be supported by fresh consideration as long as there is no duress.Burden of proof of no duress on party seeking to enforce renegotiation.

Comments Change in the traditional rule (variation to existing contract needs no fresh consideration) ONLY applies in NB now. Obiter in the rest of Canada.

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Estoppel, reliance Promissory estoppel comes as a remedy for the injustice served by the doctrine

of consideration. o Source in Equity (reminder: COML and EL united under a same court's

jurisdiction; EL corrects unfair and harshness of COML) Promissory estoppel only happens in contractual relationships.

o One party promises waiver (not insisting on existing contractual rights) against nothing in exchange;

o Under traditional COML, absence of consideration prevents the other party from relying on it

o However, equity comes in and gives the promisee some protection and validity to the waiver promise, if the promising party tries to enforce something previously waived.

Conditionso existing contractual relationshipo the waiver promise is intended to rely upon o it is actually relied upon: there must be proof of "alteration of

the promisee's behavior" Result: the promising party cannot enforce contractual rights that are already

waived.

Waiver of right (Equitable doctrine of) Since late 1800s One may waive a right under contract by his behavior or words Haghens v Metropolitan Railway Co (not in casebook)

o Landlord demanded repairs by tenant under contract, negotiations beyond date of notice, failure, landlord seeks eviction of tenant but is found to have waived his right to insist on strict performance of the agreement because of his behavior: there was no intention of enforcing to the full extent the legal rights that he had.

High Trees. England

Central London Property Trust v High Trees HouseFacts Tenants (High Trees) agree to rent flats

With the start of the war, demand for flats is down, and defendants can’t pay full rent

o Landlord agrees to lower rent because of the changed circumstances

In 1945, landlord claims arrears on rent, saying reduction is not valid because tenants did not provide consideration for reduction

Issue Was the reduction an enforceable contract?Holding Yes; promissory estoppel; by Denning L.J.Reasoning “courts have not gone so far as to give a cause of action in damages

for breach of [unsupported] promises, but they have refused to allow the party making them to act inconsistently with them”

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o Stems from equity “The promise, intended to be binding, intended to be acted on an in

fact acted on, is binding so far as its terms properly apply”o It was understood the contract would last while demand was

low, which condition ended in 19457o Therefore High Trees can claim arrears from 1945.

Ratio A promise intended to be binding, intended to be acted on and in fact acted on, is binding so far as its terms properly apply.NUANCE: this case was later overruled and must be read in light of Combe v Combe v Combe.

Comments This ruling seems to create a cause of action for enforcing promises made without consideration provided by the promisee (use as a sword). In this way, it destroyed the doctrine of consideration.

Renegotiation of the terms without considerationHowever, overruled a few years later in Combe v Combe.

Combe v Combe o Does the promissory estoppel create consideration? No.o Promissory estoppel can only be used as a shield, not as a sword: it is not

creating a new right (no cause of action), it is only a protection offered to the promisee of a waiver of an existing right

o Concessions create effective defenses to claims to enforce an already waived right.

o Affirmative promises to do more are ineffective because they require enforcement, and therefore consideration.

o However, in case of affirmative promises to do more, the promisee may have a cause of action in tort for negligent or fraudulent misrepresentation.

Even if promissory estoppel doesn't give cause of action, it is still significant o Standard “no waiver” clause in contracts

"the failure to exercise or delay in exercising a right or remedy provided by this agreement does not constitute a waiver of the right or remedy in question"

However, this clause may also be taken to have been waived…

Is detrimental reliance a condition to promissory estoppel? Area of uncertainty in both England and Canada

o High Trees clearly intended to overrule Foakes v Beer (partial payment "in settlement" of debt)

o Courts have applied Foakes v Beer after High Trees (after establishment of promissory estoppel)

o Question: Must reliance be shown to be detrimental? Yes : Post Chaser case (Eng HC 1982); Gilbert Steel No: other cases

o Conclusion: in Canada, reliance at a detriment is likely a condition to use estoppel.

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Exception (or incremental expansion?) recognized in England and Canada

o Proprietary Estoppel: gratuitous promises concerning the creation of interest in land are, if relied upon, enforceable (may be used as a sword!)

o Crabb v Arun District Council (Eng. CA 1976) o Why? It was felt that real rights are more significant; even though the

underlying principle is the same for all promissory estoppels

US: pressure to expand (cause of action/sword) US 2nd Restatement Rule 90: promise reasonably inducing action or forbearance "if injustice can be avoided only by enforcement of the promise" In force for many years, and doesn't seem to pose difficulties

Australia: pressure to expand (cause of action/sword) Reaction to the restriction imposed in Combe v Combe

o Walton Stores v Maher Australia

Walton Stores v MaherFacts W was going to lease land from M

W wanted the old building torn down and a new one built M’s solicitor said the issue was time-sensitive if the demolition was

to start before Christmas The contract remained unexecuted, but W did not notify M of any

objection M began demolition W notified M in January that it did not execute the contract, and

was backing outIssue Does M have a cause of action despite the lack of a contract?Holding Yes; full expectation damages to MReasoning Reasons (Mason CJ, Wilson J)

Estoppel extends to voluntary promises where a departure from the assumptions underlying the transaction would be unconscionable.

Estoppel can be found when a party induces a reliance that a promise will be performed or a contract come into existence, and that reliance brings detriment to the expectant party.

Does this doctrine apply to silence?o Yes, in this case, because of the urgency of the situationo Also because “the assumption on which the respondents acted … was

that completion of the necessary exchange was a formality”o W was under an obligation to communicate its decision with M within a

reasonable timeo W’s “inaction … constituted clear encouragement or inducement to the

respondents to continue to act on the basis of the assumption which had been made”

Court implies a promise to sign the contractConcurrence (Brennan J) “If a party induces the other party to believe that he, the former party, is

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already bound and his freedom to withdraw has gone that it could be unconscionable for him subsequently to assert that he is legally free to withdraw.”

Estoppel is not to compel the party to fulfil the expectation, but to avoid detriment resulting

To establish estoppel, plaintiff must prove1. Assumption of a particular legal relationship existed or expectation one

would exist2. Defendant induced that assumption3. Plaintiff acts in reliance of the assumption4. Defendant knew or intended him to do so5. Plaintiff’s action or inaction occasioned detriment if the assumption is not

fulfilled6. Defendant fails to avoid detriment

Ratio Estoppel can be an independent cause of action. It can be used in cases where there is no pre-existing contractual relationship, to recover from detrimental effects. It cannot be used as a sword if there is no detrimental reliance.

Comments NOT GOOD LAW IN CANADA

Unconscionability brings PE into play in cases where one party (promisee) is encouraged by the other party to rely on the promise, as the breach of the promise would cause detrimental loss to the promisee.

However, this is not really clear distinction from the American law and the notion of unconscionability is not clearly portrayed as bringing the PE in another ground.

6 criteria to make PE a sword.

Estoppel in Canada

Applied ONLY in cases where the parties are of equal stands. Traditional doctrine: only as a shield Detriment suffered: more likely a condition to estoppel

o Gilbert Steel (Ontario High Court decision)

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III. INTERPRETATION AND CONTENT OF CONTRACTUAL OBLIGATIONS

7. Interpretation and incorporation

Themes: - Rules around the incorporation of terms - Standards of interpretation in different legal traditions- Parole evidence rule - Course of usage(s)

Required reading: - Dell Computer Corp v Union des consommateurs, 2007 SCC 34, [2007] 2 SCR

801- Thornton v Shoe Lane Parking Ltd, [1971] 2 QB 163 (CA)- McCutcheon v David MacBrayne, Ltd, [1964] 1 All ER 430 (HL)- British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd, [1975] QB 303 (CA)- John D. McCamus, The Law of Contracts, (Toronto: Irwin Law, 2013) at 197-211- Rogers Cable Communications Inc, Application regarding Termination and

Assignment of the Support Structure Agreement with Aliant Inc, Telecom Decision CRTC 2006-45

- Bruce Macdougall, Introduction to Contracts (Markham: LexisNexis, 2013) at 66-69, 126-131

- Stefan Vogenauer, “Interpretation of Contracts: Concluding Comparative Observations” in Andrew Burrows & Edwin Peel, eds, Contract Terms (Oxford: Oxford University Press, 2007), at 123-129

- Arthur Allen Leff, “Contract as Thing” (1970) 19 Am U L Rev 131 at 137-147; 155-57

- Draft Common Frame of Reference, s. II.-8:101: “General rules”

Introduction Rogers case ("comma" case) Rogers Cable Communication Canada

Rogers Cable Communications IncFacts Dispute over the position of a comma in a contract clause. The clause was:

“Subject to the termination provisions of this Agreement, this Agreement shall be effective from the date it is made and shall continue in force for a period of five (5) years from the date it is made, and thereafter for successive five (5) year terms, unless and until terminated by one year prior notice in writing by either party.”

At first, the CRTC held that the comma (see red) made the phrase “and thereafter for successive five (5) year terms” parenthetical (which means, that can be suppressed from the sentence without impacting on its meaning). If such a phrase is really parenthetical, then the Aliant is entitled to terminate the contract at any

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time, regardless of whether the initial period five years has expired. In other words, if the pink phrase is really parenthetical, then according to the overall grammar of the clause, the initial five years period is not even necessary for the agreement.

Then, the CRTC changed its mind and held that the initial term of five years is indeed a minimum requirement for the agreement. Its change of mind was based on the French version of that clause. In the French version, the comma is at the correct place and does not suggest that the Aliant can really terminate the contract at any time (even before the expiration of the initial 5-year period).

Issue Can the position of a comma be decisive when interpreting a contract clause?Holding No. “Crucial phrase[s]” cannot be concluded with a comma.Reasoning If the position of a comma can be given so much decisive importance, then

creating contracts would entail “unmanageable risks”. There would be too much randomness.

Ratio Excessive “grammatical games” – like the “comma position” one used by the CRTC – may not be played

Comments Make sense of the clause based on the industry context: it is a 5 years contract, without possibility to cancel contract at any time

Interpretation: tensions Objective vs subjective

o Objective = mostly COML: insists on not looking on subjective understandings of the contract, but what a reasonable person in the same circumstances would understand. Reasonable person = mediator

o Subjective = CIVL: more emphasis on the subjective intentions of the parties

o Readings: These 2 approaches are not that much apart What judges say they do is one thing, but what they actually do are

not that different. Plain meaning vs Teleological (purpose)

o Courts use dictionaries to understand plain meaning o Courts may question what is the general purpose of the parties in

contracting Text vs Context

o COML: textual, focus on text, grammar. Intentions are found in the text of the contract; Relying on what a reasonable person would understand rather than

what the parties thought when they drafted the contract Traditional exclusion of extrinsic evidence

o French Law: more emphasis on the parties' intention, the actual intention; pay more attention to context (vs. text)

o German Law: objective, not much on textual. o In most cases, the judges take into account common sense: what

reasonable parties would have intended when they drafted the contract.o Now, there is a merging of the two approaches, again.

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Explicit vs Implicit o Implicit terms that are so obvious that the parties didn't bother to write

them down o COML style contract: the lawyers want to write everything down

More predictability More costs Less confusion

o CIVL style contract: the lawyers don't write everything down, so there is more importance given to implicit terms.

Distinction between 2 steps in "contract interpretation"

1. What counts as part of the contract? 2. What do the terms mean?

1-What counts as part of the contract? Written terms, oral terms, or both?

o Both traditions insist on not imposing forms to contracts. However, it is up to the parties to prove the existence of the contract.

If written o Is this the entire agreement? Or is it just part of the agreement? Are there terms

elsewhere? The whole agreement clause (in many commercial contracts): what you find

in a particular document is the entire contract. o Signed or unsigned

There might the contract that was written down, agreed upon but not signed Or, there must be a contract that was never intended to be signed. Signed or unsigned might make a difference

Entire agreement or not

COML Parol Evidence Rule England: parole evidence rule

Where the parties have put their agreement in writing, evidence will not be accepted if it would contradict/reduce/supplement the original terms of the contract It is a rule in the substantive contract law (as opposed to rule of evidence): prevent the enforcement of an oral agreement where the parties have subsequently their agreement in writing; the judges exclude the evidence of what the parties have accepted when negotiating the contract.

Canada: distinguish 2 versions of parole evidence rule I. Parole evidence will be excluded where there is a written agreement (Eng & US) II. Excluded if the judge can find that the parties have intended the written

agreement to be exclusive and complete. Two steps:

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1. Was it the parties' intention to put everything in writing = whole and entire agreement?

2. Yes -> parole evidence rule applies: it will be excludedComments

Illustrates COML preference for objective, explicit, written text

Not really a rule of evidence Not limited to oral exchanges because the rule will apply to emails exchanged

while negotiating the contract. (the name of the rule is misleading) About the question whether the written agreement submitted to the court is the

entire agreement (2 versions) o UK/US version:

2 steps in interpretation 1) In order to decide whether it is the entire agreement, the court

sees all the evidence 2) If yes (entire), the court excludes all other evidence

More flexible Canadian Courts: undecided, still open to traditional version: where written appears on its face to be complete, parole evidence will be excluded.

More and more, closer to UK/US version Many exceptions in application of traditional rules, which allows parole to become an evidence to add to the agreement

Terms re Enforceability Condition precedent (formal oral promise that the sale contract will be signed now and that the seller will perform an action before the good is passed over) Passing of consideration (One contract was the consideration of the other contract (interdependent contracts)

Collateral Contracts Oral undertaking given in return for executing written agreement Supplementing agreement or even contradicting

Fraud, undue influence, mistake affecting formation, misrepresentation of term Subsequent oral agreements, evidence re waiver or promissory estoppel

CIVL “parole evidence rule” 2863 CCQ.The parties to a juridical act set forth in a writing may not contradict or vary the terms of the writing by testimony unless there is a commencement of proof. 2865 CCQA commencement of proof may arise where an admission or writing of the adverse party, his testimony or the production of a material thing gives an indication that the alleged fact may have occurred.

Comments: you need a "trampoline" given by the adverse party in order to advance evidence that would otherwise be unheard by courts; the courts will not hear all evidence as in COML

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Signed and Unsigned Contracts Rule in L'Estrange v. Glancob (English case): you sign it, you've agreed to it.

o "I didn't read it/I didn't understand it/I can't even read" are not excuses. o Enforce predictability and stability: not allowing people to challenge

contracts under these excuseso Comments: strong precedent, hard to overcome today; however, today,

people often don't read contracts and click "I have read the conditions; I understood them and I agree". The policy of this case is therefore under pressure because of commercial/service contracts.

Ticket rule: If a person knows or should have known there were rules on the ticket, he is bound thereby (Parker v South Eastern Railways (1877))

o The precedent case is discussed in some the cases readings assigned in this class.

Thornton v Shoe Lane Parking Ltd.Facts - Plaintiff went to a garage to park his car. Before entering, he took a parking ticket

from the machine. When plaintiff drove by the machine, the door of the garage was automatically opened so that the driver can get into the parking lot.- Plaintiff parked in the garage. When he went back to the garage to retrieve his car, he suffered an accident.- Plaintiff claimed damage from the parking garage owner (defendant).- Defendant argued that the ticket included a condition “exempting them from liability”.

Issue Can a party be bound by a condition included in a ticket issued just when he enters into the agreement/accepts the offer (plaintiff in this case accepted the offer and entered into an agreement when he entered the garage)

Holding NoReasoning - Offer was accepted before the condition in question (the exempting condition)

was presented to the offeree.- “The offer was accepted when Mr. Thornton drove up to the entrance and, by the movement of his car, turned the light from red to green , and the ticket was [already] thrust at him. The contract was then concluded […].”- Plaintiff could not be bound to the exempting condition because he could not know that the ticket was “issued subject to it”.- Also, the defendant (company owning the garage) did not do “what was reasonably sufficient” to give the plaintiff “notice” of the exempting condition.

Ratio The party that is the offeror must give reasonably sufficient notice of the important conditions such as an exemption of liability before the offeree accepts the offer.

Comments The contract is formed when the plaintiff gets the ticket because there is no way out once you've entered the driveway. However, the moment of the formation of contract does depend on the circumstances.Logic to the ticket rule: it's not too late for you to take notice of the conditions on the ticket. You can withdraw from the contract then.

However, in this case, the court decided that the contract was formed when the ticket was taken.

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McCutcheon v DavidFacts McC got his friend McSporran to ship his car with DMB

DMB has a form with boilerplate conditions on the back that include an exemption clause

McSporran forgot to sign the form The ship sank, and the car was lost

Issue Is the exemption clause still enforceable even though the contract was unsigned? Does this contract (sinking) import the same conditions from the previous dealings, in which the appellant did sign the Conditions document?

Holding NoReasoning Signed contract is conclusive, except in cases of estoppel

Previous dealings do not matter that much Without knowledge of terms in the signed contract, there can be no

contract “you cannot have a contract subject to uncommunicated conditions the

terms of which are known only to one side” Just because one side has inserted conditions in previous transactions,

does not mean they are implied in future transactions McS never signed the contract, so its conditions are not valid Implied strict liability of carriers applies in absence of a contract. No implication can be made against a party of a term which was

unknown to him.Ratio No implication can be made against a party of a term which was unknown to him.

Previous dealings in and of themselves are not proofs of knowledge of the terms.

How is this case related to the ticket case? o There was a blank ticket with no conditions. Even if he knows in detail

what the usual conditions would be, he is not bound by them. o If the ticket says "for conditions, see …", it would have been a sufficient

reference. o Comments: It is an artificial line drawn by courts.

Incorporation

CIVL: external clauses In Consumer (1384 CCQ) and Adhesion (1379 CCQ) Contracts

Dell Computer v. Union des consommateurs

1435 CCQ An external clause referred to in a contract is binding on the parties.In a consumer contract or a contract of adhesion, however, an external clause is null if, at the time of formation of the contract, it was not expressly brought to the attention of the consumer or adhering party, unless the other party proves that the consumer or adhering party otherwise knew of it.

External clause through a hyperlink -> is it an external clause in the contract? Not external at all (as if the "external clause" is written on the back of the

contract), so the conditions of 1435 CCQ do not apply.

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o Functional equivalence is used when analyzing contracts made on the web.

It’s not the same as saying "the conditions are findable at this address during office hours" (inaccessible), the conditions are easily available to consumer who only had to click on a hyperlink.

2-What do the terms mean? British Crane: "The judicial task is not to discover the actual intention of each party:

is it to decide what each was reasonably entitled to conclude from the attitude of the other" o This insistence on reasonable interpretation is found in other COML jurisdiction

cases (Carlill)

Similarities in interpretation COML&CIVL: Common sense

Differences COML: not to look at actual intention of each of the parties

Words mean what the reasonable listener would understand in context (normally evidenced by the plain meaning of the words)

o Exception: limitation of liability clauses o Last resort: Contra proferentem = the person who drafted the contract has

the opportunity to be sneaky, contract may be interpreted against him. o General rules of legal interpretation: o effectiveness (prefer the interpretation of the clause that makes the clause

valid) o interpretation of whole document (more civilian) o ejusdem generis (examples in a list have limitative effect) o expressio unius (no etc. = elements not mentioned are excluded) o etc.

CIVL: find the common intention of the parties (necessarily done through looking at the actual intention of each of the parties)

Content wins over form (1425, 1431) o 1425 CCQ

The common intention of the parties rather than adherence to the literal meaning of the words shall be sought in interpreting a contract.

o 1431 CCQThe clauses of a contract cover only what it appears that the parties intended to include, however general the terms used.

Contract must have an effect (1428) o 1428 CCQ

A clause is given a meaning that gives it some effect rather than one that gives it no effect.

Contract must be interpreted as a whole (1427, 1429) o 1427 CCQ

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Each clause of a contract is interpreted in light of the others so that each is given the meaning derived from the contract as a whole.

o 1429 CCQWords susceptible of two meanings shall be given the meaning that best conforms to the subject matter of the contract.

No reluctance to look at the context o 1426 CCQ

In interpreting a contract, the nature of the contract, the circumstances in which it was formed, the interpretation which has already been given to it by the parties or which it may have received, and usage, are all taken into account.

Extrinsic aids to interpretation

COML Original COML approach: "Absent ambiguity, the parties' intentions must be

discerned from the four corners of the document, and extrinsic evidence may not be considered."

Prenn v. Simmonds (H.L. 1971) reflects on traditional approach: "The time has long since passed when agreements…were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations" (underlines added by me)

o Matrix of facts = way out from literal interpretation Reardon Smith Line (H.L. 1976): "…the court should know the commercial

purpose of the contract and this is in turn presupposed knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating."

o Genesis: understand what leads to contract Definition of factual matrix: Investors Compensation Scheme (H.L. 1998):

"Subject to the requirement that it should have been reasonably available to the parties, [the factual matrix] includes absolutely anything which would have affected the way in which language of the document would have been understood by a reasonable man"

o Reasonably available = no underlying subjective and secretly held reasons

Now: Exclusion of evidence concerning subjective intention (as opposed to common

intention) o Applicable in principle, but in practice overruled by "factual matrix"

Exclusion as a rule of prior negotiations, prior drafts etc., except to show generally the aim and genesis of the contract as part of its factual matrix

Traditional exclusion of subsequent conduct and statements now disappearing in Canadian law (may be viewed as valid oral variation, which becomes a new contract)

o Nothing prevents a new contract that overwrites the terms of the original contract, as long as there is consideration and other exigencies for contract formation

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CIVL 2864 CCQ

Proof by testimony is admissible to interpret a writing, to complete a clearly incomplete writing or to impugn the validity of the juridical act which the writing sets forth.

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8. Implied obligations

Themes: - Good faith in the common law and the civil law

Required reading: - BCN v Soucisse, [1981] 2 SCR 339- Houle v CNB [1990] 3 RCS 122- Provigo distribution v Supermarché ARG, [1998] RJQ 47 (CA)- McKinlay Motors Ltd v Honda Canada Inc [1989], 46 BLR 62 (Nfld SC)- Martel v Canada, [2000] 2 SCR 860- Transamerica Life Canada Inc c ING Canada Inc, [2004] 68 OR 457 (CA)- D. Kennedy, “Form and Substance in Private Law Adjudication” (1976)

89 Harv L Rev 1685 at 1728-1737- Draft Common Frame of Reference, ss. II.-8:101: “General Rules”, II.-

9:101: “Terms of a contract”, II.-9:104: “Determination of price”, s. III.-1:103: “Good faith and fair dealing”

Recommended optional reading: - CCQ, Arts 6, 7, 1375 (for a broader view of good faith in the CCQ) - Baudouin, Jobin & Vézina, paras 196, 427-33 (implied obligations), paras

126-27, 132-33, 134-38, 155-58 (good faith)- Smith, 280-81, 306-314

THEME - Good faith in the common law and the civil law CASES - BCN v Soucisse, [1981] 2 SCR 339 - Houle v CNB [1990] 3 RCS 122 - Provigo distribution v Supermarché ARG, [1998] RJQ 47 (CA) - McKinlay Motors Ltd v Honda Canada Inc [1989], 46 BLR 62 (Nfld SC) - Martel v Canada, [2000] 2 SCR 860 - Transamerica Life Canada Inc c ING Canada Inc, [2004] 68 OR 457 (CA)

Implied terms Not always distinguishable from "interpretation" Some terms obligations are implied by the effect of law, which is why they are

treated differently Somewhere between law, intention and fact Confusion is fostered by cases (watch out): hard time distinguishing law and

intention

Why imply terms to contract? Contracts can rarely be treated as complete

o Not all facts are known

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o Future is uncertain o Negotiation cost/likelihood of use (not worth investing) o Focus on compliance not breach (trust is important in business negotiations,

businessmen don't want to focus on possible problems but on positive achievements)

o Fragility of deal negotiation (hard to come to an agreement, don't want to raise possible problems)

Courts will use context as source of terms where needed

Immediate and broader context (link with topic 7 interpretation) Genesis and factual matrix focus on what passed between the parties, including

"subjective" usages or courses of dealing/course dealing (COML) o "subjective" usage = way in which people are used to doing things o Issue in British Crane

Broader context includes "objective" usages or custom usage (COML), industry practices evolving independently of the parties, and legal approach to contracts, or legal context o Usage in particular industry/region/country: ways of doing things that are so

embedded in the area that they nearly become law o Legal context (broader than relationship btw the parties); eg. Contract of sale is

concluded under law valid at that time

Implication of terms/obligations 2 starting points in Canada:

CIVL 1434 CCQ

A contract validly formed binds the parties who have entered into it not only as to what they have expressed in it but also as to what is incident to it according in its nature and in conformity with usage, equity or law.

Canadian COML SCC decision in MJB Enterprises v. Defence Construction (1999) (not in case book)

o Based on custom or usage Not really distinguished in case law

o As incident of a class or kind of contract broad context, legal & industrial

o To give business efficacy to a contract (eg. Good faith) or as otherwise meeting the "officious bystander" test as a term which the parties would say, if questioned, that they had obviously assumed Officious bystander: both parties have to say that they would have obviously

assumed the term which implication is in question Factual context Context, Course of dealing, Usage COML: British Crane Hire Corp (see 7-interpretation)

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England British Crane Hire (P) v Ipswich Plant Hire (D) [1975]Facts o Defendants urgently required a crane, appellants quickly supplied one.

o Arrangements made over the phoneo Two previous transactions between parties, although IPHL manager who ordered crane unaware of themo Crane arrived and used before written contract signedo First mishap: driver drove crane over marsh despite IPHL’s manager telling him to wait for navimats, crane sank, removed expensivelyo Second mishap: navimats arrived but machine sank into marsh again

Judicial history

The court of first instance found that the second mishap resulted from a fault of the defendants who should have pointed a safer road to the driver. The defendants appealed.

Issue Who has to pay for the second mishap?Holding Appeal dismissed.Reasoning o The incident happened by bad luck, it is not caused by anyone’s fault.

However, the plaintiffs’ claim still succeeds on a different ground.o Although previous dealings irrelevant, both parties are in the same trade and are of equal bargaining powero Defendants themselves use similar conditions when hiring out cranes, both parties used a variation of a standard formo Therefore conditions are incorporated into the contract by implication (because both parties AWARE of them)o Common understanding may be derived from conduct of parties: crane requested urgently, delivered quickly, on the assumption that defendants accepted plaintiff’s terms.Sachs:o Would be different if parties were from different walks of lifeo Conditions of contract “are reasonable; and they are of a nature prevalent in the trade which normally contracts on the basis of such conditions.”

Ratio Where consent is not determined, knowledge of terms is necessary for their implication into a contract. Knowledge requirement is satisfied by the fact that conditions were part of industry standard.

Industry Usage vs Standard

o Usage must be proved o Standard is treated as matter of fact in court

Phone conversation o Not "course of dealing", but common understanding derived from parties'

conduct Implied terms/usages

o Implied term that the lent crane must be returned at the end of the period of time.

CIVL: 1426 (interpretation of contract) refers to usage [OBJECTIVE] USAGE

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COML Georgia Construction Co v. Pacific Great Eastern Eastern Railway Company (SCC

1929): "Usage…may annex an unexpressed incident to a written contract; but it must be reasonably certain and so notorious that

Question of fact which must be proved by evidence; reference to a standard practice is not sufficient

CIVL 1434 A contract validly formed binds the parties who have entered in to it not only

as to what they have expressed in it but also Comment: sometimes, not easy to say whether the usage is "implied in term" or "implied in law" Usage & Implied Term Usage looks like customary law Especially if made to apply irrespective of parties' intent or knowledge UNIDROIT 1.9: "The parties are bound by a usage that is widely known to and

regularly observed … o Usage must be law then…?

But it is generally given effect as part of contract: as implied term That is what makes them relevant in an international contract irrespective of

governmental parties. Exercise: hierarchy of rules (same for COML and CIVL) Default legal rules, mandatory legal rule, course of dealing, written contract term, usage 1. Mandatory legal rule (derogation is not possible) 2. Written contract term (the main part of the law of the parties, intent, meeting of the

minds) 3. Course of dealing (law of the parties) 4. Usage ("default rule" but can be excluded by contract) 5. Default legal rule (derogation is possible) Legal context Implications from known legal categories of contract CIVL: nominate contracts (contracts that receive special rules in CC, some will depart from general rules, some are supplements) 1377. The general rules set out in this chapter apply to all contracts, regardless of the nature. Special rules for certain contracts which complement or depart from these general rules are established under Title Two of this Book (Nominate contracts, 1708ff) Nominate vs Innominate N: precisely defined and regulated and correspond to common economic activities,

eg: sale, lease, gift, employment, insurance Innominate contracts include all other contracts and are governed by the general

provisions on contract

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The distinction is important for courts to apply different rules about implied terms. Judges may use analogy to apply rules to a contract very similar to a nominate contract.

Evolution: arbitration agreement was added in 1986 (2638 CCQ) COML: "nominate" = "class" or "kind" "Nominate" contracts also a fact in the COML, with terms implied or imposed by

statutory or common law for certain kinds of contract Statute Law, eg.: Ontario Sale of Goods Act: quality and fitness for use condition Common Law (case law): MJB Enterprises v Defence Construction (SCC 1999):

Implication in 3 cases o Based on custom or usage ( o As incident of a class or kind of contract o To give business efficacy to a contract or as otherwise meeting the "officious

bystander" test as a term which the parties would say, if questioned, that they had obviously assumed Officious bystander and business efficacy were 2 tests before, Canadian

case law brought the 2 as 1. Business efficacy is narrower now: necessary for business contracts to

work Eg. In both CIVL and COML, employment contract implies duty of loyalty to

employer and safe conditions for employee Suppletive or Default vs Mandatory CIVL Majority of rules are suppletive (terms applicable by default) Some are mandatory (terms that will apply in all cases) 9 CCQ In the exercise of civil rights, derogations may be made from those rules of this Code which supplement intention, but not from those of public order. Good Faith and Fair Dealing Known and recognized as a general principle in all civil law jurisdictions, and now in

every international instrument dealing with contracts. Code Napoleon, art. 1834 (contrat = loi des parties), 3rd paragraph "Elle doivent etre executees de bonne foi." Commonly accepted and applied internationally COML Commonwealth jurisdictions still reluctant to recognized a duty of good faith as a

general principle US: included in UCC in the 50s, and in the Restatement 2d in 1981

o Restatement "definition": "Every contract imposes upon each party a duty of good faith and fair dealing in its performance and tis enforcement" -> Good faith in performance, not in creating the obligation -> reluctance to impose duty of good faith on people who negotiate contracts

Canadian Law

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Mess: implied duty of good faith in many cases on many basis, but no general recognition

Law reform Commission of ontario recommended legislation a general duty to perform in good faith to brig together loose doctrinal strands o Comments: however, no general principle established

Accepted at COMl for some contract: employment, franchising o Eg: Honda dealership case. o 2nd condition of implication "as incident to a special kind of contract"

Also accepted in 3 respects on a case by case basis (more generally, not for special kinds of contracts): o Duty to cooperate in achieving the objectives of the contract

"courts will readily imply a promise… to do all that is necessary to secure performance of the contract"

Eg. Seller of the land says to promotor that the land will be subdivided for the buyer to develop. Duty to do something to subdivide.

o Duty to exercise discretionary powers reasonably: One cannot exercise a contract right in a way that "substantially nullifies the

contractual objectives or causes significant harm to the other contrary to the original purposes or expectations of the parties

View on importance of contractual purposes o Duty precluding evasion of contractual obligations

One cannot do indirectly what one has agreed not to do directly. Comments: the formulation "good faith" is not usually used, but the idea is the

same. If you put all together, it's a picture of general duty of good faith. Common law courts may speak of obligation of “good faith” in order to mitigate

situation of unfairness. BUT there is no consistent and coherent theory of good faith in the common law.

Newfoundland, COML

McKinlay Motors Ltd v. Honda Canada Inc.

Facts Honda and McKinlay (MM) dealership have long-standing relationship. MM has an excellent sales and service record. (highest sales compared to other dealers)At Honda’s request MM begins renovation, but it proceeds slowly b/c MM is unsure that allocation of cars would remain steady or increase to support expense of renovationHonda changes method for allocating cars to one which favours discretion over the mathematical formula. K of Adhesion. MM’s allocation decreases.As a result of reduced allocation, MM begins to suffer economic difficulties and does not move forward with the expansion. Eventually Honda terminates MM’s contract (primarily for failure to renovate)- McKinlay is suing on basis that reduced allocation of cars was an act of bad faith(??) and constituted a breach of the dealership agreement.

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- [Note that Honda did have the right to terminate the K “at will”.]Issues Is Honda’s conduct in bad faith? Is M entitled to damages?Holding Honda is liable for breach of contract; breach of good faith

requirement implied in K. Damages awarded for proven losses arising directly from the breach.

Reasoning • Poor sales performance clearly not a factor in termination• No other major deal received the large inventory reduction that M did• Extrinsic evidence (manager’s comments, etc) indicates bad faith• “It is obviously an implied term of any such agreement that the parties act toward each other in their business dealings, in good faith”• M is entitled to the lost income suffered from the bad-faith allocation of inventory.

Ratio Good faith is an implied term in contracts, where there is a long relationship with a power disparity.

Court suspects that Honda put McKinlay in the disadvantageous position by

exercising excessive discretion to "punish" McKinlay because he didn't do the renovations.

Reasoning comments: o "obviously assumed" -> 3rd condition (officious bystander test) o "an agreement of this kind" argument -> 2nd condition of implied terms (as

incident of a class or kind of contract) Termination was clean but the allocation of cars was in bad faith. Don’t know

whether implied in law or in fact Good faith in negotiation COML reluctance to recognized a general duty of good faith in either sphere of contracts (formation, performance) Ontario, COML

Martel v Canada

Facts • M is landlord for Department of Public Works• Lease is nearly up, with option for renewal• DPW dicked around with M, and let his chance to offer a good deal expire• DPW put the contract to tender, and dicked with M some more• DPW picked another tender because it was cheaper

Issue Does negligence extend to pure economic loss arising from pre-contractual negotiations?

Holding No.Reasoning Iacobucci & Major JJ

Prospect of causing deprivation by economic loss is implicit in negotiating environment

Proximity creates a prima facie duty of care (present here) Policy reasons against a duty of care during pre-contractual

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negotiationso Object of negotiation works against recovery – transference

rather than loss of wealth, absence of harm on a social scaleo Could deter socially and economically useful conducto Interject tort law as after-the-fact insurance against failures to act

with due diligence or to hedge the risk of failed negotiations through the pursuit of alternative strategies or opportunities

o Extending negligence into commercial negotiations would give the court a regulatory function scrutinizing minutiae of pre-contractual conduct

o Would bring excessive litigationRatio No duty to bargain in good faith in Canadian law. The question if whether a duty to care can be imposed on the negotiation 1 analysis approach is offer and acceptance; tendering clauses, do they constitute

an offer? 2 steps process: pre-contract about the bidding process, then a separate contract which is about the substantive contract (in this case, a lease; in CUQ vs CSB, the construction contract)

Contract A (pre-contract) imposes obligations of fairness, to deal equally with all the bidders.

Whether tortious liability can be imposed on parties negotiating. o Proximity (Donoghue v Stevenson) is found here. The parties have an existing

contractual relationship which qualifies for the concept of proximity. o What is missing to conclude that there is duty to care? Policy considerations

COML TransAmerica Life Canada Inc v ING Canada IncFacts ING put NN Life up for sale

TA bought a bank (NN Life from ING)TA, in its due diligence, found the band it was going to purchase had issuesAfter the purchase, TA sued ING for not telling it about the issues (misrepresented the value of NN Life through errors in accounting practices)ING contented that TA knew of the errors and was "willingly blind" and breached the implies duties of good faith

Issue Is there a duty of disclosure, based in good faith, in negotiations?Holding Open to DebateReasoning Majority (O’Connor A.C.J.O) says it is up for discussion and should be

heard in court.Dissent (Laskin J.A) says the equality of bargaining power means good faith doesn’t apply and the whole thing is bullshit.o ING seeks to use good faith to add to the contractual obligations

expressly agreed to by TAo parties did not stipulate that TA had an obligation to disclose to ING all

facts that came to its attentiono ING cannot add such obligation to the TA, the relationship between

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the parties does not call for implying a duty of good faitho This is not a contract between unequals where one party is vulnerable

to the bargaining strength of the other; both are large and powerful insurers. The purchase agreement was sophisticated, detailed.

o The good faith duty was nowhere to be found in the agreemento In the contract, neither party overlooked the question of disclosure. On

the contrary, disclosure obligations were specifically addressed and imposed.

o ING, not TA, had a disclosure obligation during the Interim Periodo Presumably, if the parties wanted to impose the good faith obligation

on TA, they would have done that in the contracto The good faith obligation was not even dealt with silence, it was

explicitly addressed in three places in the contract:In negotiation of resolution of any dispute over the calculation of net worthIn working together to find a commercially reasonable solution to problems caused by ING’s failure to obtain certain third party consents and waiversIn agreement on the text of any required pre-closing public announcement-> no room for more implied duty of good faitho The agreement seems to crystalize TA’s obligations in the Interim

Periodo In Canada, courts can imply a term in a contract in 3 situations:3. Based on custom or usage4. As the legal incidents of a particular class or kind of contract5. Based on the presumed intention of the parties where the implied term

must be necessary “to give business efficacy to a contract or as otherwise meeting the ‘officious bystander’ test as a term which the parties would say, if questioned, that they had obviously assumed

o Only the last situation seems to fit this case, however, ING has not asserted that such an implied term is necessary to give business efficacy to the contract/ this term is one the parties would say they had obviously assumed

o There is nothing obvious nor necessary in the implied term pleaded by ING, it is inconsistent with the entire agreement

Ratio No duty of good faith in negotiations between two powerful sophisticated actors and when the term in question is neither obviously assumed nor necessary to the contract.

Commnets Tricky, unclear law

Paragraph 99: reiterating the conditions to imply terms by factual context (usage, special contract, officious bystander)

Laskin J dissenting paragraph 93: in order to imply duty of good faith, you have to find that the parties have not carved it out, but there are 3 clauses of good faith in the contract, but not in the audit. Exclusio Unius (covered for the elements mentioned, not for others)

"Necessary" -> business efficacy

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The parties didn't intend to include good faith of audit, otherwise they would have included in the relevant clauses.

Comments: shocking that the parties could "not intend to include duty of good faith" while internationally, the general rule is that this duty cannot be excluded.

CIVL Provisions about how you exercise your rights 6 CCQ

Every person is bound to exercise his civil rights in good faith. 7 CCQ

No right may be exercised with the intent of injuring another or in an excessive and unreasonable manner which is contrary to the requirements of good faith.

Good Faith re Obligations (CIVL) Book on Obligations (not under title of contracts) 1375 CCQ The parties shall conduct themselves in good faith both at the time the obligation is created and at the time it is performed or extinguished.

Comments: before contract is created, and at termination Gives rise to ECO liability during negotiation (contrary to COML where there is no

liability and no duty of good faith during negotiations) Meaning of "good faith" Subjective (opposed to bad faith)

o Malicious intent/a picture of the state of mind -> Traditionally Objective, broader (defined in Civil Code)

o Reasonable, loyal and honest Comments: "reasonable" standard as in so many other instances; then

again, what's reasonable? Equally profitable/fair for both parties? No, not about the deal of the parties, but the behavior toward the other party

Status Generally mandatory (cannot be departed from in principle) Some of its applications can be excluded by contract (eg: reasonable notice) Illustrations: CIVL cases Qc BCN v Soucisse (BCN = banque canadienne nationale)1981Facts • Dr. Groulx entered into a suretyship with the bank to cover existing and

future debts. He dies and the bank tries to collect debts from his heirs (respondents).• The respondents were unaware of the suretyship. The issue is only about repayments for debts contracted after the surety’s death.• When Groulx died, the bank contacted the heirs, but did not inform them of the option to revoke the surety• Debts were accumulated against the surety subsequent to the death• BCN tried to call in the surety

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• Surety : A person who is liable for paying another’s debt or performing another’s obligation. He does not receive any compensation for assuming liability, and is directly liable to the creditor.

Issue Is the contract enforceable despite BCN's bad faith?Holding NoReasoning o Court of appeal concluded that only a surety of existing debts is a true

suretyship.• Surety: incidental contract which necessarily assumes a principal debt• Consent must exist each time a principal debt is created• So, since heirs were unaware of suretyship, never gave consent for advances made by bank to debtoro Although Beetz upholds CA’s decision, disagrees with its reasoning• Letters of suretyship signed by Dr. Groulx explicitly stated that suretyship was to be binding on his estate and legal heirs, unless revoked by his estate or legal heirs.• A suretyship does not distinguish between present (obligation of settlement) and future obligations (obligation of coverage).• Issue in case is a suretyship, CCLC art.1937 must be applied to it:• The obligations of the surety pass to his heirs• Purpose of this type of surety is to avoid having to renew obligation every time new credit is extended (so definitely do not need to have consent every time)o In Quebec, fin de non recevoir may be used, instead of ordering bank to pay damages.• Fin de non recevoir: A kind of peremptory exception, by which someone defending an action can have it dimissed, without going into the substance of the claim.• Like estoppel in common lawo In case at bar, bank was at a fault by not disclosing existence of the suretyship to the heirs• So heirs did not have a chance to revoke suretyship before the new credit was extendedo Bank had obligation, resulting from principle that agreements must be performed in good faith, to inform heirs as soon as it learned of surety’s deatho Bank unilaterally altered the situation to its advantage• Sounds like unjust enrichmento A fin de non-recevoir must be used to prevent Bank from benefitting from their fault of not telling heirs about suretyship

Ratio A court may imply a term of good faith into a contract. A fin de non-recevoir may be used to prevent benefitting from that fault. Partial info is misleading info.

Duty to inform that the letters were revokable. The bank by not telling the heirs increased its security because the heirs can reject the inheritance.

Remedy: still alive; courts wonder whether the remedy is the provision itself

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o Here, "fin de non recevoir" = you may have a right, but the court will not hear your claim because you've been on bad faith.

Partial information is misleading information. Qc Provigo Distribution v Supermarché ARG [1998] RJQ 47 (CA) à CB 413Facts • ARG owned 4 food stores in Estrie, three of them are in Granby.

• P uses the segmentation strategy to achieve considerable success. Following this strategy, P opened a discount store in Granby, Heritage. The company owns and manages the store at the same time.• P signed an agreement with ARG to bring ARG under the P brand, but ARG would still be independently owned (like a franchise)• ARG had to buy 90% of its stock from Provigo at regular Provigo prices• Because ARG was held to previous pricing agreements, Heritage was able to massively undersell ARG

Issue Did Provigo act in good faith?Holding NoReasoning • At beginning of the trial, P opposed to provide many documents

regarding its strategy and financial situations for the following 4 reasons: (but the objection was dismissed)1. These documents are not part of the res gestae2. Some of them are prior to the litigation3. They are not statements of intention4. They are not pertinent• Franchising agreement has the following characteristics: contrat à titre onéreux, synallagmatique et d’exécution successive. Il est parfois aussi un contrat d’adhésion, car il regroupe des clauses types dont le contenu n’est pas ouvert à discussion.• Franchising agreement is an ongoing agreement that involves reliance, so there is an implied duty of good faith• In the contract, there is no explicit clause that imposes obligations upon the franchisor. However, the obligations in a contract are not limited to the expressed terms.• One of the fundamental obligations of the franchisor is to collaborate and offer technical and commercial assistance.• CCQ 1376 mentions the concept of good faith (but not necessary to mention it in this case, for there is obvious civil fault)• P retained the right to do whatever it wanted, like open discount stores to compete with itself• The duty of good faith implied a duty to collaborate with the franchisees to minimize harm to their interests.• Causation: P not only failed to fulfill its duty, but used its expertise to improve its own competitive advantage. Experts showed that P’s acts did cause the loss suffered by ARG. Causation is well established.

Ratio Franchise agreements imply duty of good faith not to harm the franchisee without notice.

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Minimum loyalty because affiliation contract forms a partnership SCC (CIVL)

Houle v. National Bank of Canada

Facts - Respondent (Houle Bros.) were shareholders in their family company- Company had a credit line with Appellant Bank – security for loan consisted of letters of surety The loan was a DEMAND loan, thus bank had a K-ual right to recall with NO notice.- 20 days after signing of trust deed, Appellant bank decided to recall loan. It was aware of the impending negotiations of sale of the company to new shareholders.- Bank informed company of loan recall and took possession of the assets three hours later- Respondents closed sale of company but received $700,000 less than expected. They are claiming this amount from the Appellant bank.

Issue Did the bank abuse its contractual right? If so, can the Respondents as third parties to the contract, ground an action in contractual liability?

Holding Recall of loan without a reasonable delay amounted to an abuse of bank’s contractual right to recall loan with no notice.Respondents must ground action in extra-contractual liability. Damages for $250,000

Ratio Abuse of a K-ual right is a breach of the implied K-ual obligation of good faith. Criteria for abuse of K-ual right is not malice or bad faith but “reasonableness”. Implied obligation to exercise K-ual right in a reasonable manner. Now codified in Art 7 CCQ.- The doctrine of abuse of contractual rights is part of Quebec civil law.- The abuse of a contractual right gives rise to contractual liability; but, third parties to the contract have no right of action in contractual liability.- The bank did not abuse its contractual right to recall the loan (it had reasonable explanation for doing so) however it abused its contractual right to realize securities after the demand for payment was not met. The contractual right was abused because the right was exercised unreasonably (without sufficient delay) when the bank knew of the impending sale of the company.

The Respondents are third parties to the contract. It is not appropriate to lift the corporate veil. The Respondents must make a claim in extra-contractual liability. The banks impulsive and detrimental repossession and sale of the company’s assets after such a short and unreasonable delay, while fully aware of the respondents’ imminent sale of their shares, was a fault entailing its liability for the ensuing direct and immediate damage caused to the shareholders.

Comments Different from Soucisse as the Bank had an explicit right to call the loan on demand. Easier way out would have been to pierce the corporate veil and sue contractually or use 1053/1457. The code codifies jurisprudence

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through articles 6 and 7 and 1375. Theories (3) re Abuse of rights 1. Individualist theory: doesn't look further than individual interests -> malice and in

bad faith in the exercise of your rights (traditional) 2. Social function theory of rights (Josserand): purposive look, if the person acts

contrary to what is expected of him based on his social function, there's been abuse of rights regardless of reasonableness and intent (strict)

3. Reasonable use of right theory (reasonableness, basis of Qc objective good faith definition); when a right is not performed in terms of the prudent or diligent individual o This is the theory adopted by SCC

Thoughts on Kennedy Formal justice VS substantive justice Predictability vs flexibility Narrow rules vs general principles Individualistic vs altruistic (community interests) Reciprocity (market) vs common aims (common good)

o Reciprocity: Fuller Theory of Abuse of rights is central. Contract law must change to include notion that K obligations must be performed within the broader confines of Good Faith. - Express K’ual rights and NOT a fundamental right. Differences between Soucisse and Houle : Soucisse adds an obligation. Houle overrides a right. In this way Houle goes

further than Soucisse. The K, here, was not silent. It gave the bank expressly the right to do what it did.

If you imply an obligation of good faith which contradict a clause in the contract, what trumps? Implied obligation of good faith overrides or tempers the express condition.

Difference btw Good faith and Abuse of Rights The context in which doctrines are used is different. Abuse of rights only occurs if

there is indeed a right being abused. Similarities include: Good faith is the overriding concept. When one implies the

obligation of good faith in contradiction of a contractual right, that it becomes an abuse of rights case. Notion of abuse of rights does not stand on its own – it is a particular application of the good faith doctrine.

Difference btw Acting in Bad Faith and Not acting in Good Faith • Old good faith test = If malicious and intention test (as in Civil prior to 1971 case). Good Faith • Test has changed. It is now the test of reasonableness.

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• There is a presumption of good faith in Art 2805. Bad Faith • Bad Faith is intentional and malicious. Bad faith is now relegated to fraud or other specific K’s (e.g. insurance K’s) • This difference and the new standard is firmly entrenched as of Houle. Now entrenched in Art 6 and Art 7 CCQ. Recap: CIVL: general principle of implied duty of good faith in all obligations, at all stages of

formation of contract o The basis of the obligation of good faith is not the contract, because remedy can

be found under extra-contractual liability. o Abuse of rights is a sub-concept of good faith even though it has its own

provisions in the CCQ o Houle: good faith is acting reasonably, loyally, with honesty (objective definition

of good faith) o Generally treated as a matter of public policy (impossible to validly exclude it by

contract), but there is a margin of parties autonomy on the basis of which they can limit it by defining its application in their contract.

US: duty of good faith in performing the contract which is legislated Rest of COML: reluctant to adopt good faith as a general duty in the performance of

all contracts. It is still seen as a term that may be implied in particular contracts. o The general conditions for implying a term in a contract thus apply in assessing

whether good faith is an implied term. Usage Incident of a kind of contract

Eg of how it implies good faith Franchising contracts/dealership agreement are where parties don't

have equal bargaining power. Good faith is more easily considered as an implied term.

Officious bystander test (obviousness of the implied term) / business efficacy (term is necessary for it to work out well)

o Canada/COML: 3 grounds to recognize implied term of good faith at performance stage ONLY; all together form a trend, but which is not based on established law the parties have the duty to cooperate to achieve objectives of the contract; discretionary power based on contract must be exercised reasonably; parties can't attempt to circumvent contracts

o Mandatory vs non-mandatory implied term: sometimes, good faith can be mandatorily implied and sometimes not, which means the parties can exclude

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IV THE KINDS OF AGREEMENTS THAT ARE NOT ENFORCED

9. Public policy / ordre public

Themes: - The limits of private autonomy- How contracts relate to, and promote or inhibit, “community values”- Nullity of objectionable contracts- Objectionable clauses in otherwise valid contracts

Required reading: - Brasserie Labatt Ltd v Villa, [1995] RJQ 73 (CA)- Cameron v Canadian Factors Corp, [1971] SCR 148- In the Matter of Baby M, 109 NJ 396 (1988)- X v B [2009] RJQ 445- Rakhi Ruparelia, “Giving away the ‘Gift of Life’: Surrogacy and the

Canadian Assisted Human Reproduction Act” (2007) 23 Can J Fam L 11- Draft Common Frame of Reference, ss. II.-7:301: “Contracts infringing

fundamental principles”, II.-7:302: “Contracts infringing mandatory rules”

Recommended optional reading: - CCQ, Arts 8, 9, 1411, 1413 (public order in the code, more generally, and

contracts specifically) - Baudouin, Jobin & Vézina, paras 135-108, 124-25 (public order), para 139

(link between good faith and public order), paras 352-53 (object), paras 356-64 (cause) and 369 show how public order and object/cause of content connect

- Smith, 245-47, 267-68

Distinctions Public Policy, Ordre public, Public Order, bonnes moeurs Ordre public de protection vs direction

o Direction: integrity of the state, order in society in literal meaning, good morals

o Protection: protect people with less bargaining power (eg. Consumers), quite often legislated provisions (eg. Consumer Protection Act)

o The distinction is useful in distinguishing effects of provisions Protection: the legislated provisions can only be invoked against

powerful parties Direction: any term that is against public order of direction would be

void. o The distinction is rendered difficult by horizontalization

Horizontalization: apply and include human rights

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Fundamental principles (direct and indirect) Eg. Quebec Charter

Direct applicationContracts are void if they include discrimination (eg) by specific reference to provisions of the charter.

Art. 12. No one may, through discrimination, refuse to make a juridical act concerning goods or services ordinarily offered to the public. Art. 13. No one may in a juridical act stipulate a clause involving discrimination. Such a clause is without effect.

Indirect applicationThrough public order; even if the charter articles doesn't apply to a private relationship, the provisions are still relevant to court decisions because judges consider their underlying principles as public morality and apply them. The contract would be void if it is inconsistent with public morality/order.

Limits to parties' autonomy Difficulty brought is enormous

These human rights are defined broadly. If read literally, the actual right would impede efficient solutions/way of doing. Eg. By the charter, it is impossible to waive the right to integrity of the person/body. Therefore, it would be impossible to undergo any medical operations if the provision is broadly read. What is read is not what can be done. There must management in reading human rights provisions. Common Frame of Reference: experiencing the same difficulty in integrating human rights (as a part of public policy) in general obligations.

COML concepts Illegality without reference to statute, on the basis of common law (droit common) Statutory illegality Mutual link and influence between common law and statutes (only one "public policy" which should be the same by common law and by legislation) Most famous judicial description: "Public policy is a very unruly horse, and when once you get astride it you never know where it will carry you." (Richardson v. Mellish (UK ,1824)). Baby M US Baby MFacts "William Stern (Stern) and Mary Beth Whitehead (Whitehead) entered into a

surrogacy contract. The contract stated that Whitehead would become pregnant through artificial insemination using Stern’s sperm, carry the child to term, bear it, deliver it to the Sterns, and do whatever was necessary to terminate her maternal rights so Mrs. Stern could adopt the baby. Stern agreed to pay Whitehead $10,000.00 after the child’s birth, on its delivery to him. Though she did not want to, Whitehead turned the baby over to the Sterns after its birth. The Sterns gave the baby back to her when she said she could not live without it, but they believed she would give the baby back to them. When it became

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apparent that she would not give the baby back, Stern filed a complaint seeking enforcement of the surrogacy contract."

Issue Can a surrogacy contract be valid?Holding NoReasoning The law prohibits giving or accepting money in an adoption. Baby selling

exploits all the parties involved. It does not regard the interest of the child or the natural mother.Parental rights can only be terminated when there has been a voluntary surrender of a child to an agency or when there has been a showing of parental abandonment or unfitness. A contractual agreement to abandon one’s parental rights will not be enforced by the court.No surrender of custody of a child can be valid unless the surrender is made to a state agency and meets certain formalities.The contract’s basic premise, that the natural parents can decide in advance of birth, which one is to have custody of the child, bears no relationship to the settled law that the child’s best interest shall determine custody.There are, in a civilized society, some things that money cannot buy. It is against public policy of the state to buy and sell babies.

Ratio A contract that is contrary to public policy cannot be enforced.Comments Interesting that the agreement was concluded by the bearing mother fully

willingly, but she was uninformed. There is the idea of protecting the integrity of the consent.The bearing mother's consent was anyway without importance. There are things that money can't buy, even with the full consent of the "seller". Public policy ensures fairness and put aside consent as irrelevant.

The idea of link: public policy as seen by common law courts vs as in statutes

Courts rely on multiple statutes to define what public policy is on this matter: finding coherence between and reconciling common law rules and statutes, and formulate a legal rule

Adoption statute: to the possible extent, children should be brought up by both of their biological parents

Baby theft: forbidden to pay to get a baby Common law rule: custody should be decided based on the baby's best

interests Surrogacy contracts are illegal: rights of parents are equal to those of the

child Public order in the Code (CIVL) 8 CCQ. No person may renounce the exercise of his civil rights, except ot eh extent consistent with public order. 9 CCQ. In the exercise of civil rights derogations may be made from those rules of this Code which supplement intention, but not from those of public order. 1411 CCQ. A contract whose cause is prohibited by law or contrary to public order is null.

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1413 CCQ. A contract whose object is prohibited by law or contrary to public order is null. Conditions: Baby X, 541 CCQ, 543 CCQ Reminder: cause and object Cause of contract: subjective reason of the parties and concrete (eg of an illegal cause of contract: renting out furnished apartment for the purpose of prostitution) - May not be written in the contract. It will likely not be stated explicitly if it is illegal.

Evidence needs to be provided to prove that the actual cause of contract is different.

- Cause of contract of one party may not be known by the other party. Issue: which party can raise question about validity of contract?

- Is the main concept that judges can rely on to annul a contract, (the other 3 concepts are not that useful)

- Entirely different from consideration (COML), which is relevant in many other matters in contracts. Cause of contract is only relevant in assessing validity of contracts on public policy matter. In CIVL, cause is required in formation of contracts, but there is always a cause. The only question is whether it is legal.

Object of contract: juridical operation envisaged by the parties at the time of its formation Cause of obligation: objective reason for the obligation: abstract and identical for similar contracts (eg. Liberal intent for gift) Object of obligation: prestation (1373 CCQ) Baby X case Qc X v. BFacts B lives with X’s father and is infertile.

B and the father located a surrogate mother (S) and concluded a verbal contract with her to pay $20,000 for the baby.The child was conceived through artificial insemination (with the sperm of X’s father).During pregnancy, the biological mother maintained regular and frequent contact with the couple.The couple gave the $20,000 to the surrogate mother.They decide to have S not sign the birth certificate of X, so that the father will be the only legal parent, allowing him to consent to B becoming X’s mother by adoption. The birth certificate was produced according to the agreement.Two days after the birth of the baby, the surrogate mother signed a special adoption consent, in which she identified herself and B’s spouse as the child’s biological parents. She also consented expressly to give the child to B.They argue that this course of action will best serve the child’s interests.

Issue Was X's adoption of B is legally valid?Holding NoReasoning 541. Any agreement whereby a woman undertakes to procreate or carry a child

for another person is absolutely null.The judge opens with a long, boring and ultimately irrelevant discussion of various

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laws, doctrines and controversies related to surrogacy.He starts the important part of his argument at para. 54, noting “l’adoption ne peut avoir lieu que dans l’intérêt de l’enfant et aux conditions prévues par la loi.” (a.543) He interprets the second condition broadly, noting that it includes both the spirit and the letter of the law, and that this case went beyond such conditions.In other for the adoption to be valid, prior agreements and procedures must also be valid. In this case, they are not, because they are against public order (not in the sense of procedural law, but substantive law).The proof reveals a “conspiracy” to carry out a paid surrogacy contract and get around the law against such contracts by not completing the birth certificate; and since Québec does not have a presumption of maternity, a blank certificate guarantees hassle-free adoption by B [para. 66 is particularly evocative]. This may be in the interests of the child, but the law cannot allow the child’s interests to be instrumentalized and used to avoid concerns of public order [para. 69 is pretty important].

Ratio Contracts contrary to public policy are of absolute nullity. 541 CCQ prohibits surrogacy. 543 CCQ sets out conditions of adoption. The judge: you cannot use 543 to indirectly achieve what's illegal if done directly.

"aux conditions prevues par la loi": conditions of adoption are not sufficient, general conditions of law must be fulfilled for adoption to be valid.

Similar to Baby M: uphold societal values and balanced with child's interest. Determining Public Policy in CIVL "read" by courts by gathering up public morality requirements and taking into account existing laws and statutes (same as COML) Status of written provisions not always indicated: mandatory or default (same as COML) May be expressed in terms of possible exclusion (i.e.: non-derogability)

Eg. 1474 CCQ. A person may not exclude or limit his liability for material injury caused to another through an intentional or gross fault; a gross fault is a fault which shows gross recklessness, gross carelessness or gross negligence.

He may not in any way exclude or limit his liability for bodily or moral injury caused to another.

A person may not exclude or limit his liability for material injury caused to another through an intentional or gross fault; a gross fault is a fault which show gross recklessness, gross carelessness or gross negligence. He may not in any way exclude or limit his liability for bodily or moral injury caused to another. May be implicit

6 CCQ. Every person in bound to exercise his civil rights in good faith.

Determining Public Policy in COML Agreements to commit unlawful acts (crime, tort, fraud)

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Agreements facilitating immoral conduct or undermining the institution of marriage Undermining institution of marriage: promise to mary someone after divorce/death of the actual spouse

Agreements undermining the administration of justice (paying witnesses, paying one not to press charges, Champerty) Agreements undermining state interests (influence peddling, constraints on public functions, trading with the enemy, restraint on free press) Covenants in restraint on trade (non-competition clauses are now accepted but only when it is reasonably limited in time and geographical scope) Remedy in COML Principle: illegal contracts are unenforceable "No Court will lend its aid to a man who founds his cause of action upon an immoral or illegal act" (Holman v. Johnson (1775) H.L.) The court will not officially declare that the contract is void, it will only refuse to hear the case. Exception to the rule (link to difficulty of different subjective reasons to form the contract in CIVL)

One party was unaware of the cause of illegality (eg. Renting the flat for prostitution, landlord can still recover the rent) One party is intended to be protected by the law making the act illegal (eg. Consumer protection act protects consumers, not the retailers) One party was victim of oppression, fraud, undue influence One party has repented and resiled from the transaction before completion (locus poenitentiae exception)

Court is however reluctant is giving a large scope to exception Severability in COML If you have a clause in a contract that is illegal, is the whole contract struck and rendered illegal? It is the same difficult exercise in constitutional review of a statute: only a provision is unconstitutional, the whole act? The contract will sustain (only the illegal clause will be void) in the following situations: Remainder of the agreement can sensibly stand after excision of offending term. Enforcement of the remainder of the agreement must be consistent with the public policy or rule at issue The traditional "blue pencil" test (which is still relevant where there is unequal bargaining power; otherwise, use of notional severance increasingly frequent)

Blue pencil test: striking out some words in the contract to see if the contract still makes sense

Only applies to written contracts Notional severance: distinguishing some of the effects of the contract which are unenforceable (for example, in some provinces)

Comments: courts don't want contract drafters to terrorize adherents by writing clauses that are contrary to public policy and wait for courts to reduce the contract to legally acceptable terms

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General principle behind preference of notional severance over blue pencil test: judges should not be writing the contract for the parties.

Remedy in CIVL 1417 CCQ. A contract is absolutely null where the condition of formation sanctioned by its nullity is necessary for the protection of the general interest.1418 CCQ. The absolute nullity of a contract may be invoked by any person having a present and actual interest in doing so; it is invoked by the court of its own motion.

A contract that is absolutely null may not be confirmed.1419 CCQ. A contract is relatively null where the condition of formation sanctioned by its nullity is necessary for the protection of an individual interest, such as where the consent of the parties or of one of them is vitiated.1420 CCQ. The relative nullity of a contract may be invoked only by the person in whose interest it is established or by the other contracting party, provided he is acting in good faith and sustains serious injury therefrom; it may not be invoked by the court of its own motion.

A contract that is relatively null may be confirmed.

Ordre public de direction: protecting overall societal value -> absolute nullity Ordre public de protection: protecting particular groups of people (eg. Consumers) -> relative nullity Absolute nullity can be invoked by either party. Relative nullity can only be invoked by protected party or a party that suffered harm. Even if nullity is not pleaded, the court has the obligation to protect general societal interest and therefore must intervene and decide upon absolute nullity case. It is not the case in relative nullity cases. Severability in CIVL (Code) 1438 CCQ. A clause which is null does not render the contract invalid in other respects, unless it is apparent that the contract may be considered only as an indivisible whole. The same applies to a clause without effect or deemed unwritten.

The court may say: "clause without effect", "clause is deemed unwritten", "inopposabilité" (cannot be used against a party but can be used against the other) Qc Brasseries Labatt v. VillaFaits En mars 1981, l'intimé, Pierre Villa, était engagé par la Brasserie

Labatt Limitée comme directeur général de la succursale de l'appelante à Québec. À l'automne 1986, le poste de vice- président aux Affaires publiques à Montréal devient vacant et lui est offert.Les conditions de son engagement à ce poste font l'objet d'un échange de correspondance entre lui-même et

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le président de l'appelante, Pierre Desjardins (PD).

Lettre : Nous nous engageons à payer tes frais de déménagement à Mtl et nous débourserons les frais d'un appartement à Mtll jusqu'au 31 décembre 1986.

L'intimé loue un appartement, mais dans une lettre il fait état des difficultés qu'il a, en début d'année scolaire, à faire venir sa famille et suggère que l'échéance du déménagement soit repoussée à mai 1987. PD agrée à cette demande le 20 octobre. Le 16 avril 1987, le remplaçant de PD, Marcel Boisvert (MB) envoie une lettre à l’intimé.Lettre :En octobre, il a été établi qu'une des conditions de votre nomination au poste de VP affaires publiques, était que vous demeuriez à Montréal avec votre décision de déménager à Mtl. A défaut de vous conformer à cette condition votre emploi prendra fin.

L’ 'intimé répond : Vous m'imposez une condition d'emploi qui n'a jamais été négociée. Il n'appartient qu'à ma famille de décider pour elle-même du choix de leur résidence.D’ici au 1er juillet prochain, j'établirai ma résidence permanente à Mtl, le tout sujet aux indemnités convenues selon la lettre d'entente du 29 septembre.

Le 27 avril, intimé est congédié pour non-déménagement de part la politique. L'intimé a poursuivi l'appelante en dommages-intérêts.

Question Le pourvoi porte à la fois sur le droit de congédier et sur l'évaluation des dommages

Resultat Obligation est nulle; congédiement injustifiéAnalyse Beaudouin—Condition est contraire à l'ordre public (art. 1373) et à l’art 10 de

la Charte droits et libertés qui interdit discrimination fondée sur l'état civil.Congédier l'intimé pour défaut de respecter l'obligation contractuelle qui lui était faite de déménager sa famille à Mtl, est l'équivalent à le congédier parce qu'il est marié.Paragraphe 21: "La condition est nulle parce qu'elle contrevient a l'ordre publique."

Gendeau—Cause du congédiement ne résulte pas de son statut marital. L’obligation est contraire à l'ordre public car l’employeur ne peut imposer à son employé une façon de conduire sa vie maritale et familiale. La clause viole l’art 5 de la Charte [protection la vie privée] donc, voila un autre argument qui prouve que la clause contraire a l'ordre public.

Ratio TEST : Pour qu'une clause contractuelle soit discriminatoire et contraire à la Charte, il suffit simplement que tel en soit l'effet.

Abusive clauses Transsystemic example: the law is the same in COML and CIVL

Cameron v. Canadian Factors C’s contract with CFC included a non-competition clause for 5 years after he

worked there, extending to all Canada C quit CFC, started a rival company, stole its clients

Issue Is the non-compete clause valid?

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Holding No, it is against public policy because it is too broadReasoning Majority (Laskin J)

Restraint covenants must be limited to time or space, and type of employment Five year period is unreasonable and contrary to public orderDissent (Pigeon J) Restraint clauses are interpreted restrictively a prohibition from representing a similar company is read to include a

prohibition against managing a competitor Restraint must limit either time or space, and type of employment (cannot be

too broad) This contract is limited to employment and space, time is unreasonable but

because he left the day after he’s fucked regardless what a reasonable amount of time is.

Ratio Restraint covenants must be limited in time or space. Unreasonable limits are contrary to public order. Where the covenant is too harsh, it will invalidate the contract (incentive to employers to draft reasonable contracts)

Comments The CIVL basis for Cameron is 2089 CCQ.2089 CCQ.The parties may stipulate in writing and in express terms that, even after the termination of the contract, the employee may neither compete with his employer nor participate in any capacity whatsoever in an enterprise which would then compete with him.

Such a stipulation shall be limited, however, as to time, place and type of employment, to whatever is necessary for the protection of the legitimate interests of the employer.

The burden of proof that the stipulation is valid is on the employer.

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Documents

1.General introduction - AED :: Accueillsa.mcgill.ca/pubdocs/files/...Fall2013.docx · Web viewIn reliance of this letter of comfort the bank ... Legal operations ... HPC promised