BU 651 - Law Midterm Notes.doc

7/28/2019 BU 651 - Law Midterm Notes.doc

1/46

BU 651 MIDTERM REVIEW

CHAPTER 2Canadian courts systemStages of a civil actionClass actions

ADR

CHAPTER 5Offer & AcceptanceCounteroffer Contractual exclusionsTermination of offer Uncertainty

CHAPTER 6ConsiderationEquitable estoppelQuantum meruitContracts under sealIntention to create legal relationsElements of a valid contract

CHAPTER 7Burden of proof Capacity to contractMinorsDiminished capacityLegality of contractsVoid contractsIllegal contracts

CHAPTER 8MistakeVoid vs voidableMistake as to termsErrors in recording agreementMistakes in assumptionsMistake & 3 rd partiesNon estfactumOverperformanceMisrepresentation

(Innocent, Fraudulent & Negligent)OmissionUndue influence

Status of parties (spouses, superior knowledge, unequal

bargaining power)Duress

CHAPTER 9Requirement of writing

land & one year rule

Memorandum of contractPart performanceFamily Law ActConsequences of unenforceability

CHAPTER 10Contra proferentum ruleParol Evidence ruleExceptions to parole evidence rule (4 of them)Implied terms

by custom, by reasonableexpectation & statute

CHAPTER 11Vicarious performanceTrustsExceptions to privity of contract (5 of them)

Assignments choses in action, choses in

possession why the assignee should notify the

promissor of any assignment byoperation of law

CHAPTER 12Discharge of contracts (5 ways)Discharge by agreement

CHAPTER 13Major vs minor breachesConditions & warrantiesBreach

Repudiation & anticipatory breach Options of the innocent party

Installment contractsDoctrine of substantial performanceRisk minimization (3 methods werediscussed)Exemption clauses & fundamental breachRemediesTypes of damages (5 of them)Plaintiffs duty to mitigateDamage measurement problemsEquitable remedies (5 of them)Loss of equitable remediesEnforcement of judgments (5 steps)

1


2/46

Examples of Questions Multiple Choice & Short Answer

1. A genuine estimate of damages contained in a contract as a term of the contract can best bedescribed as

a. nominal damages.b. reliance damages.c. liquidated damagesd. consequential damages.e. expectation damages.

2. Which of the following will discharge a contract automatically?

a. Frustrationb. mistakec. breach of conditiond. substantial performancee. fundamental breach

3. What is the effect of making a promise under seal?

a. The promisors obligation is now optional with respect to the promiseeb. It validates illegal contractsc. The promisor is now under a moral duty to performd. There is no need for the promisee to give consideration since the seal makes the

contract bindinge. It overrides any mistake in contract terms or assumptions

4. Joe buys two tickets to a baseball game. Two days after that the game is cancelled. Joe thensells one ticket to Mary. Which of the following is NOT true:

a. Mary can set aside the contract because of frustration.

b. Mary can have the contract set aside because of mistakec. A contract did not arise between Joseph and Mary regarding the sale of the ticketd. Mary may sue Joe for breach of contracte. Joe made an offer and Mary accepted the offer

5. Vicarious performance is where:

a. an employer performs an obligation in place of its employee and it remains liable for proper performance

b. a third party performs an obligation on behalf of a party to the contract who remains liablefor proper performance.

c. an employee performs an obligation for another employee and the performing employee isliable for proper performance

d. a third party derives enjoyment from seeing the contract performede. parties to a contract agree to terminate the contract and substitute a new contract in placeof the old one

6. A party wishing to introduce oral or written evidence which has the effect of changing thewritten agreement will have to overcome the

a. plain meaning approach to interpretation of express termsb. principle of stare decisis.

2


3/46

c. defendant's argument that those words would form a collateral agreement and should, therefore,not be allowed.

d. parol evidence rule.e. rules regarding quantum meruit

7. Tim was drunk last night when he signed a paper that sold his five acre country lot. The nextmorning he realizes what happened and so wants to get out of the deal. Of the following,what's Tim's best strategy?

a. Cash the down payment check for proof of legal intention,b. Repudiate before the closing date of this land sale.c. Immediately repudiate and establish that the other party knew he was incapable of

a rational decision at the time of the agreementd. Obtain a psychologist's assessment of his behaviour last night,e. Entirely depend on the sworn statements of two or more witnesses.

1. What is the difference between a contract of guarantee and a contract of indemnity? 2marks

2. What do following terms mean? (3 marks)

a. non est factumb. vicarious liabilityc. contract warranties

3. Give two reasons why an assignee should give notice of the assignment to thepromissor.(2 marks)

3


4/46

Chapter 2: MACHINERY OF JUSTICE

2 Types of Jurisdiction

Common Law Statute & Precedent DecisionsCivil Code Statute Only

Substantive Law

Establishes the Rights & Duties for all member of society

Procedural Law

Deals with protection & Enforcement of Rights & Duties eg. Due Process

Public Law

Law that regulates the relationships between government & people and the conduct of government

Constitutional, Criminal & Administrative Law

Private Law

Law that regulates the relationship between individuals & groups in society

Courts of Equity & Law pg. 544

Common law developed based upon court interpretation of statute law stare decisis

A separate system known as courts of equity were established to provide remedies thatthe common law does not eg. Habeas corpus, injunction, rescission & equity of redemption

Fused into a single court system in 1865

Sources of Law in Canada

Canada is a Federal system

Legislative authority is divided between the central government and the provinces

Intent was that Ottawa was to be more powerful than the provinces but court decisionshave all but reversed this

Judicial interpretation of statutes are used as precedents for future decisions

Administrative bodies make their own decisions & set their own precedents but theymay be reviewed by the courts

Canadas Court System

Provincial Trial Level

Small Claims Civil cases of limited monetary valueProvincial Division Criminal & Family Courts

4


5/46

Superior Court Ontario Court of JusticeDivisional Court (Ontario Only)

Provincial Appeal Level

Court of Appeal

Federal Courts

Federal Court of Canada It has both a trial division & an appeal division

Supreme Court of Canada The court of final appeal in Canada since 1949

Who may sue?

Individuals over age of majorityOther legal entities Corporations, Partnerships UnincorporatedCollectives Varies by jurisdiction

Standing

Generally you must have an interest in the matter that is greater than that of the average person

Class Actions

An individual represents a group and the decision is binding on all members of that group

Common facts, common injury, etc.

Avoids multiple actions on the same matter

Avoids contradictory decisions

SIX STAGES IN A CIVIL ACTION

1. PLEADINGS

Statement of Claim Statement of Defence Counterclaim Third Party Notice

2. DISCOVERY to narrow & define the issues

Oral Examination Discovery of Documents Electronic Discovery

3. PRE-TRIAL

Settlement meetings & discussions Pre-trial before a judge Mediation

4. TRIAL

5


6/46

PLAINTIFF PRESENTS CASE FOLLOWED BY DEFENDANT & PLAINTIFF HAS A RIGHT OFREPLY (limited to rebutting evidence led in defence)

5. JUDGEMENT & COSTS

WINNER IS USUALLY ENTITLED TO COSTS OF THE ACTIONNOT A FULL INDEMNITYTWO SCALES substantial indemnity & complete indemnity

AWARD OF COSTS MAY BE DIVIDED BETWEEN THE PARTIES OR MAY BE DENIED TOTHE WINNER

6. ENFORCEMENT or APPEAL

TIME FOR FILLING AN APPEAL IS LIMITEDENFORCEMENT VIA FILING WRIT OF EXECUTION WITH SHERIFFS OFFICE

CONTINGENCY FEES

RECENTLY ALLOWED IN ONTARIOLAWYER ONLY RECEIVES A FEE IF CLIENT WINS THE CASE

APPRORIATE FOR CLASS ACTION LAWSUITSINCREASES ACCESS TO COURTS a 3 day trial costs $41k & contingency fees ease burdenon Legal Aidbut THEN THE LAWYER BECOMES A PARTY TO THE ACTION

ALTERNATIVE DISPUTE RESOLUTION - ADR

USE PRIVATE PROCEDURES TO RESOLVE DISPUTESMEDIATION mediator tries to settle the dispute

ARBITRATION & AJUDICATION E-COURT

ADVANTAGES OF ADR

1. SPEED2. COST3. CHOICE OF DECISION MAKER4. CONFIDENTIALITY5. MAY PRESERVE THE RELATIONSHIP BETWEEN THE PARTIES

Splitting cases can save time, avoid restrictions of court processMonday, April 02, 2012 | Written by Judy Van Rhijn |

The flexibility of the arbitration process invites parties to split up or bifurcate their cases into parts,

ensuring that issues that dont need to go to trial arent the subject of wasted time and attention.Its a practice now gaining the attention of judges looking for more efficient ways to manage their cases but its not an option thats right for every matter, even in arbitration.

It speaks to the power of arbitration that the parties can decide the process, says mediator andarbitrator Barry Fisher. Courts generally dont like it.

They like to hear liability, mitigation, and damages all at once, which takes up unnecessary courttime. In arbitrations, we can proceed in stages. . . . If you do it in chunks, theres less work for everyone.

6


7/46

Stanley Tessis, a partner at Laxton Glass LLP, believes arbitration is the perfect forum tobifurcate.

As long as everyone is in agreement, you can do it any way you want. You choose who is goingto hear it, when you will sit, which issues you will determine, and what order to decide the issues.

Arbitration is much more flexible than the courts.

Tessis believes its possible to adopt the practice successfully in a courtroom arena. If there arecertain distinct issues or it is strictly a legal issue, you can use a summary judgment motion or amotion on an agreed statement of facts. If the case involves any factual determination, usually itsall over in one shot.

Mediator and arbitrator Kathleen Kelly says there are numerous factors to consider in determiningthe appropriateness of bifurcating arbitration proceedings.

In some cases, the issues of determination of liability and damages are so interlinked that thedetermination of one cannot reasonably be determined without making a finding about the other.

You should also consider whether the same persons, witnesses, and experts are required for both aspects of the claim. If the amount in dispute is small and the issues are uncomplicated, thetime and costs of two processes cannot be justified.

Fisher has recently adopted the approach in some commercial arbitration matters by using whathe calls a decision tree. There were a couple of key issues to decide to determine liability.

We tackled one discrete issue at a time. It seemed the natural way of doing things. For example,we had to determine the interest rate on a certain date. The spread was huge.

It was a concise point that was argued in two hours. Once that was determined, the remainingparts of the case fell into play. Looking back, it was the most important thing we determined.

Fisher suggests that in commercial arbitration, theres a natural bifurcation between liability and

damages. Tessis also sees its application in insurance arbitration where theres bifurcationbetween the questions of whether one company is entitled to be indemnified and the quantum tobe indemnified.

Theres no point going through quantum if there is no liability, he notes.Tessis also says that in insurance matters, there are always a lot of preliminary issues.

For example, where one insurance company is trying to get back statutory accident benefits thatit paid to another insurance company, you must first determine the question of whether there is alimitation period.

If they started their claim too late, that can be the end of it. You dont get to the damages issue,so you dont waste days and days.

Tessis feels bifurcation is especially useful if theres a legal issue at stake in the matter. You justpresent briefs of documents and legal submissions.

Meanwhile, Kelly says the process can help create a range of damages that will limit the risks of the decision going below an acceptable and agreed-upon lower limit and going above anacceptable top amount.

Sydney Baxter, a mediator and arbitrator based in Ottawa, doesnt see the process used much inlabour and employment arbitration.

7


8/46

He recalls declining a request for bifurcation in a case involving the introduction of computers inthe Ottawa Public Library that had resulted in staff being exposed to pornographic imagesaccessed by the patrons.

They requested that I bifurcate the case against the employer on the merits and the Charter issues. I declined because the Charter arguments would have been hanging like the sword of Damocles over everyones head during the merits hearing.

Baxter also felt it would have amounted to two costly hearings. Its not like the court where youset a matter down for trial and it goes until its finished. If an arbitration doesnt finish, the partiesmay have to reconvene several months later.

Kelly agrees that its not always time- or cost-effective to split the proceedings up. When theevidence and expert opinions are such that the issues cannot be separated, economies of time,direct costs, and opportunity costs cannot be achieved.

The adoption of procedural steps or an arb-med process might create efficiencies that wouldrender bifurcation uneconomical.

Fisher acknowledges that the process can take a little bit longer but still insists it can remain morecost-effective. In one case, I felt bad that the process took so long, but the lawyers said that itwas still so much better than court proceedings. It allows them to set the timing.

The parties might not want to go to court straight away. As long as they are choosing the periodof time when it happens, the certainty of the scheduling helps them.

Arb it ra ti on be co me s mo re li ke li ti ga ti onGap between two models of dealing with disputes narrowingMonday, October 10, 2011 | Written by Julius Melnitzer

There has been a kind of merger in the processes so theres no longer that much to choosebetween litigation and arbitration, says John Laskin of Torys LLP.

People now realize more that some of the asserted advantages of arbitration were not real or atleast a bit overblown.

On the other hand, litigation-related horror stories are legend and continue to proliferate. Butclose examination also reveals a growing number of successes for the court system.

Still, arbitration has lost its lustre as a panacea for lengthy and drawn-out litigation. As manydisappointed parties have discovered, arbitration can be slow and expensive, so much so thatthere arent many proponents left who base their case for arbitration solely on cost saving andefficacy.

In many cases, arbitration is not cheaper and not quicker, Laskin says. One reason is that thepeople we hire as arbitrators tend to have other things to do, and in cases involving three-member panels, scheduling is a nightmare that can really slow things down.

Also, the discovery process can be much the same as in court because when it comes down to it,counsel are reluctant to give up the knowledge that comes with discovery.

Theres also the fact that arbitrators must get paid and the parties have to absorb the cost of all of the things that the public system provides for free such as a venue and a stenographer.

8
http://www.lawtimesnews.com/Focus-On/Arbitration-becomes-more-like-litigationhttp://www.lawtimesnews.com/Focus-On/Arbitration-becomes-more-like-litigation


9/46

Nowadays, boosters of arbitration rest their case on a number of perceived advantages.

The primary reasons for arbitration are choice of decision-maker, a more business-like approachto dispute resolution, and tailoring the rules to suit the parties and the disputes, says Joel Richler of Blake Cassels & Graydon LLP.

But the 2010 international arbitration survey, sponsored by White & Case LLP, found that 50 per cent of respondents were disappointed with arbitrator performance.

What the survey doesnt pinpoint is whether the 50 per cent were composed solely of the losers.If thats the case, the results might not be very different if a similar poll studied the attitude of litigants.

But if thats not the case, 50 per cent is a remarkably high dissatisfaction rate given that choice of decision-maker so often comes up as a reason to arbitrate.

As for tailoring the rules to suit the parties, litigation is much less formal and structured than itused to be. Thats not to say that arbitration doesnt have considerably greater scope in thisregard, but it does point out that the issue isnt entirely one-sided.

However flexible the judicial system tries to be, it never has the flexibility of ad hoc arbitrationwhere parties can design their own process, choose their own judge, have a much greater influence on when things will happen, and have the same decision-maker organize each step inthe process, including the supervision of discoveries if necessary, says Wendy Earle of BordenLadner Gervais LLP.

The argument is that arbitrators, seized of a case in its entirety, have greater scope to keep theparties in check.

Arbitration can get down to the same kind of fighting that occurs in litigation, but arbitrators havemore room and more motivation to rein in the process, says Barry Leon of Ottawas Perley-Robertson Hill & McDougall LLP.

The problem is that they dont always do so. The arbitration process breaks down when peoplechoose arbitrators who let counsel run the arbitration process like a private trial, Richler says.

What arbitration does do, however, is ensure confidentiality, something thats a very limitedcommodity in the courts. Confidentiality can be important in a variety of settings, particularlywhere the parties have a relationship and want to keep its terms confidential, Laskin says.

Arbitration is also preferable when big business meets the underdog. My view is that companiesshould favour arbitration in David versus Goliath situations, Earle says.

Those are the situations that businesses want behind closed doors, out of the public eye, andout of the courts where a judicial decision might set a precedent.

What the survey revealed, however, was that while confidentiality was important to users of arbitration, it wasnt the essential reason for resorting to it.

Whatever the reasons justifying arbitration, theres no doubt that its the preferred avenue for many lawyers.

By way of example, Richler has two favourite stories that he relies on to back up his fondness for arbitration. One relates to a Vancouver case with some $25 million involved and presided over bya retired judge and two senior lawyers.

9


10/46

The hearing took less than two days, and the whole thing took a year overall, says Richler. Butthe loser went to the courts to seek leave to appeal.

The hearing on the application took two days to argue, as long as the argument on the meritsbefore the arbitrator, and the judge reserved for five months before denying leave. Now the other side is appealing the decision denying leave.

The second involves an $85-million case between two brothers before a retired judge sitting as asingle arbitrator. The matter was bitterly contested with many motions, Richler says.

But we were done in less than a year, and again, the hearing took two days. According to Richler, these arent exceptional instances.

I have never had an arbitration where I thought that the court process would take less time, hesays.

I would say that arbitration is always faster than litigation, where procedural rules are written tosuit the lowest common denominator of cases that might come before the courts, so much so thatI have done multimillion-dollar cases in a number of weeks by resorting to arbitration.

But not all domestic arbitration goes so smoothly. Domestic arbitration is much more likely thaninternational arbitration to resemble litigation, particularly because many domestic arbitration[cases] use the Rules of Civil Procedure as their framework, says Michael Schafler of Fraser Milner Casgrain LLP.

Then theres the question of whether the arbitration process encourages settlement. Lawyersseem to be all over the map on this question with responses ranging from very low settlementrates to estimates that approximate litigations record on the issue.

Because arbitration is confidential, meaningful statistics are few and far between. But at least onearbitrator believes the settlement rate in litigation is much higher than in arbitration. Hisexplanation is most interesting.

An arbitrator who does virtually only domestic arbitration told me that 90 per cent of cases to goto hearing, whereas 90 per cent of litigation settles, Richler says.

He believes arbitrations dont settle more frequently because the parties dont get fed up with theprocess as often as litigants do.

For his part, Laskin offers another explanation. Its not unusual for arbitration clauses to haveprovisions for pre-arbitration conciliation and mediation, he says. So in custom-built arbitration,parties may be reluctant to settle because most likely they have already tried to do so.

Despite the convergence of litigation and arbitration, the greatest divide between the two may bepsychological in nature.

Alternatively, it may just be that old habits die hard. Once they get into the courtroom in a civillitigation context, counsel tend to put on their flak jackets and batten down the hatches, says LisaConstantine of McCarthy Ttrault LLP.

Theres also the argument that arbitrations tend to go more smoothly because theyre consensualin nature. When the parties have agreed on how to resolve a dispute, there tends to be far lessprocedural messing about, Earle says.

The mere fact that theyve decided to send something to arbitration means that they envisage anefficient process.

10


11/46

Chapter 5: CONTRACT FORMATION

Offer & Acceptance

An Offer is a tentative promise to do or pay for somethingNot all offers are accepted

Newspaper Ads are generally not Offers they are merely invitations

Exceptions Rewards, Fixed price limited number goodsSee p 113 & case 5.1 on p 114

Communication - Offer must be communicated in words or gestures See Illustration5.1 @ p 114

Offer must come to the attention of the Offeree

Gratuitous work no obligation for consumer to accept unsolicited goods or labour unless consumer acknowledges it

Query : Quantum meruit & unjust enrichment

Standard Form Contracts page 115

Commercial expediencyStandard interpretationUsed to exclude liabilityContra proferentem rule

Contractual Exclusions page 117

Must be brought to Offerees attentionUnexpected terms require the clearest communication

Lapse & Revocation page 118

Lapse occurs when:

1. Time limit in the Offer expires2. Expiry of a reasonable time (if no limit is stated)3. Either party dies/becomes insane prior to acceptance

Revocation Offeror may revoke offer any time prior to its acceptance.See Illustration 5.2 @ p 119

Options - An option is a contract to keep an offer open for a specified period of time in return for a sum of money

Rejection & Counter-Offer

11


12/46

A Counter-Offer acts as a rejection of the original offer & it brings the original offer to an end See Illustration 5.4 @ p 120

There is no contract until an offer is accepted without any additional qualifications

Acceptance

Must be positive in formMay by words or conduct -- See Illustration 5.5 @ p 121Must be communicated -- See Case 5.4 @ p 122

Tenders

Used in commercial contracts to solicit offersLowest bid may not necessarily winDuty to negotiate in good faith See Ethical Issue @ p 108Standing offer an offer that may be periodically accepted as needed

Termination of Offer page 124

1. Lapse due to expiry or reasonable time or stated time limit2. Offeror revokes prior to acceptance of offer by Offeree3. Offeree rejects offer or makes a counter-offer 4. Offeree accepts before any of the first 3 occurs

Distance page 124

Offeror should specify terms - fax, email, ordinary post & deemed receipt

Email deemed to be received when it is capable of being retrieved by the recipient

Otherwise the ordinary usage test - mailing equals communication See Illustration 5.6 @ p113

Jurisdiction

Common Law rule: Jurisdiction is where acceptance occurs

Always specify jurisdiction in your offers/acceptances

Unilateral Contracts

Acceptance is affected by performing some actSee - Carlill v Carbolic Smoke Ball - Case 5.3 @ p 109See Illustration 5.7 @ p 114

Includes a subsidiary promise an implied promise - that offeror will not revoke once offereebegins performance

Bilateral Contracts

Offeror and Offeree exchange promises and both are bound by contract to perform

Internet Contracts page 128

Governed by legislation on ecommerce and consumer protection

12


13/46

Must be an express opportunity for the consumer to accept or decline the agreement

Internet advertisement is not an invitation but is regarded as an offer to the consumer who is theofferee

Regulated by international agreement but subject to Canadian consumer protection laws

Uncertainty page 129

Offer and acceptance may be too vague

Consensus ad idem -- Offeror and Offeree must be of one mind

All things being equal, courts will try to uphold the contract

Discuss Cases 1, 2 & 3

Can you sell your home by email?November 11, 2011Mark Weisleder Be careful what you say in an email about the purchase or sale of a house.ShutterstockOver the course of three days last October, Marc Girouard and Kelty Druet corresponded byemail about the sale of Druets condo in downtown Moncton, N.B.

After a series of emails and an offer and counter offer, Druet agreed to sell unit 203 at 850 MainSt. for $155,000, or so Girouard thought. But Druet changed her mind and the case landed up incourt.There a judge decided that even though a formal agreement of purchase and sale was not ever signed, a deal was a deal. Since Ontario has similar laws to those relied on in New Brunswick,the same result could happen in Ontario.Here is what happened:October 22, 2010: Girouard was looking on Kijiji for a condo to rent and found the unit listedthere. He spoke to the tenant who passed him on to Druet. They spoke and discussed thepossibility of him buying the condo and agreed to carry on their discussions through email.October 24, 10:56 a.m. Druet sends Girouard this email: After giving the idea of selling mycondo some more thought, I have come to a decision. I would sell it to you for $160,000,conditional that you take over the mortgage and pay the legal fees associated with the purchase.(I estimate at $800.) Please let me know your decision.October 24, 12:16 p.m. Girouard replies: Thank you Kelty. I will meet you half way@155,000.00 and pay legal fees and assume existing mortgage.October 25, 2:57 p.m. Druet: Sorry for the late reply Ive been thinking about it. I will acceptyour offer. How would you like this to go?October 25, at 3:33 p.m. Girouard: Great, are you in Moncton any time soon? I can have asales and purchase agreement drafted for your review. Is a November 15 closing acceptable so

not interfere with your tenants, that I am told are vacating on that date? Is the mortgage holder aMoncton or Halifax bank?October 25, 6:37 p.m . Druet: My partner has been in Peru the last few days and I just got tospeak with him. He was not agreeing with the price so I am sorry but I cannot sell to you.Girouard replied he had a deal and would not release Druet from the contract. The case went tocourt in Moncton and the decision was given on August 9, 2011.The judge decided that if these emails were actually written and signed, they would constitute abinding agreement. He noted that the Internet and emails have become a way of life for businessand individuals. Even though such things as the closing date had not been settled, he still foundthat there was a basis for a legally binding agreement.

13


14/46

In Ontario, the Electronic Commerce Act, which governs the electronic signing of documents, isconfusing when it comes to the legality of signing agreements for the sale of land, so it is possiblethat in Ontario the result of this case may have been different. I am not so sure.The lesson here is clear. Be very careful what you write in an email regarding any sale or purchase of a home. Also, if you are sending any notice in a real estate deal via email, alwaysask for confirmation of receipt from the other side. You may not find out that the email has hitsomeones spam file until you have missed an important time deadline.Remember to always have the advice of an experienced real estate agent or lawyer before doinganything by yourself. In this case, the seller did not want to sell their condo but had to do so,based on this very simple exchange of emails. Do not let this happen to you.Mark Weisleder is a lawyer, author and speaker to the real estate industry. Contact Mark at [email protected]


Consideration page 135

Consideration is the price paid for the promise or action of the other party

In a bilateral contract the consideration is the promise given by the offeree

In a unilateral contract the consideration is the act of the offeree

Gratuitous Promises page 135

A gratuitous promise is a promise made without accepting anything in return does not createa contract but it may give rise to other claims -- tort, unjust enrichment, quantum meruit -- if it is partly performed

See Case 6.1 @ p 136

Adequacy of Consideration

Although the consideration must have some value, the general rule is hat the court will notlook into the adequacy of the consideration

Query: Claims for unjust enrichment

Past performance is not consideration and cannot form the basis of a new contract

Where A has an existing contractual duty to B, a later promise by B to pay more money to Ato get A to perform that obligation is not binding -- See Illustration 6.3 @ p 139

Gratuitous Reduction of a Debt page 141

Not enforceable at common-law See Foakes v Beer cited as Case 6.3 @ p 141This has been reversed by statute in Ontario i.e., gratuitous reduction of a debt is a bindingagreement in Ontario even though there is no consideration given for the promise

Equitable Estoppel page 142

This doctrine developed to provide some recourse against hardships caused by the strict common lawcontract rules

14
mailto:[email protected]:[email protected]


15/46

Innocent parties who, in good faith, relied on gratuitous promises were denied a remedy by the law of contracts

When one party makes a statement of fact and a second party relies on that statement to his/her detriment, the first party is estopped from denying the truth of what he/she said.

See Case 6.4 @ p 143 Hughes v Metropolitan Railway

1. Some form of legal relationship must exist between the parties

2. One party promises to release the other from his/her obligations

3. he other party relies on that promise and alters his conduct accordingly

Conwest Exploration v Letain SCC suggests equitable estoppel could be used as the basis of a claim,not merely as a defence @ page 144

In the US a claim may be made based upon injurious reliance

Quantum Meruit page 146

This is another doctrine developed to relieve against the restrictions imposed by contract law

When one party requests the goods or services of another party, the law deems that there is anobligation to pay the reasonable value of those goods or services

There is an implied obligation to pay fair market value for goods or services that have been requested.

Just because there is a contract price does not mean that the court cannot make an award based onquantum meruit if the contract is set aside for some reason

Contracts Under Seal page 147

The use of a seal developed as an alternative to consideration. A contract under seal was one that thepromisor had adopted as a binding obligation or covenant

Intention to Create Legal Relations page 148

Both parties must intend to create a legally enforceable agreement

The law will generally presume this intention if it is obvious but either party may try to rebut thispresumption

RECAP Requirements of a Valid Contract

1. Offer and acceptance

2. Consideration or a seal

3. Must be of the same mind consensus ad idem

4. Must be an intention to create a binding agreement the parties must intend to be obligated to dowhat they have promised to do

Discuss Cases 1 & 2

15


16/46


Burden of Proof page 155

Plaintiff must prove offer & acceptance and that there was consideration

Court will presume Defendant had capacity to contract and that the contract is legal

It is up to the defendant to rebut these presumptions

Capacity page 155

Capacity is the legal competence to make a binding contract

Where capacity is lacking, courts will excuse performance

Minors page 155

Age of majority varies by jurisdiction in Ontario it is age 18

General rule is that a contract cannot be enforced against a minor but may be enforced bythe minor

An exception is made for contracts for necessaries -- essential goods and services of which the minor does not have an adequate supply

These contracts for necessaries are enforceable against a minor -- as is a contract to lendmoney to a minor to buy necessaries

In such cases the price is not the contract price but quantum meruit -- i.e. fair market valuefor the goods or services

Attaining Majority page 158

Contracts entered into by a minor become voidable upon reaching the age of majority

Continuous contracts if not immediately repudiated or if the benefit continues to betaken, the former minor becomes liable on the contract

Non Continuous contracts these contracts do not bind the minor unless they are ratified i.e., acknowledges the contract and promises to perform it

Diminished Capacity page 159

Persons of unsound mind and those incapacitated by drugs etc are treated the same as

minorsThey are liable for contracts for necessaries but all other contracts are voidable or may beenforced by the incapacitated person

Burden of proof is that you must prove incapacity and that the other party was aware of it

Upon regaining capacity you must repudiate within a reasonable time and not take any morebenefits under the contract

16


17/46


18/46

Court will try to restore parties to their pre contract status e.g. money may be repaid, propertymay be transferred back

Court may be able to just sever the void term and maintain the contract

Illegal Contracts

If the contract is both void and illegal, it is unenforceable

This means the court will not assist either party by restoring them to pre contract status

Rule is that where both parties are wrong, the defendants position is the stronger and the plaintiff will not succeed

No severance is allowed in illegal contracts

Statutory Restrictions

Statute may restrict the freedom to contract e.g., WCB, Bankruptcy Act, Fraudulent DebtorsConveyance Act

Wagering contracts are illegal except for:

insurance where there is an insurable intereststock market futures & options tradingfuture delivery of goods & price fluctuations

Statutory Illegality

Where the object of the contract is illegal drugs, smuggling etc the contract is illegal andunenforceable

Contracts Illegal at Common Law & by Public Policy page 168

Contracts that involve the commission of a tort are illegal damages may be awarded for the tort e.g., inducing breach of contract, slander, libel, fraud (deceit) trespass See Case 7. 7 @ p 169

Payment for testimony is illegalRewards for return of stolen goods are illegal & are a criminal offence

Contracts to promote litigation are illegal

A 3rd party promise to pay forfeited bail is illegal

Confidentiality agreements & public policy See Ethical Issue @ p 171

Contracts in Restraint of Trade page 171Usually it takes the form of a restrictive covenant within a contract that can be severed

Restrictions may be allowed if they are reasonable and do not adversely affect the public good anddeveloped to relieve against the restrictions imposed by contract law

Vendor & Purchaser Contracts page 172

Non compete clauses are used to protect goodwill

18


19/46

Restriction must be reasonable in view of the nature of the business court will consider duration &geography as criteria

Parties have an equal bargaining position

Higher price may have been paid to obtain the non compete clauseThe clause will either be found to be enforceable or void the court will not try to rewrite thecontract

Public interest will be balanced against the interests of the parties

Employment Contracts page 174

Issue may be unequal bargaining power

There are 2 types of non compete clauses;

1. Not competing Post employment2. Not competing during employment

Public policy is that post employment restrictions are harder to enforce

Issues:

1. Is the non compete clause injurious to the public?2. Are there corporate secrets or client lists to protect?3. How broad is the restriction?4. Is it reasonable to protect the business?5. Does it preclude the employee from earning a living?

Discuss Cases 6 & 7

Chapter 8: Mistake & Misrepresentation

Mistake page 182

There are 2 kinds of mistake in contract law

1. Mistakes about the terms of the contract2. Mistakes in assumptions about facts related to the contract

Equity will sometimes provide a remedy where there has been a mistake but this is adiscretionary remedy

Void vs Voidable page 182

Depending upon the type of mistake, if court determines that a mistake has been made, thecourt may make one of three decisions:

1. The contract is valid

2. The contract is void A finding that a contract is void means that the contract is deemednever to have existed

19


20/46

3. The contract is voidable This differs from a contract that is voidable - a voidablecontract is one that valid unless and until it is set aside.

Mistake About the Terms page 184

Where words are used inadvertently, the court will look at whether the innocent party wasreasonable in relying on them

If on all the evidence the 2 nd party seemed justified in relying on the inadvertent words andentering into the contract, then the contract is binding in accordance with those terms

If the court decides that the 2 nd party was aware of the other partys mistake in expressing theoffer, the contract is voidable by the first party since the 2 nd party will not be allowed to snapup an offer that is obviously mistaken See Case 8.1 @ page 184

The relief will be based upon the actions of each party and the hardship caused to each party

It really goes back to the parties being of one mind what did the parties intend to contractfor what was the essential nature of the bargain?

Errors in Recording an Agreement page 185

Rectification equity will rectify a contract where:

1. The parties were in full agreement in the first place2. There were no further negotiations3. There was an error made in recording the actual agreement reached between the two

parties4. Plaintiff did not know of the error but the defendant did

Mistakes About Meaning of Words page 185

Disagreement over the meaning of words is a matter of interpretation and the court will

decide which interpretation is more reasonable in the circumstances

See Case 8.4 Lindsey v Heron cited @ p186

Where the court cannot decide which interpretation is more reasonable, the defendantsinterpretation will prevail

See Case 8.2 @ p186

Mistakes in Assumptions

(a) Existence of the Subject of the Contract

Where parties enter into a contract and are unaware that the object of the contract hasalready perished, the contract will be held to be void

Where a seller tries to sell something he/she knows no longer exists, the seller can be suedby the buyer for the tort of deceit

(b) Value of the Subject of the Contract Risk Allocation

If the parties were mistaken as to the value of the consideration, the court will look at what thereasonable expectations of the parties were at the time the contract was made time

20


21/46

If both parties contracted with the knowledge that the value could fluctuate, the contract willbe binding as written

The principle seems to be whether a party could reasonably be held to have foreseen theconsequences of a particular risk at the time the contract was made

If the risk of loss of value could not reasonably be foreseen, the court may find the contract tobe voidable and thus allow the injured party to repudiate it

See Hrysky v Smith discussed @ p 187 If the mistake as to quantity is so substantial that itchanges the essential nature of the bargain, the court may rescind the contract

The buyer is expected to inspect the goods and satisfy himself as to quality and value butwhere

discovery of the problem is impossible or the seller has made a misrepresentation or both parties are mutually mistaken

rescission may be available. If the purchaser acts quickly enough, the contract is voidable See Case 8.4 @ page 187

The court is faced with a problem of being fair to both parties

Future Events

Until the unforeseen event actually occurs, there is a valid & binding contract between the parties

Mistakes in assumptions relate to mistakes as to the actual circumstances when the contract isentered into

Where the future event occurs after the contract is entered into and could not reasonably beforeseen by either party, that is not mistake but it could amount to frustration of the contract

Mistake & Third Parties

Usually the problem is caused by the deceit of one of the parties

The first question to be answered is whether the contract is void or voidable

Void Contracts

Where there are only 2 parties, if the contract is void, the result is they are restored to their pre-contract positions

But what happens if A sells goods to B who in turn sells them to C and then the contract between Aand B is found to be void?

If the A to B contract is void, it follows that the B to C contract is as well because B cannot sell whathe does not own C would have to return the goods to A and C would be stuck trying to recover his money from B

If the A to B contract is not void the B gets good title to the goods which can be sold to C if B is acrook, C will still get to keep the goods and As only recourse will be against B

21


22/46

See Case 8.5 Cundy v Lindsay @ p 188Voidable Contracts

Equity will often declare a contract to be voidable, meaning that the court will order the contract tobe rescinded A and B will be restored to their pre-contract positions

So far the result looks the same as that in a void contract

BUT when there is a 3 rd party involved, equity will not deprive C of the goods it has received under its contract with B

INSTEAD, equity will allow C to keep the goods and will leave it up to A to try to recover from B the loss falls on the original two parties to the contract

See Case 8.6 Kings Norton @ page 188

Mistake Non Est factum page 189

If one party innocently or fraudulently misrepresents the nature of a document, the other party mayplead non est factum

It means It is not my deed

If successful, it is good even against 3 rd parties

Now largely restricted to blind and illiterate

Mistakes in Performance - Overperformance of a Contract

Does the innocent party know of the overperformance ?

If so, he/she cannot snap up the benefit

Does it result in unjust enrichment of the innocent party?

Misrepresentation page 190

Misrepresentation is occurs where an untrue statement or an omission is made by one party andis relied upon by the other party.

There is a duty to point out unusual terms silence as to such terms will result in them beingstruck out of the contract

The question really is: What were the reasonable expectations of the parties when they enteredinto the contract?

Usually any misrepresentation occurs in the pre-contract negotiating and never becomes part of the contract.

If it does become part of the contract, then it will be a contract term and the innocent party willsue for breach of that contract term.

Not all misrepresentations will give rise to a cause of action the misrepresentation must bematerial:

22


23/46

It must be reasonable to conclude that the misrepresentation or omissioninfluenced or induced the innocent party to enter into the contract

A misrepresentation may have been made in one of three ways:

Innocently purely a mistakeNegligently result of carelessnessFraudulently intentionally done in order to mislead

Innocent misrepresentations and omissions must be corrected as soon as they are discovered.Failure to do so could result in them being held to be negligent or fraudulent.

An innocent misrepresentation or omission is not a tort however negligent and fraudulent onesmay be torts. This means that the plaintiff could sue in contract and in tort as an alternative.

This is one reason why standard form contracts state that there are no other representationsother than those contained in the writtencontract.

Advertising page 191

Most often advertising claims have been held to be representations not contract terms

A false claim is a misrepresentation only if is asserted as a statement of fact

Statements of opinion are not considered as misrepresentations unless they are expertopinions

Material Misrepresentation in Contract

Once the misrepresentation is discovered, the contract is voidable at the option of the victim

The victim must act renounce the contract promptly.

If the victim does not or if the victim continues to take benefits under the contract, he/she will losethe right to rescind the contract.

With rescission, the victim is entitled to indemnity or compensation with respect to any prior expenses incurred or money paid on account of the contract.

Misrepresentation by Omission page 192

Generally, if one party has superior knowledge or expertise, there is a duty on that party to act inutmost good faith

Some contracts require utmost good faith

Domestic Contracts separation, marriage &co-habitation agreementsInsurance ContractsSale of Corporate SecuritiesSale of Goods Contracts under the SGAContracts with consumers cooling off periods & statutory disclosure requirements @page 194

23


24/46

Some relationships give rise to a duty of utmost good faith

Continuing business relationshipPartnershipCorporate directors and officers

Where there is a duty of utmost good faith, omission or silence could constitute misrepresentationin which case the contract is voidable at the option of the victim

Undue Influence

Undue influence is the domination by one party over the other such that the weaker party isdeprived of the will to make an independent decision

Often arises where the parties have a special relationship if one party has special skill or knowledge

Sometimes it results from one party being in dire circumstances

Burden is on the victim to prove undue influence and if it is proven, the contract is voidable at thevictims option.

The burden then shifts to the other party to prove that he/she did not exert any undue influence

Spouses

Ultimate good faith is required between spouses

There must be full disclosure

If one is to be responsible for the obligations of the other, idependent leagal advice (ILA) isessential

Historically there has almost been a presumption of undue influence by the male spouse. This isnow gone See case 8.10 @ page 195

Unconscionable Contracts page 196

Courts have the discretion to relieve against extremely one sided contracts if the bargainingpower of the parties is unequal

Duress page 197

Duress is the use of actual or threatened violence used to coerce the other party into a contract

Duress makes the contract voidable at the option of the victim and the burden shifts to theoppressing party to rebut the claim

Victim must repudiate the contract immediately once he/she is free of the threat See Case 8.11@ p 198


24


25/46

Chapter 9: REQUIREMENT OF WRITING

Although most contracts may be oral or written or a combination of both, it is prudent to record allcontracts in writing for evidentiary purposes

Beyond that however, the law requires some contracts to be in writing.

For such contracts, the consequence of them not being in writing is that they are unenforceable

The result of unenforceability is quite different from a finding that a contract is void or voidable.

Void If a contract is void, it is said to have never existed and the court will attempt torestore the status quo ante i.e. it will attempt to return the parties to their pre-contractpositions

Voidable If a contract is found to be voidable, equity will intervene to allow the contractto be rescinded at the option of the injured and innocent party and again the court will tryto restore the parties to their pre-contract state

Unenforceable An unenforceable contract is still a contract but the defaulting partycannot sue on it to either enforce contractual obligations but the innocent party can sue torecover money paid or goods delivered

The requirement of writing grew out of an effort to limit litigation by forcing the parties to acontract to formally record the nature of their bargain.

This was for contracts with important subject matters and it was an effort to reduce trial time.

Writing now includes:

CDsFaxed documentsPDF documentsEmail

Because the consequence of unenforceability is so harsh, courts have sought to createexceptions the requirement of writing

Statutes Requiring Written Contracts page 203

The most common ones are:

Statute of FraudsSale of Goods ActConsumer Protection Legislation

Statute of Frauds page 204

This ancient statute lists several types of contract that must be in writing to be enforceable.

(a) Promise by an executor to pay the debts of an estate

(b) Promise to pay for the debt, default or miscarriage of another

25


26/46

Courts have divided this into 2 categories

Guarantee a conditional promise to pay only if the debtor defaults, i.e., the creditor must look first to the debtor for repayment

Indemnity a promise by a 3 rd party to be primarily liable for the debt i.e., the creditor may look to the debtor and the indemnifier for repayment

Courts have held that a guarantee must be in writing to be enforceable

An indemnity need not be in writing simply because the indemnifier is really just joininginto the contract

Courts have further softened the rule by allowing unwritten guarantees to be enforceablewhere the guarantee is incidental to a larger contract

miscarriage of another these words have been given a broad definition and meanthe promise to pay for the damages arising from a tort committed by another person

(c) Land

All contracts that create any interest in land must be in writing to be enforceable thisincludes: deeds, mortgages water rights

Building contracts and contracts for room & board need not be in writing but it leasesmust be L&T legislation now permits oral residential leases

EXCEPTION Doctrine of Part Performance pages 206 & 207

This doctrine developed as yet another way to relieve against the harshness of the requirement of writing

Courts have allowed partial performance of an oral contract for land to stand asevidence of the contract in place of a written memorandum See Case 9.2 @page 207

(d) Contracts not to be performed within one year

Any contract that is not to be performed within one year must be in writing to beenforceable See Illustration 9.1 @ page 208

EXCEPTION Courts now allow indefinite oral contracts to be enforced in thefollowing circumstances:

1. Unless the contract terms specifically state a performance completion that is

clearly longer than one year 2. If the contract is to be performed by one of the parties within one year See Illustration 9.2 @ page 208

(e) Ratification of infants contracts

Any contracts made by infants that require ratification (non continuous contracts) uponthe infant attaining majority must be ratified in writing for the ratification to be enforceable

(f) Contingency Fee Agreements (not covered by the text)

26


27/46

Lawyers are permitted to enter into contingency fee agreements with their clients exceptin family law or criminal or quasi-criminal matters. See subrule 2.08(3) of the Rules of Professional Conduct and the Commentary. Contingency fee agreements must complywith the Solicitors Act (Act) which requires that these agreements be in writing, and mustalso comply with the regulations made under the Act. See the Solicitors Act and alsoRegulation 195/04 dealing with contingency fee agreements.

Paralegals are also permitted, within their scope of practice, to enter into contingency feeagreements with their clients except in criminal law or quasi-criminal matters.

Memorandum of the Contract

The Statute of Frauds requires that the written memorandum of the contract must include allof the essential elements of the contract:

(a) Identity of the parties(b) Subject matter of the contract(c) Signature of the party that has to pay this is the only person who can be sued

essential terms See Case 9.3 @ page 209

Defendant must sign Memorandum The memorandum must be signed by the personwho is being sued on it (the defendant) The person claiming enforcement of the contract(plaintiff) does not need to sign the memorandum - Faxes and emails satisfy the requirementof writing See Case 9.4 @ page 210

Consequences of Unenforceability

1. Although the defaulting or repudiating party cannot sue to enforce an unenforceablecontract, the innocent party can sue to recover a deposit or down paymentSee Illustration 9.3 @ page 211

2. A party who has accepted goods or services under an unenforceable contract cannotretain these benefits without paying for them See Illustration 9.4 @ p 211

3. The written memorandum may be created after the contract has been formed, but it mustexist before it can be sued uponSee Illustration 9.5 @ p 211

4. Defendant must plead the Statute of Frauds. Any defendant relying on the Statute of Frauds must specifically plead the Statute of Frauds it can only be used as a shield, notas a sword - @ page 212

5. An unenforceable oral contract can still be effective to vary or dissolve a prior writtencontract See Illustration 9.6 @ page 212

Sale of Goods Act page 213

Since 1994, a contract for the sale of goods need not be in writing and an oral contract for thesale of goods will be enforceable if any one of the following occurs:

5. There is acceptance and receipt of the goods by the purchaser

6. Part payment is made by the buyer and accepted by the vendor

27


28/46

7. Something in earnest is given to the vendor by the purchaser e.g., a token sum to sealthe bargain

NOTE: In some situations both the SGA and the Statute of Frauds may apply See page 215

Domestic Contracts (not in text)

The Family Law Act mandates that all domestic contracts must be in writing:

Marriage Contracts Separation Agreements Cohabitation Agreements

These are contracts of ultimate good faith and therefore there should be full disclosure betweenthe parties and there should be ILA

See LeVan v LeVan

Consumer Protection Laws

These laws generally require consumer contracts to be in writingSee pp 216 & 217 for specifics

Executory consumer contracts must be in writing or they are not binding

Discuss Cases 1& 2

Chapter 10: CONTRACT INTERPRETATION

Courts will either use a strict or a purposive approach and will consider

Past history between these two parties

The standard in the industry Reasonableness of each sides interpretation Corroboration for the either interpretation Credibility of each party

contra proferentem rule page 226

If there is doubt as to interpretation, the court will prefer the interpretation that is lessfavourable to the party that drafted the clause

Particularly used in the interpretation of exclusionary clauses

Courts want to uphold the contract, if at all possible

Parol Evidence Rule page 229

Parol means outside or extrinsic

This rule states that the court will not consider matters that are not in the contract

Only operates to exclude additional terms not in the contract but it does not precludeevidence as to mistake, duress, undue influence, misrepresentation etc

28


29/46

Essentially it prevents a party from using the court to order something that he/she could notachieve through negotiation

Where the contract terms are clear, parole evidence will not be allowed to assist ininterpretation but where there is ambiguity that cannot be resolved, parol evidence may beadmittedSee quote @ the middle of page 231

Exceptions to the Parol Evidence Rule- pages 230 t0 232

As always the harshness of a legal rule has resulted in the courts finding ways around it

Parol evidence will be admitted to prove

1. That the written agreement does not contain all of the terms of the contract between theparties

Can you prove the contract was partly oral & partly in writing?

2. The missing term is part of a subsequent oral agreement

The parol evidence rule does not exclude evidence of a subsequent oral agreement that amends or rescinds the prior written contract

3. That there is an oral agreement with its own consideration that is collateral to the writtencontract

A collateral contract is a side agreement this is in fact its own contract so that you arereally proving that this side contract exists and not really using parol evidence withrespect to the main contract

4. The missing term is a condition precedent to the contract coming into force

The court will not lightly exclude the parol evidence rule but will do so where there is clear evidence that the written contract is in conflict with the oral terms previously agreed upon

IMPLIED TERMS page 233

Contract terms may be implied by custom, by reasonable expectation of the parties & bystatute

(g) Implied by custom these are terms that have become accepted standards in aparticular trade and have become standard business practices

(h) Implied by reasonable expectation what did each party to the contract reasonablyexpect?

Terms will be implied only to the extent needed for business efficacy. See Case 10.3 @p 235

Moorcock Decision not in text The classic decision which held wharf owners liableto plaintiff when plaintiffs ship was grounded at low tide the court said it was an impliedterm of the rental contract that the berth was suitable at high and low tide

The intention of the parties will be carried out even if the precise contract language islacking

29


30/46

Courts will not create a new contract or imply a term that contradicts the expressed intentof the contract

(i) Implied by statute Sale of Goods Act implies warranties of merchantability and fitnessfor purpose and Consumer Protection Act implies cooling off periods or miscarriage of another


Chapter 11: PRIVITY OF CONTRACT & 3 RD PARTIES

Privity of contract means that both parties must be party to the same contract

A contract will generally not give benefits to or impose obligations on a 3 rd party because there isno consideration given by the 3 rd partySee Case 11.1 @ page 244

Consideration is the price paid for a promise that is given in return

Tort vs Contract

At law product liability in contract is generally restricted to the injured purchaser of the defectiveproduct due to the privity of contract rule

In tort product liability has been extended to include all those who are injured by the defectiveproduct and where there is no intermediate right of examination & inspection at the retail level,the manufacturers have been held liable to the ultimate consumer See Donaghue v Stevenson cited @ p 244

Vicarious Performance page 245

This term refers to the situation in which a 3 rd party performs the contract. Most commonlythey are:

Non personal services contracts Corporations (they must act though agents & employees) Contracts that inherently involve 3 rd party participation

Vicarious Liability in Tort

If an employee commits a tort while in the performance of a contract to which the employer isa party, the employer is vicariously liable for the employees wrongdoing

Note : the proviso that the tort must have been committed by the employee in the course of his/her employment

Exemption Clauses & Vicarious Performance page 246

An exemption clause is one that exempts a party to the contract from liability or limits liability.

Such clauses usually exempt a party from liability for breach of contract as well as for any tort(most commonly the tort of negligence) committed during the performance of the contract.

30


31/46

An exemption clause will also protect employees of the contracting party where the contractbreach or tort was committed while they were vicariously performing the employers contract

Trusts & Constructive Trusts page 247

A trust is a relationship whereby a person (the settlor or testator) transfers property to a 3 rd party (the trustee) who administers it for the benefit of another (the beneficiary)

At common law the trustee was held to be the legal owner but equity views all 3 parties ashaving ownership interests to varying degrees.

Equity will therefore allow a beneficiary to enforce the trust contract between thesettlor/testator and the trustee even though the beneficiary is technically a 3 rd party to thatcontract

This has been extended to situations in which the law deems there to have been a trust(called a constructive trust) even where no express trust was created

If the benefit of a contract s intended to go to a 3 rd party, that benefit is treaty as a propertyright that is enforceable by the 3 rd party

A constructive trust cannot be revoked without the consent of the 3 rd party beneficiary

Examples

1. An asset is owned in the name of one spouse but the court may conclude that itwas intended to benefit the other spouse as well and deems the asset to be heldin trust for the benefit of both spouses.

2. A parent puts an asset into joint ownership with one of his/her children. What wasintended? Does the surviving child own the asset by right of survivorship or doesthat child hold it in a constructive trust for the benefit of all the children of theparent (i.e. for the estate beneficiaries)?

Other Exceptions to the Privity of Contract Rule page 248 5. Insurance 3 rd party beneficiaries may enforce the insurance contract

6. Trusts - 3 rd party beneficiaries may enforce the terms of the trust that is collateral to thewritten contract

7. Undisclosed principal one of the parties may act though an agent and this fact may or may not be known to the other party to the contract

8. Land contracts when real property is sold the tenants must accept the new owner andpay rents to that new owner. The new owner takes title subject to existing tenancies and

leases9. Commercial necessity the law has sometimes ruled that 3 rd parties that are closely

associated with a contract are subject to the contract. This is achieved via collateralcontract that is implied to bind a party that made a representation that induced another party to enter into a contractDiscuss Shanklin Pier (no longer in text)

Exemption Clauses the principled exception page 249

31


32/46

Employers and employees are jointly and severally liable for negligence

Employers often try to protect themselves from liability for negligence by using exemptionclauses in their contracts

London Drugs v Kuehn & Nagel held that exemption clauses also protect the employees fromliability even though the employees are not party to the contract See Case 11.3 @ page249

Exemption clauses have also been held to cover intermediate parties in multiple partyshipping contracts

Quaere : Should we abandon privity of contract & adopt a 3 rd party beneficiary rule?

Assignments of Rights page 251

The benefit of a contract may be assigned to a 3 rd party but not the burden i.e. contractualrights may be assigned to a 3 rd party but not contractual liabilities

This is effectively the assignment of property rights and there are 2 types of property that maybe the subject matter of the contract and that may be assigned:

choses in possession this is tangible property of value that may be physically possessed

choses in action these are rights to intangible property and these rights only have valuebecause they can be enforced by action in the courts e.g., patents, copyrights, stocks,bonds, etc

A chose in action is per se without value since its only value is a representative document - abond or a share certificate has no intrinsic value but what it represents does have value.

At common law a chose in possession could be transferred or assigned but a chose in actioncould not be. This was because the law viewed choses in action as being personal rights

NOTE: Negotiable instruments (cheques, bearer bonds & promissory notes for example) arealso choses in action but they are treated differently when assigned they are treated as if they were choses in possession.

The reason is that with these instruments only one person can negotiate them, usuallywhoever may possess them at the time.

Equitable Assignments page 253

Equity took a broader approach and did allow assignments of choses in action

Equity would allow the assignee to sue the promisor as long as there was a clear written or

oral intention to assign the benefit of the contract to the assigneeEquity required that all 3 had to be parties to any action the promisor, the assignor and theassignee

This is because the state of the contract between the promisor and the promise directlyaffected the value of the rights assigned by the promisee to the assignee

Statutory Assignments page 254

32


33/46

In an effort to clear up the confusion between law and equity, when the two were combinedinto a single court system, the law with respect to assignments was amended by statute

The Conveyancing & Law of Property Act now permits an assignee to sue only the promisor without joining the promisee/assignor as a party to the action if it meets all 3 of the followingcriteria:

1. the assignment is absolute (unconditional & complete)2. it is in writing3. the promisor received notice of the assignment in writing

Notice to the Promisor page 255

In all cases the promisor must have notice of the assignment but the promisors consent to theassignment is not necessary

Notice of the assignment should be given to the promisor as soon as possible for the following 3reasons:

1. Absent notice of the assignment the promissor is entitled to rely on the contract and tofulfill the obligations to the promisee. The promisor will have a full defence to any claimby the assignee

2. If there are multiple assignments, it is the first assignee to give notice who has priority If the promisor is unsure which assignee to pay, the money should be paid into court

3. The promisor has the right to setoff any debts owing to him by the assignor as at the timethe assignment is made until notice of the assignment is given to the promisor that debtmay continue to grow to the detriment of the assignee

Assignees Title page 256

The assignee can only receive whatever rights and title the assignor has to give so that it is said

that the assignee takes title subject to the equities between the promisor and thepromise/assignor

So if the promisor has any rights against the promissee/assignor, the assignee is subject to thoserights as well

(a) assignment of a contract for the sale of goods

A sells goods to BB is a crook who assigns the contract to CC pays B and accepts the goods

A does not get paid by B who absconds

C can retain the goods free of any claim by A who must try to recover the loss from B Kings Norton v Eldridge

Here the subject matter of the contract is tangible property, a chose in possession, andpossession has already been transferred to B by the time the assignment to C is made.

C is taking an assignment of goods that are already in Bs possession and any fraud onthe part of B would not be readily apparent to C and any such fraud would render thecontract between A & B voidable but not void meaning that the contract between A&B

33


34/46

still exists as an enforceable bargain until one party (in this case it would be A) sues tohave it set aside.

(b) assignment of a contract for choses in action

A sells shares to B but B never pays AB assigns the benefit of the contract to CC cannot enforce the rights against ACundy v Lindsay

Here, B does not have any of the rights at the time that the assignment is made B mayhave a share certificate but that is merely a piece of paper that has no intrinsic valueThe share certificate only has a representational value that is dependent upon the abilityof the owner to enforce the rights by court action

(c) assignment of negotiable instruments

A negotiable instrument is a particular type of chose in action because it is a writtenpromise to pay money upon satisfaction of certain terms and conditions e.g., cheques,promissory notes, money orders

Negotiable instruments can be negotiated in two ways

Bearer instruments can be negotiated by simply presenting or delivering them to3rd parties

In name instruments can be negotiated by endorsement & delivery

This means that they can be assigned by being negotiated and since only one personcan get paid under a negotiable instrument, there is no need to notify the promisor sincehis/her obligation is merely to pay the amount and who gets paid is immaterial

Assignment of a negotiable instrument is treated as a sale of goods and not as anassignment with the result that

The assignee is not subject to any of the defences that the promisor could haveused against the assignor (fraud, duress etc)

The assignee can sue the promisor directly for non performance

(d) assignment by operation of law

Death = an assignment to the estate trusteeBankruptcy = an assignment to the bankruptcy trustee

Discuss Cases 2 & 3

Chapter 12: DISCHARGE OF CONTRACTS

When a contract is discharged all obligations under it are brought to an end

1. Discharge by Performance page 268

Adequate performance by both parties will discharge a contract

34


35/46

Tendering is a process whereby one party tries to show readiness to perform his/her obligations - since it is usually done for evidentiary purposes it should be witnessed anddocumented

In a sale of goods contract, if the tendered goods are rejected, the supplier can sue on thecontract

If buyers tender is refused, there may still be an obligation to pay but the buyer will not beresponsible for interest and costs after the date of the tender

The onus is on the person owing the money on the contract to find and pay the other partywho is owed the contract price

2. Discharge by Agreement page 269

This occurs where both parties agree not to perform the contract and it may take differentforms

(a) Waiver

This is an agreement not to proceed with performance of an existing contract

If the waiver is gratuitous, it must be made under seal to be enforceable

(b) Substituted agreement

Accord & satisfaction is a compromise by the parties on their contractual obligations

Novation refers to either a major change in the subject matter of the contract or achange in one of the parties effectively this means that the parties agree to terminatethe existing contract and to replace it with a new one @ page 270

Properly done, a novation involving a change in parties must be a contract among allthree of the parties.

(c) Self discharging condition page 271

The parties to a contract may stipulate some condition precedent or subsequent that willcause termination of the contract e.g., the rain out of a baseball game

Granting the right to approve or disapprove to the other party or to a 3 rd party (e.g.,engineer, architect) is risky since there is no obligation thet the discion must be madereasoably

A contract may give either party or both an option to terminate

2. Discharge by Frustration page 275

Frustration of a contract occurs if performance becomes impossible or pointless throughno fault of the party who is unable to perform and occurs in very limited circumstances:

(a) Frustration must relate to an event that occurs AFTER the making of the contract(b) Performance must be impossible, not just result in an unforeseen hardship(c) Impossibility of performance means that performance is physically impossible or that

the nature of the contract has been radically changed See case 12.4 @ p 277

35


36/46

(d) Frustration must not be self-induced if it is self-induced, is a breach of contract notfrustration See Illustration 12.6 @ page 278

Commercial tenants are generally held to their contractual obligations except in caseswhere the whole purpose of the contract has disappeared e.g., they still must pay rentfor damaged premises

Destruction of the subject matter of the contract or very long delays in performanceresulting in performance of what amounts to a different contract will result in frustration of the contract

Consequences of Contract Frustration page 278

At common law frustration ended all obligations but this has been softened by courtdecision to allow refund of the purchasers deposit the seller or supplier may not be aslucky and may lose the value of work already performed See discussion of Fibrosa v Fairborn @ page 279

Statutory Reform page 280

Several laws have been passed to try to address the unfairness of frustration

(a) Frustrated Contracts Act (FCA)

This statute allows for recovery of expenses as against any sums paid or payable

Recovery is limited to the quantum already paid or already due to be paid but not theamount of future contract payments

The court may also balance out the value of any benefit that has already been receivedby one party

Thus where one party has expended money to perform but has not yet received any

deposit and has not conferred any benefit on the other party, he/she will not recover anything if the contract is frustrated

(b) Sale of Goods Act (SGA)

This statute provides that a frustrated contract for the sale of goods will be void if

It is for specific goods The goods perish without the fault of either party The goods are still at the sellers risk

Unless all 3 criteria are met, the SGA will not apply and the Frustrated Contract Act willapply

See the Checklist @ page 281 as to analysis needed to determine whether SGA or FCA applies

See Illustration 12.8 @ page 282 as to whether SGA or FCA applies

Special Contract Provisions page 282

The FCA directs the court to consider special contract provisions.

36


37/46

The most common such provisions deal with who shall bear the risk and the point in time at whichit transfers

Most contracts that require shipment or delivery will specify when risk passes See Illustration12.9 @ page 282

4. Discharge by Operation of Law page 284

A bankruptcy assignment operates a discharge from future obligations under a contract aslong as the bankruptcy was caused by misfortune and not by misconduct

Limitations Act this technically does not discharge contractual obligations, it merely meansyou cannot sue to enforce them

5. Discharge by Breach

Breach of contract occurs when either party fails to live up to its obligations under the contract

Discuss Cases 3 & 6

Chapter 13: CONTRACT BREACH & REMEDIES

Not every breach of contract will discharge a contract

Breach does not automatically discharge a contract the way Frustration does if a contract hasbeen breached the aggrieved party must assert a claim that breach of contract has occurred andmust ask the court for a remedy

Minor vs Major Breaches of Contract pages 291 & 292

For a breach of contract to operate as a discharge of all contractual obligations, there must havebeen a breach of the whole contract or of an essential term of the contract

Conditions these are essential terms of a contract

Warranties these are non essential terms of a contract

Minor Breach of a Contract

Breach of a warranty in the contract will not excuse the innocent party from the obligation toperform the contract and it will not allow the innocent party to treat the contract as beingdischarged

Breach of a contractual warranty may entitle the innocent party to damages (i.e., monetarycompensation)

If the breach is trivial, the court may refuse to grant any remedy

If an essential term of the contract is breached but in a minor way, it is treated as a minor breach e.g., if the seller ships a little less than the contract requires, the buyer cannotrepudiate the contract and the buyer will only be paid damages compensate for the shortfallin delivery See bottom of page 291

Major Breach of Contract

37


38/46

The breach of the whole contract or the breach an essential contract term imposes differentobligations on both parties and has different consequencesIf a major contract breach occurs, the innocent party may be justified in treating the contractas being discharged

The obligations of both parties and the will depend on how the breach occurred

How Contract Breach May Occur @ page 293

Contract breach may occur in 3 different ways:

1. Express repudiation

One party states that he/she will not perform the contract

If the express repudiation occurs before the time agreed for performance, it is calledanticipatory breach

Parties to a contract have a continuous expectation of performance from the time acontract is formed until it is performed i.e., the contract exists from the date it was made

If anticipatory breach occurs, the innocent party must make an election to either

(a) Affirm the contract and insist that the other party perform its end of the bargain; or (b) Accept the breach and mitigate his/her damages (losses) and sue the defaulting

party

The choice made by the innocent party is an important one that can have unexpectedconsequences if there is an intervening event that frustrates the contract

A major breach that amounts to repudiation and that occurs after performance hasstarted will free the innocent party from its obligation to perform the contract

2. One partys actions make performance impossible

This includes only the willful or negligent actions of the promisor

The promisors action may occur before or during performance of the contract

This includes such things as selling the same goods twice to two different buyers thereis still a continuous expectation of performance See Illustration 13.4 @ page 294

3. Failure of performance

This can take the form of failing to perform the contract or defective performance

Usually this only occurs at the time of performance, not beforeThere may be a total failure to perform or grossly inadequate performance or a minor failure to perform

What options does the innocent party have?

repudiate the contract and sue honour the contract and sue

38


39/46

negotiate

Instalment Contracts

When the promisor in an instalment contract misses a delivery or fails to deliver theagreed quantity, the innocent party will be allowed to repudiate the contract if

(a) there is good reason to believe future performance will be equally defectiveand

(b) the real or anticipated deficiency is important to the whole performance of the contract

See Illustration 13.5 @ page296

Doctrine of Substantial Performance page 296

This doctrine states that a defaulting party may still insist on performance of the contract bythe innocent party if the non-performance by the defaulting party is minor

In such cases the court will usually order an abatement in the contract price

Mistakes in Performance page 297

Sometimes, a party to a contract may over perform by paying more money or over supplying or bypaying the wrong party

Does the innocent party know of the over performance ?

If so, he/she cannot snap up the benefit

Does it result in unjust enrichment of the innocent party?

Some obligations may arise that are not strictly as a consequence of the contract. This are of thelaw is called quasi contract

Quasi contract has developed the concepts of unjust enrichment and restitution if the courtfinds that it would unjustly enrich the innocent party to allow him/her/it to retain the benefit of theover performance, it will find that the innocent party has a duty to repay and it will order restitution

Exemption Clauses page 297

If a potential breach of contract presents a serious business risk to one of the parties, thatparty will usually try to minimize the risk by

Insuring against the risk Self-insuring via a higher contract price Using an exemption clause

An exemption clause is one that allows one party to avoid liability for specified events

An exemption clause may be part of the contract negotiations and it may result in a lower contract price and/or a sharing of the risk by both parties

More commonly however they are one sided and are non negotiable

39


40/46

Exceptionally onerous or unusual exemption clauses must be brought to the attention of theother party before the contract s signed

Courts have refused to apply exemption clauses in the following circumstances:

1. Interpretation page 298

Does the clause apply to the facts?

Exemptions are usually very broad but courts will interpret them in the context of thecontract wording

The contra proferentem rule applies and exemption clauses are strictly interpreted --See Case 13.2 @ page 299

Burden of proof is on the party relying on an exemption clause to prove that it thecause of the loss is covered by the exemption clause

Exemption clauses are narrowly interpreted e.g, they may exempt from contractliability but not for torts

2. Unconscionable Clauses page 299

Where a significant inequality in bargaining power has given one party an unfair advantage that results in unconscionable (or extremely unfair) terms, courts willrefuse to enforce such clauses

On-line web click agreements are binding but they must be fully disclosed andwritten copies of all restrictions and terms must be provided to consumers

3. Public Policy & Public Interest page 299

If the exemption clause is found to harm the public good, it will not be enforced by thecourts See Case 13.3 @ page 300

REMEDIES page 300

There are three types of remedies:

Damages - monetaryEquitable Remedies non monetaryQuantum Meruit - monetary

1. Damages

This is a monetary award to compensate the innocent party for the loss suffered due to thebreach of contract

The purpose is to put the innocent party in the same position as if the contract had beenperformed as agree